QLT INC/BC
CONSULTANCY AGREEMENT DATED DECEMBER 7, 2005
<DOCUMENT>
<TYPE>EX-10.40
<SEQUENCE>2
<FILENAME>o30599exv10w40.txt
<DESCRIPTION>CONSULTANCY AGREEMENT DATED DECEMBER 7, 2005
<TEXT>
<PAGE>

                                                                   EXHIBIT 10.40

[QLT INC. LOGO]

                              CONSULTING AGREEMENT

THIS AGREEMENT made as of the 7th day of December, 2005.

BETWEEN:

            QLT INC., a company incorporated under the laws of the Province of
            British Columbia, with an office at 887 Great Northern Way,
            Vancouver, British Columbia, Canada, V5T 4T5

            ("QLT")

AND:

            DR. MOHAMMAD AZAB, of ##### Vancouver, British Columbia, Canada,
            ####

            ("DR. AZAB")

WHEREAS:

A. QLT is in the business of researching, developing and commercializing drugs
for the treatment and prevention of disease, including Visudyne(R) for the
treatment of certain forms of wet age-related macular degeneration;

B. Dr. Azab is employed by QLT as the Executive Vice President and Chief Medical
Officer and has tendered his resignation from employment with QLT effective
January 1, 2006 in order to pursue other business opportunities;

C. QLT and Dr. Azab have agreed that, effective January 1, 2006 (the "EFFECTIVE
DATE"), Dr. Azab will aid and assist QLT as a consultant by providing certain
advisory and consultant services to QLT on the terms and conditions as set out
in this Agreement;

NOW THEREFORE in consideration of the mutual promises and agreements of the
parties as set forth in this Agreement, the receipt and sufficiency of which is
hereby acknowledged by QLT and Dr. Azab, the parties agree as follows:

1. ENGAGEMENT AND SCOPE. QLT appoints and engages Dr. Azab as its consultant and
advisor with respect to those matters described in that separate memorandum
dated December 7, 2005 (the "SERVICES"), and Dr. Azab accepts that appointment
and engagement by QLT, all upon and subject to the terms and

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conditions set out in this Agreement. Dr. Azab will provide the Services to QLT
in a good and faithful manner, using his best efforts and in a manner that will
promote the interests of QLT. Dr. Azab will at all times refrain from making any
public statement which may reasonably be expected to have a negative impact on
QLT's goodwill, ongoing business, products, management or litigation in which
QLT may be involved. In providing the Services, Dr. Azab will be responsible to
and will report to the Chief Executive Officer of QLT or to such other person as
QLT may from time to time designate.

2. TIMING OF CONSULTING SERVICES. Dr. Azab will devote such time to fulfilling
the Services as is reasonably required given the nature and circumstances of
each of the Services. Dr. Azab and QLT acknowledge that the time required to
perform the Services will vary from month-to-month during the Term (as defined
herein) depending on which of the Services, if any, QLT requires to be performed
in any particular month but that the amount payable under Section 3 with respect
to the Services will remain fixed regardless of the amount of time that may be
required to perform the Services. QLT and Dr. Azab will both act reasonably to
schedule mutually agreeable times and locations, and with reasonable advance
notice to the extent practicable under the circumstances, at which the Services
are to be provided having due regard to the legitimate business interests of QLT
and any other work commitments of Dr. Azab, however, Dr. Azab acknowledges that
the nature of certain of the Services may require that they be provided during
normal business hours on normal business days of QLT and at the offices of QLT
or such other location as may be reasonably necessary given the nature of the
particular Service.

3. CONSULTING FEE. Provided Dr. Azab is not then in default under this
Agreement, QLT will pay to Dr. Azab for the Services rendered by Dr. Azab during
the Term of this Agreement, a fee in the amount of Cdn.$45,259 per month during
the Term plus GST. In addition, on completion of the first 12 months of Service
during the Term, QLT will pay to Dr. Azab an amount equal to Cdn.$149,655 plus
GST provided that this Agreement remains in effect on that date. In the event
that Dr. Azab wishes QLT to continue providing those health and life insurance
benefits (excluding long term disability and short term disability) that were
provided by QLT to Dr. Azab prior to the Effective Date, QLT will make such
benefits available to Dr. Azab if and so long as permitted by QLT's external
benefits provider and, in such event, QLT will deduct from the amounts payable
hereunder an amount equal to $4,525 per month for each month such benefits are
provided (as may be adjusted for any partial months). Dr. Azab acknowledges and
agrees that, except for the payments, benefits and reimbursements expressly
provided for in this Agreement and the benefits relating to stock options
granted to Dr. Azab prior to the Effective Date (as provided for in SECTION 5),
QLT has no obligation to provide to Dr. Azab any health, life insurance or other
benefits of any nature or kind that Dr. Azab previously enjoyed as an employee
of QLT.

4. EXPENSES. QLT will pay or promptly reimburse Dr. Azab for the reasonable
travelling, entertainment, telephone and other expenses actually and properly
incurred by Dr. Azab in connection with the provision of the Services by Dr.
Azab under this Agreement provided that those expenses are approved by QLT in
writing in advance. The reimbursement of any travel-related expenses will be
made in accordance with QLT's travel policy, a copy of which has been provided
to Dr. Azab. Reimbursement for expenses will be subject to Dr. Azab keeping
proper accounts and furnishing to QLT within 30 days after the date the expenses
are incurred, all applicable statements, vouchers and other evidence of expense.

5. STOCK OPTIONS. Pursuant to the terms of the QLT Stock Option Plan, the
options previously issued to Dr. Azab under that plan will continue to vest and
be exercisable in accordance with the Stock Option Agreements in place between
QLT and Dr. Azab for so long as Dr. Azab remains a consultant for QLT. On
termination of this Agreement, Dr. Azab will have 90 days to exercise his stock
options, all subject to and in accordance with the applicable Stock Option
Agreements and the QLT Stock Option Plan. In addition, without limiting Dr.
Azab's obligations under Section 6, Dr. Azab acknowledges that during the course
of

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the performance of his duties under this Agreement, Dr. Azab may receive
information that is considered material inside information within the meaning
and intent of the applicable securities laws and legislation, and the rules and
regulations thereunder. Dr. Azab will not disclose this information to others
except as authorized by QLT in writing, and will not use this information
directly or indirectly for his benefit or as a basis for advice to any other
party concerning any decision to buy, sell or otherwise trade in the securities
of QLT.

6. CONFLICTS OF INTEREST. During the Term of this Agreement, Dr. Azab will not
enter into any agreement, arrangement or understanding with any other person or
entity which would reasonably be expected to give rise to a conflict of interest
between his duties under this Agreement and any duties or obligations he may
have to such other person or entity. Subject to Section 8, this Section 6 will
not prohibit Dr. Azab from accepting any other consulting or employment
relationships during the Term provided Dr. Azab continues to make himself
available to perform the Services under this Agreement.

7. CONFIDENTIALITY. Dr. Azab understands and agrees that in the course of his
employment with QLT prior to the Effective Date and in the performance of the
Services under this Agreement, Dr. Azab may obtain knowledge of confidential
information relating to the business or affairs of QLT or of any of its
subsidiaries or affiliates, including, but not limited to information relating
to the business, products, development plans, technology, future trends,
processes and other activities and information of QLT, its subsidiaries and
affiliates (the "CONFIDENTIAL INFORMATION"). Without limiting the generality of
the foregoing, the "Confidential Information" will include any confidential or
proprietary information that is disclosed to QLT by third parties under
obligations of confidentiality. Dr. Azab will:

            (a)         maintain all the Confidential Information (including
                        portions and copies thereof) strictly confidential;

            (b)         not disclose any Confidential Information for any
                        purpose whatsoever without the prior written approval of
                        QLT; and

            (c)         not make use of the Confidential Information for any
                        purpose whatsoever except in the course of the provision
                        of the Services for QLT.

The Confidential Information will not apply to any information which is or which
becomes generally known to the public by publication or by other means, with the
exception of a breach of duty of Dr. Azab under this Agreement or any prior
agreements entered into between QLT and Dr. Azab with respect to the
Confidential Information. QLT makes no warranties regarding the accuracy of any
Confidential Information presented to Dr. Azab and grants no license, by
implication or otherwise, under any of its rights, as a result of disclosure of
the Confidential Information under this SECTION 7. To the extent that there is
any inconsistency between the terms of confidentiality in the employment
agreement entered into on February 20, 2003 between QLT and Dr. Azab (the
"EMPLOYMENT AGREEMENT") and this Agreement, the terms of this SECTION 7 will
govern.

The provisions of this SECTION 7 will survive the termination of this Agreement
for a period of ten years.

8. INTELLECTUAL PROPERTY RIGHTS. Dr. Azab will promptly disclose to QLT any and
all ideas, developments, designs, articles, inventions, improvements,
discoveries, machines, appliances, processes, methods, products or the like
(collectively the "INVENTIONS") that Dr. Azab may invent, conceive, create,
design, develop, prepare, author, produce or reduce to practice, either solely
or jointly with employees or consultants of QLT or any of its subsidiaries or
affiliates, during the Term specifically in relation to the

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Services, the duties or activities of Dr. Azab under this Agreement, or the
business and affairs of QLT. All Inventions and all other work of Dr. Azab
directly relating to this Agreement or to the provision of the Services under
this Agreement, will at all times and for all purposes be the property of QLT
for QLT to use, alter, vary, adapt and exploit as it will see fit, and will be
acquired or held by Dr. Azab in a fiduciary capacity for, and solely for, the
benefit of QLT. For greater certainty, the obligations under this Section 8 will
not apply to any Inventions which Dr. Azab may invent, conceive, create, design,
develop, prepare, author, produce or reproduce to practice for a third party for
whom Dr. Azab may be consulting or by whom he may be employed and which do not
relate to the provision of the Services under this Agreement. Dr. Azab will:

            (a)         treat all information with respect to Inventions and all
                        other work of Dr. Azab relating to this Agreement or to
                        the provision of the Services under this Agreement, as
                        Confidential Information as defined in, and subject to,
                        SECTION 7 above;

            (b)         keep complete and accurate records of the information
                        referred to in (a), which will be the property of QLT
                        and copies of which will be maintained at the premises
                        of QLT in the care of the person as may be designated by
                        QLT from time to time for such purpose;

            (c)         from time to time, upon the request and at the expense
                        of QLT, but without charge for service beyond the
                        payments provided for, execute and deliver to QLT all
                        assignments and other instruments and things required to
                        transfer and assign to QLT (or to such other person as
                        QLT may direct) all right, title and interest in and to,
                        and possession of, the Inventions and all other work of
                        Dr. Azab relating to this Agreement or to the provision
                        of the Services under this Agreement, and all writings,
                        drawings, diagrams, photographs, pictures, plans,
                        manuals, software and other materials, goodwill and
                        ideas relating thereto, and including, but not limited
                        to, all rights to acquire in the name of QLT or its
                        nominee patents, registration of copyrights, design
                        patents and registrations, trade marks and other forms
                        of protection that may be available;

            (d)         execute all documents requested by QLT in connection
                        with any application for letters patent of Canada, the
                        United States or any and all countries for the
                        Inventions, and to provide to QLT, its agents, employees
                        and legal advisors, all reasonable and requested
                        assistance in preparing the applications;

            (e)         testify in any proceedings or litigation as to the
                        Inventions; and

            (f)         in case QLT will desire to keep secret any Invention or
                        will for any reason decide not to have letters patent
                        applied for thereon, refrain from applying for letters
                        patent thereon.

The provisions of this SECTION 8 are in addition to and not in substitution for
the obligations of Dr. Azab under sections 7.3 and 7.4 of the Employment
Agreement (to the extent those obligations continue after Dr. Azab's resignation
of his employment with QLT).

9. NON-COMPETITION. Dr. Azab agrees that, by virtue of the senior position he
previously held with QLT and the nature of the work that Dr. Azab will be
performing under this Agreement, he possesses strategic sensitive information
concerning the business of QLT, its affiliates and subsidiaries. As a result,
and in consideration of the payments to be made by QLT to Dr. Azab under this
Agreement, without the prior written consent of QLT, for six months following
termination of this Agreement, Dr. Azab will not:

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      (a)   PARTICIPATE IN A COMPETITIVE BUSINESS - Directly or indirectly, own,
            manage, operate, join, control or participate in the ownership,
            management, operation or control of, or be a director or an employee
            of, or a consultant to, any business, firm or corporation that, as a
            part of conducting its business, is in any way competitive with QLT
            or any of its affiliates or subsidiaries (including, without
            limitation, QLT USA, Inc.) with respect to:

            I.    The development and/or commercialization and/or marketing of
                  pharmaceutical products that are directly competitive with
                  QLT's then current commercial products, Visudyne or Eligard,
                  or

            II.   The development and/or commercialization and/or marketing of
                  light-activated pharmaceutical products for photodynamic
                  therapy in the treatment of cancer, ophthalmic, dermatology,
                  urology and auto-immune disease, or

            anywhere in Canada, the United States or Europe. The parties agree
            that nothing contained in this SECTION 9(a) is intended to prohibit
            Dr. Azab from owning less than 5% of the issued and outstanding
            stock of any company whose stock or shares are traded publicly on a
            recognized exchange.

      (b)   SOLICIT ON BEHALF OF A COMPETITIVE BUSINESS - Directly or indirectly
            call upon or solicit any qlt employee or qlt customer or known
            prospective customer of qlt on behalf of any business, firm or
            corporation that, as part of conducting its business, is in any way
            competitive with qlt with respect to the products or businesses
            described in section 9(a)(i) and (ii) above anywhere in Canada, the
            United States or Europe.

      (c)   SOLICIT EMPLOYEES - Directly or indirectly solicit any individual to
            leave the employment of QLT or any of its affiliates or subsidiaries
            for any reason. The restrictions in this Section 9(c) shall not
            apply to or prohibit general newspaper advertisements and other
            general circulation materials advertising employment which are not
            directly targeted at any employee of QLT.

      (d)   SOLICIT CUSTOMERS - Directly or indirectly induce or attempt to
            induce any customer, supplier, distributor, licensee or other
            business relation of QLT or its affiliates or subsidiaries to cease
            doing business with them or in any way interfere with the existing
            business relationship between any such customer, supplier,
            distributor, licensee or other business relation and QLT or its
            affiliates or subsidiaries.

The primary purpose of this SECTION 9 is QLT's legitimate interest in protecting
its economic welfare and business goodwill. QLT and Dr. Azab further agree that
this covenant will in no way be construed as a mere limitation on competition
nor will it be construed as a restraint of Dr. Azab's right to engage in common
calling. The failure of Dr. Azab to abide by the provisions of this SECTION 9
will, if not remedied after receiving written notice from QLT as provided and
within the time period specified in Section 10, be deemed a material default of
this Agreement and, if applicable, will also cause any payments being made to
Dr. Azab by QLT pursuant to this Agreement to immediately terminate. Nothing
herein will be construed as limiting or prohibiting QLT from pursuing any other
remedies at law or in equity that it may have. This SECTION 9 supersedes and
replaces the obligations of Dr. Azab under sections 8.1 to 8.3 of the Employment
Agreement.

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10. TERM AND TERMINATION. The term of this Agreement will commence on the 1st
day of January, 2006 and will continue until June 30, 2007, subject to earlier
termination as provided in this Agreement (the "TERM"). Dr. Azab may terminate
this Agreement at any time without cause by giving to QLT at least 30 days'
written notice prior to the effective date of termination or for any material
breach of this Agreement by QLT, if that breach is not remedied within 15 days
after Dr. Azab delivers written notice thereof to QLT. QLT may terminate this
Agreement and the Term for any material breach of this Agreement by Dr. Azab, if
that breach is not remedied within 15 days after QLT delivers written notice
thereof to Dr. Azab. In the event that Dr. Azab terminates this Agreement prior
to the expiry of the Term other than as a result of an unremedied breach by QLT,
QLT will have no obligation to pay any amounts that would otherwise be owing to
Dr. Azab from and after the date of termination. Within 30 days after the
expiration or termination of this Agreement, QLT will pay to Dr. Azab any
amounts then owing for Services performed up to and including the expiration or
date of termination of this Agreement and if the Agreement is terminated after a
material breach by QLT that is not remedied, QLT will also pay to Dr. Azab all
other payments that would have been paid to Dr. Azab if the Agreement had
continued to June 30, 2007.

11. PARTIAL INVALIDITY. If any provision of this Agreement will for any reason
be held to be excessively broad as to duration, scope, activity, subject matter
or otherwise, the provision will be construed by limiting and reducing it so as
to be enforceable to the extent compatible with any applicable laws. If,
notwithstanding the foregoing, any provision of this Agreement will for any
reason be held to be invalid, illegal or unenforceable in any respect, then the
invalid, illegal or unenforceable provision will be severable and severed from
this Agreement and the other provisions of this Agreement will remain in effect
and be construed as if the invalid, illegal or unenforceable provision had never
been contained in this Agreement.

12. REMEDIES. Dr. Azab acknowledges and agrees that any breach of this Agreement
by him could cause irreparable damage to QLT and that in the event of a breach
by Dr. Azab, QLT will have in addition to any and all other remedies at law or
in equity, the right to an injunction, specific performance or other equitable
relief to prevent any violation by Dr. Azab of any of the provisions of this
Agreement including, without limitation, the provisions of SECTIONS 7, 8 AND 9.
In the event of any dispute under any of SECTIONS 7, 8 AND 9, Dr. Azab agrees
that QLT will be entitled, without showing actual damages, to a temporary or
permanent injunction restraining conduct of Dr. Azab pending a determination of
the dispute and that no bond or other security will be required from QLT in
connection therewith. Dr. Azab acknowledges and agrees that the remedies of QLT
specified in this Agreement are in addition to and not in substitution for any
other rights and remedies of QLT at law or in equity and that all rights and
remedies are cumulative and not alternative or exclusive of any other rights or
remedies and that QLT may have recourse to any one or more of its available
rights and remedies as it will see fit.

13. WAIVER. Any waiver of any breach or default under this Agreement will only
be effective if in writing signed by the party against whom the waiver is sought
to be enforced, and no waiver will be implied by indulgence, delay or other act,
omission or conduct. Any waiver will only apply to the specific matter waived
and only in the specific instance in which it is waived.

14. LAWS AND COURTS. This Agreement will be governed by and interpreted in
accordance with the laws of the Province of British Columbia and the laws of
Canada applicable therein. All disputes arising under this Agreement will be
referred to the courts of the Province of British Columbia which will have
jurisdiction, but not exclusive jurisdiction, and each party irrevocably submits
to the non-exclusive jurisdiction of such courts.

15. SURVIVAL OF TERMS. The representations, warranties, covenants, agreements,
obligations and liabilities of Dr. Azab under any and all of SECTIONS 7 TO 12,
14, 15 AND 18 of this Agreement will survive

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any expiration or termination of this Agreement or of the Term. Any expiration
or termination of this Agreement or of the Term will be without prejudice to any
rights and obligations of the parties arising or existing up to the effective
date of the expiration or termination, or any remedies of the parties with
respect thereto.

16. NO ASSIGNMENT. Dr. Azab acknowledges and agrees that the rights and
interests of Dr. Azab under this Agreement are personal in nature and may not be
sold, transferred, assigned, pledged or mortgaged without the consent of QLT
except that Dr. Azab may assign his obligations under this Agreement to a
personal services corporation in which he owns and controls a majority of the
issued and outstanding voting shares provided that Dr. Azab agrees to perform
all of the Services on behalf of such assignee. QLT may assign this Agreement to
any entity with which it may merge or amalgamate or any purchaser of all or
substantially all of the portion of the business to which this Agreement
relates.

17. RELATIONSHIP. It is expressly acknowledged and agreed by the parties that
the only relationship of Dr. Azab to QLT created by this Agreement will for all
purposes be that of an independent contractor

18. TAXES. Dr. Azab covenants and agrees to pay and be responsible for all
income taxes and all other taxes whatsoever now or hereafter payable in
connection with any fee, remuneration or compensation provided under this
Agreement except for any goods and services taxes that QLT may owe in connection
with the amounts payable hereunder (which amount if paid to Dr. Azab will be
reported and remitted by Dr. Azab to the applicable authorities). Dr. Azab
covenants and agrees with QLT to indemnify and to save harmless QLT from all
assessments, claims, demands, costs, expenses and liability that QLT may ever
suffer or incur with respect to any such taxes.

19. WHOLE AGREEMENT. This Agreement constitutes the whole agreement between QLT
and Dr. Azab with respect to the subject matters of this Agreement, and
supersedes any previous communications, understandings and agreements between
QLT and Dr. Azab regarding the retainer of Dr. Azab as a consultant for QLT.
Nothing in this Agreement superscedes or replaces the obligations that Dr. Azab
may have to QLT under the employment agreement and any letter agreements
relating to any rights of Dr. Azab in the event of a change of control of QLT
which were previously entered into between QLT and Dr. Azab. Except as otherwise
provided in this Agreement, this Agreement may only be amended by further
agreement in writing signed by the parties to this Agreement.

20. NOTICES. Any notice or other communication under this Agreement or in
connection with this Agreement will be sufficiently given in writing:

            (a)         by QLT to Dr. Azab, if delivered personally to Dr. Azab,
                        or if delivered or sent by prepaid registered mail to
                        Dr. Azab, as the case may be, at the address of the
                        intended recipient shown on the first page of this
                        Agreement; and

            (b)         by Dr. Azab to QLT, if delivered personally to the
                        President and Chief Executive Officer of QLT or if
                        delivered or sent by prepaid registered mail to QLT at
                        the address of QLT shown on the first page of this
                        Agreement addressed to the attention of the President
                        and Chief Executive Officer.

Any party may change their address for notices by giving notice in writing of
the change to the other parties as provided above. Any notice or communication
will be deemed to have been given, if delivered as aforesaid, when delivered,
and if mailed in Canada as aforesaid, on the fourth business day after the date
of mailing.

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21. INTERPRETATION. If the sense or context of this Agreement so requires, the
singular will be construed to include the plural and vice versa, and the neuter
will be construed to include the feminine or masculine or body politic or body
corporate and vice versa. In this Agreement "herein", "hereby", "hereunder",
"hereof", "hereto" and words of similar import, refer to this Agreement as a
whole and not to any particular Section or part of this Agreement. The headings
and captions of Sections of this Agreement are inserted for convenience of
reference only and are not to be considered when interpreting this Agreement.
All sums of money set forth in this Agreement are expressed in Canadian dollars,
unless otherwise noted.

22. BINDING EFFECT. This Agreement will be binding upon and will enure to the
benefit of QLT and Dr. Azab and their respective heirs, executors,
administrators, successors and permitted assigns.

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

QLT INC.
By Its Authorized Signatory:

PER:

                /s/ ROBERT L. BUTCHOFSKY
            -------------------------------------------
            NAME: ROBERT L. BUTCHOFSKY
            TITLE: ACTING CHIEF EXECUTIVE OFFICER

SIGNED, SEALED AND DELIVERED        )
by DR. MOHAMMAD AZAB  in the        )
presence of:                        )
                                    )       /s/ Dr. Mohammad Azab      (SEAL)
                                         -----------------------------
_________________________           )    DR. MOHAMMAD AZAB
Name                                )
_________________________           )
Address                             )
_________________________           )
                                    )
_________________________           )
Occupation                          )
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