Document:

<PAGE>

                                                                    EXHIBIT 10.7

                                 SALE AGREEMENT
                             RELATING TO THE SALE OF
                               OF THE INTEREST OF
                         WILLIAMS ENERGY (CANADA), INC.
            IN THE COCHRANE, EMPRESS II AND EMPRESS V STRADDLE PLANTS
                            DATED AS OF JULY 8, 2004

                  -------------------------------------------

                         WILLIAMS ENERGY (CANADA), INC.

                                     - AND -

                              1024234 ALBERTA LTD.

                  -------------------------------------------

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                            PAGE
<S>                                                                                                         <C>
                                                   ARTICLE 1
                                         DEFINITIONS AND INTERPRETATION

1.1     Definitions.....................................................................................     2
1.2     Schedules.......................................................................................     2
1.3     Knowledge.......................................................................................     2

                                                   ARTICLE 2
                                               PURCHASE AND SALE

2.1     Acquisition of Business.........................................................................     3
2.2     Future Obligations and Indemnification by Purchaser.............................................     3
2.3     Effective Time of Transfer......................................................................     4

                                                   ARTICLE 3
                                                 PURCHASE PRICE

3.1     Purchase Price..................................................................................     4
3.2     Allocation of Purchase Price....................................................................     4
3.3     Satisfaction of Purchase Price..................................................................     4
3.4     Taxes...........................................................................................     6
3.5     Interest on Purchase Price......................................................................     6
3.6     Net Cash Adjustment.............................................................................     6

                                                   ARTICLE 4
                                        BASE PURCHASE PRICE ADJUSTMENTS

4.1     Accounting Adjustments..........................................................................     6
4.2     Valuation of Inventories........................................................................     7
4.3     Closing Statement...............................................................................     7
4.4     Post Closing Adjustments........................................................................     7
4.5     Payment on Determination of Actual Adjustments..................................................     8
4.6     Deemed Inventory Adjustments....................................................................     9
4.7     Outstanding Audits..............................................................................     9

                                                   ARTICLE 5
                                                INTERIM MATTERS

5.1     Risk of Loss....................................................................................    10
5.2     Facility Loss and Environmental Damage..........................................................    10
5.3     General Operation and Maintenance...............................................................    11
5.4     Restricted Activities...........................................................................    11
5.5     Corporate Subsidiaries and Subsidiary Partnerships..............................................    12
5.6     Updates to Representations and Warranties.......................................................    13

                                                   ARTICLE 6
                                         REPRESENTATIONS AND WARRANTIES

6.1     Representations and Warranties of Vendor........................................................    14
6.2     Representations and Warranties of Purchaser.....................................................    20
6.3     No Additional Representations and Warranties....................................................    22
6.4     No Merger.......................................................................................    23
6.5     Non-Transferable................................................................................    23

                                                   ARTICLE 7
                                                  TAX MATTERS

7.1     Tax Returns for Pre-Effective Date Periods......................................................    23
</TABLE>

<PAGE>

                                     - ii -

<TABLE>
<S>                                                                                                         <C>
7.2     Tax Returns for Straddle Period and Post-Effective Date Periods.................................    23
7.3     Cooperation on Tax Matters......................................................................    23
7.4     Tax Liability...................................................................................    24
7.5     Tax Indemnification and Audits..................................................................    24

                                                   ARTICLE 8
                                          PREFERENTIAL PURCHASE RIGHTS

8.1     Notices.........................................................................................    27
8.2     Continued Obligations Upon Exercise of Preferential Purchase Rights.............................    27

                                                   ARTICLE 9
                                          ENVIRONMENTAL DUE DILIGENCE

9.1     Environmental Reports...........................................................................    28
9.2     Environmental Liability.........................................................................    28

                                                   ARTICLE 10
                                                   CONDITIONS

10.1    Conditions for Benefit of Purchaser.............................................................    28
10.2    Conditions for Benefit of Vendor................................................................    29
10.3    Parties to Exercise Diligence with Respect to Conditions Precedent..............................    30
10.4    Rights of Purchaser.............................................................................    30
10.5    Rights of Vendor................................................................................    30
10.6    Effect of Termination...........................................................................    31
10.7    Provision of Information........................................................................    31

                                                   ARTICLE 11
                                                    CLOSING

11.1    Closing of Transaction..........................................................................    31
11.2    Deliveries by Vendor at Closing.................................................................    32
11.3    Deliveries by Purchaser at Closing..............................................................    32

                                                   ARTICLE 12
                                                  INDEMNITIES

12.1    Indemnity by Vendor.............................................................................    33
12.2    Indemnity by Purchaser..........................................................................    33
12.3    Empress II Partnership Transaction..............................................................    34
12.4    Survival of Representations and Warranties\No Merger............................................    35
12.5    Limitation on Vendor's Indemnities..............................................................    35
12.6    Indemnity Procedure for Third Party Claims......................................................    36
12.7    Consequential Damages...........................................................................    37
12.8    Failure by Vendor to Close......................................................................    37

                                                   ARTICLE 13
                                               BOOKS AND RECORDS

13.1    Preservation and Access to Books and Records....................................................    38

                                                   ARTICLE 14
                                                   TECHNOLOGY

14.1    In-house Software...............................................................................    39
14.2    Third Party Technology and Process Technology...................................................    39
14.3    Hardware........................................................................................    40
14.4    No Liability....................................................................................    40

                                                   ARTICLE 15
                                       INTERIM AND TRANSITIONAL SERVICES

15.1    Interim Period..................................................................................    40
</TABLE>

<PAGE>

                                    - iii -

<TABLE>
<S>                                                                                                         <C>
15.2    Transitional Services...........................................................................    41
15.3    Fee Payable for Provision of Transitional Services..............................................    41
15.4    Points of Contact...............................................................................    41
15.5    Purchaser Provided Services.....................................................................    41
15.6    Post-Closing Costs..............................................................................    42
15.7    Payments........................................................................................    42
15.8    Post-Closing Receipts...........................................................................    42

                                                   ARTICLE 16
                                               EMPLOYMENT MATTERS

16.1    Written Offers of Employment....................................................................    42
16.2    Terms of Employment.............................................................................    43
16.3    Severance.......................................................................................    44
16.4    Termination Entitlements........................................................................    44
16.5    PERSONAL TIME OFF...............................................................................    44

                                                   ARTICLE 17
                                                    GENERAL

17.1    Removal of Name.................................................................................    45
17.2    Interest Accrues on Amounts Owing...............................................................    45
17.3    Expanded Meanings...............................................................................    45
17.4    Currency........................................................................................    46
17.5    Accounting References...........................................................................    46
17.6    Statutory References............................................................................    46
17.7    Applicable Law and Attornment...................................................................    47
17.8    Expenses........................................................................................    47
17.9    Publicity Regarding Transaction.................................................................    47
17.10   Notices.........................................................................................    48
17.11   Time of the Essence.............................................................................    49
17.12   Entire Agreement................................................................................    49
17.13   Severability....................................................................................    49
17.14   Amendment of Agreement..........................................................................    50
17.15   Waiver..........................................................................................    50
17.16   Assignment and Enurement........................................................................    50
17.17   No Third Party Beneficiaries....................................................................    50
17.18   Further Assurances..............................................................................    50
17.19   Counterpart Execution...........................................................................    50
</TABLE>

<PAGE>

                                 SALE AGREEMENT

THIS SALE AGREEMENT is made as of the 8th day of July, 2004

BETWEEN:

            WILLIAMS ENERGY (CANADA), INC., a corporation incorporated under the
            laws of the Province of New Brunswick ("VENDOR")

                                                               OF THE FIRST PART

                                     - and -

            1024234 ALBERTA LTD., a body corporate incorporated under the laws
            of Alberta ("PURCHASER")

                                                              OF THE SECOND PART

WHEREAS Vendor owns all of the outstanding share capital in the Corporate
Subsidiaries, and the Corporate Subsidiaries own all of the outstanding
Partnership Units in the Subsidiary Partnerships.

WHEREAS the Empress II Partnership owns the Empress II Assets and the Cochrane
Partnership owns the Cochrane Assets and the Empress V Assets.

WHEREAS Vendor holds legal title to certain of the Cochrane Assets, Empress V
Assets and Empress II Assets as bare trustee for the Subsidiary Partnerships.

WHEREAS Purchaser has agreed to purchase and Vendor has agreed to sell the
entire right, title and interest of Vendor in the Shares and the Support Assets
upon and subject to the terms and conditions provided in this Agreement;

AND WHEREAS Purchaser acknowledges that the Corporate Subsidiaries and the
Subsidiary Partnerships are liable to perform, and Purchaser has agreed that
following Closing, Purchaser will indemnify Vendor from and against, the Future
Obligations upon and subject to the terms and conditions provided in this
Agreement;

NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the premises and
the mutual covenants and agreements of the parties herein set forth, the parties
hereby covenant and agree with one another as follows:

<PAGE>

                                       2

                                   ARTICLE 1
                         DEFINITIONS AND INTERPRETATION

1.1   DEFINITIONS

Terms defined in Schedule "A" have the meanings in this Agreement (including the
recitals and Schedules) set forth in Schedule "A".

1.2   SCHEDULES

Exhibit 1 sets forth the Schedules to this Agreement, which are incorporated by
reference in this Agreement, and form a part hereof. A reference in any Schedule
to another Schedule refers to another Schedule of this Agreement. If there is a
conflict or inconsistency between a provision of the body of this Agreement and
that of a Schedule, the provision of the body of this Agreement shall prevail.

1.3   KNOWLEDGE

Where in this Agreement, or in any certificate or document delivered pursuant
hereto, any statement, representation or warranty is made as to, or as being
based on, the awareness, knowledge, information or belief of Vendor, such
awareness, knowledge, information or belief is limited to the actual knowledge
of Alan Armstrong, Senior Vice President, Midstream Gas & Liquids of The
Williams Companies, Inc. and David M. Chappell, Vice President & General Manager
of Vendor each after making reasonable inquiries including of the following
employees of Vendor, but without any other inquiry:

      (a)   Charlotte Raggett;

      (b)   Jim Arsenych;

      (c)   Michelle Coughlin;

      (d)   Frank Severinsen;

      (e)   Miriam Mitchell-Banks;

      (f)   Paul Murphy; and

      (g)   Sid Meloney.

      Purchaser acknowledges that none of the individuals listed in this
Section 1.3 shall have any personal liability to Purchaser in respect of any
matter set forth in this Agreement.

<PAGE>

                                       3

                                   ARTICLE 2
                                PURCHASE AND SALE

2.1   ACQUISITION OF BUSINESS

On and subject to the terms and conditions of this Agreement:

      (a)   Vendor and Purchaser agree that:

            (i)   Vendor shall sell, assign, transfer and convey to Purchaser
                  and Purchaser shall purchase and acquire from Vendor, all of
                  the right, title, interest and estate of Vendor in the Shares,

            (ii)  to the extent assignable, Vendor shall sell, assign, transfer
                  and convey to Purchaser and Purchaser shall purchase and
                  acquire from Vendor, all of the right, title, interest and
                  estate of Vendor in the Support Assets,

            subject to the Permitted Encumbrances.

      (b)   Purchaser shall pay the Purchase Price to or to the order of Vendor
            in the manner herein provided.

2.2   FUTURE OBLIGATIONS AND INDEMNIFICATION BY PURCHASER

      (a)   Purchaser acknowledges that the Corporate Subsidiaries and the
            Subsidiary Partnerships shall be liable to pay, perform and
            discharge all of the Future Obligations and that Vendor shall have
            no liability in respect thereof.

      (b)   Purchaser shall cause the return of the Financial Assurances to
            Vendor as soon as is reasonably possible and in any event within 60
            days after the Closing Date. In order to facilitate such return
            Purchaser shall provide to the third party beneficiaries of the
            Financial Assurances, substitute obligations, guarantees, letters of
            credit, bonds or other assurances as may be required by such third
            party beneficiaries, including the provision of replacement
            pre-payments to third parties.

      (c)   Upon the return of the Financial Assurances, Purchaser shall pay to
            Vendor in the case of cash prepayments, an amount of interest on
            such prepayment from the Effective Date until the date of return, at
            a rate of interest equal to two (2%) percent per annum above the
            Prime Rate, which shall accrue daily and be compounded monthly,
            provided that no amount shall be payable to Vendor by Purchaser in
            respect of a Financial Assurance relating to the supply and cost of
            natural gas.

      (d)   Purchaser will indemnify and save harmless Vendor from and against
            all Losses Vendor suffers, sustains, pays or incurs as a consequence
            of any of the Financial Assurances being applied to payment of any
            of the Future Obligations.

<PAGE>

                                       4

2.3   EFFECTIVE TIME OF TRANSFER

The transfer and assignment of the Shares and the Support Assets shall be
effective as of the Effective Date provided that Closing occurs. Possession and
title to the Shares and the Support Assets shall not pass to Purchaser until
Closing but shall pass at Closing.

                                   ARTICLE 3
                                 PURCHASE PRICE

3.1   PURCHASE PRICE

The aggregate purchase consideration (the "PURCHASE PRICE") payable by Purchaser
for the Shares and the Support Assets shall be:

      (a)   Cdn. Seven hundred and fifteen million ($715,000,000) Dollars (the
            "BASE PURCHASE PRICE");

      (b)   plus or minus (as applicable) the adjustment made pursuant to
            Section 4.1 (the "ACCOUNTING ADJUSTMENTS");

      (c)   minus any adjustment made pursuant to Section 5.2(b)(iv);

      (d)   minus any adjustment made pursuant to Section 8.2;

      (e)   plus Cdn. one hundred and twenty five thousand dollars ($125,000)
            per day, for each day that the Closing Date is beyond July 28, 2004,
            provided that all of the conditions provided for in Sections 10.1
            and 10.2 (other than those to be satisfied at or by Closing) have
            been satisfied; and

      (f)   plus interest payable pursuant to Section 3.5.

3.2   ALLOCATION OF PURCHASE PRICE

The Base Purchase Price shall be allocated among the Shares and the Support
Assets as specified in Schedule "B", provided that if there are adjustments
described in Section 3.1(b), (c) or (d) the allocations in Schedule "B" shall be
adjusted consistent with those adjustments.

3.3   SATISFACTION OF PURCHASE PRICE

Purchaser shall satisfy the Purchase Price by:

(a)   the payment to, or to the order of, Vendor upon execution of this
      Agreement by wire transfer in immediately available funds to an account
      specified by Vendor of an amount equal to 5% of the Base Purchase Price
      (the "DEPOSIT") to be held by Vendor's solicitors Bennett Jones LLP in
      trust, in accordance with the Escrow Agreement to be entered into by
      Vendor, Purchaser and Bennett Jones LLP contemporaneously with this
      Agreement in the form of that attached as Schedule "V", and shall be
      disbursed in accordance with the following:

<PAGE>

                                       5

      (i)   if Closing occurs, the Deposit and interest accrued thereon shall be
            applied to satisfaction of the Base Purchase Price;

      (ii)  if Closing does not occur due to: (A) a breach of this Agreement by
            Purchaser, or (B) the non-satisfaction of any of the conditions in
            Sections 10.2(a), (b), (c) or (e), or (C) Vendor having exercised
            its right to terminate its obligations under this Agreement pursuant
            to Section 10.5(b), the Deposit and interest accrued thereon shall,
            at the election of Vendor, be forfeited to and retained by Vendor
            for its own account absolutely as a genuine pre-estimate by Vendor
            and Purchaser of the minimum Losses which will be suffered or
            incurred by Vendor as a consequence of Closing not occurring and
            Vendor may recover additional Losses suffered or incurred by it as a
            consequence of Closing not occurring up to an amount for such Losses
            not exceeding 10% of the Base Purchase Price (which, for clarity,
            shall include the retained Deposit); and

      (iii) if Closing does not occur for any reason or circumstance other than
            that described in paragraph 3.3(a)(ii), the Deposit and interest
            accrued thereon shall be returned to Purchaser for the account of
            Purchaser and, to the extent Closing does not occur due to a breach
            of this Agreement by Vendor, Vendor shall be liable for the amounts
            payable pursuant to Section 12.8; and

(b)   the payment at the Time of Closing to, or to the order of, Vendor of an
      amount equal to the sum of:

      (i)   the Base Purchase Price less the Deposit and interest accrued
            thereon;

      (ii)  plus or minus (as applicable) the estimate of the Accounting
            Adjustments made pursuant to Section 4.3;

      (iii) minus any adjustment made pursuant to Section 5.2(b)(iv);

      (iv)  minus any adjustment made pursuant to Section 8.2;

      (v)   plus any adjustment made pursuant to Section 3.1(d),

      by wire transfer in immediately available funds to an account or accounts
      specified by Vendor on or prior to the Closing Date.

In addition to the foregoing, Purchaser shall also pay to Vendor at the Time of
Closing:

(c)   all GST required to be paid or collected by Vendor from Purchaser at the
      Time of Closing; and

(d)   an amount equal to all fees, royalties and charges of third parties
      incurred or to be incurred by Vendor to obtain the consents, additional
      licenses or sublicenses (details of which shall be provided to Purchaser
      10 days in advance of payment of such fees, royalties and charges) and
      other documentation necessary for Vendor to transfer, assign,

<PAGE>

                                       6

      license or sublicense the Third Party Technology, and the Process
      Technology to Purchaser.

To the extent that it is not possible at the Time of Closing to determine the
amount of a fee, royalty or charge that will be incurred by Vendor pursuant to
Section 3.3(d), Purchaser shall pay to Vendor that amount as soon as is
reasonably possible after it can be determined.

3.4   TAXES

Purchaser shall be solely liable for and shall pay all Taxes (other than
Vendor's income taxes), imposed in connection with the Transaction, including
any associated interest charges or penalties except to the extent such interest
charges or penalties are caused by the actions of Vendor or its Affiliates.
Without limiting the generality of the foregoing, all GST applicable to the sale
and transfer of the Support Assets hereunder shall be paid by Purchaser to or to
the order of Vendor at the Time of Closing. Vendor shall remit, or shall cause
to be remitted, such GST collected from Purchaser at Closing to the appropriate
Governmental Body in accordance with Applicable Law.

3.5   INTEREST ON PURCHASE PRICE

Purchaser shall pay to Vendor at Closing interest on the Base Purchase Price
from the Effective Date until the Closing Date, at the rate of two (2%) percent
per annum above the Prime Rate, which shall accrue daily and be compounded
monthly.

3.6   NET CASH ADJUSTMENT

At Closing, Purchaser shall deduct from the amount payable to Vendor at Closing,
(or where a negative amount, add to the amount payable) the estimated Net Cash
Adjustment set forth in the Closing Statement provided pursuant to Section 4.3.

                                   ARTICLE 4
                         BASE PURCHASE PRICE ADJUSTMENTS

4.1   ACCOUNTING ADJUSTMENTS

The Base Purchase Price shall be adjusted as follows:

      (a)   by adding thereto or subtracting therefrom, as the case may be, the
            Aggregate Net Working Capital; and

      (b)   by adding thereto the amount determined pursuant to Schedule "S" to
            compensate Vendor for general and administrative costs incurred by
            Vendor in managing the Business during the Interim Period.

Except to the extent otherwise provided in this Agreement, such adjustments
shall be calculated on an accrual basis in accordance with GAAP.

<PAGE>

                                       7

4.2   VALUATION OF INVENTORIES

For the purposes of calculating the Aggregate Net Working Capital, Inventory
shall be valued at the Effective Date in the following manner:

      (a)   all Inventories of natural gas (whether positive or negative) shall
            be valued based on the AECO Index;

      (b)   subject to (c) below, all Inventories other than Product Inventories
            shall be valued based on the cost at which such Inventories were
            acquired by Vendor, the Corporate Subsidiaries, the Cochrane
            Partnership or the Empress II Partnership, as the case may be; and

      (c)   no value shall be given to:

            (i)   spare parts, pipe, chemical and other inventories located at a
                  Facility or used in connection with the Business;

            (ii)  natural gas liquids in storage or utilized as linepack and
                  which form part of the Empress V Assets;

            (iii) all ethane in Product Inventories held in the Alberta Ethane
                  Gathering System; or

            (iv)  any Product Inventories in respect of propane, normal butane,
                  isobutane and condensate for which the Deemed Inventory
                  Adjustment has been made.

4.3   CLOSING STATEMENT

Ten (10) days prior to Closing, Vendor shall prepare and give to Purchaser a
statement setting forth (i) the Base Purchase Price (including any Related Cost
adjustment); (ii) the Deposit and interest accrued thereon; (iii) Vendor's good
faith estimate of the Accounting Adjustments along with supporting schedules
evidencing how such Accounting Adjustments were derived, which estimate shall be
based upon Vendor's most current financial information available relative to the
Effective Date; (iv) the GST to be paid to Vendor at Closing pursuant to Section
3.3(c); (v) the amount to be paid to Vendor at Closing pursuant to Section
3.3(d); (vi) the estimated Net Cash Adjustment (based on the most current
financial information available at the time) and (vii) the total amount payable
by Purchaser at Closing pursuant to Sections 3.3 and 3.5.

4.4   POST CLOSING ADJUSTMENTS

      (a)   As soon as the relevant information is available and in any event
            within one hundred and eighty (180) days after Closing (but subject
            to Section 4.4(b)), Vendor shall in good faith prepare and deliver
            to Purchaser a final closing statement setting forth the actual
            Accounting Adjustments and Net Cash Adjustments (the "Final Closing
            Statement"). To the extent reasonably required by Vendor, Purchaser
            shall assist in the preparation of the Final Closing

<PAGE>

                                       8

            Statement and shall make available sufficient staff to ensure the
            Final Closing Statement is prepared in a timely manner. Purchaser
            shall make available to Vendor and its employees, agents,
            representatives and consultants, full and complete access during
            normal business hours to the Books and Records to enable Vendor to
            prepare the Final Closing Statement. The amounts set forth in the
            Final Closing Statement shall be final and binding upon Vendor and
            Purchaser unless Purchaser delivers to Vendor written notice
            disputing any amounts set forth in the Final Closing Statement and
            the specific grounds of such dispute (the "Dispute Note") within
            thirty (30) days after receipt of the Final Closing Statement. In
            such event, the Parties shall co-operate in good faith to attempt to
            resolve the matters in dispute and agree upon the actual Accounting
            Adjustments or Net Cash Adjustments. If the Parties cannot resolve
            the matters in dispute and agree upon the actual Accounting
            Adjustments or Net Cash Adjustments within ten (10) Business Days
            from receipt by Vendor of the Dispute Note, then the amount of the
            actual Accounting Adjustments or Net Cash Adjustments shall be
            determined by the chartered accounting firm of
            PriceWaterhouseCoopers ("PWC") within a period of ninety (90) days
            from the date such accounting firm is retained and each Party shall
            co-operate with PWC and shall make available to PWC such books and
            records as are within its possession or control as PWC may request
            in connection therewith. The determination of PWC shall be final and
            binding upon both Parties. The fees and expenses of the accounting
            firm of PWC shall be shared equally between the Parties.

      (b)   The Parties shall make such further Accounting Adjustments after the
            one hundred and eighty (180) day period referred to in Section
            4.4(a) only in respect of income taxes accrued in respect of the
            taxable period ending prior to the Effective Date, provided that any
            such Accounting Adjustments shall be made within thirty (30) days of
            a notice of assessment under the Tax Act received in respect of the
            Tax Returns filed in accordance with Section 7.1 and as allocated
            pursuant to Section 7.4.

4.5   PAYMENT ON DETERMINATION OF ACTUAL ADJUSTMENTS

Within five (5) Business Days after the final determination of the actual
Accounting Adjustments and Net Cash Adjustments pursuant to Section 4.4:

      (a)   Purchaser shall pay to, or to the order of, Vendor (i) the amount,
            if any, by which the actual Accounting Adjustments exceed the
            estimated amount of the Accounting Adjustments and Net Cash
            Adjustments relied on for the purposes of Closing plus (ii) interest
            on the amount described in Section 4.6(a)(i) from the Time of
            Closing to the day of payment at the Prime Rate; or

      (b)   Vendor shall pay to Purchaser (i) the amount, if any, by which the
            estimated amount of the Accounting Adjustments and Net Cash
            Adjustments relied upon for the purposes of Closing exceeds the
            actual Accounting Adjustments and Net Cash Adjustments plus (ii)
            interest on the amount described in Section 4.6(b)(i) from the Time
            of Closing to the day of payment at the Prime Rate,

<PAGE>

                                       9

as determined in accordance with this Agreement. No further Accounting
Adjustments or Net Cash Adjustments shall be made by the Parties following the
final determination of the Accounting Adjustments or Net Cash Adjustments
pursuant to Section 4.4.

4.6   DEEMED INVENTORY ADJUSTMENTS

      (a)   The Parties acknowledge that:

            (i)   the Cochrane Liquids Sale Agreement dated January 1, 1999
                  between Cochrane Extraction Plant Partnership (predecessor to
                  the Corporate Subsidiaries) and Amoco Canada Resources Company
                  (predecessor to BP) (the "CPLSA") provides for the sale of
                  propane, normal butane, isobutane and condensate produced in
                  the Cochrane Plant to BP; and

            (ii)  the CPLSA provides for an annual adjustment after the end of a
                  calendar year (the "THIRTEEN MONTH ADJUSTMENTS") to account
                  for the fact that the aggregate deemed volumes of normal
                  butane and propane on which the monthly invoices for the year
                  were based are not the same as the actual volumes that were
                  produced during the year.

      (b)   For purposes of the adjustments made pursuant hereto, the Parties
            agree that the Deemed Inventory Amount shall equal the estimated
            Thirteenth Month Adjustment under the CPLSA which would be owing to,
            or payable by, the Vendor beginning January 1, 2004 up to and
            including the last full calendar month prior to the Effective Date,
            as determined by Vendor after the Effective Date and prior to
            Closing, in a manner consistent with Vendor's past practices with
            respect to such amount.

      (c)   Unless addressed to the satisfaction of Vendor, acting reasonably,
            as part of the negotiations described in paragraph 1 of Schedule "D"
            as it relates to the Empress V Joint Venture Agreement dated January
            15, 1997 between WECI and BP, the provisions of this Section 4.6
            shall apply in respect of any deemed volumes of normal butane and
            propane produced thereunder and on which the monthly invoices for
            the year were based (and any differences from the actual volumes
            that were produced during the year), mutatis mutandis.

4.7   OUTSTANDING AUDITS

Notwithstanding Section 4.4, Vendor shall be responsible for all amounts payable
and all Losses, and shall retain all amounts receivable and all benefits in
respect of, any amounts paid or payable with respect to the Outstanding Audits.

<PAGE>

                                       10

                                   ARTICLE 5
                                 INTERIM MATTERS

5.1   RISK OF LOSS

Except as provided in Section 5.2, at all times prior to Closing, the Assets and
the operation of the Business shall remain at the risk of Vendor.

5.2   FACILITY LOSS AND ENVIRONMENTAL DAMAGE

      (a)   Notwithstanding Section 5.1, if, during the Interim Period:

            (i)   any of the Facilities are expropriated or damaged, destroyed
                  or otherwise altered by reason of fire, flood, storm or other
                  casualty ("Facility Loss"); or

            (ii)  Vendor becomes aware of any Environmental Liability (other
                  than those as disclosed in Schedule "H" and other than the
                  Previously Disclosed Environmental Liabilities) ("New
                  Environmental Liability");

            Vendor shall promptly notify Purchaser in writing of the nature and
            extent of the Facility Loss or New Environmental Liability. Vendor
            may, but shall not be obligated to, undertake any repairs or other
            remedial actions to remedy the Facility Loss or New Environmental
            Liability.

      (b)   Where:

            (i)   the cost of undertaking such repairs and other remedial
                  actions as are necessary to return a Facility which is the
                  subject to the Facility Loss to the substantially the same
                  condition and capability of operations as it was in prior to
                  the Facility Loss; plus

            (ii)  the net income lost to the Corporate Subsidiaries as a result
                  of the Facility Loss in the period from and after the
                  Effective Date; plus

            (iii) the cost to remediate any New Environmental Liability to the
                  standard required by Applicable Law,

            (the "RELATED COSTS") is:

            (iv)  less than $10,000,000, the Parties shall proceed with Closing
                  subject to and in accordance with the terms of this Agreement;
                  and

            (v)   $10,000,000 or greater, but not more than $25,000,000, the
                  Base Purchase Price shall be reduced by the amount by which
                  the Related Costs exceed $10,000,000 and the Parties shall
                  proceed with Closing subject to and in accordance with the
                  terms of this Agreement; and

<PAGE>

                                       11

            (vi)  $25,000,000 or more, Purchaser may elect to not proceed with
                  Closing, terminate this Agreement and have returned to it the
                  Deposit and interest accrued thereon.

      (c)   If Closing occurs, Vendor shall, or, where insurance is maintained
            by its Affiliate, shall have such Affiliate, assign to Purchaser all
            of the rights of Vendor in and to the proceeds of insurance payable
            in respect of each Facility Loss, excluding business interruption
            insurance proceeds payable in respect of the period prior to the
            Effective Date. In the circumstances contemplated in Section
            5.2(b)(v), any proceeds of insurance shall be allocated between
            Vendor and Purchaser in proportion to the extent each Party bears
            the Related Costs. After Closing, Vendor shall, at Purchaser's
            request, use commercially reasonably efforts to assist Purchaser in
            the collection of such proceeds of insurance.

5.3   GENERAL OPERATION AND MAINTENANCE

Throughout the Interim Period, Vendor shall and shall cause the Corporate
Subsidiaries to:

      (a)   observe, perform and comply in all material respects with all
            covenants, agreements and obligations of such party with respect to
            the Business;

      (b)   maintain and operate that part of the Business conducted by it, to
            the extent within its control or direction, in a proper and prudent
            manner in accordance with its customary practice and Applicable
            Laws;

      (c)   provide to Purchaser, subject to any confidentiality obligations,
            any information, periodic reports and such further information as
            Purchaser may reasonably request, in respect of the negotiations
            described in Schedule "D"; and

      (d)   pay all insurance premiums in respect of the policies set forth in
            Schedule "K" as those premiums become due and payable.

5.4   RESTRICTED ACTIVITIES

Throughout the Interim Period Vendor shall not, and shall cause the Corporate
Subsidiaries not to, without the prior written consent of Purchaser, which
consent shall not be unreasonably withheld, delayed or conditioned:

      (a)   make any material change in the conduct of the Business that would
            reasonably be expected to have a Material Adverse Effect;

      (b)   enter into, assign, terminate or amend, in any material respect, any
            Material Agreement, except for activities in the ordinary course of
            the Business, including the activities described in Schedule "D",
            provided that Vendor shall not conclude any of the negotiations set
            forth described in Schedule "D" on terms materially economically
            different than those represented to Purchaser without Purchaser's
            prior written consent;

<PAGE>

                                       12

      (c)   sell, lease or otherwise dispose of any of the Assets except (i)
            personal property sold, leased or otherwise disposed of in the
            ordinary course of the Business, (ii) any item of personal property
            having a value of less than $25,000, and (iii) pursuant to the
            exercise by any third party of a Preferential Purchase Right;

      (d)   create any Security Interest on any of the Assets except to the
            extent (i) incidental to the operation of the Business and given in
            the ordinary course of business, or (ii) required or evidenced by
            any contract or agreement set forth in Cochrane Schedule 1, Empress
            II Schedule 1, or Empress V Schedule 1, or (iii) Permitted
            Encumbrances; or

      (e)   make any individual capital expenditure or commitment therefor in
            respect of the Business in excess of $250,000 for any single item,
            or in excess of $500,000 in aggregate, other than expenditures: (i)
            provided for in the existing capital budget of the Corporate
            Subsidiaries, the Partnership or the Empress II Partnership, as the
            case may be, (ii) required by any contract or agreement set forth in
            Cochrane Schedule 1, Empress II Schedule 1, or Empress V Schedule 1,
            or (iii) pursuant to an authorization for expenditure set forth in
            Schedule "D".

Notwithstanding the foregoing:

      (f)   Vendor, a Corporate Subsidiary or Subsidiary Partnership may take or
            not take any action mentioned in this Section if reasonably
            necessary under emergency circumstances or if it is required to take
            or not take such action under Applicable Laws and provided Purchaser
            is notified as soon thereafter as practicable; and

      (g)   Vendor may, and may cause the Corporate Subsidiaries and Subsidiary
            Partnerships to, undertake the transactions contemplated in Section
            6.1(ee).

5.5   CORPORATE SUBSIDIARIES AND SUBSIDIARY PARTNERSHIPS

In addition to the restrictions set forth in Section 5.4, throughout the Interim
Period, Vendor shall cause the Corporate Subsidiaries and the Subsidiary
Partnerships not to, without the prior written consent of Purchaser, which
consent shall not be unreasonably withheld, delayed or conditioned:

      (a)   issue any of their equity securities or securities convertible into
            equity securities or, in the case of the Subsidiary Partnerships,
            Partnership Units, or repurchase, redeem or otherwise acquire any
            such securities or Partnership Units or make or propose to make any
            other change in their capitalization;

      (b)   make any change in their respective constating documents or by-laws;

      (c)   purchase any securities of any corporation or other Person;

      (d)   take any action or enter into any commitment with respect to or in
            contemplation of any liquidation, dissolution or other winding up of
            their respective businesses or operations;

<PAGE>

                                       13

      (e)   acquire (by merger, consolidation, acquisition of stock or assets or
            otherwise), in whole or in party, any corporation, partnership, or
            other business organization or division thereof;

      (f)   amalgamate, merge or consolidate their respective assets with any
            other Person; or

      (g)   in respect of the Corporate Subsidiaries, declare any dividends or
            make any returns of capital to its shareholders, or commit to do so
            and, in respect of the Subsidiary Partnerships, make any
            distributions or returns of capital to its partners or commit to do
            so, provided however that each of the Corporate Subsidiaries and
            Subsidiary Partnerships:

            (i)   may declare and pay dividends or make distributions or returns
                  of capital not in excess, in the aggregate, of the Cash held
                  by such corporation or partnership at the time of payment upon
                  delivery to Purchaser of written notice of the intent of such
                  corporation or partnership to make such payment;

            (ii)  shall repay, in all material respects, Intercorporate Debt
                  other than that which is attributable to operating costs
                  incurred in the ordinary course of business (which for
                  certainty, shall be included in the Net Working Capital); and

            (iii) shall assign to Vendor or an Affiliate (other than a Corporate
                  Subsidiary or Subsidiary Partnership) any Excluded Asset held
                  by it and shall have the Vendor or such Affiliate assume the
                  Excluded Liabilities.

5.6   UPDATES TO REPRESENTATIONS AND WARRANTIES

      (a)   Each of the Parties shall, in the event of, or promptly after
            obtaining knowledge of the occurrence or threatened occurrence of
            any fact or circumstance that would cause any of its or the other
            Party's representations and warranties set forth herein not to be
            true and correct, give notice thereof to the other Party.

      (b)   If prior to the Time of Closing a Party (the "DISCLOSING PARTY")
            gives notice to the other Party (the "NOTIFIED PARTY") of the
            occurrence of any fact or circumstance that would cause any of the
            Disclosing Party's representations and warranties set forth herein
            not to be true and correct, then the representations and warranties
            of the Disclosing Party set forth herein shall be deemed to be
            amended to reflect that fact or circumstance. All references to
            Sections 6.1 and 6.2 and subsections thereof in this Agreement shall
            be deemed to be references to Sections 6.1 and 6.2 and subsections
            thereof as so amended. The Notified Party's sole remedy in respect
            of such an amendment shall be as set out in Section 10.4 or 10.5, as
            the case may be.
<PAGE>
                                       14

                                   ARTICLE 6
                         REPRESENTATIONS AND WARRANTIES

6.1   REPRESENTATIONS AND WARRANTIES OF VENDOR

As of the date hereof, Vendor represents and warrants to Purchaser as follows:

      (a)   ORGANIZATION AND GOOD STANDING: Each of Vendor and the Corporate
            Subsidiaries is a corporation duly incorporated, validly existing
            and current with all corporate filings under the laws of their
            respective constating jurisdictions, and each of the Subsidiary
            Partnerships is a general partnership, validly existing and in good
            standing under the laws of Alberta.

      (b)   QUALIFICATION: Each of Vendor, the Corporate Subsidiaries and the
            Subsidiary Partnerships has the requisite power to carry on its
            business as it is now being conducted and is duly qualified to do
            business in the Province of Alberta and in the jurisdictions in
            which its assets make such qualification necessary.

      (c)   AUTHORITY: Vendor has all requisite corporate power and authority to
            execute and deliver this Agreement and to perform its obligations
            hereunder. The execution, delivery and performance of this Agreement
            and the Transaction have been duly authorized by all requisite
            corporate action on the part of Vendor.

      (d)   ENFORCEABILITY: This Agreement constitutes a valid and binding
            agreement of Vendor enforceable against it in accordance with its
            terms, subject to (i) applicable bankruptcy, insolvency,
            reorganization, moratorium and other similar laws of general
            application with respect to creditors, (ii) general principles of
            equity, and (iii) the power of a court to deny enforcement of
            remedies generally based upon public policy.

      (e)   NO CONFLICT OR VIOLATION: Assuming all Required Consents are
            obtained or otherwise complied with, neither the execution and
            delivery of this Agreement nor the consummation of the Transaction
            and performance of the terms and conditions contemplated hereby by
            Vendor will (i) conflict with or result in a violation or breach of
            any provision of the certificate of incorporation, by-laws or other
            similar governing documents of Vendor, the Corporate Subsidiaries or
            the Subsidiary Partnerships or, to the knowledge of Vendor, any
            material agreement, indenture or other instrument to which Vendor, a
            Corporate Subsidiary or a Subsidiary Partnership is bound, other
            than such conflicts, breaches or violations of agreements,
            indentures or other instruments as would not reasonably be expected
            to have a Material Adverse Effect, or (ii) violate or conflict with
            any Applicable Laws in the jurisdiction in which the Assets are
            located other than as would not reasonably be expected to have a
            Material Adverse Effect.

      (f)   CONSENTS, APPROVALS, LICENSES: No consent, approval, authorization
            or filing with or notification to any Person is required for or in
            connection with the execution and delivery of this Agreement by
            Vendor or for or in connection with the consummation of the
            Transaction or the performance of the terms and

<PAGE>

                                       15

            conditions contemplated hereby by Vendor, except: (i) the Required
            Consents; (ii) consents, approvals, authorizations, filings or
            notices required to be made or obtained in accordance with
            Applicable Laws; (iii) Customary Post Closing Consents; and (iv)
            consents, filings or notices the failure of which to obtain or with
            which to comply would not reasonably be expected to have a Material
            Adverse Effect on Vendor's ability to complete the Transaction; and
            (v) such other consents, filings or notices, the failure to obtain
            which or to comply with which would not have a Material Adverse
            Effect.

      (g)   ACTIONS: Except as set forth in Schedules "F", "G" and "H" there are
            no actions, suits, other legal, administrative or arbitration
            proceedings existing or, to the knowledge of Vendor, which are
            pending or threatened against Vendor, the Corporate Subsidiaries or
            the Subsidiary Partnerships or relating to the Business, the Shares
            or the Assets.

      (h)   COMPLIANCE WITH APPLICABLE LAWS: Except as set forth in Schedules
            "G" and "H", to the knowledge of Vendor, none of Vendor, the
            Corporate Subsidiaries or the Subsidiary Partnerships is in
            violation of any Applicable Laws; provided that Vendor makes no
            representation or warranty, express or implied, with respect to
            Taxes except as are set forth in Section 6.1(n) or Environmental
            Laws except as are set forth in Subsection 6.1(m).

      (i)   SHARES AND PARTNERSHIP UNITS:

            (i)   WECI holds of record and owns beneficially all of the Shares;

            (ii)  The Shares are free and clear of any Security Interests and
                  are not subject to the provisions of any contract or
                  commitment that would require WECI to sell, transfer or
                  otherwise dispose of any Shares to any Person other than
                  Purchaser;

            (iii) The entire ownership interest in the Subsidiary Partnerships
                  is divided into and represented by the Partnership Units, and
                  PARI and 898389 beneficially own all of the Partnership Units;

            (iv)  The Partnership Units are free and clear of any Security
                  Interests and are not subject to the provisions of any
                  contract or commitment that would require the Corporate
                  Subsidiaries to sell, transfer or otherwise dispose of any
                  Partnership Units to any Person; and

            (v)   at Closing, no Person has any right, option or entitlement to
                  acquire an equity interest in the Corporate Subsidiaries or
                  the Subsidiary Partnerships.

      (j)   CAPITALIZATION OF CORPORATE SUBSIDIARIES AND THE SUBSIDIARY
            PARTNERSHIPS:

            (i)   PARI: The authorized share capital of PARI consists of an
                  unlimited number of Class A common voting shares, an unlimited
                  number of Class

<PAGE>

                                       16

                  B common non-voting shares, an unlimited number of Class C
                  common voting shares and an unlimited number of Class A
                  preferred non-voting shares, of which 126,675 Class A common
                  voting shares and 1,999,000 Class B common non-voting shares
                  are issued and outstanding and held beneficially and of record
                  by Vendor;

            (ii)  898389: The authorized share capital of 898389 consists of an
                  unlimited number of common shares and 100 preferred shares, of
                  which 71,029,728 common shares are issued and outstanding and
                  held beneficially and of record by Vendor;

            (iii) All of the issued and outstanding shares of the Corporate
                  Subsidiaries have been duly authorized and are validly issued,
                  fully paid and non-assessable;

            (iv)  Cochrane Partnership: 1051751 Partnership Units of the
                  Cochrane Partnership have been issued to each of PARI and
                  898389; and

            (v)   Empress II Partnership: 790,501 Partnership Units of the
                  Empress II Partnership have been issued to each of PARI and
                  898389.

      (k)   DIVIDENDS: At Closing, neither of the Corporate Subsidiaries shall
            have any declared but unpaid dividends.

      (l)   TITLE TO ASSETS: Vendor does not warrant title to the Assets, but
            does represent and warrant that the Assets are free and clear of all
            Security Interests created by, through or under Vendor, the
            Corporate Subsidiaries or the Subsidiary Partnerships since October
            13, 2000, except the Permitted Encumbrances.

      (m)   ENVIRONMENTAL MATTERS: To the knowledge of Vendor, all material
            written environmental reports, audits, summaries, materials, data
            and other information related to Environmental Liabilities affecting
            the Business in the possession of Vendor have been disclosed to
            Purchaser. Except as disclosed in Schedule "H" and other than the
            Previously Disclosed Environmental Liabilities, as of the date
            hereof, to the knowledge of Vendor none of Vendor, the Corporate
            Subsidiaries or the Subsidiary Partnerships has received:

            (i)   any order or directive pursuant to Environmental Laws which
                  requires any work, repairs, construction or capital
                  expenditures with respect to the Business or the Assets which
                  has not been complied with in all material respects; or

            (ii)  any demand or notice issued under Environmental Laws with
                  respect to the breach of any Environmental Law in relation to
                  the Business or the Assets which has not been complied with in
                  all material respects.

      (n)   TAX MATTERS: Except as set forth in Schedule "J", to the knowledge
            of Vendor:

<PAGE>

                                       17

            (i)   all Tax Returns required to be filed by the Corporate
                  Subsidiaries and the Subsidiary Partnerships have been timely
                  filed, and such Tax Returns are correct and complete in all
                  material respects and all items of income, gain, loss,
                  deduction and credit or other items required to be included in
                  each such Tax Return have been or will be so included; and

            (ii)  all Taxes shown as due on such returns have been paid.

      (o)   INSURANCE: Set forth in Schedule "K" is a summary listing of all
            current policies of liability and property insurance insuring the
            Assets, employees and Business of Vendor, the Corporate Subsidiaries
            and the Subsidiary Partnerships. All policies are in full force and
            effect. Coverage under such policies shall terminate on the Closing
            Date.

      (p)   OTHER BUSINESSES: As of the date of this Agreement, the Corporate
            Subsidiaries and the Subsidiary Partnerships do not carry on any
            business other than the Business, and at the Closing, the Corporate
            Subsidiaries and the Subsidiary Partnerships will not carry on any
            business other than the Business.

      (q)   NO SUBSIDIARIES: None of the Corporate Subsidiaries or the
            Subsidiary Partnerships has any subsidiaries.

      (r)   RESIDENCY FOR TAX PURPOSES: Vendor is not a non-resident of Canada
            for the purposes of the Tax Act.

      (s)   ETA REGISTRATION: WECI is a registrant for the purposes of the ETA,
            WECI's registration number being 86119 3126 RT0001. PARI is a
            registrant for the purposes of the ETA, PARI's registration number
            being 10405 8102 RT0001. 898389 is a registrant for the purposes of
            the ETA, 898389's registration number being 10515 0833 RT0001. The
            Cochrane Partnership is a registrant for the purposes of the ETA,
            the Partnership's registration number being 86757 9401 RT0001. The
            Empress II Partnership has, as of the date of execution of this
            Agreement, applied to be a registrant for the purposes of the ETA,
            and on the Closing Date will be a registrant, and at or prior to the
            Closing Date will have provided Purchaser with notice of its
            registration number.

      (t)   BROKERAGE FEES AND COMMISSIONS: Vendor has not incurred any
            obligation or entered into any agreement for any investment banking,
            brokerage or finder's fee or commission in respect of the
            Transaction for which Purchaser, the Corporate Subsidiaries or the
            Subsidiary Partnerships shall incur any liability.

      (u)   EMPLOYEES: The Corporate Subsidiaries and the Subsidiary
            Partnerships do not have any employees.

      (v)   FINANCIAL STATEMENTS: Vendor has delivered to Purchaser the audited
            financial statements for the years ended December 31, 2003, 2002 and
            2001 and unaudited financial statements for the 3 months ended March
            31, 2004 and 2003, all as set

<PAGE>

                                       18

            forth in Schedule "W". Such audited and unaudited financial
            statements were prepared from the Books and Records of Vendor in
            accordance with GAAP.

      (w)   NO UNDISCLOSED LIABILITIES:

            (i)   On the Effective Date, PARI, 898389 and the Subsidiary
                  Partnerships do not have any liabilities which should be shown
                  on a balance sheet or notes thereto prepared in accordance
                  with GAAP except: (A) liabilities which are included in the
                  calculation of the Net Working Capital; (B) liabilities that
                  have been incurred in the ordinary course of business which
                  have not become due; (C) liabilities associated with those
                  matters set out in Schedule "F", "G" and "H"; (D) Permitted
                  Encumbrances; (E) Environmental Liabilities; (F) liabilities
                  or indebtedness which are satisfied after the Effective Date
                  in accordance with Section 5.5(g)(ii); (G) obligations and
                  liabilities otherwise disclosed herein; and (H) future income
                  tax liability; and

            (ii)  There is no Intercorporate Debt that would not be classified
                  as a current liability or current asset pursuant to GAAP.

      (x)   CONTRACTS: Vendor has, or has caused the Corporate Subsidiaries or
            the Subsidiary Partnerships to have, made available to Purchaser
            true and complete copies or financial or agreement summaries of the
            Material Agreements, and the Material Agreements include all of the
            contracts, agreements and instruments to which any of Vendor, the
            Corporate Subsidiaries or the Subsidiary Partnerships are a party as
            at the date hereof which affect or relate to the Business and the
            Assets or either of them (other than consulting services or
            performance of work contracts entered into in the ordinary course of
            business) and which: (A) provide for aggregate payments by or to
            Vendor, the Corporate Subsidiaries or the Subsidiary Partnerships of
            $1,000,000 or more over the term of the contract; or (B) the
            termination of which would have a Material Adverse Effect.

      (y)   PERMITS:

            (i)   Vendor holds, or to its knowledge where a third party operates
                  a Facility, that third party holds, all material Permits
                  necessary or required to be held by it for the operation of
                  that Facility and is in compliance with those Permits;

            (ii)  Except as set forth in Schedules "F", "G" and "H", no
                  proceeding is existing, or to the knowledge of Vendor, pending
                  or threatened, with respect to any alleged material failure by
                  it or any third party operator, to have any required Permit or
                  not to be in material compliance with its Permits, where such
                  alleged failure has not been rectified;

            (iii) To the knowledge of Vendor no event has occurred and is
                  continuing which allows, or after notice or lapse of time or
                  both would allow, any

<PAGE>

                                       19

                  material modification or the termination of any such Permit
                  held by it or any third party operator.

      (z)   NO VIOLATION OF CONTRACTS: Except as disclosed in Schedule "F", to
            the knowledge of Vendor none of Vendor, the Corporate Subsidiaries,
            the Subsidiary Partnerships or any other Person is in material
            breach or violation of, or default under, any Material Agreement.
            Each Material Agreement is, to the knowledge of Vendor, a valid
            agreement, arrangement or commitment of Vendor, the Corporate
            Subsidiary or the Subsidiary Partnerships which is a party thereto,
            enforceable against Vendor, the Corporate Subsidiary or the
            Subsidiary Partnerships as applicable, and the other parties
            thereto, in accordance with its terms, except in each case where
            enforceability may be limited by bankruptcy, insolvency or other
            similar laws affecting creditors' rights generally and except where
            enforceability is subject to the application of equitable principles
            or remedies.

      (aa)  PREFERENTIAL PURCHASE RIGHTS: Except as set forth in Schedule "N",
            or in respect of which a waiver has been obtained, there are no
            Preferential Purchase Rights, options or other rights created by,
            through or under it or any Corporate Subsidiary or the Subsidiary
            Partnerships since October 13, 2000 or, to the knowledge of Vendor,
            prior to that date, held by any Person not a party to this Agreement
            to purchase or acquire any interest in any part of the Assets or
            Shares as a result of the Transaction and in respect of those
            Preferential Purchase Rights set forth in Schedule "N", as of the
            date hereof, the waivers indicated in Schedule "N" have been
            obtained.

      (bb)  MINUTE BOOKS: The minute books of the Corporate Subsidiaries were
            accurate and current in all material respects as of the date of this
            Agreement.

      (cc)  INTELLECTUAL PROPERTY: The Assets include all material patents,
            trade designs and other intellectual property used in the Business
            (provided that Purchaser makes no representation as to the
            transferability of, or implications of a change of control on, any
            licensed third party intellectual property). To the knowledge of
            Vendor, to the extent related to the Business, none of Vendor, the
            Corporate Subsidiaries or the Subsidiary Partnerships is in
            violation of any patents, trade marks or intellectual property
            rights.

      (dd)  NO LOSS OF RIGHTS: To the knowledge of Vendor, the consummation of
            the Transaction shall not result in the loss of any right or benefit
            under any Material Agreement nor confer upon any third party any
            right or benefit under any Material Agreement except as provided for
            in the Shrinkage Make-Up and Billing/Payment Frequency Memorandum of
            Agreement dated September 26, 2002.

      (ee)  INTERCORPORATE DEBT, EXCLUDED ASSETS AND PARI CIBC LOAN: On or
            before the Closing Date Vendor shall have:

<PAGE>

                                       20

            (i)   caused PARI to pay in full all amounts outstanding in respect
                  of the PARI CIBC Loan;

            (ii)  repaid, in all material respects, Intercorporate Debt other
                  than that which is attributable to operating costs incurred or
                  revenues arising in the ordinary course of business; and

            (iii) caused the Corporate Subsidiaries and the Subsidiary
                  Partnerships, as applicable, to have assigned to Vendor all of
                  the Excluded Assets and all rights, obligations and
                  liabilities associated therewith.

6.2   REPRESENTATIONS AND WARRANTIES OF PURCHASER

Purchaser represents and warrants to Vendor as follows:

      (a)   ORGANIZATION: Purchaser is a corporation duly organized, validly
            existing and in good standing under the laws of Province of Alberta.

      (b)   QUALIFICATION: Purchaser has the requisite corporate power to carry
            on its business as it is now being conducted, and is duly qualified
            to do business, and is in good standing, in the jurisdictions in
            which Purchaser's assets make such qualification necessary.

      (c)   AUTHORITY: Purchaser has all requisite corporate power and authority
            to execute and deliver this Agreement and to perform its obligations
            hereunder. The execution, delivery and performance of this Agreement
            and the consummation of the Transaction have been duly and validly
            authorized by all requisite corporate action on the part of
            Purchaser.

      (d)   ENFORCEABILITY: This Agreement constitutes a valid and binding
            agreement of Purchaser enforceable against Purchaser in accordance
            with its terms, subject to (i) applicable bankruptcy, insolvency,
            reorganization, moratorium and other similar laws of general
            application with respect to creditors, (ii) general principles of
            equity and (iii) the power of a court to deny enforcement of
            remedies generally based upon public policy.

      (e)   NO CONFLICT OR VIOLATION: Neither the execution and delivery of this
            Agreement nor the consummation of the Transaction and performance of
            the terms and conditions contemplated herein by Purchaser will: (i)
            conflict with or result in a violation or breach of any provision of
            the certificate of incorporation, by-laws or other similar governing
            documents of Purchaser or, to the knowledge of Purchaser, any
            material agreement, indenture or other instrument under which
            Purchaser is bound, other than such conflicts, breaches or
            violations of agreements, indentures or other instruments as would
            not reasonably be expected to have a material adverse effect on
            Purchaser's ability to complete the Transaction, or (ii) violate or
            conflict with any Applicable Laws in the jurisdictions in which the
            assets of Purchaser are located other than as would not

<PAGE>

                                       21

            reasonably be expected to have a material adverse effect on
            Purchaser's ability to complete the Transaction.

      (f)   CONSENTS: To the knowledge of Purchaser, no consent, approval,
            authorization or permit of, or filing with or notification to, any
            Person is required for or in connection with the execution and
            delivery of this Agreement by Purchaser or for or in connection with
            the consummation of the Transaction and performance of the terms and
            conditions contemplated hereby by Purchaser, except for (i) those
            consents, filings or notices expressly described and set forth in
            Schedule "M", (ii) Customary Post-Closing Consents, (iii) consents,
            filings or notices required to be made in accordance with the
            Competition Act (Canada), and (iv) consents, filings or notices the
            failure of which to obtain or with which to comply would not
            reasonably be expected to have a material adverse effect on
            Purchaser's ability to complete the Transaction.

      (g)   ACTIONS: There are no actions, suits, or other legal, administrative
            or arbitration proceedings pending against Purchaser, or to the
            knowledge of Purchaser, threatened against Purchaser, which would
            reasonably be expected to have a material adverse effect on
            Purchaser's ability to complete the Transaction.

      (h)   FUNDS: Purchaser has, and at all times prior to Closing will have,
            sufficient funds available to enable Purchaser to consummate the
            Transaction and to pay the payments described in Section 3.3 and
            Section 4.5 and all related fees and expenses of Purchaser.

      (i)   INVESTMENT CANADA ACT: Purchaser is not a non-Canadian within the
            meaning of the Investment Canada Act (Canada).

      (j)   ACTING AS PRINCIPAL: Purchaser is purchasing all of the right,
            title, interest and estate of Vendor in the Shares and Support
            Assets as principal.

      (k)   BROKERAGE FEES AND COMMISSIONS: Neither Purchaser nor any Affiliate
            of Purchaser has incurred any obligation or entered into any
            agreement for any investment banking, brokerage or finder's fee or
            commission in respect of the Transaction for which Vendor shall
            incur any liability.

      (l)   GOOD STANDING: Purchaser is not in breach of any Applicable Laws
            which could result in an undue delay or an inability to register any
            transfers of any license, order, permit or approval relating to the
            Business.

      (m)   TAX STATUS: Purchaser is not exempt from Canadian income Tax
            pursuant to section 149 of the Tax Act.

      (n)   ETA REGISTRATION: Purchaser is a registrant pursuant to the ETA,
            Purchaser's registration number being 861863025 RT0001.

<PAGE>

                                       22

6.3   NO ADDITIONAL REPRESENTATIONS AND WARRANTIES

Except as and to the extent set forth in Section 6.1, Vendor makes no
representations or warranties whatsoever, and Purchaser acknowledges that it is
purchasing the Shares and the Support Assets (and, indirectly, the Assets) on an
"as is, where is" basis except as and to the extent of the representations and
warranties set forth in Section 6.1. Vendor disclaims all liability and
responsibility for any representation, warranty, statement or information made
or communicated (orally, electronically or in writing) to Purchaser (including
any opinion, information or advice which may have been provided to Purchaser by
any officer, shareholder, director, employee, agent, consultant or
representative of Vendor, or its Affiliates, financial advisors, counsel or any
other agent, consultant, representative or Person (collectively referred to as
"VENDOR'S REPRESENTATIVES"). Without limiting the generality of the foregoing,
Vendor makes no representations or warranties, as to:

      (a)   title to the Assets (except to the limited extent set forth in
            Subsections 6.1(l);

      (b)   any Environmental Matters or Environmental Liabilities, except to
            the limited extent set forth in Subsection 6.1(m);

      (c)   any estimates of the value of the Shares, the Assets, the Business
            or the revenues, future revenues or estimates applicable to the
            Business;

      (d)   any engineering or other interpretations or evaluations respecting
            the Business;

      (e)   the location, quality, condition or serviceability of the Assets or
            the Business;

      (f)   the suitability or fitness of any of the Assets for any use or
            purpose; or

      (g)   any information provided or made available to Purchaser by Vendor's
            Representatives, in Vendor's data room, on plant or site visits or
            otherwise.

Without restricting the generality of the foregoing, Purchaser acknowledges that
it:

            (i)   has been given the opportunity to make plant and site visits;

            (ii)  has had full access to Vendor's data room and the information
                  contained in the data room;

            (iii) has made its own independent investigation, analysis,
                  evaluation, appraisal and inspection of the Business and the
                  financial condition, operations and prospects of Vendor, the
                  Subsidiary Partnerships, the Corporate Subsidiaries and the
                  Business;

            (iv)  has relied solely on its independent investigation, analysis,
                  evaluation, appraisal, inspection and judgment as to its
                  assessment of the value of the Business, the Shares and the
                  Assets and the valuation, price and expense assumptions
                  applicable thereto; and

<PAGE>

                                       23

            (v)   has, prior to entering into this Agreement, been advised by
                  its counsel and such other Persons it has deemed appropriate
                  concerning this Agreement.

6.4   NO MERGER

The representations and warranties made by Vendor in Section 6.1 shall
respectively be deemed to apply to all transfers, assignments and other
documents under which Vendor conveys its entire right, title, estate and
interest in the Shares and the Support Assets to Purchaser. There shall not be
any merger of any of such representations or warranties in such assignments,
transfers or other documents, notwithstanding any rule of law, equity or statute
to the contrary and all such rules are hereby waived.

6.5   NON-TRANSFERABLE

The representations and warranties contained in this Agreement and in any other
certificate, agreement or other document delivered pursuant hereto, are made for
the exclusive benefit of the Person to whom they are addressed, and such
Person's Affiliates, and are not transferable and shall not be the subject of
any rights of subrogation granted in favour of any other Person.

                                    ARTICLE 7
                                   TAX MATTERS

7.1   TAX RETURNS FOR PRE-EFFECTIVE DATE PERIODS

Vendor will cause to be prepared and timely filed all Tax Returns for each
Corporate Subsidiary and the Cochrane Partnership for all taxable periods ending
prior to the Effective Date and which are not filed before the Effective Date.
Vendor has caused the fiscal year end for the Cochrane Partnership to end on the
day immediately preceding the Effective Date.

7.2   TAX RETURNS FOR STRADDLE PERIOD AND POST-EFFECTIVE DATE PERIODS

Purchaser shall prepare or cause to be prepared and timely filed all Tax Returns
for each Corporate Subsidiary and the Subsidiary Partnerships for taxable
periods ending on or after the Effective Date. Purchaser shall permit Vendor to
review and comment on each such Tax Return prior to filing and shall make such
revisions to such Tax Returns as are reasonably requested by Vendor. Vendor
shall reimburse Purchaser for all reasonable third party costs and expenses
incurred in connection with the preparation and filing of such Tax Returns to
the extent in relation to the period ending on or at the Effective Date.

7.3   COOPERATION ON TAX MATTERS

Vendor and Purchaser shall cooperate fully, as and to the extent reasonably
requested by the other Party, in connection with the preparation and filing of
Tax Returns pursuant to this Article 7, in the conduct of any Tax matter with
respect to Taxes relating to taxable periods (or portions thereof) ending prior
to the Effective Date and in the management of income tax liability and the
implementation of any Tax savings plans.

<PAGE>

                                       24

7.4   TAX LIABILITY

      (a)   Vendor shall be liable for, and shall cause to be timely paid, all
            Taxes, and shall be entitled to Tax refunds, of PARI and 898389 for
            tax periods ending prior to the Effective Date ("PRE-EFFECTIVE DATE
            TAX PERIOD");

      (b)   Subject to Section 7.4(c), Purchaser shall be liable for, and shall
            cause to be timely paid, all Taxes, and shall be entitled to Tax
            refunds, of PARI and 898389 for taxable periods ending on or after
            the Effective Date;

      (c)   Vendor shall be liable for all Taxes and entitled to Tax refunds of
            PARI and 898389 for periods that begin before the Effective Date and
            end after the Effective Date ("STRADDLE PERIOD") that are properly
            allocable to the period prior to the Effective Date ("PRE-EFFECTIVE
            DATE PERIOD"). Taxes or Tax refunds from a Straddle Period shall be
            allocated to Vendor by taking the total amount of Tax or Tax refunds
            for the Straddle Period and apportioning an amount of such Tax or
            Tax refunds to Vendor based on the tax base attributable to the
            Pre-Effective Date Period (examples of tax base are "sale" and/or
            "expenditures" for sales tax returns and "time" for franchise tax
            and ad valorem tax returns).

      (d)   The Straddle Period Taxes (which may include tax refunds) allocable
            to Vendor as well as any unpaid Taxes or Tax refunds from
            Pre-Effective Date Tax Periods shall be included as Other Current
            Liabilities or Other Current Assets in the determination of Net
            Working Capital.

7.5   TAX INDEMNIFICATION AND AUDITS

      (a)   Provided Purchaser and its Affiliates have not requested an audit by
            a taxing authority or otherwise deliberately caused such an audit to
            occur, from and after the Closing Vendor shall indemnify, release
            and save Purchaser, its Affiliates, PARI and 898389 and their
            respective officers, directors, employees and agents harmless from
            and against, and shall pay, all Taxes imposed (net of the present
            value of any Tax benefits, including the present value of any
            increased future year deductions, calculated pursuant to Schedule
            "J") as a result of an assertion, claim, notice of deficiency, or
            assessment by, or any obligation owing to, any taxing authority for
            any Taxes of PARI or 898389 for any Pre-Effective Date Period or for
            any Straddle Period Taxes which are properly allocable to Vendor
            under Section 7.4.

      (b)   Provided Vendor and its Affiliates have not requested an audit by a
            taxing authority or otherwise deliberately caused such an audit to
            occur, from and after Closing, Purchaser shall indemnify, release
            and save the Vendor Indemnified Parties harmless from and against,
            and shall pay, all Taxes imposed as a result of an assertion, claim,
            notice of deficiency or assessment by, or any obligation owing to,
            any taxing authority for any Taxes of PARI or 898389 for any period
            beginning on or after the Effective Date ("POST-EFFECTIVE DATE
            PERIOD") or for

<PAGE>

                                       25

            any Straddle Period Taxes which are properly allocable to Purchaser
            under Section 7.4.

      (c)   If an assertion, question or claim (whether written or verbal) shall
            be made by any taxing authority that could result in the
            indemnification of a Party (the "TAX INDEMNIFIED PARTY") under this
            Section, the Tax Indemnified Party shall promptly notify the Party
            obligated under this Section (the "TAX INDEMNIFYING PARTY") to
            indemnify the Tax Indemnified Party in writing of such fact, and:

            (i)   the Tax Indemnified Party shall take such action in connection
                  with responding to such assertion, question or claim as the
                  Tax Indemnifying Party shall reasonable request in writing
                  from time to time, including the selection of counsel and
                  experts and the execution of powers of attorney, provided that
                  (A) within thirty (30) days after the notice required by this
                  subsection has been delivered (or such earlier date that any
                  payment of Taxes is due by the Tax Indemnified Party but in no
                  event sooner than five (5) days after the Tax Indemnifying
                  Party's receipt of such notice), the Tax Indemnifying Party
                  requests that such claim be contested or specifies the manner
                  in which such assertion or question should be responded to,
                  and (B) the Tax Indemnifying Party shall have agreed to pay to
                  the Tax Indemnified Party all reasonable costs and expenses
                  that the Tax Indemnified Party incurs in connection with
                  contesting such claim or responding to such question or
                  assertion, including reasonable attorney's and accountants'
                  fees and disbursements. The Tax Indemnified Party shall not
                  make any payment of such claim for at least thirty (30) days
                  (or such shorter period as may be required by Applicable Laws)
                  after the giving of the notice required by this subsection,
                  shall give to the Tax Indemnifying Party any information
                  requested relating to such assertion, question or claim, and
                  shall otherwise cooperate with the Tax Indemnifying Party in
                  order to contest effectively any such assertion, question or
                  claim. The Tax Indemnifying Party shall determine the method
                  of any contest of such claim and shall control the conduct
                  thereof. The Tax Indemnifying Party shall have the right to
                  pay the amount of any claim at any time for the purpose of
                  avoiding interest charges. Upon the successful contestation of
                  such claim, in whole or in part, the Tax Indemnifying Party
                  shall be entitled to the return of such amount or portion
                  thereof, together with any interest that is received thereon;

            (ii)  subject to the provisions of paragraph (i) of this subsection,
                  the Tax Indemnified Party shall enter into settlement of such
                  contest with the applicable taxing authority or prosecute such
                  contest to a determination in a court, all as the Tax
                  Indemnifying Party may reasonably request; provided, however,
                  that the Tax Indemnified Party shall not be required by this
                  Section 7.5(c) to agree to any settlement or take any position
                  in any contest that would increase the Tax Indemnified Party's
                  tax liability for any period for which it is not indemnified
                  by the Tax Indemnifying Party;

<PAGE>

                                       26

            (iii) promptly after the extent of the liability of the Tax
                  Indemnified Party with respect to a claim shall be established
                  by the final judgment or decree of a court or a final and
                  binding settlement with a Governmental Body having
                  jurisdiction thereof, the Tax Indemnifying Party shall pay to
                  the Tax Indemnified Party the amount of any Taxes to which the
                  Tax Indemnified Party may become entitled by reason of the
                  provisions of this Section; and

            (iv)  the failure of the Tax Indemnified Party to promptly notify
                  the Tax Indemnifying Party hereunder shall not relieve the Tax
                  Indemnifying Party of its obligations hereunder, except to the
                  extent that the Tax Indemnifying Party is prejudiced by the
                  failure to so notify promptly.

      (d)   Notwithstanding anything to the contrary in this Section, any
            interest, penalties, fines, assessments or additions to Tax
            resulting from or attributable to the failure of the Tax Indemnified
            Party to act in a timely manner, including filing Tax Returns,
            responding to tax audit or other inquiries or making payments shall
            not be indemnified hereunder and shall be the sole responsibility of
            the Tax Indemnified Party.

      (e)   In addition to the provisions of Section 7.5(c), if Vendor becomes
            aware of any proposed audit adjustments of a Pre-Effective Date
            Period Tax Return that could result in or increase any Tax imposed
            on PARI or 898389 in any Post-Effective Date Period, Vendor shall
            promptly inform Purchaser. If Vendor elects not to contest the
            adjustment, Purchaser shall have the option, at Purchaser's own
            expense, to contest the proposed adjustment in accordance with the
            provisions of Section 7.5(c).

      (f)   In addition to the provisions of Section 7.5(c), if any proposed
            audit adjustments of a Post-Closing Period could result in an audit
            adjustment for a Pre-Effective Date Period, Purchaser shall promptly
            inform Vendor. If Purchaser elects not to contest the adjustment,
            Vendor shall have the option, at Vendor's own expense, to contest
            the proposed adjustment in accordance with the provisions of Section
            7.5(c).

      (g)   Subject to the application of Section 12 to any representation,
            warranty, covenant or agreement made herein with respect to Taxes,
            the indemnification provided in this Section shall be the sole
            remedy for any claim in respect of Taxes. Any claim for indemnity
            under this Section must be made within ninety (90) days following
            the expiration of the applicable tax statute of limitations with
            respect to the relevant taxable period (including all periods of
            extension).

      (h)   To the extent any refunds or credits with respect to Taxes paid by
            PARI or 898389 are attributable to transactions in taxable periods
            commencing before and ending on or before the Effective Date, such
            refunds or credits shall be for the account of Vendor. Except as
            provided in the immediately succeeding sentence, to the extent any
            determination of Taxes, whether as the result of an audit or
            examination, a claim for refund, the filing of an amended Tax Return
            or otherwise

<PAGE>

                                       27

            results in a refund or credit of Taxes paid (a "REFUND") (i) Vendor
            shall be entitled to any part of such Refund attributable to a
            Pre-Effective Date Period, (ii) Purchaser shall be entitled to any
            part of such Refund attributable to a Post-Closing Tax Period, and
            (iii) Purchaser and Vendor shall each be entitled to a Refund
            attributable to a Straddle Period in the portions that Purchaser and
            Vendor originally bore any Taxes payable with respect to such
            taxable period. Whichever Party receives such Refund shall, within
            ten (10) Business Days after receipt thereof, pay such Refund, or
            the appropriate part thereof, and the interest received thereon to
            the Party entitled thereto under this subsection. To the extent any
            such Refund is properly includable in the taxable income of the
            initial recipient, the amount forwarded or reimbursed to Vendor or
            Purchaser, as the case may be, shall be reduced by a percentage of
            the amount of such Refund equal to the highest combined marginal
            federal and provincial income tax rate applicable to manufacturing
            and processing profits for the tax period in which the Refund is
            received. Any Refund not made within the ten (10) Business Day
            period specified above shall bear interest from the date received by
            the refunding Party at the Prime Rate.

      (i)   Purchaser agrees that it shall not take any pro-active action which
            may result in an audit or investigation relating to Tax matters
            arising from the conduct of the Business prior to the Effective
            Date.

                                   ARTICLE 8
                          PREFERENTIAL PURCHASE RIGHTS

8.1   NOTICES

As soon as commercially reasonable following the execution and delivery of this
Agreement by both Parties, Vendor shall comply with all Preferential Purchase
Rights set forth and described in Schedule "N" which have not been waived and
shall inter alia cause any required notices to be served on all appropriate
parties utilizing bona fide value allocations as required under the agreements
pursuant to which such Preferential Purchase Rights relate, which shall be
supplied by Purchaser based upon generally accepted industry evaluation
practices applied in a reasonable manner.

8.2   CONTINUED OBLIGATIONS UPON EXERCISE OF PREFERENTIAL PURCHASE RIGHTS

If one or more third parties duly exercises a Preferential Purchase Right,
Vendor shall proceed to sell that part of the Assets subject to such exercised
Preferential Purchase Right (the "ROFR ASSETS") to such third party or third
parties, and Purchaser shall purchase all of the Shares and the Support Assets
other than the ROFR Assets subject to and in accordance with this Agreement,
and:

      (a)   the Purchase Price shall be reduced by the aggregate value
            attributed to the ROFR Assets pursuant to the values attributed
            thereto by Purchaser pursuant to Section 8.1; and

<PAGE>

                                       28

      (b)   this Agreement, including the definitions and all Schedules attached
            hereto, and all certificates, agreements and documents to be
            delivered pursuant hereto shall be construed without reference to
            the ROFR Assets.

                                   ARTICLE 9
                           ENVIRONMENTAL DUE DILIGENCE

9.1   ENVIRONMENTAL REPORTS

Purchaser acknowledges that prior to the execution and delivery of this
Agreement, Purchaser has reviewed and examined all environmental reports,
audits, summaries and other data and information relating to the Environment
referred to in Schedule "I" with respect to the environmental condition of the
Assets, and has taken into account the Previously Disclosed Environmental
Liabilities in determining the amount of the Purchase Price.

9.2   ENVIRONMENTAL LIABILITY

Purchaser acknowledges that it has been provided with the right and opportunity
to conduct due diligence investigations with respect to any potential
Environmental Liabilities. Notwithstanding any other provision of this
Agreement, Purchaser shall be solely responsible for all Environmental
Liabilities regardless of whether such Environmental Liabilities occurred, arose
or accrued at, prior to or subsequent to the Time of Closing. The covenants and
agreements to indemnify made by Purchaser pursuant to Section 12.2 (b)(v) shall
survive the Closing and shall not be subject to any limitation periods. Other
than claims by Purchaser pursuant to Section 12.1 in respect of the
representation and warranty contained in Subsection 6.1(m), the Purchaser
Indemnified Parties shall have no rights of recovery, indemnification or
contribution for Environmental Liabilities under this Agreement or at law or in
equity, and all other rights or remedies which Purchaser may have at or under
Applicable Law or in equity, including any right of contribution or
reimbursement under any Environmental Law, with respect to any Environmental
Liabilities are expressly waived.

                                   ARTICLE 10
                                   CONDITIONS

10.1  CONDITIONS FOR BENEFIT OF PURCHASER

The obligation of Purchaser to complete the Transaction shall be subject to the
satisfaction of, or compliance with, the following conditions at or before the
Time of Closing (which conditions Vendor hereby acknowledges are intended for
the exclusive benefit of Purchaser and may be unilaterally waived by Purchaser
in whole or in part):

      (a)   VENDOR'S REPRESENTATIONS AND WARRANTIES: The representations and
            warranties of Vendor set forth in Section 6.1 shall, except where a
            specific time is otherwise indicated, be true and correct in all
            material respects as at the Time of Closing with the same force and
            effect as though made at the Time of Closing, except to

<PAGE>

                                       29

            the extent of any matters permitted under Section 5, and a
            certificate to that effect from Vendor shall have been delivered to
            Purchaser at Closing;

      (b)   COMPLIANCE WITH AGREEMENT: Vendor shall have complied with and
            performed in all material respects all covenants and obligations
            required by this Agreement to be complied with and performed by
            Vendor at or prior to Closing;

      (c)   RECEIPT OF CLOSING DOCUMENTATION: Purchaser shall have received from
            Vendor all documents required to be delivered by Vendor pursuant to
            Section 11.2;

      (d)   STATUTORY REQUIREMENTS: The Competition Act Requirement shall have
            been satisfied on term satisfactory to Purchaser, acting reasonably;

      (e)   REQUIRED CONSENTS: All Required Consents shall have been obtained;
            and

      (f)   ADDITIONAL CONDITION: The condition set forth in that letter
            agreement between Purchaser and Vendor dated June 29, 2004 shall
            have been satisfied or waived by July 20, 2004.

10.2  CONDITIONS FOR BENEFIT OF VENDOR

The obligation of Vendor to complete the Transaction shall be subject to the
satisfaction of, or compliance with, at or before the Time of Closing, the
following conditions (which are acknowledged to be inserted for the exclusive
benefit of Vendor and which may be unilaterally waived by Vendor in whole or in
part):

      (a)   TRUTH AND ACCURACY OF REPRESENTATIONS AND WARRANTIES: All
            representations and warranties of Purchaser in Section 6.2 shall,
            except where a specific time is otherwise indicated, be true and
            correct in all material respects as at the Time of Closing with the
            same force and effect as though made at the Time of Closing and a
            certificate to that effect from Purchaser shall have been delivered
            to Vendor at Closing;

      (b)   COMPLIANCE WITH AGREEMENT: Purchaser shall have complied with and
            performed in all material respects all covenants and agreements
            required by this Agreement to be complied with and performed by
            Purchaser at or prior to Closing;

      (c)   RECEIPT OF CLOSING DOCUMENTATION: Vendor shall have received from
            Purchaser all documents required to be delivered by Purchaser
            pursuant to Section 11.3;

      (d)   STATUTORY REQUIREMENTS: The Competition Act Requirement shall have
            been satisfied on terms satisfactory to Vendor, acting reasonably;
            and

      (e)   REQUIRED CONSENTS: All Required Consents shall have been obtained

<PAGE>

                                       30

10.3  PARTIES TO EXERCISE DILIGENCE WITH RESPECT TO CONDITIONS PRECEDENT

Each Party shall use all commercially reasonable efforts to satisfy (or cause
the satisfaction of) the conditions to its and the other Party's obligations
under this Agreement that are reasonably capable of being performed by it and,
subject to the satisfaction or waiver of the conditions set forth in this
Section 10 that are for its benefit, each Party shall take, or cause to be taken
all other commercially reasonable actions to complete the Transaction. Purchaser
shall be solely responsible, at its sole cost, for preparing and filing the
Competition Act Notification. Purchaser shall be obligated to agree to
reasonable conditions and undertakings to the extent required to satisfy the
Competition Act Requirement.

10.4  RIGHTS OF PURCHASER

If:

      (a)   any of the conditions for the exclusive benefit of Purchaser set
            forth in Section 10.1 shall not have been fulfilled at or prior to
            the Closing; or

      (b)   Vendor has notified Purchaser of an amendment to Vendor's
            representations and warranties pursuant to Section 5.6 that is
            reasonably expected to have a Material Adverse Effect,

Purchaser shall be entitled, upon written notice given to Vendor prior to the
Time of Closing to terminate its obligations under this Agreement effective as
of the time of such notice, provided such written notice sets forth the grounds
of termination. If no such notice is given prior to the completion of Closing,
Purchaser shall be deemed to have waived fulfillment of such condition and to
have elected to proceed with Closing as contemplated by Section 11. Where
Purchaser has given written notice to Vendor to terminate its obligations under
this Agreement as a result of an amendment to Vendor's representations and
warranties pursuant to Section 5.6, and such amendment is the result of a
willful breach by Vendor of its obligations hereunder, or is attributable the
actions of Vendor's Affiliate which, had they been actions of Vendor, would have
been a willful breach hereunder, Vendor shall pay to Purchaser, the Purchaser's
Transaction Costs.

10.5  RIGHTS OF VENDOR

If:

      (a)   any of the conditions for the exclusive benefit of Vendor set forth
            in Section 10.2 shall not have been fulfilled at or prior to the
            Time of Closing; or

      (b)   Purchaser has notified Vendor of an amendment to Purchaser's
            representations and warranties pursuant to Section 5.6 that is
            reasonably expected to have a Material Adverse Effect,

Vendor shall be entitled, by written notice given to Purchaser prior to the Time
of Closing to terminate its obligations under this Agreement effective as of the
time of such notice, provided such written notice sets forth the grounds of
termination. If no such notice is given prior to the

<PAGE>

                                       31

completion of Closing, Vendor shall be deemed to have waived fulfillment of such
condition and to have elected to proceed with Closing as contemplated by Section
11.

10.6  EFFECT OF TERMINATION

If this Agreement is terminated by Purchaser as permitted under Section 10.4 or
terminated by Vendor as permitted under Section 10.5 hereof:

      (a)   except as set forth in paragraph (b), (c) and (d) below, such
            termination shall be without liability of any Party to any other
            Party to this Agreement and the Parties shall be released from all
            of their obligations under this Agreement and neither Party shall
            have any claim against the other for damages or specific performance
            or otherwise in respect of the Transaction or this Agreement other
            than a claim for Losses suffered or incurred by it as a consequence
            of the other Party failing to comply with Section 10.3;

      (b)   the Deposit and interest accrued thereon shall be retained by Vendor
            or returned to Purchaser in accordance with Article 3;

      (c)   Purchaser shall promptly return to Vendor all materials delivered to
            Purchaser by Vendor, together with all copies of them that may have
            been made by or for Purchaser as contemplated in the Confidentiality
            Agreement; and

      (d)   the Confidentiality Agreement shall survive any termination of this
            Agreement.

10.7  PROVISION OF INFORMATION

For a period commencing on the date hereof and ending on the first anniversary
of the Closing Date, Vendor shall, subject to any obligations to third parties
or other lawful restrictions, provide to Purchaser and to Purchaser's auditors
such information as Purchaser may request in respect of the Assets and Business
as is required pursuant to Applicable Laws, or for the requirements of any stock
exchange or securities commission, which information may be disclosed by
Purchaser in accordance with Section 17.9. Vendor consents to its auditors
communicating and cooperating with Purchaser and its auditors and providing any
consent or comfort letter in connection with Purchaser's use of financial
information provided under this Section 10.7 and will instruct its auditors to
do so.

                                   ARTICLE 11
                                     CLOSING

11.1  CLOSING OF TRANSACTION

The Closing shall take place at the offices of Vendor's counsel, Bennett Jones
LLP, in Calgary Alberta, at 10:00 a.m. on the Closing Date.

<PAGE>

                                       32

11.2  DELIVERIES BY VENDOR AT CLOSING

At Closing, Vendor shall deliver or cause to be delivered to Purchaser:

      (a)   the documents reasonably necessary to effectively transfer and
            convey the Shares and the Support Assets to Purchaser and the
            Purchaser shall, at its own cost and expense, register or have
            executed by third-parties such documents necessary to effect such
            transfer and conveyance;

      (b)   resignations of the directors and officers of the Corporate
            Subsidiaries and mutual releases of all claims such officers and
            directors and the Corporate Subsidiaries may have against each other
            arising from such officers and directors acting as such;

      (c)   the certificate referred to in Section 10.1(a);

      (d)   share certificates representing all of the shares of each of the
            Corporate Subsidiaries (endorsed for transfer);

      (e)   confirmation from the CIBC of the repayment of the PARI CIBC Loan;

      (f)   termination of, and releases by Vendor, 898389 and PARI in respect
            of, the Management and Operating Services Agreements;

      (g)   a guarantee given by The Williams Companies, Inc. of the payment and
            performance by Vendor of its obligations hereunder in the form of
            that attached as Schedule "U";

      (h)   a bill of sale or general conveyance in respect of the Support
            Assets in form and substance satisfactory to Purchaser, acting
            reasonably; and

      (i)   any other documents specifically contemplated herein.

11.3  DELIVERIES BY PURCHASER AT CLOSING

At Closing, Purchaser shall deliver or cause to be delivered to Vendor:

      (a)   the payments described in Sections 3.3, 3.4 and 3.5;

      (b)   the certificate referred to in Section 10.2(a);

      (c)   a guarantee given by Inter Pipeline Fund of the payment and
            performance by Purchaser of its obligations hereunder in the form of
            that attached as Schedule "U"; and

      (d)   and any other documents specifically contemplated herein.

<PAGE>

                                       33

                                   ARTICLE 12
                                   INDEMNITIES

12.1  INDEMNITY BY VENDOR

From and after the Closing and subject to the limitations contained in Sections
12.3 and 12.4, Vendor shall:

      (a)   be solely liable and responsible for any and all Losses which
            Purchaser, its Affiliates and their directors, officers, agents and
            employees (the "PURCHASER INDEMNIFIED PARTIES") may suffer, sustain,
            pay or incur; and

      (b)   indemnify, release and save Purchaser Indemnified Parties from any
            and all Losses which Purchaser Indemnified Parties may suffer,
            sustain, pay or incur;

resulting from, arising out of, attributable to or connected with:

            (i)   any breach of any representation or warranty made by Vendor
                  under Section 6.1;

            (ii)  any failure by Vendor to observe or perform any covenant or
                  agreement made by Vendor under this Agreement to the extent
                  such failure was not caused by a Purchaser Indemnified Party;
                  and

            (iii) third party claims arising from or related to the conduct of
                  the Business prior to the Effective Date, other than:

                  (A)   Environmental Liabilities;

                  (B)   Disclosed Actions; and

                  (C)   any current liabilities included in the Net Working
                        Capital.

            (iv)  claims arising from or related to the Outstanding Audits; and

            (v)   claims arising from or related to the Excluded Assets or any
                  Third Party Technology, Process Technology or Hardware that
                  Vendor is unable to transfer, assign or license.

The covenants and agreements to indemnify made by Vendor in this Section shall
survive the Closing for the applicable Survival Period.

12.2  INDEMNITY BY PURCHASER

From and after the Closing and subject to the limitations contained in Section
12.3, Purchaser shall:

<PAGE>

                                       34

      (a)   be solely liable and responsible for any and all Losses which
            Vendor, its Affiliates and their directors, officers, agents and
            employees (the "VENDOR INDEMNIFIED PARTIES") may suffer, sustain,
            pay or incur; and

      (b)   indemnify, release and save the Vendor Indemnified Parties harmless
            from any and all Losses which Vendor Indemnified Parties may suffer,
            sustain, pay or incur;

resulting from, arising out of, attributable to or connected with:

            (i)   any breach of any representation or warranty made by Purchaser
                  under Section 6.2;

            (ii)  any failure by Purchaser to observe or perform any covenant or
                  agreement made by Purchaser under this Agreement to the extent
                  such failure was not caused by the Vendor Indemnified Parties;

            (iii) the Future Obligations and the Financial Assurances to the
                  extent provided in Section 2.2(c) to the extent such failure
                  was not caused by a breach of a representation, warranty or
                  covenant of the Vendor hereunder;

            (iv)  any Taxes (other than income taxes of Vendor), fees, charges,
                  levies, duties or similar assessments or charges of any
                  jurisdiction which may be imposed with respect to the
                  Transaction, including any associated interest charges or
                  penalties, to the extent such Taxes, fees, charges, levies,
                  duties or similar assessments or charges were not caused by a
                  breach of a representation, warranty or covenant of the Vendor
                  hereunder;

            (v)   Environmental Liabilities, regardless of whether such
                  Environmental Liabilities occurred, arose or accrued at, prior
                  to or subsequent to the Time of Closing, unless and to the
                  extent Vendor is liable to Purchaser pursuant to Section 12.1
                  in respect of a breach of the representation and warranty set
                  forth in Section 6.1(m);

            (vi)  Disclosed Actions; and

            (vii) the failure by Purchaser to cause the removal of names or
                  marks pursuant to, or any other violation of, Section 17.1.

The covenants and agreements to indemnify made by Purchaser in this Section
shall survive the Closing for the applicable Survival Period.

12.3  EMPRESS II PARTNERSHIP TRANSACTION

Purchaser acknowledges that on or immediately prior to the Effective Date, in
anticipation of the Transaction, Vendor caused to be undertaken the Empress II
Partnership Transaction. Whether or not Closing occurs, Purchaser shall:

<PAGE>

                                       35

      (a)   be solely liable and responsible for any and all Losses which the
            Vendor Indemnified Parties may suffer, sustain, pay or incur; and

      (b)   indemnify, release and save Vendor Indemnified Parties from any and
            all Losses which Vendor Indemnified Parties may suffer, sustain, pay
            or incur;

as a result of the Empress II Partnership Transaction to the extent such Losses
would not have been suffered, sustained, paid or incurred had the Empress II
Partnership Transaction not occurred.

12.4  SURVIVAL OF REPRESENTATIONS AND WARRANTIES\NO MERGER

      (a)   The covenants, agreements, representations, warranties and
            indemnities of the Parties contained in this Agreement, or in any
            certificate, agreement or other document furnished by or on behalf
            of the Parties pursuant to this Agreement, shall survive Closing
            and, notwithstanding Closing or any documents delivered or
            investigations made by the Parties in connection therewith, shall
            continue in full force and effect for the benefit of the Party to
            whom such covenant, agreement, representation, warranty and
            indemnity was made; provided that no claim may be made against any
            Party pursuant to or based in any way upon the breach of any
            covenant, agreement, representation, warranty or for indemnification
            unless written notice thereof with reasonable particulars shall have
            been provided by the Party making such claim within the following
            period (the "SURVIVAL PERIOD"):

            (i)   in the case of a claim pursuant to Section 12.1(i) or 12.2(i),
                  the Survival Period is twelve (12) months;

            (ii)  in the case of a claim by the Vendor Indemnified Parties
                  pursuant to 12.2 (iv), the Survival Period is the limitation
                  period under the relevant Tax legislation;

            (iii) in the case of a claim pursuant to Article 7 the Survival
                  Period is as set out in Section 7.5(g); and

            (iv)  subject to the Limitations Act (Alberta), in the case of any
                  other claim the Survival Period is unlimited.

      (b)   After the applicable Survival Period, a Party shall have no
            liability in respect of the covenants, agreements, representations,
            warranties and indemnities of such Party contained in this Agreement
            or in any certificate, agreement or other document furnished by or
            on behalf of such Party pursuant to this Agreement unless written
            notice of a claim in respect thereof has been provided within three
            (3) Business Days following the expiry of such Survival Period.

12.5  LIMITATION ON VENDOR'S INDEMNITIES

Notwithstanding any other provision of this Agreement, the liability of Vendor
pursuant to this Agreement and any certificate, agreement or other document
delivered pursuant hereto,

<PAGE>

                                       36

including any liability pursuant to a claim for indemnity or for breach of any
representation, warranty, covenant or agreement on the part of Vendor contained
herein shall be limited in accordance with the following provisions:

      (a)   written notice of a claim shall have been provided by the relevant
            Purchaser Indemnified Party to Vendor within the Survival Period in
            accordance with Section 12.4;

      (b)   a Purchaser Indemnified Party shall have no claim against Vendor:

            (i)   in respect of a particular act, omission, breach, failure or
                  other event, unless the Losses attributable to such act,
                  omission, breach, failure or other event exceed $250,000; and

            (ii)  unless and until the aggregate amount of all claims by the
                  Purchaser Indemnified Parties in respect of any other acts,
                  omissions, breaches, failures or other events exceeds
                  $10,000,000 and Vendor shall only be liable to the Purchaser
                  Indemnified Parties with respect to that portion of the claims
                  that exceed the aggregate deductible of $10,000,000;

      (c)   the aggregate amount of the claims of the Purchaser Indemnified
            Parties against Vendor shall not exceed fifty percent (50%) of the
            Base Purchase Price; and

      (d)   no claims may be made by the Purchaser Indemnified Parties against
            Vendor to the extent that the matter is reimbursed or reimbursable
            by insurance.

12.6  INDEMNITY PROCEDURE FOR THIRD PARTY CLAIMS

The following procedures shall be applicable to any claim by a Party (the
"INDEMNIFIED PARTY") for indemnification from the other Party (the "INDEMNIFYING
PARTY") in respect of a third party claim made against the Indemnified Party
pursuant to this Agreement.:

      (a)   Upon the third party claim being made against or commenced against
            the Indemnified Party, the Indemnified Party shall promptly provide
            notice thereof to the Indemnifying Party. The notice shall describe
            the third party claim in reasonable detail and indicate the
            estimated amount, if practicable, of the indemnifiable Losses that
            has been or may be sustained by the Indemnified Party. If the
            Indemnified Party does not give timely notice to the Indemnifying
            Party as aforesaid, then such failure shall only lessen or limit the
            Indemnified Party's rights to indemnity hereunder to the extent that
            the defence of the third party claim was prejudiced by such lack of
            timely notice.

      (b)   If the Indemnifying Party acknowledges to the Indemnified Party in
            writing that the Indemnifying Party is responsible to indemnify the
            Indemnified Party in respect of the third party claim pursuant
            hereto, the Indemnifying Party shall have the:

<PAGE>

                                       37

            (i)   the right to assume carriage of the defence of the claim using
                  legal counsel of its choice and at its sole cost; and\or

            (ii)  the right to settle the claim provided the Indemnifying Party
                  pays the full monetary amount of the settlement and the
                  settlement does not impose any restrictions or obligations on
                  the Indemnified Party;

      (c)   Each Party shall cooperate with the other in the defence of the
            claim, including making available to the other Party, its directors,
            officers, employees and consultants whose assistance, testimony or
            presence is necessary to assist in evaluating and defending the
            third party claim.

      (d)   The Indemnified Party shall not enter into any settlement, consent
            order or other compromise with respect to the third party claim
            without the prior written consent of the Indemnifying Party, (which
            consent shall not be unreasonably withheld or delayed) unless the
            Indemnified Party waives its rights to indemnification in respect of
            the third party claim.

      (e)   Upon payment of the third party claim, the Indemnifying Party shall
            be subrogated to all claims the Indemnified Party may have relating
            thereto. The Indemnified Party shall give such further assurances
            and cooperate with the Indemnifying Party to permit the Indemnifying
            Party to pursue such subrogated claims as reasonably requested by
            it.

      (f)   If the Indemnifying Party has paid an amount pursuant to the
            indemnification obligations herein and the Indemnified Party shall
            subsequently be reimbursed from any source in respect of the claim
            from any other Person, the Indemnified Party shall promptly pay to
            the Indemnifying Party such amounts received, including interest
            actually received attributable thereto, net of taxes required to be
            paid as a result of any such receipt and plus any taxes saved or
            recovered as a result of such payment.

12.7  CONSEQUENTIAL DAMAGES

In no event shall a Party be liable in respect of the covenants, agreements,
representations, warranties and indemnities contained in this Agreement or in
any certificate, agreement or other document furnished pursuant to this
Agreement for consequential, indirect or punitive damages (including loss of
anticipated profits, business interruption or any special or incidental loss of
any kind) suffered, sustained, paid or incurred by the other Party.

12.8  FAILURE BY VENDOR TO CLOSE

If Closing does not occur due to a breach of this Agreement by Vendor, Vendor
shall be liable to Purchaser for, and shall indemnify Purchaser in respect of,
all Purchaser's Transaction Costs.

<PAGE>

                                       38

                                   ARTICLE 13
                                BOOKS AND RECORDS

13.1  PRESERVATION AND ACCESS TO BOOKS AND RECORDS

      (a)   Vendor shall deliver to Purchaser the originals of Books and Records
            relating to the Business as soon as practicable after Closing, other
            than:

            (i)   Books and Records that relate to any assessment, action,
                  investigation or other legal proceeding to which Vendor is a
                  party; and

            (ii)  Books and Records that also relate to other business or
                  operations of Vendor or its Affiliates.

            Such delivery shall be effected by the occupation by Purchaser of
            the premises held pursuant to the Office Lease and the delivery by
            the Vendor to the Purchaser of any Books and Records not held in
            such premises.

      (b)   Purchaser shall make available for Vendor, and Vendor shall be
            entitled to permanently retain copies of, all Books and Records
            referred to in (a)(i) and (ii) above (provided that Purchaser may
            retain a copy of same to the extent related to the Business) and all
            information, data, documents, books, records, agreements, reports,
            plans, drawings, papers, files, lists, returns, assessments,
            reassessments and other materials of any nature or kind (whether
            written, machine readable or electronically stored) which are
            directly related to the ownership, conduct and/or operation of the
            business or operations of Vendor or its Affiliates other than the
            Business.

      (c)   Following Closing, upon reasonable notice to Purchaser, Vendor shall
            be entitled to access and copy the Books and Records for any
            reasonable business purpose, including preparing for litigation,
            arbitration or to respond to any claim, demand, investigation or
            assessment threatened or commenced against Vendor, responding to any
            post-Closing inquiries made by any Governmental Body or other third
            parties, the preparation of Tax Returns and income tax information,
            the determination of the actual Accounting Adjustments as provided
            in Section 4, and responding to an audit or complying with the
            requirements of Applicable Laws. Vendor shall pay all reasonable
            third party costs and expenses incurred by Purchaser in providing
            Vendor access to the Books and Records from time to time. All such
            Books and Records made available to Vendor pursuant to this Section
            13.1(c) shall be maintained as confidential by Vendor and shall not
            be disclosed except as required in connection with any demand,
            investigation or assessment threatened or commenced against Vendor.

      (d)   Until December 31, 2010, Purchaser shall give Vendor reasonable
            written notice prior to transferring, destroying or discarding any
            such Books and Records and, if Vendor so requests, Purchaser shall
            allow Vendor to take possession of such Books and Records. If any
            Books and Records contain information relating to the Business which
            is consolidated with, or otherwise difficult to isolate or extract

<PAGE>

                                       39

            from, information that relates to other business or operations of
            Vendor or its Affiliates, the Parties shall cooperate and act in
            good faith to determine which information should be provided to
            Purchaser hereunder and the means for providing that information.

                                   ARTICLE 14
                                   TECHNOLOGY

14.1  IN-HOUSE SOFTWARE

At Closing Vendor shall, to the extent permitted under any related agreements to
which it is subject, grant to Purchaser, a perpetual, non-exclusive, paid-up
sub-license in and to the source code and documentation (if any) to the In-house
Software pursuant to which Purchaser shall have the right after Closing to
disassemble, decompile, reverse engineer or otherwise manipulate, develop,
change, expand or abandon all or any part of the In-house Software and shall
also have the right to further sub-licence all or any part of the In-house
Software to Affiliates or any third party purchaser of the Business for use in
connection with the Business. The In-house Software and the sub-license in
respect thereof shall be delivered to Purchaser on an "as-is" basis without any
representation or warranty of any nature or kind whatsoever. Notwithstanding
anything to the contrary contained in this Agreement, or in any certificate,
agreement or other document delivered pursuant hereto, Vendor specifically
disclaims any and all warranties of any nature or kind whatsoever with respect
to the In-house Software, including any implied warranties of merchantability or
fitness for any particular purpose, and Vendor shall not be liable for any
Losses (including any consequential, punitive, exemplary, third party or other
damages) suffered, sustained, paid or incurred by Purchaser or any Person
claiming by, through or under Purchaser relating to the use, misuse or reliance
upon the In-house Software, the integration of the In-house Software with any
other software or the failure of the In-house Software. Vendor shall have no
obligation whatsoever in respect of the In-house Software, including any
obligation to support, update, upgrade or maintain such software. Vendor shall
retain all rights in and to the In-house Software, including the right after
Closing to disassemble, decompile, reverse engineer or otherwise manipulate,
develop, change, exchange, expand, commercialize, sell, license or abandon the
In-house Software and shall be under no obligation to account therefor or to
provide copies thereof to Purchaser. For greater certainty, Vendor will license
or otherwise transfer or make available to Purchaser that In-House Software
described in Schedule "O" as "EPAS-Extraction Plant Accounting System" and "LMAC
- Liquids Management Accounting", it being agreed that, when licensed by Vendor
to Purchaser, Vendor may continue to use such In-House Software.

14.2  THIRD PARTY TECHNOLOGY AND PROCESS TECHNOLOGY

Prior to Closing, Vendor and Purchaser will use commercially reasonable efforts
to obtain all necessary third party consents, additional licenses and other
documentation necessary for Purchaser, PARI, 838983, the Cochrane Partnership or
the Empress II Partnership to obtain the right to use the Third Party Technology
and the Process Technology from and after Closing, including by way of a
transfer, assignment or license by Vendor where legally permissible in the
judgment of Vendor. To the extent additional license fees, royalties or other
amounts are payable

<PAGE>

                                       40

to third parties in respect of Purchaser's, PARI's, 838983's or the Cochrane
Partnership's or the Empress II Partnership's right to use any Third Party
Technology and Process Technology, such fees, royalties and amounts shall be
paid by Purchaser. If Vendor is not able to transfer, assign or license any
Third Party Technology and Process Technology to Purchaser, PARI, 838983, the
Cochrane Partnership or the Empress II Partnership, Purchaser shall, at its sole
cost and expense, purchase or otherwise acquire its own license or rights to use
such Third Party Technology as may be necessary to carry on operations in
respect of the Business. For greater certainty, Vendor will license or otherwise
transfer or make available to Purchaser that Third Party Technology and Process
Technology described as items 3 though 8 in Schedule "P".

14.3  HARDWARE

Purchaser acknowledges that certain Hardware as identified on Schedule "Q" is
currently used by Vendor in the conduct of businesses other than the Business.
Notwithstanding Section 2.1, Vendor shall sell, assign, transfer and convey and
transfer possession to Purchaser and Purchaser shall purchase and acquire from
Vendor (without further consideration), the Hardware upon the earlier of (i)
such time as Vendor no longer requires the use of the Hardware in its
businesses, and (ii) the last day of the Transition Period. During such time
period, Vendor shall provide to Purchaser, as part of the Transitional Services,
the right to utilize the Hardware insofar as the Hardware is required to operate
the Third Party Technology and the In-House Software (provided that Purchaser
has obtained the right to use such Third Party Technology and the In-House
Software as described in Section 14.2).

14.4  NO LIABILITY

The inability of Vendor to transfer, assign or license any Third Party
Technology, Process Technology or Hardware to Purchaser shall not be deemed
under any circumstances to be the fault of, or create any liability under any
legal theory to Vendor (whether under breach of warranty, contract, tort or
strict liability), it being acknowledged by Purchaser that such matters are
beyond the control of Vendor. There shall be no adjustment to the Purchase Price
if Vendor is not able to transfer, assign or license any Third Party Technology,
In-House Software, Process Technology or Hardware to Purchaser.

                                   ARTICLE 15
                        INTERIM AND TRANSITIONAL SERVICES

15.1  INTERIM PERIOD

To compensate Vendor for the operation and maintenance of the Corporate
Subsidiaries during the Interim Period, Purchaser shall pay to Vendor on the
Closing Date, the amount described as being payable for the Interim Period as
set forth in Schedule "S". Such amount shall be prorated for any partial month.

<PAGE>

                                       41

15.2  TRANSITIONAL SERVICES

In order to facilitate the orderly and effective transition of the Business to
Purchaser, Vendor shall provide to Purchaser the services set forth in Schedule
"S" relating to the operation of the Business for the Transitional Period.

15.3  FEE PAYABLE FOR PROVISION OF TRANSITIONAL SERVICES

Purchaser shall pay Vendor or to the order of Vendor, a monthly fee for the
provision of the Transitional Services in accordance with the fee structure set
forth in Schedule "S". The fee payable by Purchaser shall represent recovery of
the direct costs incurred by Vendor, including related overhead. Purchaser shall
also pay to Vendor all third party costs and expenses incurred in providing the
Transitional Services. Upon notice by Purchaser, Vendor shall no longer supply
the services set forth in this Section 15.3 (or any portion thereof) and the
monthly fee (or the portion related thereto) shall no longer be payable. The
monthly fee shall be prorated for any partial month.

15.4  POINTS OF CONTACT

Prior to Closing, each of Vendor and Purchaser shall designate a transition
project manager (the "TRANSITION CO-ORDINATOR") to be the primary source of
co-ordination between the Parties for the provision of the Transitional
Services, and a point of contact for each of the Transitional Services specified
in Schedule "S". The Transitional Coordinator for each Party shall coordinate
all efforts in the provision and receipt of the Transitional Services. Purchaser
shall keep Vendor reasonably informed of its transitioning plan.

15.5  PURCHASER PROVIDED SERVICES

      (a)   Purchaser shall provide to Vendor such assistance as reasonably
            requested by Vendor, including certain Continued Employees, to:

            (i)   provide the Transitional Services; and

            (ii)  to provide such additional assistance as Purchaser as Vendor
                  may reasonably require to attend to certain post-Closing
                  matters.

      (b)   Purchaser shall also provide Vendor with the services contemplated
            in Note 1 of Schedule "S".

      (c)   Vendor shall pay to Purchaser:

            (i)   in respect of the services provided in (a) above, $10,000 per
                  month; and

            (ii)  in respect of the services provided in (b) above, $11,000 per
                  month.

      (d)   Upon notice by Vendor, Purchaser shall no longer supply the services
            set forth in this Section 15.5 and the amounts set forth in (c)
            shall no longer be payable. Such amounts shall be prorated for any
            partial month to the extent that Purchaser

<PAGE>

                                       42

            renders such employees unavailable to Vendor, Vendor shall have the
            right to hire third party contractors and consultants to assist in
            the provision of the Transitional Services and Purchaser shall
            reimburse Vendor for all such additional costs. Following Closing,
            for a period not to exceed 180 days, Purchaser shall provide Vendor
            with the services contemplated in Note 1 of Schedule "S", such costs
            to be credited against the fee payable in respect of the
            Transitional Services.

15.6  POST-CLOSING COSTS

Except as set out in this Article 15 or as expressly required herein, each Party
shall bear its own costs and expenses required to be incurred to prepare the
Final Closing Statement and satisfy any post-Closing obligations it may have.

15.7  PAYMENTS

The amounts payable by the Parties as set forth in this Article 15 may be set
off against each other. Any net amounts owing, plus GST thereon, shall be paid
within 30 days of receipt of the invoice. Where a Party fails to pay such
invoice within such 30 day period, the other Party shall have the right (without
limiting any other rights or remedies available to it) upon the delivery of
written notice to non-paying Party to cease to perform the services to which the
payment relates.

15.8  POST-CLOSING RECEIPTS

Any amounts received by Vendor or its Affiliates (other than the Corporate
Subsidiaries or the Subsidiary Partnerships) after the Closing Date and relating
to the operation of the Business after the Effective Date, including
governmental incentives (if any) and proceeds from the sale of production, shall
be received and held by Vendor or such Affiliate in trust for Purchaser and
shall be paid to Purchaser within five Business Days of receipt by Vendor or
such Affiliate.

                                   ARTICLE 16
                               EMPLOYMENT MATTERS

16.1  WRITTEN OFFERS OF EMPLOYMENT

Subject to the terms and conditions set forth in the letter agreement dated June
29, 2004 between Inter Pipeline Fund and the Vendor, Purchaser shall:

      (a)   control and be responsible for the process of evaluating the
            Prospective Employees and of selecting those Prospective Employees
            to whom Purchaser chooses to make offers of employment. In
            evaluating and selecting the Prospective Employees, Purchaser may
            interview at reasonable times such of the Prospective Employees as
            it wishes and Vendor agrees to assist with interview logistics;

      (b)   prior to making any offers of employment to the Prospective
            Employees, consult with Vendor with respect to the Prospective
            Employees to whom Purchaser will make written offers of employment
            and the terms of the offers;

<PAGE>

                                       43

      (c)   deliver written offers of employment to the Prospective Employees
            selected in accordance with Section 16.1 and concurrently provide
            copies of such offers to Vendor at least ten (10) days prior to the
            Closing Date. Each offer of employment shall be conditional on
            Closing occurring and shall provide the terms and conditions of
            employment with Purchaser including the terms and conditions
            provided in Section 16.2 hereof and the eligibility for and value of
            other employment programs and practices of Purchaser and will be
            open for acceptance by the Prospective Employee until 12:00 p.m.
            five (5) days prior to the Closing Date; and

      (d)   for a period of not less than six (6) months from the Closing Date,
            employ all Continued Employees in substantially similar or
            equivalent positions as described in Schedule "T" in order to
            provide each Continued Employee a reasonable opportunity to prove
            his or her capabilities to Purchaser, provided, however, that
            Purchaser shall have the right to terminate the employment of a
            Continued Employee for cause.

16.2  TERMS OF EMPLOYMENT

Purchaser shall, from and after the Closing:

      (a)   credit the Continued Employees with all service recognized by
            Vendor, including all periods of employment leave, for all purposes
            including eligibility for, vesting and locking in of benefits, as
            applicable, under each of Purchaser's employee benefit plans,
            policies or programs to the extent so recognized under the analogous
            Employee Plans and, in the event of future termination of
            employment, the entitlement to severance payments;

      (b)   for a period of not less than two (2) years from the Closing Date,
            provide to the Continued Employees (including any Continued
            Employees on maternity leave, approved leaves of absence, vacation
            leave or short term disability) total cash compensation
            opportunities and employee benefits on a basis such that each
            Continued Employee individually receives a total cash compensation
            opportunity and benefits which are not less favourable in the
            aggregate, as the total cash compensation opportunity and employee
            benefits provided by Vendor under the Employee Plans to such
            Continued Employee immediately prior to Closing (but not including
            any extraordinary retention bonuses or similar payments); and

      (c)   for a period of not less than two (2) years from the Closing Date,
            provide to the Continued Employees cash compensation on a basis
            which is not less favourable in the aggregate to the total cash
            compensation opportunity each Continued Employee was receiving from
            Vendor (being the sum of such Continued Employee's base pay and
            incentive compensation target opportunity)immediately prior to the
            Closing and which each Continued Employee would have received from
            Vendor after the Closing but for this Agreement.

<PAGE>

                                       44

16.3  SEVERANCE

If a Prospective Employee is not offered employment by Purchaser pursuant to
Section 16.1 or, having received an offer of employment from Purchaser pursuant
to Sections 16.1 and 16.2 does not accept such offer, and is thereafter
terminated by Vendor, Vendor will be responsible for the severance liability (if
any) regarding such terminated Prospective Employee (the "TERMINATION PAYMENT"),
provided, however:

      (a)   that if any such terminated Prospective Employee is subsequently
            hired by Purchaser within six (6) months of the Time of Closing (the
            "RESTRICTED PERIOD"), Purchaser shall pay to Vendor an amount equal
            to the Termination Payment multiplied by a fraction, the numerator
            of which is the number of months remaining in the Restricted Period
            at the time such terminated employee is offered employment with
            Purchaser, and the denominator of which is six; and

      (b)   that if any such terminated Prospective Employee was not offered
            employment by Purchaser pursuant to Section 16.1, and their
            employment with Vendor was based in a field location outside of
            Vendor's head office in Calgary as of the date Purchaser delivered
            the written offers of employment pursuant to Section 16.1, and is
            terminated by Vendor within one month after the Closing Date,
            Purchaser shall reimburse Vendor for any Termination Payment
            relating to that Prospective Employee.

16.4  TERMINATION ENTITLEMENTS

For greater certainty, effective immediately prior to the Time of Closing the
Continued Employees shall be considered to have terminated their employment with
Vendor for purposes of Vendor's Pension Plan, Vendor's Savings Plan and other
applicable employee plans and they shall be entitled to such options with
respect to their entitlements under such plans as are generally available to
terminated employees of Vendor under such plans in accordance with their
respective terms. Vendor shall also pay each Continued Employee any incentive
payments (at the target level) which have accrued in respect of those Continued
Employees during the period from January 1, 2004 until the Time of Closing.

16.5  PERSONAL TIME OFF

In order to apportion the liability for the payment of a Continued Employee's
PTO Entitlement:

      (a)   Vendor shall pay to Purchaser an amount equal to the Continued
            Employee's base salary for the number of days of his or her PTO
            Entitlement for 2004 multiplied by a percentage equal to 50% less
            the percentage of PTO Entitlement that the Continued Employee took
            prior to the Effective Date, provided that no payment will be made
            by Vendor pursuant to this Section 16.5(a) in respect of such
            Continued Employee if such Continued Employee took 50% or more of
            his or her PTO Entitlement prior to the Effective Date;

      (b)   Purchaser shall pay to Vendor an amount equal to the Continuing
            Employee's base salary for the number of days of his or her PTO
            Entitlement for 2004 multiplied by a percentage equal to 50% less
            the percentage of his or her PTO that the Continued Employee did not

<PAGE>

                                       45

            take prior to the Effective Date, provided that no payment will be
            made by Purchaser pursuant to this Section 16.5(b) in respect of
            such Continued Employee if such Continued Employee took less than
            50% of his or her PTO Entitlement prior to the Effective Date;

      (c)   Purchaser shall be liable for each Continuing Employee's PTO
            Entitlement for 2004 which was unutilized as of the Effective Date;
            and

      (d)   Vendor shall remain liable for any unused carry over of PTO
            Entitlement of each Continuing Employee for years prior to 2004.

                                   ARTICLE 17
                                     GENERAL

17.1  REMOVAL OF NAME

Following the Closing, neither Purchaser nor any of the Corporate Subsidiaries
or any Affiliate of Purchaser will be entitled to use the names "Williams" or
"WECI" or any variations and derivations thereof, including any logo, trademark
or design containing such name (the "PROHIBITED NAMES AND MARKS"). Accordingly,
promptly following the Closing, Purchaser shall cause the destruction, disposal
or replacement of stationery, business cards and similar assets, and where
applicable, shall cause the applicable corporation to change its name, so to
avoid the use of the Prohibited Names and Marks. In addition, as soon as
reasonably practicable, but in any event within the earlier of ninety (90) days
following the Closing or the date required by Applicable Laws, Purchaser shall
(i) cause to be removed the Prohibited Names and Marks from all of the Assets
and will not thereafter make any use whatsoever of such names, marks and logos
and (ii) make all requisite filings with, and provide requisite notices to, the
appropriate federal, provincial, municipal or other agencies to place title or
other evidence of operation or ownership in a name other than the Prohibited
Names and Marks.

17.2  INTEREST ACCRUES ON AMOUNTS OWING

Any amount owing to a Party by the other Party pursuant to any provision of this
Agreement after Closing and remaining unpaid after the day such amount was due,
shall bear interest which shall accrue daily and be compounded monthly, from the
day such payment was due until the day such amount was paid, at the rate of two
(2%) percent per annum above the Prime Rate.

17.3  EXPANDED MEANINGS

Unless the context otherwise necessarily requires, the following provisions
shall govern the interpretation of this Agreement:

      (a)   words used herein importing the singular number only shall include
            the plural and vice versa;

      (b)   the terms "in writing" or "written" include printing, typewritten,
            or any electronic means of communication by which words are capable
            of being visually reproduced at a distant point of reception,
            including by telecopier or telex;

<PAGE>

                                       46

      (c)   "this Agreement", "the Agreement", "hereto", "herein", "hereby",
            "hereunder", "hereof" and similar expressions refer to this
            agreement and includes each schedule attached hereto, and not to any
            particular Article, Section or other subdivision or portion hereof
            and includes each and every instrument varying, amending, modifying
            or supplementing this agreement;

      (d)   references herein to any agreement or instrument, including this
            Agreement, shall be deemed to be references to the agreement or
            instrument as varied, amended, modified, supplemented or replaced
            from time to time;

      (e)   the word "including", "includes" or, "include" wherever used in this
            Agreement, means "including, without limitation", "includes, without
            limitation" or "include, without limitation", as the case may be;

      (f)   all references to "Articles", "Sections", "subsections" and
            "Schedules" are references to Articles, Sections or subsections of,
            or Schedules to, this Agreement; and

      (g)   the division of this Agreement into Articles, Sections and other
            subdivisions, the provision of a table of contents and the insertion
            of headings are for convenience of reference only and shall not
            affect the construction or interpretation of this Agreement.

17.4  CURRENCY

All references in this Agreement to "Dollars" or "$" are references to lawful
money of Canada, unless otherwise indicated.

17.5  ACCOUNTING REFERENCES

Where the character or amount of any asset or liability or item of income or
expense is required to be determined, or any consolidation or other accounting
computation is required to be made for the purposes of this Agreement, the same
shall be done in accordance with GAAP except where the application of such
principles is inconsistent with, or limited by, the terms of this Agreement.

17.6  STATUTORY REFERENCES

Any reference to a statute shall include and shall be deemed to be a reference
to such statute and to the regulations made pursuant thereto, and all amendments
made thereto and enforced from time to time, and to any statute or regulation
that may be passed which has the effect of supplementing the statute so referred
to or the regulations made pursuant thereto, and any reference to an order,
ruling or decision shall be deemed to be a reference to such order, ruling or
decision as the same may be varied, amended, modified, supplemented or replaced
from time to time.

<PAGE>

                                       47

17.7  APPLICABLE LAW AND ATTORNMENT

This Agreement shall be construed and enforced in accordance with the laws of
the Province of Alberta and the laws of Canada applicable therein and shall be
treated in all respects as an Alberta contract. The Parties hereto irrevocably
consent and submit to the exclusive jurisdiction of the courts of the Province
of Alberta with respect to all matters relating to this Agreement. Each Party
waives any objection that it may now or hereafter have to the determination of
venue of any proceeding in such courts relating to this Agreement that it may
now or hereafter have that such courts are an inconvenient forum.

17.8  EXPENSES

All costs and expenses (including the fees and disbursements of legal counsel)
incurred in connection with the Agreement and the Transaction shall be paid by
the Party incurring such expenses; provided, however, that Purchaser shall pay
all costs and expenses in registering any specific transfers and conveyances of
the Assets to complete the Transaction and all costs and expenses relating to
the filing of the Competition Act Notification or otherwise related to
satisfaction of the Competition Act Requirement.

17.9  PUBLICITY REGARDING TRANSACTION

No public announcement or press release concerning the Transaction shall be made
by a Party or its Affiliates without the prior written consent and joint
approval of the other Party; provided that:

      (a)   nothing contained herein or in the Confidentiality Agreement shall
            prevent a Party from furnishing any information to any governmental
            agency or regulatory authority or to the public if required by
            Applicable Law or the rules of a stock exchange or securities
            commission or if required to comply with Preferential Purchase
            Rights or to obtain the Required Consents or in the filing of the
            Competition Act Notification. Prior to a Party making an
            announcement or disclosure permitted by the preceding sentence, it
            will provide a copy of the proposed disclosure or announcement to
            the other Party to permit the other Party to propose changes thereto
            and will make such changes if they are reasonable;

      (b)   in connection with the public offering of securities by Purchaser to
            fund a portion of the Purchase Price, Purchaser shall provide to
            Vendor for its prior approval, which shall not be unreasonably
            withheld, drafts of any prospectus or offering document in which
            Purchaser proposes to describe the Transaction and Purchaser shall
            make any changes in respect thereof which Vendor may reasonably
            request, it being acknowledged that Purchaser shall not release any
            information in connection therewith which would contravene any
            obligation Vendor has to any third party.

<PAGE>

                                       48

17.10 NOTICES

Any notice or other writing required or permitted to be given hereunder or for
the purposes hereof (a "NOTICE") to any Party shall be sufficiently given if
delivered or telecopied to that Party:

      (a)   in the case of a Notice to Purchaser at:

                    C/O INTER PIPELINE FUND
                    2600, 237 - 4th Avenue S.W.
                    Calgary, Alberta
                    T2P 0H4

                    FAX NO.: (403) 290-6090
                    ATTENTION: Mr. David Fesyk

                    WITH A COPY TO:

                    BURNET, DUCKWORTH & PALMER LLP
                    1400, 350 - 7th Avenue S.W.
                    Calgary, Alberta
                    T2P 3N9

                    FAX NO.: (403) 260-5744
                    ATTENTION: Mr. John H. Cuthbertson

      (b)   in the case of a Notice to Vendor at:

                    WILLIAMS ENERGY (CANADA), INC.
                    #2700, 237 - 4th Avenue S.W.
                    Calgary, Alberta
                    T2P 4K3

                    Fax No.: (403) 444-4470
                    ATTENTION: PRESIDENT

            with a copy to:

                    WILLIAMS ENERGY (CANADA), INC.
                    One Williams Center, Suite 4100
                    Tulsa, OK 74172

                    Fax No.: (918) 573-4503
                    ATTENTION: MR. CRAIG RAINEY

<PAGE>

                                       49

            and a copy to:

                    BENNETT JONES LLP
                    4500 Bankers Hall East
                    855 2nd Street S.W.
                    Calgary, Alberta
                    T2P 4K7

                    Fax No.: (403) 265 7219
                    ATTENTION: MR. ROBERT P. DESBARATS

or at such other address or telecopier as the Party to whom such writing is to
be given shall have last notified to the Party giving the same in the manner
provided in this Section. Any Notice delivered to the Party to whom it is
addressed or telecopied to the address or telecopier number hereinbefore
provided shall be deemed to have been given and received on the day it is so
delivered at such address, provided that if the Notice is delivered after 4:00
p.m. (local time) or if such day is not a Business Day then the Notice shall be
deemed to have been given and received on the next following Business Day.

17.11 TIME OF THE ESSENCE

Time shall be of the essence.

17.12 ENTIRE AGREEMENT

This Agreement, including the Schedules hereto, and the Confidentiality
Agreement together with the agreements and other documents and instruments to be
executed and delivered pursuant hereto and thereto, constitutes the entire
agreement between the Parties in relation to the subject matter hereof and
supersedes all prior agreements, representations, warranties, statements,
promises, information, arrangements and understandings, whether oral or written,
express or implied with respect to the subject matter hereof, including the
Confidential Information Memorandum. Neither of the Parties hereto shall be
bound or charged with any oral or written agreements, representations,
warranties, statements, promises, information, arrangements or understandings
not specifically set forth in this Agreement, in the agreements and other
documents and instruments to be delivered on or before the Closing Date pursuant
to this Agreement or in the Confidentiality Agreement. The Parties hereto
further acknowledge and agree that, in entering into this Agreement and in
delivering the agreements and other documents and instruments to be delivered on
or before the Closing Date pursuant hereto, they have not in any way relied, and
will not in any way rely, upon any oral or written agreements, representations,
warranties, statements, promises, information, arrangements or understandings,
express or implied, not specifically set forth in this Agreement or in such
agreements, documents and instruments to be delivered pursuant to this
Agreement.

17.13 SEVERABILITY

Any Article, Section, subsection or other subdivision or any other provision of
this Agreement which is, is deemed to be, or becomes void, illegal, invalid or
unenforceable shall be severable

<PAGE>

                                       50

herefrom and ineffective to the extent of such voidability, illegality,
invalidity or unenforceability, and shall not invalidate, affect or impair the
remaining provisions hereof, which provisions shall be severable from any void,
illegal, invalid or unenforceable Article, Section, subsection or other
subdivision or provision.

17.14 AMENDMENT OF AGREEMENT

No supplement, modification or waiver or termination of this Agreement shall be
binding unless executed in writing by the Party to be bound thereby.

17.15 WAIVER

No waiver of any of the provisions of this Agreement shall be valid unless in
writing and no such waiver shall constitute nor be deemed to constitute a waiver
of any other provisions (whether or not similar) nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.

17.16 ASSIGNMENT AND ENUREMENT

This Agreement or any rights or obligations hereunder shall not be assigned by
either Party without the prior written consent of the other Party. Subject
thereto, this Agreement shall enure to the benefit of and be binding upon the
Parties hereto and their respective successors and permitted assigns.

17.17 NO THIRD PARTY BENEFICIARIES

This Agreement is for the sole benefit of the Parties and their successors and
permitted assigns and no other Person shall be entitled to any rights or
benefits hereunder.

17.18 FURTHER ASSURANCES

The Parties hereto shall provide all such reasonable assurances as may be
requested to consummate the Transaction and each Party shall provide such
further documents or instruments requested by the other Party to effect the
purpose of this Agreement and carry out its provisions, whether before or after
Closing.

17.19 COUNTERPART EXECUTION

This Agreement may be executed in one or more counterparts. Each counterpart
shall constitute an original and all counterparts together shall constitute one
and the same agreement. Facsimile copies of executed counterparts shall be
conclusively regarded for all purposes as originally executed counterparts
pending delivery of the originals.

<PAGE>

                                       51

IN WITNESS WHEREOF the Parties have duly executed this Agreement as of the date
first above written.

                                        WILLIAMS ENERGY (CANADA), INC.

                                        Per:  /s/ Alan S. Armstrong
                                             ---------------------------------

                                        Per: Senior Vice President

                                        1024234 ALBERTA LTD.

                                        Per:  /s/ David W. Fesyk
                                             ---------------------------------
                                             President and CEO

                                        Per:  /s/ Scott Gerla
                                             ---------------------------------
                                              Vice President, Financeexv10w1

 

Exhibit 10.1

EMPLOYMENT AGREEMENT

     This Employment Agreement (this “Agreement”) is entered into as of
this 13th day of May 2004, by and between Imation Corp., a Delaware corporation
(the “Company”), and Bruce A. Henderson (the “Executive”).

RECITALS

     WHEREAS, the Company is engaged in the business of developing,
manufacturing, sourcing and marketing removable data storage media for
organizations and individuals that must store, retain and protect vital digital
information (the “Business”);

     WHEREAS, the Company believes that it would benefit from the Executive’s
skill, experience and background, and wishes to employ the Executive as its
Chief Executive Officer; and

     WHEREAS, the parties desire by this Agreement to set forth the terms and
conditions of the employment relationship between the Company and the
Executive.

     NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
herein set forth, and for other good and valuable consideration, the Company
and the Executive hereby agree as follows:

     1. Employment and Duties. The Company hereby employs the Executive
as its Chief Executive Officer, and the Executive accepts such employment, on
the terms and subject to the conditions provided in this Agreement. The
Executive shall report to the Company’s Board of Directors (the “Board”)
and shall devote substantially all of his professional time, efforts,
attention, energy and skill to performing the duties of Chief Executive Officer
of the Company. As part of these duties, the Executive may serve on the Board
of Directors of subsidiaries of the Company as may be requested by the Company
from time to time. Provided that such activities do not violate any term or
condition of this Agreement, or materially interfere with the performance of
his duties hereunder, nothing herein shall prohibit the Executive from (a)
participating in other business activities approved in advance in writing by
the Board in accordance with any terms and conditions of such approval, (b)
engaging in charitable, civic, fraternal or trade group activities, (c)
investing his personal assets in other entities or business ventures, subject
to any policies of the Company applicable to all executive personnel of the
Company, or (d) serving on the Board of Directors of another entity, provided
such service is approved in advance in writing by the Board.

     2. Employment Term. Subject to the terms and conditions of this
Agreement, the Executive’s term of employment under this Agreement (the
“Employment Term”) shall commence on May 13, 2004 (the “Effective
Date”) and shall continue in effect until the first anniversary of the
Effective Date, and shall thereafter be automatically renewed on each annual
anniversary of the Effective Date for successive one-year terms unless (a) not
later than 120 days prior to any renewal for a successive one-year term, the
Company delivers to the Executive, or the Executive delivers to the Company,
written notice that the automatic extension provision of this Section 2
shall be inoperative (in which case this Agreement shall terminate on such
anniversary of the Effective Date), (b) a notice of termination has been delivered and not
withdrawn under Section 4 or (c) the Executive dies.

1

 

     3. Compensation. As compensation for performing the services
required by this Agreement, and during the term of this Agreement, the
Executive shall be compensated as follows:

          (a) Base Compensation. The Company shall pay to the Executive as
base compensation an annual salary (“Base Compensation”) of Six Hundred
Fifty Thousand Dollars ($650,000). The Base Compensation shall be payable in
accordance with the general policies and procedures for payment of salaries to
senior executive personnel of the Company as implemented by the Board, in
substantially equal installments, subject to withholding for applicable
federal, state, local and foreign taxes. Increases in Base Compensation, if
any, shall be determined by the Compensation Committee of the Board (the
“Compensation Committee”) based on an annual review of the Executive’s
performance to be conducted each year during the Employment Term. Upon the
completion of each such review, but no later than May of the following year,
the Company shall provide the Executive with a written notice (each, a “Base
Compensation Notice”) that sets forth the amount of Base Compensation to be
paid to the Executive during the twelve-month period that begins in May of such
year (the “Next Compensation Period”); provided, however,
that if no Base Compensation Notice is delivered in May of such year, then the
Executive’s Base Compensation shall be deemed to remain at the then-existing
level until a Base Compensation Notice is delivered.

          (b) Cash Incentive Compensation. The Executive shall be eligible
to receive an annual cash bonus as incentive compensation in addition to his
Base Compensation (“Cash Incentive Compensation”). Cash Incentive
Compensation for each fiscal year will be payable in accordance with the
general policies and procedures for payment of incentive compensation to senior
executive personnel of the Company. Receipt of Cash Incentive Compensation
will be conditioned on the attainment of certain quantitative objectives (the
“Objectives”) established by the Compensation Committee in its sole and
absolute discretion. The Compensation Committee also will determine from time
to time a target amount for the Cash Incentive Compensation, which shall not be
less than 80% of the Executive’s Base Compensation (the “Target
Amount”). In no case shall the amount of the Executive’s Cash Incentive
Compensation for any one year exceed 150% of the Target Amount.

          (c) Equity-Based Incentive Compensation. On the date hereof, the
Executive is being granted options under the Company’s 2000 Stock Incentive
Plan, as amended February 6, 2003, to purchase up to 175,000 shares of the
Company’s common stock, par value $.01 per share (the “Common Stock”).
The vesting provisions and other terms and conditions relating to such option
grant are set forth in the stock option agreement attached hereto as Exhibit
A. In addition, during 2004 and pursuant to the Company’s 2000 Stock
Incentive Plan, the Company will grant to the Executive an option to purchase
at least 40,000 shares of Common Stock, or such greater amount as the
Compensation Committee shall determine in its sole discretion (the “2004
Option Grant”). The 2004 Option Grant will be made at the time the Company
grants options for the 2004 fiscal year to other senior executives and at the
exercise price applicable to such senior executives’ 2004 options;
provided, however, that if such 2004 option grants to other
senior executives are made as of a date prior to the Effective Date of this
Agreement, then the Executive’s 2004 Options Grant will be made as of the
Effective Date of this Agreement and the exercise price for the 2004 Option
Grant will be end of day market price on such Effective Date. The 2004 Option
Grant shall be evidenced
by and subject to the vesting provisions and other terms and conditions of
a stock option award agreement in form and substance approved by the
Compensation Committee.

2

 

          (d) Employee Benefits: Fringe Benefits. During the Employment
Term, the Executive and his eligible dependents (where applicable) shall have
the right to participate in each retirement, pension, insurance, health and
other benefit plan or program that has been or is hereafter adopted by the
Company (or in which the Company participates) according to the terms of such
plan or program with all the benefits, rights and privileges as are generally
enjoyed by senior executive personnel of the Company. The Executive also shall
be entitled to all fringe benefits, if any, that generally are enjoyed by
senior executive personnel of the Company.

           (e) Vacation; Sick Leave; Holidays; Leaves of Absence. The
Executive shall be entitled to four weeks of paid vacation leave each year, to
be utilized in accordance with the policies and procedures of the Company. The
Executive also shall be entitled to the same paid holidays provided to the
other employees of the Company. In addition, the Executive may be granted
leaves of absence with or without pay for such valid and legitimate reasons as
the Board in its sole and absolute discretion may determine.

           (f) Expenses. The Executive shall be entitled to receive
reimbursement for all reasonable and necessary expenses incurred by him in
connection with the performance of Business-related duties under this
Agreement, subject to the Executive’s compliance with the Company’s policies
for recording such expenses and for submitting them for reimbursement.

           (g) Relocation Expenses. The Company shall pay to the Executive
$75,000 (the “Relocation Payment”) to cover expenses incurred by the
Executive in connection with his relocation to Minnesota. In the event the
Relocation Payment is deemed to increase the Executive’s taxable income, the
Company will pay to the Executive an additional sum of money (the
“Relocation Adjustment”). For purposes hereof, the Relocation
Adjustment shall equal the difference between (i) the quotient of (A) the
non-deductible portion of the Relocation Payment divided by (B) the excess of
one (1), minus the Executive’s combined effective tax rate, and (ii) the
Relocation Payment; provided, however, in no event shall the
aggregate amounts paid to the Executive as a Relocation Payment and Relocation
Adjustment exceed twice the amount of the Relocation Payment. The Executive
shall use reasonable efforts to minimize the amount of any Relocation
Adjustment and shall consult with the Company in determining whether any
portion of the Relocation Payment is taxable to the Executive. If the
Executive requests that the Company pay a Relocation Adjustment, then the
Executive shall make available to the Company and its accountants documents
(including without limitation, receipts and the Executive’s tax returns)
reasonably requested by the Company to permit the Company to determine the
proper amount of any Relocation Adjustment.

           (h) Taxes. Except as provided in Section 3(g) above, the
Executive shall be responsible for payment of all Federal, state, and local
income and employment taxes, any applicable excise taxes, and any other
government assessments owing by the Executive for all benefits received
pursuant to this Agreement. All payments required to be made by the Company
hereunder and all other benefits provided to the Executive hereunder shall be
subject to the withholding of such amounts relating to taxes and other
government assessments as the Company may reasonably determine it should
withhold pursuant to any applicable law, rule or regulation.

     4. Termination and Termination Benefits.

           (a) Termination by the Company.

3

 

          (i) For Cause. The Company may terminate the Executive’s
employment under this Agreement for Cause (defined below) by written
notice to the Executive. The Executive’s employment hereunder shall
terminate immediately upon his receipt of such notice unless the Company
specifies a later effective date of termination therein. In the event of
such a termination, the Executive shall be paid his Base Compensation
earned but not paid to the Executive prior to the effective date of
termination, and the Company shall have no further obligation or
liability to the Executive under this Agreement (other than pursuant to
Section 3(f) and then only up to the effective date of
termination).

     For purposes of this Agreement, “Cause” means: (1) the
Executive’s gross incompetence or substantial failure to perform his
duties under this Agreement, (2) misconduct by the Executive that causes
or is likely to cause harm to the Company or that causes or is likely to
cause harm to the Company’s reputation, as determined by the Board in its
sole and absolute discretion (such misconduct may include, without
limitation, insobriety at the workplace during working hours or the use
of illegal drugs), (3) failure to follow directions of the Board that are
consistent with the Executive’s duties under this Agreement, (4) the
Executive’s conviction of, or entry of a pleading of guilty or nolo
contendere to, any crime involving moral turpitude, or the entry of an
order duly issued by any federal or state regulatory agency having
jurisdiction in the matter permanently prohibiting the Executive from
participating in the conduct of the affairs of the Company or (5) any
other breach of this Agreement by the Executive that is not remedied
within 30 days after receipt of written notice from the Company
specifying such breach in reasonable detail.

          (ii) Without Cause. The Company may terminate the
Executive’s employment under this Agreement without Cause by written
notice to the Executive. The Executive’s employment hereunder shall
terminate immediately upon the receipt of such notice unless the Company
specifies a later effective date of termination therein. If the Company
terminates the Executive’s employment without Cause:

     (1) The Company shall pay the Executive the following amounts:

     (A) his Base Compensation earned but not paid to
the Executive prior to the effective date of
termination, plus

     (B) prorated Cash Incentive Compensation (if any)
earned but not paid, which amount will be determined
after the end of the fiscal year during which the
Executive’s employment is terminated (such fiscal year,
the “Termination Fiscal Year”), based on the
Company’s actual performance during the Termination
Fiscal Year as compared to the Objectives, prorated by
multiplying the total Cash Incentive Compensation that
would have been payable to the Executive for the full
Termination Fiscal Year by a
ratio of (x) the number of full months elapsed
during the Termination Fiscal Year prior to the
Executive’s date of termination, divided by (y) twelve,
plus

     (C) a base severance equal to

4

 

     (I) an amount equal to one year of the
Executive’s total annual Base Compensation as in
effect on the date of such termination, plus

     (II) an amount equal to the Executive’s Cash
Incentive Compensation Target Amount for the
Termination Fiscal Year.

     All such amounts shall be paid to the Executive
periodically over the twelve-month period following the
date of termination in accordance with the general
policies and procedures of the Company, in
substantially equal installments, subject to
withholding for applicable federal, state, local and
foreign taxes; provided, however, that
the prorated Cash Incentive Payment described in
Section 4(a)(ii)(1)(B) above shall be allocated
in substantially equal amounts over the remaining
portion of such twelve-month period after such amount
is determined in the ordinary course of determining the
amounts payable to other senior executives of the
Company under the Company’s cash incentive programs.

     (2) The Company shall continue to provide for twelve (12)
months, the same level of health insurance benefits for the
Executive and the Executive’s eligible dependants in the same
manner as the Company provided for them at the time of termination
of the Executive’s employment.

     (3) Notwithstanding anything contained herein to the contrary,
if the Executive violates the provisions of Sections 6 or
7 of this Agreement (the “Restrictive Covenants”) at
any time while the Company is obligated to make severance payments
or provide severance benefits under this Section 4(a)(ii),
the Company may send the Executive written notice of such fact that
specifies in reasonable detail the circumstances surrounding the
violation. If the Executive does not cease the activities that are
violating the Restrictive Covenants within five (5) days of the
date of the Company’s written notice to the Executive, then, in
addition to any and all other rights that the Company may have at
law or in equity, the Company may permanently cancel and terminate
such severance payments and benefits.

          (iii) Non-Renewal and Expiration of Contract. If the Company
notifies the Executive that the Company elects to terminate the automatic
annual renewal of the Agreement as described in Section 2 of this
Agreement, then the Company and the Executive each shall use reasonable
efforts to negotiate the terms of a new employment agreement as a
replacement of this Agreement. If the Company and the Executive do not
execute and deliver a new employment agreement on or before the next
anniversary of the Effective Date after the Company’s delivery of a
notice of non-renewal (or if the Company and the Executive agree to
continue their negotiations for an additional period at the end of
which they have not agreed to a new employment agreement), then on such
anniversary of the Effective Date (or at the end of such additional
period if there is not then a new employment agreement in place), the
Executive’s employment shall be deemed to have been terminated without
Cause and the Executive shall be entitled to the benefits described under
Section 4(a)(ii) above. This Agreement shall continue in effect
during the period beginning on the date on which the Company notifies the
Executive that the Company elects to terminate the automatic annual
renewal of this Agreement, through the date on which a new employment
agreement is executed and delivered by the parties hereto or the date on
which the Executive’s employment hereunder is terminated pursuant to the
immediately-preceding sentence of this Section 4(a)(iii), as
applicable.

5

 

          (iv) Disability. If due to illness, physical or mental
disability, or other incapacity which cannot be reasonably accommodated,
the Executive shall fail, for a total of any six (6) months or more
within any period of twelve (12) consecutive months, to perform the
duties required by this Agreement, the Board may terminate the
Executive’s employment under this Agreement upon thirty (30) days’
written notice to the Executive. In such event, the Executive shall be
paid his Base Compensation up to the effective date of such termination.
The Executive shall not be entitled to any other compensation or payments
from the Company, other than (1) pursuant to Section 3(f), but
only up to the effective date of such termination, and (2) to the extent
permitted by the terms of the Company’s health insurance benefits and
disability insurance benefits, the Company shall continue to provide for
ninety (90) days, at the Company’s expense, the same level of health
insurance benefits for the Executive and his eligible dependents in the
same manner as the Company provided for them at the time of the
Executive’s disability.

     (b) Termination by the Executive.

          (i) Resignation Without Company Breach. The Executive may
voluntarily terminate his employment hereunder upon ninety (90) days’
prior written notice to the Company. Such a termination shall be
effective ninety (90) days after the delivery of such written notice
unless the Company agrees in writing to another effective date. In the
event of such a termination, the Company shall pay to the Executive (1)
his Base Compensation earned but not paid to the Executive prior to the
effective date of such termination and (2) a prorated Cash Incentive
Compensation (if any) earned but not paid, which amount will be
determined after the end of the Termination Fiscal Year, based on the
Company’s actual performance during the Termination Fiscal Year as
compared to the Objectives, prorated by multiplying the total Cash
Incentive Compensation that would have been payable to the Executive for
the full Termination Fiscal Year by a ratio of (x) the number of full
months elapsed during the Termination Fiscal Year prior to the
executive’s date of termination, divided by (y) twelve. The Company
shall have no further obligation or liability to the Executive under this
Agreement (other than pursuant to Section 3(f) and then only up to
the effective date of termination). All such amounts shall be paid to
the Executive periodically over the twelve-month period following the
date of termination in accordance with the general policies and
procedures of the Company, in substantially equal installments, subject
to withholding for applicable federal, state, local and foreign taxes;
provided, however, that the prorated Cash Incentive Payment
described in
this Section 4(b) shall be allocated in substantially equal
amounts over the remaining portion of such twelve-month period after such
amount is determined in the ordinary course of determining the amounts
payable to other senior executives of the Company under the Company’s
cash incentive programs.

          (ii) Resignation Upon Company Breach. Upon the occurrence of
a Company Breach (defined below), the Executive may provide the Company
with a written notice that specifies in reasonable detail the
circumstances surrounding the alleged Company Breach. If such Company
Breach is not cured within thirty (30) days of the Company’s receipt of
such notice, then the Executive may terminate his employment hereunder by
written notice to the Company. The Executive’s employment hereunder
shall terminate immediately upon the delivery of such termination notice
unless the Executive specifies a later effective date of termination
therein. Upon such termination, the Executive shall be entitled to
receive the payments and benefits specified in Section 4(a)(ii)(1) and
(2) hereof, and shall be subject to the forfeiture provisions set
forth in Section 4(a)(ii)(3) hereof.

6

 

     For the purposes of this Agreement, “Company Breach” means:
(1) a change in the Executive’s duties or responsibilities with the
Company (A) that represents a substantial reduction of the duties or
responsibilities as in effect immediately prior thereto and (B) that is
reasonably likely to subject the Executive to professional embarrassment
or ridicule; (2) a change by the Board in the duties or responsibilities
of other senior executive officers of the Company that has the effect of
precluding the Executive from effectively performing his duties and
responsibilities; (3) a material reduction in the Executive’s Base
Compensation that is not substantially proportionate to any reduction in
the base compensation of other senior executives of the Company; or (4)
any material breach by the Company of any provision of this Agreement
that is not remedied within 30 days after receipt of written notice from
the Executive specifying such breach in reasonable detail.

          (iii) Non-Renewal and Expiration of Contract. If the
Executive notifies the Company that the Executive elects to terminate the
automatic annual renewal of the Agreement as described in Section
2 of this Agreement, then the Company and the Executive each shall
use reasonable efforts to negotiate the terms of a new employment
agreement as a replacement of this Agreement. If the Company and the
Executive do not execute and deliver a new employment agreement on or
before the next anniversary of the Effective Date after the Executive’s
delivery of a notice of non-renewal (or if the Company and the Executive
agree to continue their negotiations for an additional period at the end
of which they have not agreed to a new employment agreement), then on
such anniversary of the Effective Date (or at the end of such additional
period if there is not then a new employment agreement in place), the
Executive’s employment shall be deemed to have been terminated by the
Executive without Company Breach and the Executive shall be entitled to
the benefits described under Section 4(b)(i) above. This
Agreement shall continue in effect during the period beginning on the
date on which the Executive notifies the Executive that the Company
elects to terminate the automatic annual renewal of this Agreement,
through the date on which a new employment agreement is executed and
delivered by the parties hereto or the date on which the Executive’s
employment hereunder is terminated pursuant to the immediately-preceding
sentence of this Section 4(b)(iii), as applicable.

     (c) Additional Effects of Termination. The Executive’s obligations
and liabilities to the Company under this Agreement shall cease as of the
effective date of any termination pursuant to Sections 4(a) or 4(b),
except his obligations under the Restrictive Covenants shall survive and
continue any such termination.

     (d) Death. Notwithstanding any other provision of this Agreement,
this Agreement shall terminate on the date of the Executive’s death. In such
event, the Executive’s estate shall be paid the Executive’s Base Compensation
earned but not paid prior to the date of his death, plus a prorated amount of
earned but not paid Cash Incentive Compensation (if any), determined by
multiplying, the Executive’s Target Amount for such fiscal year by a ratio of
(i) the number of months through the Executive’s date of death (for purposes of
this Section 4(d) only, inclusive of the full month during which the date of
death occurred), divided by (ii) twelve. In addition, upon the death of the
Executive, the Company shall continue to provide for ninety (90) days, at the
Company’s expense, the same level of health insurance benefits for the
Executive’s eligible dependents in the same manner as the Company provided for
them at the time of the Executive’s death.

7

 

     5. Change of Control.

          (a) Definitions. For the purposes of this Agreement:

          “Affiliate” shall have the meaning given in Rule 405
promulgated under the Securities Act of 1933, as amended.

          “Change of Control” shall mean any of the following events:

               (i) The acquisition by any person, entity or “group,” within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”), other than the Company or a
subsidiary of the Company, or any employee benefit plan of the Company or
a subsidiary of the Company, of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of
either the then outstanding Common Stock or the combined voting power of
the Company’s then outstanding voting securities in a transaction or
series of transactions not approved in advance by a vote of a majority of
the Continuing Directors (as hereinafter defined); or

               (ii) Individuals who, as of the Effective Date, constitute the
Board (generally the “Directors” and as of the Effective Date the
“Continuing Directors”) cease for any reason to constitute at
least a majority thereof, provided that any person becoming a director
subsequent to the Effective Date whose nomination for election was
approved in advance by a vote of a majority of the Continuing Directors
(other than a nomination of an individual whose initial assumption of
office is in connection with an actual or threatened solicitation with
respect to the election or removal of the Directors of the Company, as
such terms are used in Rule 14a-11 of Regulation 14A under the Exchange
Act) shall be deemed to be a Continuing Director; or

               (iii) The approval by the shareholders of the Company of a
reorganization, merger, consolidation, liquidation or dissolution of the
Company or of the sale (in one transaction or a series of related
transactions) of all or substantially all of the assets of the Company
other than a reorganization, merger, consolidation, liquidation,
dissolution or sale approved in advance by a vote of a majority of the
Continuing Directors; or

               (iv) The first purchase under any tender offer or exchange offer
(other than an offer by the Company or a subsidiary of the Company)
pursuant to which Common Stock is purchased.

          “Change of Control Amount” shall mean an amount equal to the
sum of (i) two times the total annual Base Compensation of the Executive
that is in effect immediately prior to a Change of Control plus (ii) two
times the average of the Executive’s Cash Incentive Compensation payment
(if any) for the two years prior to a Change of Control, or, if the
Executive has been employed by the Company for less than two years, two
times the amount of the Executive’s last Cash Incentive Compensation
payment (if any) by the Company, or, if the Executive has been employed
by the Company for less than one year, two times his Target Amount as
determined by the Compensation Committee.

8

 

          (b) Change of Control Benefit. If (i) a Change of Control has
occurred and (ii) within one year thereafter, the Executive’s employment with
the Company terminates for any reason other than (1) termination by the Company
for Cause or (2) termination by the Executive for other than Company Breach,
then the Company shall pay to the Executive within thirty (30) days of such
termination a lump sum equal to the Change of Control Amount. The receipt of
such Change of Control Amount shall be in lieu of any right of payment that the
Executive may have in connection with such termination of employment, whether
pursuant to this Agreement or otherwise. If any payment made to the Executive
pursuant to this Section 5(b) with respect to a Change of Control that
occurs prior to the one-year anniversary of the Effective Date, either alone or
together with other payments or benefits, either cash or non-cash, that the
Executive has the right to receive from the Company, including without
limitation accelerated vesting or payment of any deferred compensation,
options, stock appreciation rights or any benefits payable to (or for the
benefit of) the Executive under any plan for the benefit of employees, would
constitute an “excess parachute payment” (as defined in Section 280G of the
Internal Revenue Code of 1986, as amended (the “Code”)), then such
payment or other benefit shall be reduced so that the aggregate present value
of all payments and benefits, either cash or non-cash, to (or for the benefit
of) the Executive which are contingent on the Change of Control (as defined in
Code Section 280G(b)(2)(A)) is One Dollar ($1.00) less than the amount which
the Executive could receive without being considered to have received any
parachute payment (the amount of this reduction is referred to herein as the
“Excess Amount”). The determination of the amount of any reduction
required by this Section 5(b) shall be made by an accountant selected by
the Company, and such determination shall be conclusive and binding on the
parties hereto. Notwithstanding the foregoing provisions, if it is
established, pursuant to a final determination of a court or an Internal
Revenue Service proceeding which has been finally and conclusively resolved,
that an Excess Amount was received by the Executive from the Company, then the
Executive shall repay the Excess Amount to the Company promptly after written
demand from the Company is received by the Executive.

          (c) Adjustment of Change of Control Payment. Notwithstanding the
foregoing, after the third anniversary of the Effective Date, the Compensation
Committee shall have the sole and exclusive right to re-determine and adjust
the Change of Control Amount to which the Executive may be entitled upon a
Change of Control; provided, that any adjustment to the Change of
Control Amount that is made within a period of ninety (90) days prior to the
execution of a definitive agreement for a Change of Control transaction shall
be null and void. Any adjustment to the Change of Control Amount shall be
communicated to the Executive in writing within ten (10) days of the effective
date of such adjustment.

          (d) Additional Payments by the Company.

               (i) Gross-Up Payment. In the event it shall be determined
that any payment or distribution of any type by the Company to or for the
benefit of the Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise with
respect to any Change of Control that occurs on or after the one-year
anniversary of the Effective Date, would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties with
respect to such excise tax (such excise tax, together with any such
interest and penalties, are collectively referred to as the “Excise
Tax”), then the Executive shall be entitled to receive an additional
payment (an “Adjustment Payment”) in an amount such that after
payment by the Executive of all taxes (including additional excise taxes
under said Section 4999 and any interest, and penalties imposed with
respect to any taxes) imposed upon the Adjustment Payment, the Executive
retains an amount of the Adjustment Payment equal to the Excise Tax
imposed upon the Change of Control Amount; provided,
however, the Adjustment Payment shall not exceed an amount equal
to the Change of Control Amount, and no Adjustment Payment shall be made
in respect of any payment other than the Change of Control Amount,
including without limitation any value attributable to any options or
other equity compensation subject to the Excise Tax. The Company shall
pay the Adjustment Payment to the Executive within twenty (20) business
days after the Date of Termination.

9

 

               (ii) Determination By Accountant. All determinations
required to be made under this Section 5(d), including whether an
Adjustment Payment is required and the amount of such Adjustment Payment,
shall be made by the independent accounting firm retained by the Company
on the date of Change of Control (the “Accounting Firm”), which
shall provide detailed supporting calculations both to the Company and
the Executive within fifteen (15) business days of the Date of
Termination, if applicable, or such earlier time as is requested by the
Company. If the Accounting Firm determines that no Excise Tax is payable
by the Executive, it shall furnish the Executive with an opinion that he
has substantial authority not to report any Excise Tax on his federal
income tax return. Any determination by the Accounting Firm shall be
binding upon the Company and the Executive. As a result of the
uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is
possible that an Adjustment Payment which will not have been made by the
Company should have been made (“Underpayment”), consistent with
the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 5(d)(iii) and
the Executive thereafter is required to make a payment of any Excise Tax,
the Accounting Firm shall determine the amount of the Underpayment that
has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive; provided,
however, that the sum of the Underpayment plus any Adjustment
Payment previously paid shall not exceed two times the Change of Control
Amount.

               (iii) Notification Required. The Executive shall notify the
Company in writing of any claim by the Internal Revenue Service that, if
successful, would require the payment by the Company of the Adjustment
Payment. Such notification shall be given as soon as practicable but no
later than thirty (30) business days after the Executive knows of such
claim and shall apprise the Company of the nature of such claim and the
date on which such claim is requested to be paid. The Executive shall
not pay such claim prior to the expiration of the thirty (30)-day period
following the date on which it gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes with respect
to such claim is due). If the Company notifies the Executive in writing
prior to the expiration of such period that it desires to contest such
claim, the Executive shall:

10

 

               (A) give the Company any information reasonably requested by
the Company relating to such claim,

               (B) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to
time, including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by
the Company,

               (C) cooperate with the Company in good faith in order to
effectively contest such claim,

               (D) permit the Company to participate in any proceedings
relating to such claim; provided, however, that the
Company shall bear and pay directly all costs and expenses
(including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the
Executive harmless, on an after-tax basis, for any Excise Tax or
income tax, including interest and penalties with respect thereto,
imposed as a result of such representation and payment of costs and
expenses. Without limitation on the foregoing provisions of this
Section 5(d)(iii), the Company shall control all proceedings
taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority with respect to
such claim and may, at its sole option, either direct the Executive
to pay the tax claimed and sue for a refund, or contest the claim
in any permissible manner, and the Executive agrees to prosecute
such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided,
however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the
amount of such payment to the Executive, on an interest-free basis
and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income tax, including
interest or penalties with respect thereto, imposed with respect to
such advance or with respect to any imputed income with respect to
such advance; and further provided that any extension
of the statute of limitations relating to payment of taxes for the
taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company’s control of the contest shall be
limited to issues with respect to which an Adjustment Payment would
be payable hereunder and the Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by
the Internal Revenue Service or any other taxing authority.

               (iv) Repayment. If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Section 5(d)(iii), the
Executive becomes entitled to receive any refund with respect to such
claim, the Executive shall (subject to the Company’s complying with the
requirements of Section 5(d)(iii)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section
5(d)(iii), a determination is made that the Executive shall not be
entitled to any refund with respect to such claim and the Company does
not notify the Executive in writing of its intent to contest such denial
of refund prior to the expiration of thirty days after such
determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the
extent thereof, the amount of any Adjustment Payment required to be paid.

11

 

     6. Confidential Information.

          (a) Acknowledgment. The Executive recognizes and acknowledges that
he will have access to, and the Company shall provide the Executive with,
confidential proprietary information of the Company, including information
regarding costs, profits, markets, sales, products, key personnel, pricing
policies, operational methods, other business methods, plans for future
developments, and other information not readily available to the public, the
disclosure of which to third parties would in each case have a material adverse
effect on the Company’s Business operations (“Confidential
Information”).

          (b) Agreement Regarding Confidentiality. The Executive will keep
secret, during and after the termination of his employment, all Confidential
Information and will not use or disclose Confidential Information to anyone
outside of the Company other than in the course of performance of his duties
under this Agreement, except that (i) the Executive shall have no such
obligation to the extent Confidential Information is or becomes publicly known
other than as a result of the Executive’s breach of his obligations hereunder,
and (ii) the Executive may disclose such matters to the extent required by
applicable laws, or governmental regulations or judicial or regulatory
processes.

          (c) Return of Records. The Executive will deliver promptly to the
Company on termination of his employment by the Company, or at any other time
the Board may so request, all memoranda, notes, records, reports and other
documents (and all copies thereof) relating to the Company’s Business that he
obtained while employed by, or otherwise serving or acting on behalf of, the
Company and that he may then possess or have under his control. In the event
the Executive fails to comply with his obligations under this Section
6(c), the Company shall be entitled to injunctive relief enforcing such
obligations to the extent reasonably necessary to protect the Company’s
legitimate interests.

     7. Noncompetition.

          (a) In exchange for the Company’s delivery of Confidential Information to
the Executive, during the Executive’s employment under this Agreement, if
applicable, and for a period (the “Restriction Period”) equal to the
greater of (i) the period during which the Company provides any severance
payments or benefits to the Executive pursuant to Section 4(a) hereof or
(ii) two years after the Executive’s termination:

          (1) The Executive will inform any new employer, prior to accepting
employment, of the existence of this provision of the Agreement and
provide such employer with a copy thereof; and

          (2) The Executive agrees not to directly or indirectly, render
services to any Conflicting Organization in the United States or in any
country in which the Company has a plant for manufacturing a product,
except that the Executive may accept employment with a large Conflicting
Organization whose business is diversified (and which has separate and
distinct divisions), and which as to the part of its business in which
the Executive is to be employed is not a Conflicting Organization,
provided the Company, prior to the Executive accepting such employment,
shall receive separate written assurances satisfactory to the Company
from such Conflicting Organization and from the Executive that the
Executive will not render services directly or indirectly in connection
with the
development, manufacture, marketing, sale, merchandising, leasing,
servicing or promotion of any Conflicting Product; and

12

 

“Conflicting Product” means any product, process, system or
service that is the same as or similar to, or competes with,
a product, process, system or service that was in development
by the Company, was sold or leased by the Company or was
utilized by the Company in delivering services to the
Company’s customers, in each case on or prior to the
termination of the Executive’s employment by the Company.

“Conflicting Organization” means any person or organization
that develops, sells or leases Conflicting Products (or
utilizes Conflicting Products in delivering services to such
person’s or organization’s customers), whether before or
after the Executive begins rendering services to such person
or organization.

          (3) After the Executive’s termination of employment with the
Company, the Executive agrees not to directly or indirectly, (A)
participate in any solicitation or offer to purchase the stock or assets
of the Company or other business combination or similar transaction
involving the Company, (B) take any action to encourage (including by way
of furnishing information or access to information regarding the Company)
the making of any offer to purchase the stock or assets of the Company or
other business combination or similar transaction involving the Company,
or (C) participate in any discussions or negotiations regarding the
purchase of the stock or assets of the Company or other business
combination or similar transaction involving the Company; and

          (4) Without the prior approval of the Board, the Executive agrees
not to purchase or otherwise acquire (other than pursuant to a stock
split or stock dividend) any additional shares of Common Stock for the
purpose of influencing or participating in the acquisition of a majority
of the voting stock of the Company or the assets of the Company or other
business combination or similar transaction involving the Company;
provided, however, the terms of this Agreement shall not be construed to
prohibit the Executive from voting or tendering any shares of Common
Stock held by the Executive, solely in his capacity as a stockholder; and

          (5) The Executive further agrees that he will not solicit the
Company’s employees, either on behalf of the Executive or any third
party, to resign or otherwise leave their employment with the Company to
work for the Executive or any third party; and

          (6) The Executive further agrees that he will not solicit business
from, attempt to do business with, or do business with any customer of
the Company with whom the Company did business within the two years
preceding the date of his termination of employment with the Company; and

13

 

          (7) The Executive further agrees that he will not make remarks
disparaging the conduct or character of the Company or its officers or
directors, and will not interfere with the Company’s business
relationships with its customers, vendors and distributors.

          (b) Specific Performance. If the Executive breaches or threatens
to commit a breach of the provisions of Sections 6 or 7 hereof, the
Company shall have the right to have such Restrictive Covenants
specifically enforced by any court of competent jurisdiction, it being agreed
that any breach or threatened breach of the Restrictive Covenants would cause
irreparable injury to the Company and that money damages would not provide an
adequate remedy for such injury. Accordingly, the Company shall be entitled to
injunctive relief to enforce the terms of the Restrictive Covenants and to
restrain the Executive or any of its Affiliates from any violation thereof,
without the need to post any type of bond or other form of security in
connection with such relief and enforcement. The rights and remedies set forth
in this Section 7(b) shall be independent of all other others rights and
remedies available to the Company for a breach of the Restrictive Covenants,
and shall be severally enforceable from, in addition to, and not in lieu of,
any other rights and remedies available at law or in equity.

     8. Additional Service as Chairman of the Board of Directors and as a
Director. As soon as is practicable after the execution and delivery of
this Agreement, the Company intends to nominate the Executive for election as a
Director of the Company, either by vote of the Company’s stockholders or by
vote of the Board. Upon the Executive’s election as a Director, the Board
intends to elect the Executive to be Chairman of the Board. The Executive
acknowledges that (a) the Executive will serve as Chairman of the Board at the
discretion of the Board, which may elect another person to serve as Chairman of
the Board in the Executive’s place, and (b) the Executive will serve as a
Director at the discretion of the Company’s stockholders. The Executive further
acknowledges that this Agreement will not be affected if at any time the Board
or the Company’s stockholders make any change in the Executive’s status as
Chairman of the Board or as a Director, and that any such change in status, in
and of itself, will not constitute either a termination of the Executive’s
employment as Chief Executive Officer hereunder or a Company Breach hereunder.
Notwithstanding anything to the contrary in any other provision of this
Agreement, if the Executive elects to continue serving as a Director after
termination of his employment, then (a) the Company shall not make any payment
of any amount payable under Section 4(a)(ii)(1)(B) or Section
4(b)(ii) until after the date of the Executive’s resignation as a Director
(the “Resignation Date”), and (b) the Restriction Period shall be
extended by the period of time from the date of the Executive’s termination of
employment to the Resignation Date.

     9. Miscellaneous.

          (a) Integration; Amendment. This Agreement constitutes the entire
agreement among the parties hereto with respect to the matters set forth herein
and supersedes and renders of no force and effect all prior understandings and
agreements among the parties with respect to the matters set forth herein. No
amendments or additions to this Agreement shall be binding unless in writing
and signed by the Executive and the Company.

14

 

          (b) Assignment. The Company may assign this Agreement to any
successor by operation of law or to any purchaser of all or substantially all
of the assets of the Company. The Executive may not assign this Agreement or
any right or interest therein, whether by operation of law or otherwise,
without the prior written consent of the Company.

          (c) Severability. If any part of this Agreement is contrary to,
prohibited by, or deemed invalid under applicable law or regulations, such
provision shall be inapplicable and deemed omitted to the extent so contrary,
prohibited, or invalid, but the remainder of this Agreement shall not be
invalid and shall be given full force and effect so far as possible.

          (d) Waivers. The failure or delay of any party at any time to
require performance by any other party of any provision of this Agreement,
even if known, shall not affect the right of such party to require
performance of that provision or to exercise any right, power, or remedy
hereunder, and any waiver by any party of any breach of any provision of this
Agreement shall not be construed as a waiver of any continuing or succeeding
breach of such provision, a wavier of the provision itself, or a waiver of any
right, power, or remedy under this Agreement. No notice to or demand on any
party in any case shall, of itself, entitle such party to any other or further
notice or demand in similar or other circumstances.

          (e) Power and Authority. The Company represents and warrants to
the Executive that it has the requisite corporate power to enter into this
Agreement and perform the terms hereof; and that the execution, delivery and
performance of this Agreement by it has been duly authorized by all appropriate
corporate action.

          (f) Burden and Benefit. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
executors, personal and legal representatives, successors and, subject to
Section 9(b) above, assigns. Any provision of this Agreement which by
its terms requires performance beyond the term of this Agreement shall survive
the term of this Agreement in accordance with the terms of such provision.

          (g) Time is of the Essence. Time is of the essence for all
purposes of this Agreement.

          (h) Arbitration. Any dispute or controversy arising out of or
relating to this Agreement shall be settled finally and exclusively by
arbitration in accordance with the rules of the American Arbitration
Association then in effect. Such arbitration shall be conducted in the State
of Minnesota by a sole arbitrator appointed by the American Arbitration
Association in accordance with its rules and any finding by such arbitrator
shall be final and binding upon the parties. Judgment upon any award rendered
by the arbitrator may be entered in any court having jurisdiction thereof, and
the parties consent to the jurisdiction of the courts of the State of Minnesota
for this purpose. Nothing contained in this Section 9(h) shall be
construed to preclude the Company from obtaining injunctive or other equitable
relief to secure specific performance or to otherwise prevent a breach or
contemplated breach of this Agreement. Each party shall bear its own expenses
for attorneys, experts, travel and other similar matters. Each party shall pay
one-half of the arbitrator’s fees and expenses.

          (i) Governing Law; Headings. This Agreement and its construction,
performance, and enforceability shall be governed by, and construed in
accordance with, the laws of the State of Minnesota. Headings and titles
herein are included solely for convenience and shall not affect the
interpretation of this Agreement.

15

 

          (j) Notices. All notices called for under this Agreement shall be
in writing and shall be deemed given upon receipt if delivered personally or by
facsimile transmission and followed promptly by mail, or mailed by registered
or certified mail (return receipt requested), postage prepaid, to the parties
at the following addresses (or at such other address for a party as shall be
specified by like notice; provided that notices of a change of address shall be
effective only upon receipt thereof):

If to the Executive:

Bruce A. Henderson

Imation Corp.

One Imation Place

Oakdale, Minnesota 55128

Facsimile: (651) 704-4412

If to the Company:

Imation Corp.

One Imation Place

Oakdale, Minnesota 55128

Attn: General Counsel

Facsimile: (651) 704-4412

          Any notice delivered to the party hereto to whom it is addressed shall be
deemed to have been given and received on the day it was received;
provided, however, that if such day is not a business day then
the notice shall be deemed to have been given and received on the business day
next following such day. Any notice sent by facsimile transmission shall be
deemed to have been given and received on the next business day following the
day of transmission.

          (k) Counterparts. This Agreement may be executed in one or more
counterparts, each of which counterparts shall be deemed to be an original, and
all such counterparts shall constitute one and the same agreement.

          (l) No Strict Construction. The parties hereto confirm that they
have each participated in the negotiation and preparation of this Agreement and
that this Agreement represents the joint agreement and understanding of the
parties. The language used in this Agreement has been mutually chosen by the
parties hereto, and no rule of strict construction construing ambiguities
against any party hereto shall be applied.

***************

16

 

     IN WITNESS WHEREOF, the parties have duly executed this Agreement, or
caused this Agreement to be duly executed on their behalf, as of the date first
above written.

	 	 	 	 	 
	 	IMATION CORP.

 	 
	 	By:  	                                         /s/ John L. Sullivan
 	 
	 	 	Name:  	John L. Sullivan 	 
	 	 	Title:  	Senior Vice President,
General Counsel and Assistant Secretary 	 
	 

	 	 	 	 	 
	 	 	 
	 	                                          /s/ Bruce A. Henderson
 	 
	 	Bruce A. Henderson 	 
	 	 	 
	 

17

 

EXHIBIT A

2000 Stock Incentive Plan

of Imation Corp.

Stock Option Agreement

     This STOCK OPTION AGREEMENT (the “Agreement”) effective as of
May 13, 2004, is entered into between Imation Corp., a Delaware corporation
(the “Company”) and Bruce A. Henderson an employee of the Company or a
Subsidiary (the “Participant”), pursuant to and subject to the terms and
conditions of the 2000 Stock Incentive Plan of the Company (the “Plan”).
The purpose of this Agreement is to evidence the terms and conditions of a
nonqualified stock option granted to the Participant under the Plan.

     Accordingly, for good and valuable consideration, the parties agree as
follows:

     1. Grant of Non-qualified Option. Effective May 13, 2004 (the
“Effective Date”), the Company granted to the Participant a
non-qualified option to purchase all or any part of an aggregate of one hundred
seventy-five thousand (175,000) shares of the Company’s Common Stock on the
terms and conditions herein set forth (the “Option”).

     2. Purchase Price. The purchase price of the shares of Common
Stock subject to the Option shall be [insert end of day market price on May 13,
2004] per share.

     3. Term of the Option. The term of the Option (the “Option
Period”) shall be for a period of seven (7) years from the Effective Date,
subject to earlier termination as provided in Section 7 hereof.

     4. Vesting of the Option. Subject to Section 7 hereof, the
Option may be
exercised at any time or from time to time, as to any part or all of the shares
covered thereby in accordance with the following vesting schedule:

     (a) 100,000 shares of the Option may be exercised at any time on or
after May 13, 2008, and prior to the end of the Option Period set forth
in Section 3 hereof, if the Company achieves a ten percent (10%) or
greater compounded average annual growth in operating income for the
period beginning on January 1, 2004 and ending on December 31, 2007, as
compared to the December 31, 2003 full fiscal year operating income;
provided, however, if it is determined after December 31,
2007 that the Company did not achieve this objective, the Option to
purchase 100,000 shares shall be deemed to have expired on December 31,
2007; and

     (b) 75,000 shares of the Option may be exercised at any time on or
after February 14, 2011, and prior to the end of the Option Period set
forth in Section 3 hereof, if the Company achieves a fifteen percent (15%)
or greater compounded average annual growth in operating income for the
period beginning on January 1, 2008 and ending on December 31, 2010, as
compared to the December 31, 2007 full fiscal year operating income;
provided, however, if it is determined after December 31,
2010 that the Company did not achieve this objective, the Option to
purchase 75,000 shares shall be deemed to have expired on December 31,
2010.

The Committee shall make the determination whether the objective described in
Section 4(a) or Section 4(b) was achieved. Such determination shall be made as
promptly as practicable after the applicable December 31, shall be based on the
Company’s audited financial statements for the applicable periods, and shall be
final and conclusive
with respect to the achievement of the objectives. For purposes of determining
whether the operating income objective has been achieved under this Agreement,
the Committee shall exclude the effect of expensing options.

18

 

All Options that are exercisable pursuant to the terms set forth in this
Section 4 shall expire on May 13, 2011, if not exercised prior to that date.

     5. Limited Acceleration upon Certain Events.

          (a) In the event (i) the Company terminates the Participant’s employment
with the Company and all its subsidiaries without Cause (defined below) during
the Option Period, (ii) the Company terminates the Participant’s employment
with the Company and all its subsidiaries during the Option Period and
within one year after a Change of Control (defined below) for any reason other
than for Cause, the Participant’s death or disability (as described in the
Participant’s employment agreement with the Company dated May 13, 2004 (the
“Employment Agreement”)), or (iii) the Participant terminates his
employment with the Company and all its subsidiaries during the Option Period
for Company Breach (defined below) (any of the termination events described in
these Sections 5(a)(i), (ii) and (iii) being referred to herein as an
“Acceleration Termination Event”), then a portion of the Option
described in Section 4(a) or Section 4(b) (as applicable, determined based on
the date of such Acceleration Termination Event) shall immediately vest and
become exercisable (subject to the time periods for exercise set forth in other
provisions of this Agreement), if (and only if) the Company had achieved the
required level of growth in operating income for the applicable period ending
on the December 31 immediately prior to the date of such Acceleration
Termination Event, in accordance with Section 4(a) or Section 4(b), as
applicable. Such Option shall accelerate (if at all) only in an amount equal
to the number of shares of Common Stock determined by multiplying the maximum
number of shares subject to such Option (either 100,000 shares or 75,000
shares, as applicable, determined based on the date of such Acceleration
Termination Event) by the ratio of (i) the portion of the applicable
measurement period set forth in Section 4(a) or 4(b) (expressed in full fiscal
years) through the December 31 immediately prior to the date of such
Acceleration Termination Event, divided by (ii) the total number of full fiscal
years in the applicable measurement period set forth in Section 4(a) or 4(b).

          (b) If an Acceleration Termination Event occurs on or before December 31,
2007, then the Option described in Section 4(b) above shall immediately be
forfeited, whether or not any portion of the Option described in Section 4(a)
is accelerated under Section 5(a).

          (c) If an Acceleration Termination Event occurs on or after January 1,
2008 and on or before December 31, 2010, then no portion of any forfeited
Option described in Section 4(a) above that did not vest in accordance with
Section 4(a) in accordance with its terms shall be reinstated or accelerated,
whether or not any portion of the Option described in Section 4(b) is
accelerated under Section 5(a).

          (d) Except as specifically provided in Section 5(a) hereof, there shall
not be any acceleration of vesting of the Option or any portion thereof.
Without limiting the foregoing, a voluntary resignation or retirement by the
Participant shall not be an Acceleration Termination Event.

     For the avoidance of doubt, the following are two examples of the limited
acceleration described in this Section 5.

	 	A.	 	If an Acceleration Termination Event occurred during July 2006,
then the Option described in Section 4(a) would accelerate as to
50,000 shares, if (but only if) the Company had achieved a ten
percent (10%) or greater compounded average annual growth in
operating income for the two year period ended December 31, 2005, as
compared to the December 31, 2003 full fiscal year operating income.
(Note that this growth might be achieved even if the Company’s
operating income grew at a rate less than ten
percent (10%) in either such year, so long as the combined
compounded growth in operating income for such two year period was
at least ten percent (10%). The 50,000 shares that would accelerate
under this example would be determined by multiplying 100,000 shares
by the ratio of 2 (the number of full fiscal years elapsed under the
applicable vesting provision (Section 4(a))), divided by 4 (the
total number of full fiscal years in the period under the applicable
vesting provision (Section 4(a))). The remaining 50,000 shares of
the Option (100,000 shares minus 50,000 shares) would be forfeited
upon the Participant’s termination. The Option provided for in
Section 4(b) would be forfeited in full upon such termination.
Exercise of such vested 50,000 share Option would be subject to the
exercise provisions of this Agreement.

19

 

	 	B.	 	As another example, if an Acceleration Termination Event
occurred during May 2009, then the Option described in Section 4(b)
would accelerate as to 25,000 shares, if (but only if) the Company
had achieved a fifteen percent (15%) or greater compounded annual
growth in operating income for the year ended December 31, 2008, as
compared to the Company’s December 31, 2007 full fiscal year
operating income. The 25,000 shares that would accelerate would be
determined by multiplying 75,000 shares by the ratio of 1 (the number
of full fiscal years elapsed under the applicable vesting provision
(Section 4(b))), divided by 3 (the total number of full fiscal years
in the period under the applicable vesting provision (Section 4(b))).
The remaining 50,000 shares of the Option (75,000 shares minus
25,000 shares) would be forfeited upon the Participant’s termination.
Acceleration of the 25,000 shares would not affect any portion of
the Option that had been forfeited under Section 4(a) or any portion
of the Option that had vested under Section 4(a), in either case as
provided in Section 4(a). Exercise of such 25,000 share Option would
be subject to the exercise provisions of this Agreement.

     6. Transferability. The Option may not be assigned, transferred
(other than by will or the laws of descent and distribution), pledged or
hypothecated (whether by operation of law or otherwise), and shall not be
subject to execution, attachment or similar process. Any attempted assignment,
transfer, pledge, hypothecation or other disposition of the Option contrary to
the provisions of the Plan or this Agreement, or the levy of any execution,
attachment or similar process upon the Option shall constitute an immediate
cancellation of the Option.

     7. Effect of Termination of Employment

          (a) In the event the Participant shall cease to be employed by the Company
or a Subsidiary for any reason other than termination for Cause or death, or
elects to accept Pre-Retirement Leave (“PRL”) in conjunction with a
Company sponsored severance plan, the Participant may exercise the Option to
the extent of (but only to the extent of) the number of vested shares the
Participant was entitled to purchase under the Option on the date of such
termination or commencement of PRL, and such exercise may be effected at any
time within 90 days after such termination of employment or commencement of PRL
(or within six months after such termination of employment or commencement of
PRL if such termination or PRL is for any reason following a Change of Control)
but not thereafter; provided, however, that the Option may not be
exercised after the Option Period.

          (b) In the event the Participant shall cease to be
employed by the
Company or a Subsidiary upon termination for Cause, the Option shall be
terminated as of the date of such termination. Termination for “Cause”
shall mean termination of Participant’s employment with the Company or a
Subsidiary for the following acts: (i) the Participant’s gross incompetence or
substantial failure to perform his duties under the Employment Agreement, (ii)
misconduct by the Participant that causes or is likely to cause harm to the
Company or that causes or is likely to cause harm to the Company’s reputation,
as determined by the Company’s Board of Directors in its sole and absolute
discretion (such misconduct may include, without limitation, insobriety
at the workplace during working hours or the use of illegal drugs), (iii)
failure to follow directions of the Company’s Board of Directors that are
consistent with the Participant’s duties under the Employment Agreement, (iv)
the Participant’s conviction of, or entry of a pleading of guilty or nolo
contendere to, any crime involving moral turpitude, or the entry of an order
duly issued by any federal or state regulatory agency having jurisdiction in
the matter permanently prohibiting the Participant from participating in the
conduct of the affairs of the Company or (v) any breach of the Employment
Agreement by the Participant that is not remedied within 30 days after receipt
of written notice from the Company specifying such breach in reasonable detail.

20

 

          (c) Notwithstanding the provisions of paragraph 7(a),
and except as
otherwise provided in paragraphs 7(b) and (d), if the participant retires
pursuant to a pension plan maintained or funded by the Company, the Option, to
the extent not previously exercised or forfeited, shall be exercisable to the
extent of (but only to the extent of) the number of vested shares the
Participant was entitled to purchase under the Option on the date of such
retirement, and such exercise may be effected for three years after the date of
such retirement, but not thereafter; provided, however, that the
Option may not be exercised after the Option Period. If a Participant who has
thus retired, dies prior to expiration of the term of the Option, the Option,
to the extent not previously exercised or forfeited, may be exercised (but only
to the extent exercisable in accordance with the vesting provisions hereof as
of the date of the Participant’s retirement and only to the extent not
exercised or forfeited as of the date of the Participant’s death) within two
(2) years after the date of his or her death (but not more than seven (7)
years from the Effective Date) by the Participant’s estate or by a person who
acquired the right to exercise such Option by bequest or inheritance.

          (d) If the Participant dies or is deemed to suffer a disability (as
described in the Employment Agreement) while employed by the Company or a
Subsidiary, the Option, to the extent not previously exercised or forfeited,
shall be exercisable to the extent of (but only to the extent of) the number of
vested shares the Participant was entitled to purchase under the Option on the
date of the Participant’s death or disability (as described in the Employment
Agreement). In the event of death, such exercise may be effected by the
Participant’s estate or by a person who acquired the right to exercise the
Option by bequest or inheritance within two (2) years after the date of the
Participant’s death, but before the Option Period expires. In the event of
disability (as described in the Employment Agreement), such exercise may be
effected by the Participant within two (2) years after the date of the
Participant’s disability (as described in the Employment Agreement), but before
the Option Period expires.

     8. Stock Dividends, Stock Splits, Recapitalization, Merger or
Consolidation. If all or any portion of the Option shall be exercised
subsequent to any stock dividend, stock split, recapitalization, merger or
consolidation involving the Company or its Common Stock, the Committee shall
make appropriate adjustment to the Option to give effect thereto on an
equitable basis.

     9. Exercise of the Option. Subject to the terms and conditions of
this Agreement, the Option may be exercised by contacting the Company’s Stock
Plan Administrator. Such notice shall state the election to exercise the
Option and the number of shares in respect of which it is being exercised and
shall be signed by the Participant or such other person entitled to exercise
the Option. Such notice shall be accompanied by payment of the full purchase
price of such shares and applicable federal, state and local withholding taxes,
if any. Payment of such purchase price and applicable withholding taxes, if
any, may be made in whole or in part in shares of Common Stock. The value of
any share of Common Stock delivered in payment of all or part of the purchase
price upon the exercise of the Option shall be the last sale price of a share
of Common Stock on the New York Stock Exchange on the date the Option shall be
exercised. A Participant shall obtain no rights as a stockholder or any
interest in shares of Common Stock subject to the Option until certificates for
such shares are issued and delivered to the Participant and the Participant
becomes
the holder of record. In the event that the Option shall be exercised
pursuant to paragraph 7(c) or 7(d) hereof by any person or persons other than
the Participant, such notice shall be accompanied by appropriate proof of the
right of such person or persons to exercise the Option.

21

 

     10. Issuance of Shares. Upon exercise of all or any portion of
the Option, the Company will cause to be delivered to the Participant a
certificate representing the shares of Common Stock purchased. Notwithstanding
anything to the contrary in this Agreement, the Company’s obligation to issue
shares of Common Stock or to deliver certificates therefore shall be subject to
(i) all applicable laws, rules and regulations and such approvals by any
governmental agencies as may be required, including, without limitation, the
effectiveness of a registration statement under the Securities Act of 1933, as
amended, and (ii) the condition that such shares shall have been duly listed on
the New York Stock Exchange.

     11. Definitions. Terms not defined in this Agreement shall
have the meanings given to them in the Plan, and the following terms shall have
the following meanings when used in this Agreement:

          (a) “Change of Control” means any of the following events:

          (i) The acquisition by any person, entity or “group,” within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”), other than the Company or a
subsidiary of the Company, or any employee benefit plan of the Company or
a subsidiary of the Company, of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of either
the then outstanding Common Stock or the combined voting power of the
Company’s then outstanding voting securities in a transaction or series of
transactions not approved in advance by a vote of a majority of the
Continuing Directors (as hereinafter defined); or

          (ii) Individuals who, as of the date of this Agreement, constitute
the Board of Directors of the Company (generally the “Directors”
and as of the Effective Date the “Continuing Directors”) cease for
any reason to constitute at least a majority thereof, provided that any
person becoming a director subsequent to the Effective Date whose
nomination for election was approved in advance by a vote of a majority of
the Continuing Directors (other than a nomination of an individual whose
initial assumption of office is in connection with an actual or threatened
solicitation with respect to the election or removal of the Directors of
the Company, as such terms are used in Rule 14a-11 of Regulation 14A under
the Exchange Act) shall be deemed to be a Continuing Director; or

          (iii) The approval by the shareholders of the Company of a
reorganization, merger, consolidation, liquidation or dissolution of the
Company or of the sale (in one transaction or a series of related
transactions) of all or substantially all of the assets of the Company
other than a reorganization, merger, consolidation, liquidation,
dissolution or sale approved in advance by a vote of a majority of the
Continuing Directors; or

          (iv) The first purchase under any tender offer or exchange offer
(other than an offer by the Company or a subsidiary of the Company)
pursuant to which Common Stock is purchased.

     (b) “Committee” means the Compensation Committee of the Board
of Directors of the Company or such other committee of directors
designated by the Board of Directors to administer the Plan.

     (c) “Common Stock” means the common stock of the Company, par
value $.01 per share.

     (d) “Company Breach” means: (i) a change in the Participant’s
duties or responsibilities with the Company (A) that represents a
substantial reduction of the duties or responsibilities as in effect
immediately prior thereto and (B) that is reasonably likely to subject the
Participant to professional embarrassment or ridicule; (2) a change by the
Board of Directors of the Company in the duties or responsibilities of
other senior executive officers of the Company that has the effect of
precluding the Participant from effectively performing his duties and
responsibilities; (3) a material reduction in the Participant’s base
compensation that is not substantially proportionate to any reduction in
the base compensation of other senior executives of the Company; or (4)
any material breach by the Company of any provision of the Employment
Agreement that is not remedied within 30 days after receipt of written
notice from the Participant specifying such breach in reasonable detail.

22

 

     (e) “Subsidiary” means a corporation more than 50% of the
voting stock of which shall at the time be owned directly or indirectly by
the Company.

     12. Governing Law. This Agreement has been entered into pursuant
to and shall be governed by the laws of the State of Delaware.

     The Agreement is made under and subject to the provisions of the Plan, and
all of the provisions of the Plan are also provisions of the Agreement. If
there is a difference or conflict between the provisions of the Agreement and
the provisions of the Plan, the provisions of the Plan will govern. By signing
the Agreement, the Participant confirms that the Participant has received a
copy of the Plan.

     The Company and the Participant have caused this Agreement to be signed
and delivered as of the date set forth above.

	 	 	 	 	 
	 	IMATION CORP.

 	 
	 	 	By:  	
 	 
	 	 	Name:  	
 	 
	 	 	Title:  	
 	 
	 

	 	 	 	 	 
	 	PARTICIPANT:

 

Bruce A. Henderson

 
	 	 	 
	 	 	 
	 	 	 
	 

23

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00069-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00069-of-00352.parquet"}]]