EXFO ELECTRO-OPTICAL ENGINEERING INC.

LONG TERM INCENTIVE PLAN

1. PURPOSE OF THE PLAN

1.1 The purpose of the long-term incentive plan (the "PLAN") for directors, executive officers, employees and other persons or companies providing ongoing management or consulting services (the "CONSULTANTS") to EXFO Electro-Optical Engineering Inc. (the "CORPORATION") or to any of the Subsidiaries of the Corporation is to secure for the Corporation and its shareholders the benefit of an incentive to partake in share ownership by directors, executive officers and employees of the Corporation and its Subsidiaries, as the case may be, and by certain Consultants who provide services on a continuous basis. For the purposes of the Plan, "SUBSIDIARIES" shall mean (i) any legal entity of which the Corporation is the holder or the beneficiary, at the time of the granting of the option or RSUs, directly or indirectly, otherwise than by way of security only, of securities to which are attached over 50% of the votes enabling it to elect the majority of the directors of such entity as well as any subsidiary of such legal entity and (ii) any legal entity in which the Corporation or a subsidiary of the Corporation holds at least 50% of the voting rights or in which it has a majority interest and of which the Corporation or a subsidiary of the Corporation manages the operations.

2. DEFINITIONS

For the purposes of this Plan, the following terms shall have the following meanings:

"Award" means the RSUs granted to an Eligible Participant under the Plan on an Award Date, evidenced by an Award Agreement and subject to the terms and conditions of the Plan and the Award Agreement;

"Award Agreement" means an agreement, substantially in the form of the agreement set out in Schedule 2 to this Plan, entered into by an Eligible Participant and the Corporation pursuant to which an Award is granted to the Eligible Participant in accordance with the Plan, and containing such additional terms and conditions not inconsistent with the Plan as the Board shall deem desirable;

"Award Date" means the date on which an Award is granted, which date may be on or, if determined by the Board at the time of grant, after the date that the Board resolves to grant the Award;

"Board" means the board of directors of the Corporation;

"Change of Control" shall have the meaning as set forth in Section 7;

"Committee" means the Human Resources Committee composed solely of non-employee members or any other committee composed solely of non-employee members constituted from time to time at the Board's discretion to administrate the Plan;

"Continuing Directors" shall have the meaning as set forth in Section 7.2;

"Consultants" means persons or companies providing ongoing management or consulting services to the Corporation;

"Corporation" means EXFO Electro-Optical Engineering Inc.;

"DSU" means Deferred Share Units that may be granted from time to time to non employee Directors of the Corporation pursuant to the provisions of a Deferred Share Unit Plan for the Directors;

"Early Expiry Date" shall have the meaning as set forth in Section 5.3.2;

"Early Vesting or Expiry Awards" shall have the meaning as set forth in
Section 6.4;

"Eligible Participant" means any officer, employee, non-employee director of the Corporation or Consultants designated by the Board as eligible to participate in the Plan;

"Grant Date" means the date on which an Option is granted, which date may be on or, if determined by the Board at the time of grant, after the date that the Board resolves to grant the Option;

"Option" means an option to subscribe Shares granted to an Eligible Participant pursuant to the terms of the Plan;

"Optionee" means the directors, officers or employees of the Corporation or any of its Subsidiaries, as the case may be, or the Consultants to whom Options are granted;

"Option Period" shall have the meaning as set forth in Section 5.3.1;

"Plan" means the Long Term Incentive Plan of the Corporation, as amended;

"Restricted Share Unit" or "RSU" means the right of an Eligible Participant to whom a grant of such unit is made to receive a Share on the Vesting Date (or Early Vesting Date, as the case may be) upon the attainment of specified performance objectives, if any, as determined by the Board in accordance with section 6, unless such unit expires prior to its Vesting Date. The Corporation shall have the option, at its entire discretion, and in replacement of Share, to provide the Eligible Participant with a cash equivalent to the EXFO Market Value of such Share on the Vesting Date (or Early Vesting Date, as the case may be);

"RSU Holder" shall have the meaning as set forth in Section 6.2;

"RSU Shares" means the Shares that an RSU Holder may receive pursuant to a particular Award Agreement;

"Shares" means the Subordinate Voting Shares of the Corporation;

"Subscription Price" shall have the meaning as set forth in Section 5.2;

"Subsidiaries" shall have the meaning as set forth in Section 1.

3. ADMINISTRATION

The Plan shall be administered by the Corporation's Board of non-employee Directors (the "BOARD") or at the Board's decision by the Human Resources Committee composed solely of non-employee members or any other committee composed solely of non-employee members constituted from time to time (the "Committee"). The Board or the Committee shall have full and complete latitude to interpret the Plan and to establish the rules and regulations applying to it and to make all other determinations it deems necessary or useful for the administration of the Plan, including without limiting the scope of the foregoing and subject to subsection 5.3.3, to change an Early Expiry Date (as defined hereinafter) provided that such interpretations, rules, regulations and determinations shall be consistent with the relevant policy statements of the competent securities authorities and the rules of the stock exchanges on which the securities of the Corporation are listed.

4. SHARES SUBJECT TO THE PLAN

The shares subject to the Plan are the Subordinate Voting Shares (the "SHARES") of the Corporation. The total number of Shares that may be issued under the Plan and under the Deferred Share Unit Plan for the Directors shall not exceed 6,306,153 Shares of the Corporation, subject to the adjustment under Section 8, and no Eligible Participant shall hold in total options to purchase and RSUs representing more than 5% of the number of Shares issued and outstanding from time to time. All of the Shares covered by options that will have expired or have been cancelled shall become reserved Shares for the purposes of options or RSUs that may be subsequently granted under the terms of the Plan.

For greater clarity, the issuance of Shares under the Plan shall be subject to the following:

(i) the number of Shares reserved for issuance pursuant to options and RSUs granted to insiders of the Corporation shall not exceed 10% of the total issued and outstanding Shares;

(ii) the issuance to insiders, within a one-year period, of a number of Shares shall not exceed 10% of the total issued and outstanding Shares; and

(iii) the issuance to any one insider and such insider's associates, within a one-year period, of a number of Shares shall not exceed 5% of the total issued and outstanding Shares.

5. OPTIONS

5.1 GRANT OF OPTIONS

The Board or the Committee shall from time to time designate the directors, officers or employees of the Corporation or any of its Subsidiaries, as the case may be, or the Consultants to whom Options shall be granted (an "OPTIONEE") and the number of Shares covered by each of such option. Any Optionee may hold more than one option. The granting of each option shall be evidenced by a letter from the Corporation addressed to the Optionee setting forth the number of Shares covered by such option, the subscription price, the terms and conditions of exercise of the option and the option period.

5.2 SUBSCRIPTION PRICE

The subscription price of the Shares subject to an option shall be established by the Board of Directors or its designated Committee at the time of the grant, but such price shall not be less than the market price of the Shares at the date of the granting of the option (the "GRANT DATE"), calculated as the greater of the closing prices of the Shares on The Toronto Stock Exchange and the NASDAQ National Market on the last trading day preceding the Grant Date or, if the Shares did not trade on such last trading day, the greater of the average, rounded off to the nearest cent, of the bid and ask prices for the Shares on The Toronto Stock Exchange and the NASDAQ National Market at the close of trading on such last trading day preceding the Grant Date (the "SUBSCRIPTION PRICE").

The closing price of the Shares or, as the case may be, the average of the bid and ask prices of the Shares at the close of trading on the NASDAQ National Market shall be converted into Canadian dollars at the noon buying rate of Federal Reserve Bank of New York on the Grant Date when such conversion is required.

5.3 OPTION PERIOD

5.3.1 Subject to the provisions of subsections 5.3.2 and 5.3.3, each option

         shall be  exercisable  during a period  established by the Board or the
         Committee (the "OPTION PERIOD");  such period shall commence no earlier
         than the Grant Date and shall  terminate  no later than ten years after
         such date.

5.3.2    Notwithstanding the provisions of subsection 5.3.1, an option shall not
         be  exercisable by an Optionee from and after each and every one of the
         following  dates (an  "EARLY  EXPIRY  DATE"),  unless  the Board or the
         Committee decides otherwise:

         5.3.2(a) in the case where the  Optionee is an officer or an  employee,
                  the date on which the Optionee  resigns and  voluntary  leaves
                  his   employment   with   the   Corporation   or  one  of  its
                  Subsidiaries,  as the  case may be,  or the date on which  the
                  employment of the Optionee with the  Corporation or one of its
                  Subsidiaries is terminated for a good and sufficient cause, as
                  the case may be;

         5.3.2(b) in  the  case  where  the   Optionee  is  a  director  of  the
                  Corporation  or one of its  Subsidiaries,  as the case may be,
                  but is not  employed by either the  Corporation  or one of its
                  subsidiaries,  30  days  following  the  date  on  which  such
                  Optionee  ceases to be a member of the Board of Directors  for
                  any reason other than death;

         5.3.2(c) (i) in the case where the  Optionee is an officer or employee,
                  6 months following the date on which the Optionee's employment
                  with the Corporation or any of its  Subsidiaries,  as the case
                  may be, is  terminated  by reason of death or (ii) in the case
                  where the Optionee is a director of the  Corporation or any of
                  its  Subsidiaries,  as the case may be, but is not employed by
                  either the  Corporation or any of its  Subsidiaries,  6 months
                  following  the  date on which  such  Optionee  ceases  to be a
                  member of the Board of Directors by reason of death;

5.3.2(d) in the case where the Optionee is an officer or employee, 30 days following the date on which the Optionee's employment with the Corporation or any of its Subsidiaries, as the case may be, is terminated for any cause or reason other than those mentioned in paragraphs 5.3.2(a) and 5.3.2(c), including, without limiting the scope of the foregoing, disability, illness, retirement or early retirement. Notwithstanding the foregoing, in case of retirement or early retirement of an officer or employee, the Board or the Committee may at its own discretion but subject to Section 3, extend the Early Expiry Date mentioned in this paragraph 5.3.2(d);

5.3.2(e) in the case where the Optionee is a Consultant, 30 days following the date on which his contract as a Consultant is terminated or, as the case may be, 30 days following the

                  receipt by the  Consultant  of a notice  from the  Corporation
                  indicating  that the options must be exercised  within 30 days
                  from the date of receipt of the notice.

5.3.3    The rules set forth in paragraph 5.3.2 shall not be interpreted in such
         a manner as to extend the Option Period beyond 10 years.

5.3.4    All rights  conferred by an option not exercised at the  termination of
         the  Option  Period or from and after any Early  Expiry  Date  shall be
         forfeited.

5.3.5    EXERCISE OF OPTIONS

(a)      Subject to the provisions of section 5.3, an option may be exercised in
         whole,  at any time, or in part,  from time to time,  during the Option
         Period,  but in all cases in  accordance  with the  exercise  frequency
         established by the Board or the Committee and applicable at the time of
         the grant.

(b)      An option may be exercised by forwarding a duly  executed  subscription
         form as attached hereto as Schedule 1 (the "Subscription  Form") to the
         Secretary of the Corporation.  Such  Subscription  Form shall set forth
         the number of Shares so  subscribed  and the address to which the Share
         Certificate  is to be delivered.  The  Subscription  Form shall also be
         accompanied  by a certified  cheque made payable to the  Corporation in
         the amount of the  Subscription  Price.  The Corporation  shall cause a
         certificate for the number of Shares specified in the Subscription Form
         to be issued in the name of the Optionee  and  delivered to the address
         specified  in the  Subscription  Form no later  than 10  business  days
         following the receipt of such Subscription Form and cheque.

5.3.6    NO ASSIGNMENT

         No option or  interest  therein  shall be  assignable  for  purpose  of
         transfer of guarantee  or otherwise by the Optionee  other than by will
         or the operation of applicable legal dispositions regarding succession.

5.3.7    NOT A SHAREHOLDER

         An Optionee  shall have no rights as a shareholder  of the  Corporation
         with respect to any Shares covered by his/her option until he/she shall
         have become the holder of record of such Shares.

6. GRANT OF RSU AWARDS

6.1 GRANT OF AWARDS

The Board shall from time to time designate the Eligible Participants to whom a grant of RSUs shall be made and shall determine the number of RSUs granted under the Award. The Board shall further have discretion to establish at the time of grant, within the restrictions set forth in the Plan, the Award Date, the Vesting Date, the performance objectives which must be attained for the Award to vest, if any, and other particulars applicable to an Award granted hereunder.

6.2 AWARD AGREEMENT

Upon the grant of an Award, the Corporation will deliver to the Eligible Participant selected to receive same an Award Agreement dated as of the Award Date, containing the terms of the Award and executed by the Corporation, and upon delivery to the Corporation of the Award Agreement executed by the Eligible Participant in question, the Eligible Participant in question will be an RSU Holder under the Plan and, subject to vesting, have the right to receive the RSU Shares (or, at the Corporation's option, cash equal to the EXFO Market Value of such Shares on the Vesting Date (or the Early Vesting Date, as the case may be) on the terms set out in the Award Agreement and in the Plan.

6.3 VESTING DATE

The Vesting Date of an Award will be determined by the Board at the time of grant, subject however to a minimum term of three years and a maximum term of ten years from the Award Date and will be subject to the provisions of section 6.4 relating to early vesting or expiry.

6.4 EARLY VESTING OR EXPIRY OF AWARDS

(a) Unless otherwise determined by the Board at or after the time of grant, and subject to the minimum and maximum term referred to at section 6.3 hereof, except for events described in section 6.4 (b) where minimum term is not applicable:

(i) Where vesting of an Award is subject to the attainment of performance objectives, such Award, or part thereof, shall expire on the Vesting Date if such performance objectives have not been attained or shall be postpone at a further Vesting Date as determined by the Board from time to time, the whole in accordance with the terms and conditions of the applicable Award Agreement.

(ii) Any Award, whether or not subject to the attainment of performance objectives, shall expire immediately upon the RSU Holder thereof ceasing to be an Eligible Participant as a result of being dismissed from his office or employment for cause.

(iii) Any Award, whether or not subject to the attainment of performance objectives, shall vest before its Vesting Date or expire, as the case may be, in the following events and manner:

(1) if an RSU Holder resigns and voluntary leaves his office or employment, the Award held by such RSU Holder shall expire immediately on the date he resigns and leaves his office or employment;

(2) if an RSU Holder is dismissed without cause, the Award held by such RSU Holder shall vest immediately on the date of dismissal in accordance with section 6.4(b);

(3) if an RSU Holder dies or his employment with the Corporation is terminated due to Permanent Disability, the Award held by such RSU Holder shall vest immediately on the date of the death of the RSU Holder or on the date of termination, as the case may be, in accordance with section 6.4(b) or as established by the Board from time to time; and

(4) if an RSU Holder attains the normal retirement age established by the Corporation from time to time, the Award held by such RSU Holder shall vest immediately on the date of retirement in accordance with section 6.4(b).

(b) In the case of the occurrence of an event contemplated in sections 6.4(a)(iii)(2), (3) and (4), and notwithstanding anything to the contrary herein provided, the RSU Holder (or, if deceased, his legal representative) of such early vesting Award shall be entitled to receive, on the date of the death of the RSU Holder, the date of termination due to Permanent Disability, the date of retirement the date of dismissal without cause or the date of the Change of Control, as the case may be (each an "Early Vesting Date"), the number of Shares (or, at the Corporation's option, cash equal to the EXFO Market Value of such Shares on the Early Vesting Date) equal to:

                                      _____                                         ______
                                     |                                                    |
                                     |    Number of days elapsed between the Award        |
The number of RSU Shares             |                  Date and the                      |
underlying the Award          X      |               Early Vesting Date                   |
                                     |   ---------------------------------------------    |
                                     |     Number of days in the Vesting Period of        |
                                     |                   such Award                       |
                                     |_____                                         ______|

unless otherwise determined by the Board at or after the time of the grant.

6.5 NON-ASSIGNABLE

An Award will not be assignable. Notwithstanding the foregoing, in the case where an RSU Holder dies and the vesting of his Award is accelerated in the manner set forth in section 6.4(a)(iii)(3), his legal representative shall have the rights of such RSU Holder under the Plan and the Award Agreement.

6.6 NO IMPLIED RIGHTS

An RSU Holder will only have rights as a shareholder of the Corporation with respect to those of the RSUs Shares, if any, that the RSU Holder has received upon the vesting of an Award in accordance with its terms.

Nothing in this Plan or in any Award Agreement will confer or be construed as conferring on an RSU Holder any right to remain as an officer, key employee or non-employee director of the Corporation, or an Eligible Participant the right to be granted Options or Awards hereunder.

6.7 VESTING OF THE AWARD

Unless an Award has expired in accordance with sections 6.4(a)(i),
(ii), and (iii) (1), the Corporation shall not later than five (5) business days after the Vesting Date (or after the Early Vesting Date, as the case may be):

(a) issue from treasury the number of RSU Shares represented by such vested Award (or the number of Shares determined in accordance with section 6.4(b), as the case may be) and direct its transfer agent to issue a certificate in the name of the RSU Holder of such vested Award (or, if deceased, his legal representative) which will be issued as fully paid and non-assessable Shares; or

(b) purchase the number of RSU Shares represented by such vested Award (or the number of Shares determined in accordance with section 6.4(b), as the case may be) on the secondary market for delivery to the RSU Holder of such vested Award (or, if deceased, his legal representative); or

(c) unless the Award Agreement provides otherwise, pay to the RSU Holder of such vested Award (or, if deceased, his legal representative), an amount in cash equal to the EXFO Market Value on the Vesting Date (or the Early Vesting Date, as the case may be) of the Shares represented thereby.

Whether an Award is settled in accordance with sections 6.7(a), (b) or
(c) shall be at the entire discretion of the Corporation.

7. CHANGE OF CONTROL

7.1.1    the  acquisition  by any person or entity,  or any  persons or
         entities  acting  jointly or in concert,  whether  directly or
         indirectly,  of voting  securities  of the  Corporation  which
         together with all other voting  securities of the  Corporation
         held  by  such  persons  or  entities,   constitute,   in  the
         aggregate, either (a) fifty percent (50%) or more of the votes
         attached  to  all   outstanding   voting   securities  of  the
         Corporation,  or (b) forty  percent (40%) or more of the votes
         attached  to  all   outstanding   voting   securities  of  the
         Corporation and is followed within  twenty-four (24) months by
         changes of the members of the Board  resulting  in a change of
         the majority of the Board;

7.1.2    an  amalgamation,   arrangement  or  other  form  of  business
         combination  of the  Corporation  with  another  entity  which
         results  in the  holders  of voting  securities  of that other
         entity  holding,  in the  aggregate,  either (a) fifty percent
         (50%) or more of the votes attached to all outstanding  voting
         securities   of  the  entity   resulting   from  the  business
         combination,  or (b) forty  percent (40%) or more of the votes
         attached to all  outstanding  voting  securities of the entity
         resulting from the business combination and is followed within
         twenty-four (24) months by changes of the members of the Board
         resulting in a change of the majority of the Board;

7.1.3    any event or series of events (which event or series of events
         may  include,  without  limitation,  a proxy  fight  or  proxy
         solicitation  with respect to the election of directors of the
         Corporation made in opposition to the nominees  recommended by
         the Continuing Directors during any period of twenty-four (24)
         consecutive  months)  as a result of which a  majority  of the
         members  of the  Board  consists  of  individuals  other  than
         Continuing Directors; or

7.1.4    the sale, lease or exchange of all or substantially all of the
         property of the Corporation to another person or entity, other
         than in the ordinary  course of business of the Corporation or
         any of its Subsidiaries.

7.2 For the purposes of this section 7.2, "CONTINUING DIRECTORS" shall mean with respect to any period of twenty-four (24) consecutive months, (a) any members of the Board on the first (1st) day of such period, (b) any members of the Board elected after the first (1st ) day of such period at any annual meeting of shareholders who were nominated by the Board or a committee thereof, if a majority of the members of the Board or such committee were Continuing Directors at the time of such nomination, and (c) any members of the Board elected to succeed Continuing Directors by the Board or a committee thereof, if a majority of the members of the Board or such committee were Continuing Directors at the time of such election.

7.3 Notwithstanding any provisions to the contrary contained in this Plan, the Board or the Committee shall have the power to accelerate the time at which an option or RSU may first be exercised or the time during which an option or RSU or any part thereof will become exercisable including, without limitation, prior to or in connection with a Change of Control.

8. EFFECTS OF ALTERATION OF SHARE CAPITAL

In the event of any change in the number of outstanding Shares of the Corporation by reason of any stock dividend, stock split, recapitalization, merger, consolidation, combination or exchange of Shares or other similar change, subject to the prior approval of the competent regulatory authorities, an equitable adjustment shall be made by the Board or the Committee in the maximum number or kind of Shares issuable under the Plan or subject to outstanding RSUs or options and in the Subscription Price of such Shares for purposes of the options. Such adjustment will be definitive and mandatory for the purposes of the Plan.

9. AMENDMENT AND TERMINATION

9.1 The Board or the Committee may, at any time, with the prior approval of the competent regulatory authorities, amend, suspend or terminate the Plan in whole or in part. Subject to the provisions of section 9, any material amendment (including an increase in the maximum number of Shares issuable under the Plan) or a reduction in the Subscription Price of an option (other than for standard anti-dilution purposes) or a change in the terms of a RSU award shall be approved by a majority of votes cast at a meeting of shareholders of the Corporation.

9.2 In addition to the foregoing, any material amendment to a RSU award or an option held by an insider (within the meaning of the SECURITIES ACT (Quebec)) (other than a person who is an insider solely by virtue of being a director or an executive officer of a Subsidiary of the Corporation) or an associate of an insider, including a change in the

Subscription Price or expiry date, shall be approved by a majority of votes cast at a meeting of shareholders of the Corporation, other than votes attaching to Shares beneficially owned by the insider and the insider's associates.

9.3 For the purposes of this section 9, an amendment does not include an accelerated expiry of an option or RSU or change of the time during which an option or RSU may first be exercised or time during which an option or RSU or any part thereof will become exercisable as provided for herein.

9.4 The shareholders' approval of an amendment may be given by way of confirmation at the next meeting of shareholders after the amendment is made, provided that no Shares are issued pursuant to the amended terms prior thereto.

10.1     The  Corporation's  obligation to issue options granted or Shares under
         the  terms  of the  Plan  is  subject  to all of the  applicable  laws,
         regulations  or rules of any  governmental  regulatory  agency or other
         competent  authority  in respect of the  issuance  or  distribution  of
         securities  and to the rules of any stock  exchange on which the Shares
         of the Corporation are listed. Each Optionee shall agree to comply with
         such laws,  regulations and rules and to provide to the Corporation any
         information  or   undertaking   required  to  comply  with  such  laws,
         regulations and rules.

10.2     The participation in the Plan of a director, an executive officer or an
         employee of the Corporation or any of its Subsidiaries,  as well as any
         Consultant,  shall be entirely optional and shall not be interpreted as
         conferring upon a director,  an executive officer or an employee of the
         Corporation or any of its Subsidiaries,  as well as any Consultant, any
         right or privilege whatsoever, except for the rights and privileges set
         out  expressly  in the Plan.  Neither the Plan nor any act that is done
         under the terms of the Plan shall be  interpreted  as  restricting  the
         right of the  Corporation or any of its  Subsidiaries  to terminate the
         employment of an executive  officer or employee at any time, as well as
         any  contractual  relationship  with  any  Consultant.  Any  notice  of
         dismissal given to an executive officer or employee,  as well as to any
         Consultant,  at the  time  his/her  employment  is  terminated,  or any
         payment in the place and stead of such notice,  or any  combination  of
         the two,  shall not have the effect of  extending  the  duration of the
         employment or the contractual relationship for purposes of the Plan.

10.3     No director, executive officer or employee of the Corporation or any of
         its  Subsidiaries,  as  well  as  any  Consultant,  shall  acquire  the
         automatic  right to be  granted  one or more  options or RSUs under the
         terms of the Plan by reason of any  previous  grant of  options or RSUs
         under the terms of the Plan.

10.4     The Plan does not provide for any  guarantee  in respect of any loss or
         profit that may result from fluctuations in the price of the Shares.

10.5     (i)      The   Corporation  and  its   Subsidiaries   shall  assume  no
                  responsibility   as   regards   the  tax   consequences   that
                  participation  in  the  Plan  will  have  for a  director,  an
                  executive  officer or an employee of the Corporation or any of
                  its Subsidiaries,  as well as any Consultant, and such persons
                  are urged to consult their own tax advisors in such regard.

         (ii)     A plan  participant  may be required to pay to the Corporation
                  or any subsidiary and the Corporation or any Subsidiary  shall
                  have the right and is hereby  authorized  to withhold from any
                  Shares or other property  deliverable  under any Option or RSU
                  or from  any  compensation  or other  amounts  owing to a plan

participant the amount (in cash or Shares) of any required tax withholding and payroll taxes in respect of an Option, its exercise, or any payment or transfer under an Option or in respect of a RSU and to take such other action as may be necessary in the opinion of the Corporation to satisfy all obligations for the payment of such taxes.

(iii) Without limiting the generality of clause (ii) above a plan

                  participant  may satisfy,  in whole or in part,  the foregoing
                  withholding  liability (but no more than the minimum  required
                  withholding liability) by delivery of Shares owned by the plan
                  participant with a fair market value equal to such withholding
                  liability  (provided  that such  Shares are not subject to any
                  pledge or other security interest and have either been held by
                  the plan participant for 6 months,  previously acquired by the
                  plan  participant  on the  open  market  or  meet  such  other
                  requirements as the Committee may determine necessary in order
                  to avoid an  accounting  earnings  charge),  or by having  the
                  Corporation  withhold  from the  number  of  Shares  otherwise
                  issuable  pursuant to the exercise or settlement of the Option
                  or RSU award a number of Shares with a fair market value equal
                  to such withholding liability.

10.6     The Plan and any  option  or RSU  granted  under  the terms of the Plan
         shall be governed and interpreted according to the laws of the province
         of Quebec and the laws of Canada applicable thereto.

10.7     The Plan is dated as of May 25,  2000 and amended as of January 9, 2004
         and amended as of January 12, 2005.

EXFO ELECTRO-OPTICAL ENGINEERING INC.

STOCK OPTION PLAN

SUBSCRIPTION FORM

EXFO ELECTRO-OPTICAL ENGINEERING INC.
400 Avenue Godin
Vanier, Quebec
G1M 2K2

ATTENTION OF THE SECRETARY

I, the undersigned,_________________________, hereby subscribe for out of the ______________Subordinate Voting Shares of EXFO Electro-Optical Engineering Inc. (the "Corporation") to which I am entitled to subscribe pursuant to an option granted on ___________ in accordance with the terms and conditions mentioned in paragraph 7.2 of the Corporation's Stock Option Plan. I enclose herewith my certified cheque (or money order) made payable to the order of EXFO Electro-Optical Engineering Inc., in the amount of $________ in payment of the said subscription.

EXFO ELECTRO-OPTICAL ENGINEERING INC.

SCHEDULE 2

FORM OF AWARD AGREEMENT
LONG TERM INCENTIVE PLAN

This Award Agreement is entered into between EXFO (the "Corporation") and the RSU Holder named below pursuant to the Long Term Incentive Plan of the Corporation (the "Plan"), a copy of which is attached hereto, and confirms that:

1. on______________________(the "Award Date");
2. ________________________(the "RSU Holder");
3. was granted _______________________ non-assignable restricted shares units (the "Award");
4. vesting of the Award shall:
|_| not be subject to the attainment of performance objectives; or |_| be subject to the attainment of the following performance objectives:

----------------------------------------------------------------------;

5. the Award shall vest at 5:00 P.M., Eastern Time

all on the terms and subject to the conditions set out in the Plan. By signing this agreement, the RSU Holder acknowledges that he or she has read and understands the Plan, and agrees to be bound thereby.

This Agreement and all related documents have been drawn up in the English language at the specific request of the parties hereto. La presente entente, ainsi que tout autre document y afferent, ont ete rediges en langue anglaise a la demande expresse des parties.

IN WITNESS WHEREOF the Corporation and the RSU Holder have executed this Award Agreement as of_________________________

By:_______________________________

By:_______________________________

EXFO ELECTRO-OPTICAL ENGINEERING INC.

DEFERRED SHARE UNIT PLAN

FOR THE MEMBERS OF THE BOARD OF DIRECTORS

1. DEFINITIONS

For the purpose of this Deferred Share Unit Plan, except as otherwise expressly provided or unless the context otherwise requires:

"BOARD" means the non-employee members of the Board of Directors of the Corporation or such Committee of the Board composed solely of non-employee members, as the Board may select from time to time to administer this DSUP;

"BUSINESS DAY" means any day on which banks are open for business in the province of Quebec;

"CORPORATION" means EXFO Electro-Optical Engineering Inc;

"DEFERRED REMUNERATION" means, in respect of a Participant, the sum of the Portion as may be elected by such Participant under section 4;

"DIRECTOR" means a member of the Board who is not an employee of the Corporation and who is entitled to compensation under a resolution of the Board;

"DSUP" means this Deferred Share Unit Plan for the Directors;

"ELECTION NOTICE" has the meaning ascribed thereto in section 4.1;

"PORTION" has the meaning ascribed thereto in section 3.2;

"OPTIONS" has the meaning ascribed thereto in the Corporation's Long Term Incentive Plan;

"PARTICIPANT" means any Director participating in the DSUP;

"REDEMPTION DATE" has the meaning ascribed thereto in section 6.2;

"REDEMPTION NOTICE" has the meaning ascribed thereto in section 6.2;

"RSUS" has the meaning ascribed thereto in the Corporation's Long Term Incentive Plan; "SHARE" means a Subordinate Voting Share of the Corporation;

"TERMINATION DATE" in respect of a Participant means the earliest date on which both of the following conditions are satisfied:

(i) the Participant has ceased to be a director of the Corporation by reason of his or her death or retirement or loss of office as a director; and

(ii) he or she is neither an employee nor a member of the board of directors of the Corporation or any person related to the Corporation for the purposes of the INCOME TAX ACT (Canada).

"TERMINATION NOTICE" has the meaning ascribed thereto in section 4.3;

"UNITS" means Deferred Share Units that may be granted from time to time to Participants pursuant to the provisions of this DSUP;

"VALUE OF A UNIT" or "VALUE OF THE UNITS" means, at any particular date, the market value of the Shares at that date, calculated as the greater of the closing prices of the Shares on The Toronto Stock Exchange and the NASDAQ National Market on the last trading day preceding such date or, if the Shares did not trade on such last trading day, the greater of the average, rounded off to the nearest cent, of the bid and ask prices for the Shares on The Toronto Stock Exchange and the NASDAQ National Market at the close of trading on such last trading day preceding such date, subject to adjustments made pursuant to section 5.2 of this DSUP. The closing price of the Shares or, as the case may be, the average of the bid and ask prices of the Shares at the close of trading on the NASDAQ National Market shall be converted into Canadian dollars at the noon buying rate of Federal Reserve Bank of New York on the Grant Date when such conversion is required;

2. ADMINISTRATION

2.1 This DSUP shall be administered by the Board, which may delegate its duties and powers in whole or in part to any subcommittee thereof consisting solely of non-employee directors. The Board is authorized to interpret this DSUP, to establish, amend and rescind any rules and regulations relating to this DSUP, and to make any other determinations that it deems necessary or desirable for the administration of this DSUP. The Board may correct any defect or supply any omission or reconcile any inconsistency in this DSUP in the manner and to the extent the Board deems necessary or desirable. Any decision of the Board in the interpretation and administration of this DSUP, as described herein, shall lie within its sole and absolute discretion and shall be final, conclusive and binding on all parties concerned. Notwithstanding the foregoing, all actions of the Board shall be such that this DSUP continuously meets the conditions of paragraph 6801(d) of the Regulations under the INCOME TAX ACT (Canada). Neither the Board or any member thereof, nor any officer or employee of the Corporation, shall be liable for any act, omission, interpretation, construction or determination made in good faith in connection with this DSUP, and the members of the Board and the officers and employees of the Corporation shall be entitled to indemnification by the Corporation in respect of any claim, loss, damage or expense (including legal fees and disbursements) arising therefrom to the fullest extent permitted by law. The expenses of administering this DSUP shall be borne by the Corporation.

3. ELIGIBILITY

3.1 The Corporation is establishing a DSUP for Directors beginning from the date of the approval by the shareholders of the Corporation.

3.2 Each Participant is entitled to receive in the form of units a percentage of the annual board retainer fee payable annually to a Director and may, subject to the conditions set forth herein, elect to receive in the form of Units any percentage, up to 100%, of the annual board retainer fee (the "PORTION").

4. ELECTION TO PARTICIPATE

4.1 Each Participant who elects to participate in the DSUP will be required to file a notice of election, in the form of Schedule A hereto (the "ELECTION NOTICE"), with the Corporation's Secretary before August 1st in each year and for each new Director such Election Notice must be delivered not later than 7 days after the date on which his or her term as a director commenced, indicating the percentage of the Portion payable

(a) in the following calendar year for a continuing director and

(b) in the current calendar year beginning on the first day of the financial quarter of the Corporation next following the date of receipt by the Corporation of the Election Notice for a new director in respect of which the Participant elects to receive Units.

4.2 The election of a Participant (who has not filed a Termination Notice in respect of such election) to participate in the DSUP shall be effective for the fiscal year or balance thereof in respect of which it is made and shall be deemed to apply to all fiscal years of the Corporation subsequent to the filing of the Election Notice until and unless a Termination Notice is filed per Section
4.3. If no Election Notice is made, and no prior election is deemed effective, the Participant shall be deemed to have elected to be paid 100% of the Portion in Units.

4.3 Each Participant is entitled, at any time, to terminate such Participant's future participation in the DSUP by filing with the Secretary of the Corporation a notice of termination in the form of Schedule B hereto (the "TERMINATION Notice"). A Participant who has filed a Termination Notice may elect to participate again in the DSUP in respect of any period following the filing of such Termination Notice by filing an Election Notice in accordance with Section 4.1, and so on.

5. GRANT OF UNITS

5.1 Participants will be credited for each fiscal year of the Corporation, a number of Units determined on the basis of the amount of Deferred Remuneration payable to such Director in respect of such fiscal year, divided by the Value of a Unit.

5.2 Participants to whose accounts Units stand credited will be credited with additional Units whenever cash dividends are paid on Shares.

5.3 In the event of a stock dividend, stock split, combination or exchange of shares, merger, consolidation, spin-off or other distribution (other than normal cash dividends) of the Corporation's assets to shareholders, or any other change affecting the Shares, including the conversion thereof into shares of another entity upon an amalgamation or reorganization of the Corporation, such proportionate adjustments, if any, as the Board in its discretion may deem appropriate to reflect such change, will be made with respect to the number of Units outstanding under the DSUP.

6. REDEMPTION OF UNITS

6.1 Subject to the limitations contained in sections 6.2 to 6.4, Units will be redeemable and the value thereof payable after the Termination Date of a Participant.

6.2 In the case where a Participant ceases to act as a Director, the Participant (or in the case of death, the beneficiary of the Units) may, after the Termination Date, subject to section 6.3, cause the Corporation to redeem the Units by filing a notice of redemption in the form of Schedule C hereto (the "REDEMPTION NOTICE") with the Corporation's Secretary specifying the redemption date, which shall be at least five Business Days following the date on which the Redemption Notice is filed with the Corporation, but no later than December 15 of the first calendar year commencing after the year of the Termination Date (the "REDEMPTION DATE").

Within ten Business Days after the Redemption Date but no later than December 31 of the first calendar year commencing after the year of the Termination Date (the "PAYMENT DATE"), the Participant shall receive, at the discretion of the Corporation, in satisfaction of the number of Units credited to his or her account on such date, any of the following:

(a) a number of Shares purchased on the open market by the Broker having a Value of the Units, net of any applicable withholdings, equal to the Value of a Unit on the Redemption Date multiplied by the number of Units credited to his or her notional account on the Payment Date, in accordance with the terms of
Section 7 hereof,

(b) a number of Shares issued by the Corporation equal to the number of Units credited to his or her notional account on the Payment Date,

(c) any combination of clauses (a) and (b).

The Corporation will pay all brokerage commissions arising in connection with the purchase of Shares by the Broker on the open market and. A Participant shall not be entitled to require payment of any amount on account of Units credited to such Participant's account prior to his or her Termination Date nor later than the last business day in December of the first calendar year commencing after the Termination Date.

6.3 If the Participant or his/her beneficiary or legal representative, as the case may be, fails to file a Redemption Notice with the Corporation before the Deadline, the Participant or his/her beneficiary or legal representative, shall be deemed to have filed on the Deadline a Redemption Notice with the Corporation for such Participant's Units specifying December 15 of such year as the Redemption Date.

6.4 If a Participant dies after ceasing to act as a Director, but before filing a Redemption Notice with the Corporation, sections 6.2 and 6.3 shall apply with such modifications as the circumstances require.

6.5 A Redemption Notice shall apply to all Units held by the Participant or his/her beneficiary or legal representative, as the case may be, at the time it is filed.

7. PURCHASE OF SHARES ON THE OPEN MARKET

7.1 Purchase of Shares pursuant to Section 6 hereof shall be made on the open market by a broker independent from the Corporation and who is a member of The Toronto Stock Exchange or NASDAQ National Market or if the Shares are no longer listed or traded on The Toronto Stock Exchange or NASDAQ

National Market or both, then of such other stock exchange or quotation service as the Board may determine constitutes the principal market for the Shares (the "Broker"). Any such designation may be changed from time to time. Upon designation of a broker or at any time thereafter, the Corporation may elect to provide the Broker with a letter of agreement to be executed by the Broker and entered into with the Participant and to which the Corporation would also be a party, setting forth, inter alia, (i) the Broker's concurrence to being so designated, to acting for the Participant's account in accordance with customary usage of the trade with a view to obtaining the best share price for the Participant and to delivering to the Participant or his or her representative the share certificate for the Shares purchased upon payment by the Corporation of the purchase price and the related reasonable brokerage commissions, and
(ii) the Corporation's agreement to notify the Broker of the number of Shares to be purchased and to pay the purchase price and the related reasonable brokerage commissions, provided however that no terms of such letter agreement shall have the effect of making the Broker or deeming the broker to be an affiliate of (or not independent from) the Corporation for purposes of any applicable corporate, securities or stock exchange requirement.

7.2 Prior to 11:00 a.m. (Montreal time) on the Payment Date, the Corporation shall notify the Broker as to the number of Shares to be purchased by the Broker on behalf of the Participant on the open market. As soon as practicable thereafter, the Broker shall purchase on the open market the number of Shares which the Corporation has requested the Broker to purchase and shall notify the Participant and the Corporation of (a) the aggregate purchase price ("AGGREGATE PURCHASE PRICE") of the Shares, (b) the purchase price per Share or, if the Shares were purchased at different prices, the average purchase price (computed on a weighted average basis) per Share, (c) the amount of any related reasonable brokerage commissions and (d) the settlement date for the purchase of the Shares. On the settlement date, upon payment of the Aggregate Purchase Price and related reasonable commissions by the Corporation, the Broker shall deliver to the Participant or to his or her representative the certificate representing the Shares. No settlement date shall be after the last business day in December of the first calendar year commencing after the Termination Date.

7.3 The Units, that may be delivered under this DSUP, have not been registered under the U.S. Securities Act of 1933, as amended, as of the effective date of this DSUP and the Corporation has no obligation to register such units.

8. SHARES SUBJECT TO THIS DEFERRED SHARE UNIT PLAN

8.1 The total number of Shares that may be issued under this DSUP shall not exceed 6,306,153 Shares of the Corporation, including such Shares that may be issued under the Long Term Incentive Plan of the Corporation, subject to the adjustment under Section 9, and no Participant shall hold in total Options, RSUs and Units which may be redeemed for more than 5% of the number of Shares issued and outstanding from time to time.

For greater clarity, the issuance of Shares under this DSUP shall be subject to the following:

(i) the number of Shares reserved for issuance pursuant to Options, RSUs and Units granted to insiders of the Corporation shall not exceed 10% of the total issued and outstanding Shares;

(ii) the issuance to insiders, within a one-year period, of a number of Options, RSUs and Units shall not exceed 10% of the total issued and outstanding Shares; and

(iii) the issuance to any one insider and such insider's associates, within a one-year period, of a number of Options, RSUs and Units shall not exceed 5% of the total issued and outstanding Shares.

9. ADJUSTMENTS AND REORGANIZATIONS

9.1 In the event of any change in the number of outstanding Shares of the Corporation by reason of any stock dividend, stock split, recapitalization, merger, consolidation, combination or exchange of Shares or other similar change, subject to the prior approval of the competent regulatory authorities, an equitable adjustment shall be made by the Board in the maximum number or kind of Shares issuable under this DSUP. Such adjustment will be definitive and mandatory for the purposes of this DSUP.

10. AMENDMENT OR TERMINATION OF THE DSUP

10.1 The DSUP may be amended or terminated (including without limitation to suspend or limit the right of a Participant to elect to participate in the DSUP) at any time and from time to time by the Board, with the prior approval of the competent regulatory authorities, provided that any such amendment or termination does not in any way infringe upon any rights of Participants in respect of Units previously credited to the account of Participants.

11. GENERAL

11.1 The DSUP will be administered by the Board or, if determined by the Board, by a committee of the Board, and all costs related to the implementation and administration of the DSUP will be paid by the Corporation.

11.2 A Participant may not sell, assign or otherwise dispose of Units or any rights in respect thereof, except by will or other testamentary document or according to the laws respecting the devolution and allotment of estates.

11.3 Unless otherwise determined by the Board, no funds will be set aside to guarantee the payment of the Units and future payment of Units will remain an unfunded liability recorded on the books of the Corporation.

11.4 This Plan will be effective as of January 12, 2005.

SCHEDULE A

Election Notice

EXFO ELECTRO-OPTICAL ENGINEERING INC.

DEFERRED SHARE UNIT PLAN FOR THE MEMBERS OF THE BOARD OF DIRECTORS
(THE "DEFERRED SHARE UNIT PLAN" OR THE "PLAN")

PLEASE TICK THE APPROPRIATE BOX AND COMPLETE AS APPROPRIATE:

[_] I hereby elect to participate in the Corporation's Deferred Share Unit Plan and my elected percentage is ________%.

[ ] I hereby elect not to participate in the Corporation's Deferred Share Unit Plan.

I CONFIRM THAT:

I have received and reviewed a copy of the Deferred Share Unit Plan and agree to be bound by it. I understand that I will not be able to cause the Corporation to redeem Units until I cease to act as a Director.

I recognize that, when Units credited pursuant to this election are redeemed in accordance with the terms of the Deferred Share Unit Plan after I cease to be a Director, income tax and other withholdings will arise at that time. Upon redemption of Units, the Corporation will make the appropriate withholdings as required by law at that time. These may include deductions at source on account of federal and provincial income taxes, Canada Pension Plan, Quebec Pension Plan, Quebec Health Insurance Plan, etc. and, with respect to U.S. residents, on account of applicable federal, state and local taxes.

I will respect any applicable limitation imposed by the Corporation's insider trading policies and any applicable laws and regulations regarding insider trading.

THE FOREGOING INCLUDES A BRIEF OUTLINE OF CERTAIN KEY PROVISIONS OF THE DEFERRED SHARE UNIT PLAN. FOR MORE COMPLETE INFORMATION, REFERENCE SHOULD BE MADE TO THE TEXT OF THE DEFERRED SHARE UNIT PLAN.

SCHEDULE B

Termination Notice

EXFO ELECTRO-OPTICAL ENGINEERING INC.

DEFERRED SHARE UNIT PLAN FOR THE MEMBERS OF THE BOARD OF DIRECTORS
(THE "DEFERRED SHARE UNIT PLAN")

I hereby advise the Corporation that I wish to terminate my participation in the Deferred Share Unit Plan. I understand that my participation in the Deferred Share Unit Plan shall be terminated as of and from the first fiscal year of the Corporation following the filing of this Termination Notice. Any Units credited to my account shall remain in such account and will be redeemable only in accordance with the terms of the Deferred Share Unit Plan.

SCHEDULE C

Redemption Notice

EXFO ELECTRO-OPTICAL ENGINEERING INC.

DEFERRED SHARE UNIT PLAN FOR THE MEMBERS OF THE BOARD OF DIRECTORS
(THE "DEFERRED SHARE UNIT PLAN")

I hereby advise the Corporation that I wish the Corporation to redeem all the Units credited to my account under the Deferred Share Unit Plan on (INSERT REDEMPTION DATE, WHICH SHALL BE AT LEAST FIVE (5) BUSINESS DAYS FOLLOWING THE DATE ON WHICH SUCH REDEMPTION NOTICE IS FILED WITH THE CORPORATION but no later than December 15 of the first calendar year commencing after the year of the Termination Date).

-------------------------------         ---------------------------------------
Date                                          (Signature of Participant)


                                        ---------------------------------------
                                         (Name of Participant in Block Letters)

EXFO ELECTRO-OPTICAL ENGINEERING INC.

BOARD OF DIRECTORS
CORPORATE GOVERNANCE GUIDELINES

I. BOARD ISSUES

MEMBERSHIP:

1. SIZE OF BOARD. The Board's maximum size is twelve (12) members.

2. MAJORITY OF INDEPENDENT DIRECTORS. The Board will have a majority of directors who meet the criteria for independence required by Nasdaq. The Board must determine, based on all of the relevant facts and circumstances, whether each director satisfies the criteria for independence and must disclose each of these determinations. The Board may adopt and disclose categorical standards to assist it in making such determinations and may make a general disclosure if each director meets these standards. Any determination of independence for a director who does not meet these standards, however, must be specifically explained.

3. BOARD MEMBERSHIP CRITERIA. The Board seeks members from diverse professional and personal backgrounds who combine a broad spectrum of experience and expertise with a reputation for integrity. This assessment will include an individual's qualification as independent, as well as consideration of diversity, age, skills and experience in the context of the needs of the Board.

Directors should advise the Chairman of the Board and the chair of the Human Resources Committee in advance of accepting an invitation to serve on another public company board.

Exceptional candidates who do not meet all of these criterions may still be considered.

4. NEW DIRECTORS. The Human Resources Committee has, as one of its responsibilities, the recommendation of director candidates to the full Board. Nominees for directorship will be selected by the Human Resources Committee in accordance with the policies and principles in its charter. The Human Resources Committee will maintain an orientation program for new directors.

5. RETIREMENT.

(a) TERM LIMITS. The Board does not favor term limits for directors, but believes that it is important to monitor overall Board performance. Therefore, the Human Resources Committee shall review each director's continuation on the Board every three years. This will allow each director the opportunity to conveniently confirm his or her desire to continue as a member of the Board.

(b) RETIREMENT POLICY. No person shall be nominated by the Board to serve as a director after he or she has passed his or her 75th birthday, unless the Human Resources Committee has voted, on an annual basis, to waive, or continue to waive, the mandatory retirement age of such person as a director.

(c) RESIGNATION POLICY - NON-INDEPENDENT DIRECTORS. Non-independent directors shall offer to resign from the Board upon their resignation, removal or retirement as an officer of the Company.

(d) DIRECTORS CHANGING THEIR PRESENT JOB RESPONSIBILITIES. The Board expects directors to offer to resign from the Board upon a major change in their business position including, without limitation, retirement from the position on which their original nomination was based. There should, however, be an opportunity for the Board through the Human Resources Committee to review the continued appropriateness of Board membership under the circumstances. It is not the sense of the Board that in every instance the directors who retire or change from the position they held when they came on the Board should necessarily leave the Board.

II. CONDUCT:

1. DIRECTORS' DUTIES. The basic responsibility of the directors is to exercise their business judgment to act in what they reasonably believe to be in the best interests of the Company and its shareholders. In discharging that obligation, directors should be entitled to rely on the honesty and integrity of the Company's officers, employees, outside advisors and independent auditors.

Directors are expected to attend Board meetings and meetings of committees on which they serve, and to spend the time needed and meet as frequently as reasonable necessary to properly discharge their responsibilities. Directors are expected to review meeting materials prior to Board and committee meetings and, when possible, should communicate in advance of meetings any questions or concerns that they wish to discuss so that management will be prepared to address the same. Each director's attendance at, and preparation for, Board meetings and meetings of committees on which they serve, shall be considered by the Human Resources Committee when recommending director nominees.

2. BOARD MEETINGS.

(a) SELECTION OF AGENDA ITEMS AND EXECUTIVE SESSIONS. The
Chairman of the Board or the Chief Executive Officer or the Lead Director should establish the agenda for Board meetings. Each Board member is free to suggest the inclusion of items on the agenda. Each Board member is free to raise at any Board meeting subjects that are not on the agenda for that meeting. The Board will meet at least two (2) times per year in executive session without any members of the Company's management, whether or not they are directors, who may otherwise be present. The Lead Director will be presiding at all executive sessions.

(b) DISTRIBUTION OF MATERIALS. The Company shall distribute, sufficiently in advance of meetings to permit meaningful review, written materials, which shall in all events include recent financial information, for use at Board meetings.

(c) ATTENDANCE OF NON-DIRECTORS. The Board believes that attendance of key executive officers augments the meeting process.

(d) NUMBER OF MEETINGS. The Board shall hold a minimum of five
(5) meetings per year.

3. CONFLICTS OF INTEREST. Directors shall avoid any action, position or interest that conflicts with an interest of the Company, or gives the appearance of a conflict. The Company annually solicits information from directors in order to monitor potential conflicts of interest and directors are expected to be mindful of their fiduciary obligations to the Company.

4. SHARE OWNERSHIP BY DIRECTORS. The Board believes that the number of shares of the Company's stock owned by each director is a personal decision, and encourages stock ownership and the Board believes that each director should aim a value of stock ownership equal to three (3) times his base compensation (including Deferred Share Units).

5. DIRECTOR COMPENSATION. The form and amount of director compensation will be determined by the Human Resources Committee in accordance with the policies and principles set forth in its charter. The Human Resources Committee will review every three (3) years the director compensation with the Company's Vice-President of Human Resources and outside consultant.

6. CONTINUING DIRECTOR EDUCATION. The Human Resources Committee will maintain orientation programs for new directors and continuing education programs for all directors.

7. ASSESSING BOARD PERFORMANCE. The Board will conduct an annual self-evaluation to determine whether it and its committees are functioning effectively. The Human Resources Committee will receive

comments from all directors as to the Board's performance and report annually to the Board with an assessment of the Board's performance, to be discussed with the full Board following the end of each fiscal year.

8. ACCESS TO OFFICERS AND EMPLOYEES. Board members have complete and open access to the Company's Chief Executive Officer, Chief Financial Officer, Legal Counsel [and Chief Compliance Officer]. Board members who wish to have access to other members of management should coordinate such access through one of the foregoing.

9. INTERACTION WITH THIRD PARTIES. The Board believes that management should speak for the Company and that the Chairman should speak for the Board.

10. BOARD AUTHORITY. The Board on behalf of each committee has the power to hire independent legal, financial or other advisors as they may deem necessary, without consulting or obtaining the approval of any officer of the Company in advance. Information learned during the course of service on the Board is to be held confidential and used solely in furtherance of the Company's business.

11. CONFIDENTIALITY. The Board believes maintaining confidentiality of information and deliberations is an imperative.

III. COMMITTEE ISSUES

1. BOARD COMMITTEES. The Board will have at all times an Audit Committee, a Human Resources Committee which will also act as the Compensation Committee. Each of these Committees shall consist solely of independent directors. Committee members will be appointed by the Board upon recommendation of the Human Resources Committee with consideration of the desires of individual directors.

The Board may, from time to time, establish or maintain additional committees as necessary or appropriate.

2. ROTATION OF COMMITTEE ASSIGNMENTS AND CHAIRS. Committee assignments and the designation of committee chairs should be based on the director's knowledge, interests and areas of expertise. The Board does not favor mandatory rotation of committee assignments or chairs. The Board believes experience and continuity are more important than rotation. Committee members and chairs may be rotated in response to changes in membership of the Board and in all cases should be rotated only if rotation is likely to increase committee performance.

3. COMMITTEE CHARTERS. Each committee shall have its own charter. The charters will set forth the purposes, goals and responsibilities of the committees as well as qualifications for committee membership, procedures for committee member appointment and removal, committee

structure and operations and committee reporting to the Board. The charters will also provide that each committee will annually evaluate its own performance.

4. FREQUENCY AND LENGTH OF COMMITTEE MEETINGS. The chair of each committee, in consultation with the committee members, will determine the frequency and length of the committee meetings consistent with any requirements set forth in the committee's charter.

IV. CHIEF EXECUTIVE OFFICER EVALUATION AND MANAGEMENT SUCCESSION

The Human Resources Committee will conduct an annual review and approve corporate goals and objectives relevant to Chief Executive Officer's compensation and set the Chief Executive Officer's compensation level based on this evaluation.

The Human Resources Committee will make recommendations to the Board with respect to potential successors to the Chief Executive Officer.

EXFO ELECTRO-OPTICAL ENGINEERING INC.
(THE "CORPORATION")

CODE OF ETHICS FOR OUR PRINCIPAL EXECUTIVE OFFICER AND
SENIOR FINANCIAL OFFICERS

I. INTRODUCTION

This Code of Ethics for our Principal Executive Officer and Senior Financial Officers is applicable to the Corporation's principal executive officer and senior financial officer and comptroller or principal accounting officer, or any person performing similar functions ("Officers"). References in this Code of Ethics to the Corporation means the Corporation or any of its subsidiaries.

While we expect honest and ethical conduct in all aspects of Corporation business from all employees, we expect the highest possible standards from our Officers. You are setting an example for other employees and we expect you to foster a culture of transparency, integrity and honesty. Compliance with this Code is a condition to your employment and any violations will be dealt with severely.

In accordance with the rules of the U.S. Securities and Exchange Commission (the "SEC"), any change or waiver of this Code will be disclosed in the Corporation's annual filings with the SEC.

II. CONFLICTS OF INTEREST

A conflict of interest occurs when your private interests interfere, or appear to interfere, in any way, with the best interests of the Corporation as a whole. A conflict situation can arise when you take action or have interests that may make it difficult for you to prioritize the best interests of the Corporation. Conflicts of interest also arise when you, or a member of your family, receive improper personal benefits as a result of your position in the Corporation. Loans to, or guarantees of obligations of, any employees, officers, directors or any of their family members are likely to pose conflicts of interest, as are transactions of any kind between the Corporation and any other organization in which you or any member of your family have an interest.

Engaging in any conduct that constitutes a conflict of interest is prohibited.

AS AN OFFICER OF THE CORPORATION, IT IS IMPERATIVE THAT YOU AVOID ANY INVESTMENT (UNLESS AS A HOLDER OF LESS THAN 1% OF THE VOTING SECURITIES ISSUED BY A CORPORATION WHOSE SECURITIES ARE PUBLICLY TRADED), INTEREST OR ASSOCIATION WHICH INTERFERES, MIGHT INTERFERE, OR MIGHT BE THOUGHT TO INTERFERE, WITH YOUR INDEPENDENT EXERCISE OF JUDGMENT IN THE CORPORATION'S BEST INTEREST. ANY POTENTIAL CONFLICTS OF INTERESTS MUST BE REPORTED IMMEDIATELY TO THE CORPORATION'S LEGAL DEPARTMENT.

March 30, 2005 1

III. ACCURATE PERIODIC REPORTS

As you are aware, full, fair, accurate, timely and understandable disclosure in our periodic reports is required by SEC rules and essential to the success of our business. Please exercise the highest standard of care in preparing such reports in accordance with the guidelines set forth below.

o All Corporation accounting records, as well as reports produced from those records, must be kept and presented in accordance with the laws of each applicable jurisdiction.

o All records must fairly and accurately reflect the transactions or occurrences to which they relate.

o All records must fairly and accurately reflect in reasonable detail the Corporation's assets, liabilities, revenues and expenses.

o The Corporation's accounting records must not contain any intentionally misleading entries.

o No transactions will be intentionally misclassified as to accounts, departments or accounting periods.

o All transactions must be supported by accurate documentation in reasonable detail and recorded in the proper account and in the proper accounting period.

o No information will be concealed from the independent auditors.

o Compliance with Generally Accepted Accounting Principles and the Corporation's system of internal accounting controls is required at all times.

IV. COMPLIANCE WITH LAWS

You are expected to comply with both the letter and spirit of all applicable governmental rules and regulations.

V. COMPLIANCE WITH THIS CODE

If you fail to comply with this Code of Ethics or applicable laws, rules or regulations (including without limitation all rules and regulations of the Securities and Exchange Commission) you will be subject to disciplinary measures, up to and including discharge from the Corporation. Violations of this Code may also constitute violations of law and may result in civil or criminal penalties for you, your supervisors and/or the Corporation. The Board of Directors will determine, or designate appropriate persons to determine, appropriate actions to be taken in the event of a violation of this Code of

March 30, 2005 2

Ethics. In determining what action is appropriate in a particular case, the Board or its designee will consider the nature and severity of the violation, whether the violation was a single occurrence or repeated occurrences, whether the violation was intentional or inadvertent, whether the individual in question had been advised prior to the violation as to the proper course of action and whether or not the individual in question had committed other violations in the past.

You are expected to report all violations of this Code of Ethics promptly to the Lead Director of the Board or the Corporation's Legal Counsel. If you have any questions regarding your obligations under this Code, you should promptly contact the Corporation's Legal Counsel. You may choose to remain anonymous in reporting any possible violation of this Code of Ethics. Please refer to the Statement on reporting ethical violations for further guidelines how to report such possible violation of this Code of Ethics.

March 30, 2005 3

EXFO ELECTRO-OPTICAL ENGINEERING INC.
(THE "CORPORATION")

COMPLIANCE AFFIRMATION FOR OUR PRINCIPAL EXECUTIVE OFFICER AND
SENIOR FINANCIAL OFFICERS

I. AFFIRMATION OF COMPLIANCE

The undersigned certifies that he or she has received and read the above Code of Ethics for our Principal Executive Officer and Senior Financial Officers and agrees to abide by the policies summarized therein.

II. AFFIRMATION OF LEGAL AND ETHICAL BUSINESS CONDUCT

By signing this form, the undersigned confirms that, to the best of his or her knowledge and belief, each dealing or transaction to which he or she has been party, directly or indirectly, on behalf of this Corporation:

1. was characterized by honesty and integrity;

2. complies with applicable laws and regulations;

3. did not involve any unethical dealings such as, unbooked fees, special favors, benefits or contributions to any private party, government or government agency;

4. did not involve any unlawful arrangements with competitors and

5. was recorded and properly described on the Corporation's books.

If there are any exceptions, please describe them on the reverse side.

III. CONFLICT OF INTEREST QUESTIONNAIRE

Please answer "Yes" or "No" to the following questions. If the answer to any question is "Yes", full details must be given on the reverse side.

A. Have you or, to your knowledge, has any member of your immediate family, at any time during the period since the beginning of the most recent completed financial year:

1. engaged, directly or indirectly, in any transaction for the purchase or sale of materials or other property, or services by or to EXFO Electro-Optical Engineering Inc. or any subsidiary or division thereof (hereinafter collectively called the Corporation), otherwise than in the normal capacity of officer or employee of the Corporation;

Yes _____ No _____

March 30, 2005 4

2. been an officer, director, partner or employee of any corporation, partnership or other organization which, to your knowledge, has engaged in any transaction described in (a) above with the Corporation;

Yes _____ No _____

3. been interested monetarily, directly or indirectly, in any organization doing business with the Corporation (unless as a holder of less than 1% of the voting securities issued by a corporation whose securities are publicly traded) and

Yes _____ No _____

4. been a recipient, directly or indirectly, of any payments or material gifts of any kind from or on behalf of any organization doing business with the Corporation (unless by way of dividend or interest payments made by a corporation whose securities are publicly traded)?

Yes _____ No _____

B. Is any transaction contemplated, involving you or any member of your immediate family, which, if consummated, would be described in answer to any of the preceding items?

Yes _____ No _____

C. Are you aware of any interest or activity on your part, or on the part of any member of your immediate family, which is in conflict with the interests of the Corporation?

Yes _____                No _____



                  ---------------------------------
                  (Please sign)


                  ---------------------------------
                  Name


                  ---------------------------------
                  Title


                  ---------------------------------
                  Dated

March 30, 2005 5

EXFO ELECTRO-OPTICAL ENGINEERING INC. ("EXFO")
ETHICS AND BUSINESS CONDUCT POLICY

OVERVIEW

As a leading innovator in the T&M industry, EXFO requires the highest standards of professional and ethical conduct and integrity from our employees and directors. Our reputation is based on honest and fair practices at all levels of the organization, and we expect everyone employed by the Company to conduct business with the utmost integrity. No employee will be permitted to achieve results through violations of laws or regulations, or through unscrupulous dealings.

We intend that the Company's business practices will be compatible with the economic and social priorities of each location in which we operate. Although customs vary from country to country and standards of ethics may vary in different business environments, honesty and integrity must always characterize our business activity.

This ETHICS AND BUSINESS CONDUCT POLICY reflects our commitment to a culture of honesty, integrity and accountability and outlines the basic principles and policies with which all employees are expected to comply. This reflects our dedication to customers, partners, shareholders and employees by demonstrating that integrity and fairness are an important part of our corporate values and that all our actions are governed by an exacting sense of duty and by the professional ethics set forth herein. Please read this Policy carefully.

In addition to following this Policy in all aspects of our business activities, you are expected to seek guidance in any case where there is a question about compliance with both the letter and spirit of our policies and applicable laws. This Policy sets forth general principles and does not supersede the specific policies and procedures that are covered in separate specific policies statements, such as the Securities Trading Policy. References in this Policy to the Company mean the Company or any of its subsidiaries.

Your cooperation is necessary to the continued success of our business and the cultivation and maintenance of our reputation as a good corporate citizen.

March 30, 2005 Page 1

OUR RESPONSIBILITY

As employees, officers, and members of the board of directors of EXFO, we are all expected to conduct ourselves ethically in all aspects of the Company's business. This includes fully complying with all applicable laws, regulations, and Company policies.

In order to do so, each individual is responsible for acquainting himself/herself with the various rules and guidelines that apply to his/her assigned duties. When in doubt, it is important to seek clarification from one's supervisor, from the Vice-President of Human Resources or the Company's Legal Counsel.

On a daily basis, appropriate and ethical business conduct means following the guidelines set forth in this document. Although this policy cannot take all situations into account, the topics below cover the main areas that are susceptible to ambiguity:

1. Conflicts of Interest
1.1 General Policy
1.2 Outside employment and other activities
1.3 Investment Activity
2. Confidentiality, Disclosure of Information and Insider Trading
3. Protection and Proper use of Company assets
4. Honesty, Openness
5. Corporate Opportunities
6. Fair and Lawful Dealings with Partners, Vendors and Suppliers
6.1 Legitimate Payments to Suppliers and Third Parties
6.2 Payments to Agents and Consultants
6.3 Foreign Practices and Their Limitations
6.4 Antitrust/Competition
6.5 Compliance with Environmental Laws
7. Political Activities and Contributions
8. Gifts and Entertainment
9. Discrimination and Harassment
10. Safety and Health
11. Accurate Books and Records

March 30, 2005 Page 2

12. Reporting Wrongful Conduct and Ensuring Compliance
13. Compliance with Laws, Rules and Regulations
14. Use of E-Mail and Internet Services
15. Waivers of the Code of Business Conduct and Ethics
16. Compliance Procedures

EXFO takes integrity to heart and believes that ethics concern everyone as these elements serve the Company's overall best interests. Therefore, if situations arise in which any of these principles are violated, the Company must ensure that appropriate action is taken.

1. CONFLICTS OF INTEREST

1.1 GENERAL POLICY

A conflict of interest occurs when an individual's private interest interferes, or appears to interfere, in any way with the interests of the Company. A conflict situation can arise when an employee takes actions or has interests that may make it difficult to perform his or her work effectively. Conflicts of interest also arise when an employee, officer or director, or a member of his or her family, receives improper personal benefits as a result of his or her position in the Company. Loans to, or guarantees of obligations of, such persons are likely to pose conflicts of interest, as are transactions of any kind between the Company and any other organization in which you or any member of your family have an interest.

Activities that could give rise to conflicts of interest are prohibited unless specifically approved in advance by the Vice President- Human Resources.

Senior executives and board members should contact in-house legal counsel regarding any issues relating to possible conflict of interest.

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Employees should conduct themselves in a manner that avoids even the possible appearance of conflict between their personal interests and those of EXFO. Apparent conflicts of interest can easily arise. Any employee who feels that he/she may have a conflict, actual or potential, should report all pertinent details to the Vice-President of Human Resources or Company's Legal Counsel, who is responsible for determining whether a conflict of interest exists.

1.2 OUTSIDE EMPLOYMENT AND OTHER ACTIVITIES

Aside from their full-time employment, people sometimes wish to run a business or take on additional part-time work. This practice in itself does not present a conflict of interest as long as the outside activities do not involve competitors, suppliers, or customers of EXFO. In addition, these activities must not interfere with EXFO activities or interests.

As an overall principle, EXFO employees are expected to avoid any outside interests or activities that are advanced at the expense of EXFO's interests, as such involvement may divide loyalty between EXFO and the outside activities, thus creating a potential conflict of interest. Therefore, EXFO employees may not operate (directly or indirectly) side businesses that compete with, sell to, or buy from EXFO.

To determine whether you are in a situation of potential conflict of interest, use these questions as guidelines:

o Do my outside activities interfere with my duties at EXFO?

o Am I finding it hard to find time to do my work at EXFO?

o Do my outside activities involve a lot of the same people as my activities at EXFO?

o In my outside activities, do I use skills or tools paid for by EXFO?

It is not always easy to determine whether a conflict of interest exists, so any potential conflicts of interests must be reported immediately to Vice-President Human Resources or Company's Legal Counsel.

March 30, 2005 Page 4

1.3 INVESTMENT ACTIVITY

Any direct or indirect investment in a competitor creates a potential conflict of interest, as does any investment in a current or would-be supplier of goods or services to EXFO. Employees should therefore avoid any financial investments in competitors, suppliers, partners, distributors or customers that would affect an employee's objectivity in promoting EXFO's interest. However, passive investment in a competitor, supplier, partners, distributors or customer of not more than one percent of total outstanding shares of publicly listed companies on a national or international securities exchange, or quote daily by Nasdaq or any other exchange, do not pose a conflicts of interest, provided, however, the investment is so large financially either in absolute dollars or percentage of the individual's total investments portfolio or savings that it creates the appearance of a conflict of interest. In addition, any such investment must not involve the use of confidential inside information on such companies obtained or learned through their position at EXFO.

2. CONFIDENTIALITY, DISCLOSURE OF INFORMATION AND INSIDER TRADING

Confidential information includes all non-public information that may be of use to competitors, or harmful to EXFO or its customers, if disclosed. It also includes information that suppliers and customers have entrusted to us or any information obtained after executing non-disclosure agreement with third parties.

There are two main types of confidential information: technical information and business information. Examples of confidential technical information include engineering designs, software code, pending patent applications, product plans, future product direction, development process information, etc. Examples of confidential business information include non-public financial information, employee information, sales forecasts, customer lists, strategic and operating plans, audit reports, etc. The disclosure of any of our confidential information to third parties or the untimely release of other data can significantly damage EXFO and in some cases violate the law. It is therefore essential that we all respect the confidentiality of Company information in order to protect them. Employees must maintain the confidentiality of information entrusted to them by EXFO or that otherwise comes into their possession

March 30, 2005 Page 5

in the course of their employment, except when disclosure is authorized or legally mandated. The obligation to preserve proprietary information continues even after you leave the Company

Each EXFO employee is bound by confidentiality and other obligations, when applicable, set forth in the agreement signed when employment with EXFO commenced. The said agreement contains clauses stating obligations related to exclusivity, confidentiality, assignment of work product, non-competition and non-solicitation--all of which form an integral part of this ETHICS AND BUSINESS CONDUCT POLICY.

In addition, all employees must also abide by the terms and obligations set forth in EXFO's SECURITIES TRADING POLICY AND ITS DISCLOSURE GUIDELINES, which also form an integral part of this ETHICS AND BUSINESS CONDUCT POLICY; namely, the section on insider trading. Insider trading is unethical and illegal. Employees are not allowed to trade in securities of a Company while in possession of material non-public information regarding that Company. It is also illegal to "tip" or pass on inside information to any other person who might make an investment decision based on that information or pass the information on further.

3. PROTECTION AND PROPER USE OF COMPANY ASSETS

All employees should endeavor to protect the Company's assets and ensure their efficient use. Theft, carelessness and waste have a direct impact on the Company's profitability. Any suspected incidents of fraud or theft should be immediately reported for investigation to one's Supervisor, the Vice-President of Human Resources or the Company's Legal Counsel. Company assets, such as funds, products or computers, may only be used for legitimate business purposes or other purposes approved by management. Company assets may never be used for illegal purposes.

Examples of Company resources include any material, equipment and proprietary information developed or purchased by EXFO as well as employee time and Company funds.

March 30, 2005 Page 6

With this in mind, employees are expected to engage only in Company-related activities during normal business hours and should not use such time for conducting personal business. Similarly, Company property (such as laboratories, manufacturing equipment, tools, materials, supplies, assets and facilities) are to be used solely for business purposes and not for personal benefit.

Our computer resources are also intended for EXFO business purposes. Although limited and reasonable personal use of e-mail and the Internet is not forbidden, it is important that such use does not interfere with our work and that it does not in any way violate EXFO policies and procedures.

Examples of improper use include the following:

o Using the network and systems to conduct private business;

o Allowing friends or family members to use Company resources;

o Downloading or transmitting any type of offensive material, chain letters, pornography, copyrighted material (e.g., songs, games, movie clips, text, and images), etc.

The obligation to protect Company assets includes proprietary information. Proprietary information includes any information that is not generally known to the public or would be helpful to our competitors. Examples of proprietary information are intellectual property, business and marketing plans and employee information. The obligation to preserve proprietary information continues even after you leave the Company.

4. HONESTY AND OPENNESS

As a fundamental standard, EXFO expects each of its employees to deal with others honestly and openly. We are all required to accept responsibility for our actions and to communicate information quickly and accurately to fellow employees and superiors. Supervisors have a responsibility to set examples of honesty and fairness in their relationships with the Company's customers, suppliers, competitors, subordinates, shareholders and employees.

March 30, 2005 Page 7

5. CORPORATE OPPORTUNITIES

Employees, officers and directors are prohibited from taking for themselves personally opportunities that arise through the use of corporate property, information or position and from using corporate property, information or position for personal gain. Employees, officers and directors are also prohibited from competing with the Company.

6. FAIR AND LAWFUL DEALINGS WITH PARTNERS, VENDORS AND SUPPLIERS

Each employee should endeavor to deal fairly with the Company's customers, suppliers, competitors and employees. No employee should take unfair advantage of anyone through illegal conduct, manipulation, concealment, abuse of privileged information, misrepresentation of material facts or any other unfair-dealing practice.

At EXFO, we ensure that all relationships with third parties comply with Company policy and applicable regulations. As such, we do not use any third party to perform any act prohibited by law or our Ethics and Business Conduct Policy. More particularly, we are committed to abiding by anti-corruption statutes and applicable competition laws, as follows:

6.1 LEGITIMATE PAYMENTS TO SUPPLIERS AND THIRD PARTIES

Payments to suppliers and third parties (including consultants, agents, and representatives) are made only for services or products provided to the Company. EXFO employees are not authorized to make or arrange any type of direct or indirect payment that may constitute a bribe or kickback to secure or maintain business (or for any other purpose) to the personnel of any government agency, customer, supplier or competitor.

In order to avoid even the appearance of improper payments, EXFO does not make any cash payments (other than approved cash payrolls and documented petty cash disbursements). In addition, no corporate checks are issued to the order of "cash", "bearer" or third-party designees of the person entitled to payment. EXFO does not authorize/make cash payments to

March 30, 2005 Page 8

employees of competitors, suppliers, customers or government agencies as such payments create the potential for favoritism based on other-than-competitive factors.

6.2 PAYMENTS TO AGENTS AND CONSULTANTS

Commission rates or fees paid to dealers, distributors, agents, finders, representatives or consultants must be reasonable in relation to the value of the product or work that is actually being performed. EXFO's policy is not pay commissions or fees where such payments are for the purpose of constituting bribes or kickbacks.

6.3 FOREIGN PRACTICES AND THEIR LIMITATIONS

In certain circumstances, there are other types of payments, sometimes "facilitating payments" which are common practice in some foreign countries, as they are made openly and are often considered necessary to have minor government officials perform nondiscretionary duties and administrative functions that might otherwise delay or fail to undertake for which the Company is clearly entitled). These types of payments, generally small and in the nature of "tips" are permitted or expected by local custom and generally are not treated as illegal by local authorities. While the Company discourages such payments, they are permitted as long as they fall within the limits of the above description and are not intended for improper use and have been approved by senior management. Any such facilitating payment must be properly recorded and accounted for and reported annually so that EXFO may comply with all tax and other applicable laws.

6.4 ANTITRUST/COMPETITION

EXFO's policy is to comply fully with all antitrust, competition and trade regulation laws and use only ethical and proper methods to market the Company's products. All EXFO customers must be treated fairly and evenhandedly, and no preferential trade terms or other treatment are extended to any customer in violation of any law.

March 30, 2005 Page 9

In addition, to avoid even the appearance of improper actions, EXFO absolutely prohibits consultations with competitors regarding prices, customers or territories. Commissions and other payments must be adequately documented and reported to government authorities as required. All employees, consultants, agents or other representatives must strictly avoid seeking or receiving any competitor's information from any source in violation of any law or other restriction.

At EXFO, integrity also means not making disparaging comments relating to our competitors and we are all expected to deal only in facts. These limitations apply to all phases of EXFO's actual or potential competition with third parties, including bid and proposal activity, marketing, research and development, and engineering work.

6.5 COMPLIANCE WITH ENVIRONMENTAL LAWS

The Company is sensitive to the environmental, health and safety consequences of its operations. Accordingly, the Company is in compliance with all applicable environmental laws and regulations. If any employee has any doubt as to the applicability or meaning of a particular environmental, health or safety regulation, he or she should discuss the matter with a member of the Company's legal department.

7. POLITICAL ACTIVITIES AND CONTRIBUTIONS

We respect and support the right of our employees to participate in political activities. However, these activities should not be conducted on Company time or involve the use of any Company resources such as telephones, computers or supplies. Employees will not be reimbursed for personal political contributions.

We may occasionally express our views on local and national issues that affect our operations. In such cases, Company funds and resources may be used, but only when permitted by law and by our strict Company guidelines. The Company may also make limited contributions to political parties or candidates in jurisdictions where it is legal and customary to do so. No employee may make or commit to political contributions on behalf of the Company without the approval of the legal department.

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8. GIFTS AND ENTERTAINMENT

Gifts, entertainment, or charitable contributions are common ways of building good relations between people. In business, however, it is important that such gifts do not exceed nominal value, so as not to create favoritism. If they are excessive, they risk making the recipient feel obliged to offer special consideration to the Company offering the gifts, making this an unethical business practice.

EXFO's policy is to avoid even the appearance of favoritism based on business courtesies. Therefore, EXFO's employees may not give or accept any gift if the value of the gift might indicate an intent to improperly influence the normal business relationship between EXFO and any of its suppliers, customers, or competitors.

Furthermore, EXFO employees who are directly involved in the purchase of goods and services should not accept ANY gifts, with the exception of promotional items of nominal value. Business courtesies, such as an occasional lunch or dinner of reasonable value or refreshments during a business meeting, are permissible, provided they are in furtherance of the business relationship and cannot be interpreted as an attempt to gain unfair business advantage or otherwise reflect unfavorably on either business entity.

EXFO expects employees to exercise good judgment and moderation when offering business courtesies to customers; these should be offered within reasonable limits and practices of the marketplace. Special laws and regulations apply when dealing with government representatives and foreign officials and any employee involved in the government or international business markets is required to become fully acquainted with the relevant restrictions. Because of the sensitive nature of these relationships, talk with your supervisor and the legal department before offering or making any gifts or hospitality to governmental employees. All gifts, entertainment and charitable contributions, regardless or their nature or value, must be properly recorded on expense report forms or other appropriate accounting documents.

If you are having difficulty determining whether a specific gift or entertainment item lies within the bounds of acceptable business practice, ask yourself these guiding questions:

March 30, 2005 Page 11

o It is legal?
o Is it clearly business related?
o Is it moderate, reasonable, and in good taste?
o Would public disclosure embarrass the Company?
o Is there any pressure to reciprocate or grant special favors?

If you are unsure whether you can accept any proposed gratuity, business meal or entertainment, you should disclose the situation to your respective Supervisor, to the Vice-President, Human Resources or the Company's Legal Counsel who will determine its acceptability.

Strict rules apply when we do business with governmental agencies and officials, whether in the U.S. or in other countries, as discussed in more detail below. Because of the sensitive nature of these relationships, talk with your supervisor and the legal department before offering or making any gifts or hospitality to governmental employees.

9. DISCRIMINATION AND HARASSMENT

We value the diversity of our employees and are committed to providing equal opportunity in all aspects of employment. Abusive, harassing or offensive conduct is unacceptable, whether verbal, physical or visual. Examples include derogatory comments based on racial or ethnic characteristics and unwelcome sexual advances. Employees are encouraged to speak out when a coworker's conduct makes them uncomfortable, and to report harassment when it occurs to the Company's Legal Counsel.

10. SAFETY AND HEALTH

We are all responsible for maintaining a safe workplace by following safety and health rules and practices. The Company is committed to keeping its workplaces free from hazards. Please report any accidents, injuries, unsafe equipment, practices or conditions immediately to a supervisor or other designated person. Threats or acts of violence or physical intimidation are prohibited.

March 30, 2005 Page 12

In order to protect the safety of all employees, employees must report to work free from the influence of any substance that could prevent them from conducting work activities safely and effectively.

11. ACCURATE BOOKS AND RECORDS

EXFO's business integrity is reflected in a tangible way in its books and records. All employees are strictly responsible for ensuring the accuracy and reliability of the Company's accounts. Fictitious, improper, deceptive, undisclosed or unrecorded funds, assets, or liabilities are serious ethical violations. With this in mind, EXFO has established accounting control standards and procedures.

EXFO's policy is that all books and records conform to all applicable laws and regulations and to generally accepted accounting principles. All transactions must be accurately documented and accounted for in the books and records of the Company. All entries must contain appropriate descriptions of the underlying transactions sufficient to withstand appropriate audit and none of these entries must be false, inaccurate or deceptive. All employee transaction(s) should therefore be properly described in supporting documentation, and we expect employees not to participate in any false transaction or documentation (e.g., obtaining or creating false invoices or other misleading documentation; inventing or using fictitious entities, sales, purchases, services, loans or other financial arrangements for any purpose). EXFO does not maintain or use any anonymous ("numbered") bank account or other account that does not identify ownership by EXFO.

12. REPORTING WRONGFUL CONDUCT AND ENSURING COMPLIANCE

Employees are expected to question any practice or conduct which conflicts with, or appears to conflict with, EXFO's ETHICS AND BUSINESS CONDUCT POLICY until such questions are satisfactorily resolved.

All officers, directors, and employees are required to report information concerning wire fraud, mail fraud, bank fraud, securities fraud, violations regarding accounting, internal accounting controls or audit matters and violations of SEC rules or any regulation authorities following the Hotline procedures contained on EXFO's WEB site (WWW.EXFO.COM) or Intranet. Please refer to the Statement on Reporting Ethical Violations for more details how to report such conduct.

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Should you be a witness to such violations, it is important to report the incident (namely, to someone who has no involvement in the situation and who can evaluate the case objectively) or through the EXFO's Hotline procedures.

Possessing knowledge of these types of issues and failing to report the information is, in itself, a violation of this ETHICS AND BUSINESS CODE POLICY, and is subject to disciplinary action. If necessary, seek clarification or interpretation of these standards from the Vice-President of Human Resources or the Company's Legal Counsel.

Employees who make reports of suspected violations of those standards, or regarding accounting, internal accounting controls or audit matters as described above, will be protected from retaliation, such as discipline or involuntary termination of employment as a result of their report. Every reported allegation of illegal or unethical behavior will be thoroughly investigated by the Lead Independent Director of the Board of Directors of the Company and the Company's Legal Counsel with the cooperation of the appropriate management and the employee unless the submission was made anonymously. Information collected during the investigation will be shared with others who have a business-related "need to know". Unless the submission is made anonymously, the result of any investigation will be communicated to the reporting employee.

EXFO prohibits retaliatory action against any employee who, in good faith, reports a possible violation. It is unacceptable to file a report knowing it to be false.

13. COMPLIANCE WITH LAWS, RULES AND REGULATIONS

Compliance with both the letter and spirit of all laws, rules and regulations applicable to our business is critical to our reputation and continued success. All employees must respect and obey the laws of the cities, provinces, states and countries in which we operate and avoid even the appearance of impropriety. Employees who fail to comply with this Policy and applicable laws will be subject to disciplinary measures, up to and including discharge from the Company.

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14. USE OF E-MAIL AND INTERNET SERVICES

E-Mail systems and Internet services are provided to help us do work. Incidental and occasional personal use is permitted, but never for personal gain or any improper purpose. You may not access, send or download any information that could be insulting or offensive to another person, such as sexually explicit messages, cartoons, jokes, unwelcome propositions, ethnic or racial slurs, or any other message that could be viewed as harassment. Also remember that "flooding" our systems with junk mail and trivia hampers the ability of our systems to handle legitimate Company business and is prohibited.

Your messages (including voice mail) and computer information are considered Company property and you should not have any expectation of privacy. Unless prohibited by law, the Company reserves the right to access and disclose this information as necessary for business purposes. Use good judgment, and do not access, send messages or store any information that you would not want to be seen or heard by other individuals.

Violation of these policies may result in disciplinary actions up to and including discharge from the Company.

15. WAIVERS OF THE CODE OF BUSINESS CONDUCT AND ETHICS

Any waiver of this Policy for executive officers or directors will be made only by the Audit Committee and will be promptly disclosed as required by law or stock exchange regulation.

16. COMPLIANCE PROCEDURES

This Policy cannot, and is not intended to, address all of the situations you may encounter. There will be occasions where you are confronted by circumstances not covered by this policy or procedure and where you must make a judgment as to the appropriate course of action. In those circumstances we encourage you to use your common sense, and to contact your supervisor, manager or a member of human resources for guidance.

March 30, 2005 Page 15

If you do not feel comfortable discussing the matter with your supervisor, manager or human resources, please call the Company's Legal Counsel or refer to the Statement on Reporting Ethical Violations for more details how to contact the Company's Lead Director of the Board or the Company's Legal Counsel. We strive to ensure that all questions or concerns are handled fairly, discreetly and thoroughly. You need not identify yourself.

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EXFO ELECTRO-OPTICAL ENGINEERING INC.

STATEMENT ON REPORTING ETHICAL VIOLATIONS

To our employees:

We are committed to maintaining the highest standards of honesty and accountability, and we recognize that each of you has an important role to play in achieving this goal. Our employees are likely to be the first to know when someone inside the company or connected with the company is acting improperly or illegally. If you learn of such conduct, you may, however, feel apprehensive about voicing your concerns, because you feel it would be disloyal to the company or the individuals involved; because you do not believe that your concerns will be taken seriously or because you fear dismissal, harassment or other retaliation.

We take all misconduct very seriously, whether committed by senior managers or employees or by suppliers, contractors or other agents. Misconduct by anyone at or connected with the company, at the very least, reflects poorly on our reputation, which we have all worked very hard to build over the years, and potentially exposes the company to legal sanctions.

We therefore strongly encourage you to report any misconduct that you become aware of in the course of your employment or otherwise connected to your employment. Although it is impossible to list all of the conduct we are concerned about, we would expect you to report:

o Criminal conduct;
o Fraud or deliberate error in the preparation, evaluation, review or audit of any of our financial statements;
o Fraud, misappropriation, or other questionable practices related to the preparation or maintenance of our financial records;
o Misrepresentations or false statements to or by a senior officer or accountant regarding a matter contained in our financial records, financial reports or audit reports;
o Deviations from full and fair reporting of our financial condition;
o Failure to comply with, or efforts to circumvent, our internal compliance policies or internal controls;
o Failure to comply with legal or regulatory obligations;
o Actions that endanger health or safety, or might cause environmental damage; and
o Actions designed to that have the effect of concealing any of the foregoing.

As set forth in the Code of Business Conduct, you are encouraged to talk to your supervisors, managers or other appropriate personnel should you become aware of any of the foregoing. In addition, we have established a more formal procedure for reporting suspected improper conduct. You may, instead of reporting a concern to a supervisor, manager or other staff member (or if you reported a concern, and feel it was not properly acted upon), make a report to any of the following, by letter, email, or through our website or intranet: i) The Legal Counsel, ii) The Lead Director of the Board.

You may sign the correspondence, use an email that identifies you as the sender or disclose your name on your phone call. Or, you may communicate anonymously. Anonymous letters, e-mails and phone calls will be investigated and acted upon in the same manner as if your identity were known. All communications should contain as much specific detail as possible to allow the appropriate personnel to conduct an investigation of the reported matter. Signed correspondence will be acknowledged by the recipient.

All letters, e-mail and transcripts of telephone calls will be kept in confidence and acted upon only by designated personnel unless disclosure is required or deemed advisable in connection with any governmental investigation or report, in the interest of the company, or in the company's legal handling of the matter.

Your report will be investigated internally or if necessary will be referred to the appropriate law enforcement or regulatory authorities. Reports that involve our accounting, auditing, internal auditing controls and disclosure practices will be reviewed under the direction and oversight of the Audit Committee of the Board of Directors using procedures they have implemented for this purpose. Corrective action will be taken when it is deemed necessary by the Audit Committee or other designated personnel.

The Legal Counsel will maintain a log of all reports, tracking their receipt, investigation and resolution, and prepare a periodic summary report of such reports for the Audit Committee. Copies of the reports and the Legal Counsel's log will be maintained according to our document retention policy.

You do not need absolute proof of misconduct to make a report, but we would expect that you do have some basis for voicing your concerns. It will not always be clear that any particular action rises to the level of misconduct or illegal conduct. You should use your judgment. We would prefer that you raise concerns and not keep them to yourself. If you make a report in good faith and it turns out that you were wrong, your concern will be nonetheless appreciated and will not subject you to disciplinary action. However, if a report is intentionally false or malicious, that is another matter. We trust that, as in all areas of human interaction, our employees will act responsibly.

Company policy prohibits retaliatory action against any employee who, in good faith, reports suspected wrongdoers, unless the individual reporting is one of the violators. We will not tolerate any harassment or intimidation of any employee who reports misconduct. Disciplinary action will be taken against any supervisor who retaliates, directly or indirectly, or encourages other to do so, against an employee who reports a violation.

In order to preserve the integrity of these procedures, it is imperative that any employee have the opportunity to raise concerns or report misconduct without fear of retribution. We are strongly committed to maintaining an environment in which employee reports are expected and accepted and in which our employees feel free to voice a concern or report a suspected violation without fear of intimidation.

/s/ Michael Unger                          /s/ Germain Lamonde
-------------------------------------      ------------------------------------
Michael Unger                              Germain Lamonde
Lead Director of the Board                 President and Chief Executive Officer



/s/ Benoit Ringuette
-------------------------------------
Benoit Ringuette
Legal Counsel and Corporate Secretary

EXFO ELECTRO-OPTICAL ENGINEERING INC.
("CORPORATION")

AUDIT COMMITTEE CHARTER

I. PURPOSE

The primary objective of the Audit Committee is to assist the Board in fulfilling its oversight responsibilities with respect to (a) the financial statements and other financial information provided by the Corporation to its stockholders, the public and others, (b) the Corporation's compliance with legal and regulatory requirements, (c) the independent auditors' qualifications, independence and performance, and
(d) the performance of the Corporation's internal audit functions if any.

Although the Audit Committee has the powers and responsibilities set forth in this Charter, the role of the Audit Committee is oversight. The members of the Audit Committee are not full-time employees of the Corporation and may or may not be accountants or auditors by profession or experts in the fields of accounting or auditing and, in any event, do not serve in such capacity. Consequently, it is not the duty of the Audit Committee to conduct audits or to determine that the Corporation's financial statements and disclosures are complete and accurate and are in accordance with generally accepted accounting principles and applicable rules and regulations. These are the responsibilities of management and the independent auditors.

II. ORGANIZATION

The Audit Committee shall consist of three or more directors, each of whom shall satisfy the independence, financial literacy and experience requirements of Section 10A of the Securities Exchange Act, Nasdaq and any other regulatory requirements.

The members of the Audit Committee shall be appointed by the Board on the recommendation of the Human Resource Committee.

The Audit Committee may form and delegate authority to subcommittees when appropriate.

III. MEETINGS

The Audit Committee shall meet at least four times per year on a quarterly basis, or more frequently as circumstances require. As part of its job to foster open communication, the Audit Committee shall meet at least quarterly with the independent auditors and the Legal Counsel in

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separate private sessions to discuss any matters that the Audit Committee of each of these groups believe should be discussed privately.

The members of the Audit Committee shall select a chair who will preside at each meeting of the Audit Committee and, in consultation with the other members of the Audit Committee, shall set the frequency and length of each meeting and the agenda of items to be addressed at each upcoming meeting.

The chair shall ensure that the agenda for each upcoming meeting of the Audit Committee is circulated to each member of the Audit Committee as well as each other director in advance of the meeting.

IV. AUTHORITY AND RESPONSIBILITIES

In recognition of the fact that the independent auditors are ultimately accountable to the Audit Committee, the Audit Committee shall have the sole authority and responsibility to select, evaluate and, where appropriate, replace the independent auditors (or to nominate the independent auditors for stockholder approval), and shall approve all audit engagement fees and terms and all non-audit engagements with the independent auditors. The Audit Committee shall consult with management but shall not delegate these responsibilities

To fulfill its responsibilities, the Audit Committee shall:

WITH RESPECT TO THE INDEPENDENT AUDITORS:

1. Be directly responsible for the appointment, compensation and oversight of the work of the independent auditors (including resolution of disagreements between management and the independent auditors regarding financial reporting) for the purpose of preparing its audit report or related work

2. Have the sole authority to review in advance, and grant any appropriate pre-approvals, of (a) all auditing services to be provided by the independent auditors and (b) all non-audit services to be provided by the independent auditors as permitted by Section 10A of the Securities Exchange Act, and in connection therewith to approve all fees and other terms of engagement. The Audit Committee shall also review and approve disclosures required by applicable regulatory requirements.

3. Review on an annual basis the performance of the independent auditors including the lead audit partner.

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4. Ensure that the independent auditors submit to the Audit Committee on an annual basis a written statement consistent with Independent Standards Board Standard No. 1, discuss with the independent auditors any disclosed relationships or services that may impact the objectivity and independence of the independent auditors and satisfy itself as to the independent auditors' independence.

5. Confirm that the lead audit partner and the audit partner responsible for reviewing the audit, has not performed audit services for the Corporation for each of the five previous fiscal

     years, taking into account years prior to adoption of S/O Act.

6.   Review all reports  required  to be  submitted  by the  independent
     auditors to the Audit Committee under Section 10A of the Securities
     Exchange Act.

7. Review, based upon the recommendation of the independent auditors and management, the scope and plan of the work to be done by the independent auditors.

WITH RESPECT TO THE ANNUAL FINANCIAL STATEMENTS:

8. Review and discuss with management and the independent auditors the Corporation's annual audited financial statements, including disclosures made in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the independent auditors' audit of the annual financial statements prior to submission to stockholders, any government body, any stock exchange or the public.

9. Discuss with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61, as amended, relating to the conduct of the audit.

10. Recommend to the Board, if appropriate, that the Corporation's annual audited financial statements be included in the Corporation's annual report on Form 20-F or 40-F for filing with the Securities and Exchange Commission.

WITH RESPECT TO QUARTERLY FINANCIAL STATEMENTS:

11. Review and discuss with management the Corporation's quarterly financial statements, including disclosures made in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the independent auditors' review of the quarterly financial statements, prior to submission to stockholders, any government body, any stock exchange or the public.

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ANNUAL REVIEWS:

12. Obtain and review an annual report from management relating to the accounting principles used in the preparation of the Corporation's financial statements, including those policies for which management is required to exercise discretion or judgments regarding the implementation thereof. If requested, discuss with management and the independent auditors any issues regarding accounting principles used by the Corporation.

PERIODIC REVIEWS:

13. Periodically review separately with each of management and the independent auditors (a) any significant disagreement between management and the independent auditors in connection with the preparation of the financial statements, (b) any difficulties encountered during the course of the audit, including any restrictions on the scope of work or access to required information and (c) management's response to each.

14. Periodically discuss with the independent auditors, without management being present, (a) their judgments about the quality and appropriateness of the Corporation's accounting principles and financial disclosure practices as applied in its financial reporting and (b) the completeness and accuracy of the Corporation's financial statements.

15. Consider and approve, if appropriate, significant changes to the Corporation's accounting principles and financial disclosure practices as suggested by the independent auditors or management. Review with the independent auditors and management, at appropriate intervals, the extent to which any changes in accounting principles or financial disclosure practices, as approved by the Audit Committee, have been implemented.

16. Review and discuss with management, the independent auditors and the Corporation's in-house and independent counsel, as appropriate, any legal, regulatory or compliance matters that could have a significant impact on the Corporation's financial statements, including applicable changes in accounting standards or rules.

DISCUSSIONS WITH MANAGEMENT:

17. Review and discuss with management the Corporation's earnings press releases, including the use of "Pro forma" or "Adjusted" non-GAAP information as well as financial information and earnings guidance provided to analysts and rating agencies. Such discussions maybe done generally (i.e., discussion of the types of information to be disclosed and the types of presentation to be made).

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18. Review and discuss with management all material off-balance sheet transactions, arrangements, obligations (including contingent obligations) and other relationships of the Corporation with unconsolidated entities or other persons, that may have a material current or future effect on financial condition, changes in financial condition, results of operations, liquidity, capital resources, capital reserves or significant components of revenues or expenses.

19. Review and discuss with management the Company's major risk exposures and the steps management has taken to monitor, control and manage such exposures.

WITH RESPECT TO INTERNAL CONTROLS AND DISCLOSURE CONTROLS AND
PROCEDURES:

20. In consultation with the independent auditors, review the adequacy to the Corporation's internal controls and disclosure controls and procedures designed to insure compliance with laws and regulations, and discuss the responsibilities, budget and staffing needs for support of internal controls and disclosure controls and procedures.

21. Establish procedures for (a) the receipt, retention and treatment of complaints received by the Corporation regarding accounting, internal accounting controls or auditing matters and (b) the confidential, anonymous submission by employees of the Corporation of concerns regarding the questionable accounting or auditing matters.

22. Review, when required by regulation, (i) the internal control report prepared by management, including management's assessment of the effectiveness of the Corporation's internal controls for financial reporting and (ii) the independent auditor's attestation, and report, on the assessment made by management.

OTHER:

23. Review and approve all related-party transactions.

24. Review and approve (a) any change or waiver in the Corporation's code of ethics for senior financial officers and (b) any disclosure regarding such change or waiver.

25. Establish a policy addressing the Corporation's hiring of employees or former employees of the independent auditors who were engaged on the Corporation's account that provides as a minimum that the positions of CEO, CFO, Chief Accounting Officer, Controller or any person serving in an equivalent position cannot be filled by a person employed by the independent auditor and that participated in the audit of the Corporation during the preceding twelve month period.

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26. Review and reassess the adequacy of this Charter annually and recommend to the Board any changes deemed appropriate by the Audit Committee.

27. Report regularly to the Board. Review with the full Board any issues that have arisen with respect to the quality or integrity of the Company's financial statements, the Company's compliance with legal or regulatory requirements, the performance and independence of the Company's independent auditors.

28. Perform any other activities consistent with this Charter, the Corporation's by-laws and governing law, as the Audit Committee or the Board deems necessary or appropriate.

V. RESOURCES

The Audit Committee shall have the authority to retain independent legal, accounting and other consultants to advise the Audit Committee. The Audit Committee may request any officer or employee of the Corporation or the Corporation's outside counsel or independent auditors to attend a meeting of the Audit Committee or to meet with any members of, or consultants to, the Audit Committee.

The Audit Committee shall determine the extent of funding necessary for payment of compensation to the independent auditors for the purpose of rendering or issuing the annual audit report and to any independent legal, accounting and other consultants retained to advise the Audit Committee.

* * * * *

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EXFO ELECTRO-OPTICAL ENGINEERING INC.
(THE "CORPORATION")

HUMAN RESOURCES COMMITTEE CHARTER
(THE "COMMITTEE")

THIS HUMAN RESOURCES COMMITTEE CHARTER INTEGRATES THE COMPENSATION COMMITTEE CHARTER AND THE NOMINATING AND GOVERNANCE COMMITTEE CHARTER.

I. PURPOSE

One primary objective of the Committee is to discharge the Board's responsibilities relating to compensation and, if applicable, the terms of employment of the Corporation's executive officers. For this purpose, compensation shall include the review and recommendations to the Board of Directors which may concern:

o annual base salary;

o annual incentive opportunity;

o stock option, RSU,s or DSU's or other equity participation plans;

o short term and long-term incentive compensation programs for all employees, including the performance goals for eligibility to participate in such programs and the apportionment of compensation among salary and short-term and long-term incentive compensation.

o the terms of employment agreements, severance arrangements, and change in control agreements, in each case as, when and if appropriate;

o any special or supplemental benefits; and

o any other payments that are deemed compensation under applicable SEC rule

Another objective of the Committee is to assist the Board by (a) identifying individuals qualified to become Board members, and recommending that the Board select, the director nominees for the next annual meeting of shareholders; and
(b) developing and recommending to the Board a set of corporate governance guidelines applicable to the Corporation.

II. ORGANIZATION

o The Board shall elect annually from among its members a committee to be known as the Human Resources Committee which shall consist of a minimum of three (3) independent directors, each of whom shall satisfy the applicable independence requirements of the Nasdaq and any other regulatory requirements. A majority of the Members shall be

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resident Canadians. At least one member of the Committee shall have experience in matters relating to executive compensation either as a professional or as a business executive.

o No business may be transacted by the Committee except at a meeting of its members at which a quorum of the Committee is present (in person or by means of telephone conference) or by a resolution in writing signed by all of the members of the Committee. A majority of the members of the Committee shall constitute a quorum.

o Each member of the Committee shall hold such office until the next annual meeting of shareholders after his or her election as a member of the Committee. However, any member of the Committee may be removed or replaced at any time by the Board and shall cease to be a director.

o The Committee shall appoint one of its members to act as Chairman of the Committee. The Chairman will appoint a secretary who will keep minutes of all meetings (the "Secretary"). The Secretary need not be a member of the Committee or a director and can be changed by simple notice from the Chairman.

o The time at which and the place where the meetings of the Committee shall be held, the calling of meetings and the procedure in all respects of such meetings shall be determined by the Committee, unless otherwise provided for in the by-laws of the Corporation or otherwise determined by resolution of the Board.

o The members of the Committee shall be entitled to receive such remuneration for acting as members of the Committee as the Board may from time to time determine.

o It is understood that in order to properly carry out its responsibilities, the Board of Directors on behalf of the Committee may retain outside consultants at the expense of the Corporation if appropriate, so long as it notifies the Corporate Secretary of the Corporation in each instance.

o The Committee may form and delegate authority to subcommittees when appropriate.

III. MEETINGS

o The Committee will meet as many times as is necessary to carry out its responsibilities but in no event will the Committee meet less than twice a year.

IV. AUTHORITY AND RESPONSIBILITIES

To fulfill its responsibilities with respect to compensation matters, the Committee shall:

o Review and approve on an annual basis corporate goals and objectives relevant to Chief Executive Officer ("CEO") compensation, evaluate the CEO's performance in light of those goals and objectives and set

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the CEO's compensation level based on this evaluation.(1) In determining the long-term incentive component of CEO compensation, the Committee will also consider, among such other factors as it may deem relevant, the Corporation's performance, shareholder returns, the value of similar incentive awards to chief executive officers at comparable companies and the awards given to the CEO in past years.

o To review and approve on an annual basis with respect to the annual compensation of all senior officers(2), after reviewing the recommendations of the CEO's review of the salary structure, the short-term and long-term incentive compensation programs for all employees, including the performance goals for eligibility to participate in such programs and the apportionment of compensation among salary and short-term and long-term incentive compensation

o To review and approve, on behalf of the Board of Directors (the "Board") or in collaboration with the Board, as applicable, on the basis of the attribution authorized by the Board, to whom options to purchase shares of the Corporation, RSU's or DSU's shall be offered as the case may be and if so, the terms of such options, RSU's or DSU's in accordance with the terms of the Corporation's Long Term Incentive Plan or the Defered Share Unit Plan provided that no options, RSU's or DSU's shall be granted to members of this Committee without the approval of the Board.

o To annually review and report to the Board on organizational structure and to ensure that senior management has developed a succession plan for the CEO and the CEO's direct reports and to review such report with senior management.

o To recommend to the Board from time to time the remuneration to be paid by the Corporation to directors.

o Make recommendations to the Board with respect to the Corporation's incentive compensation plans and equity-based plans.

(2) Please note that Nasdaq requires Committee approval of executive officer compensation.

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o Prepare the report required by the Securities and Exchange Commission to be included in the Corporation's annual proxy statement.

o Make recommendations to the Board with respect to membership on committees of the Board.

o Identify individuals qualified to become members of the Board, the Committee may conduct background checks respecting such individuals as it wishes to recommend to the Board as a director nominee and recommend that the Board select the director nominees for the next annual meeting of shareholders.(3)

o Make recommendations to the Board with respect to potential successors to the Chief Executive Officer.

o Receive comments from all directors as to the Board's performance and report annually to the Board with an assessment of the Board's performance.

o Prepare and recommend to the Board a set of corporate governance guidelines applicable to the Corporation. Review and reassess the adequacy of such guidelines annually and recommend to the Board any changes deemed appropriate by the Committee.

o Maintain an orientation program for new directors and continuing education programs for directors.

o Review and reassess the adequacy of this Charter annually and recommend to the Board any changes deemed appropriate by the Committee.

o Review its own performance annually.

o Report regularly to the Board.

o Perform any other activities consistent with this Charter, the Corporation's by-laws and governing law, as the Committee or the Board deems necessary or appropriate.

V. RESOURCES

o The Board of Directors on behalf of the Committee shall have the sole authority to retain or terminate consultants to assist the Committee in the evaluation of director, CEO or senior executive compensation and to be used to identify director candidates and the authority to retain other professionals to assist it with any background checks.

o The Board of Directors on behalf of the Committee shall have the sole authority to determine the terms of engagement and the extent of funding necessary for payment of compensation to any consultant retained to advise the Committee and the extent of funding necessary for payment of compensation to any search firm and the authority to determine the extent of funding necessary for payment of compensation to any other professionals retained to advise the Committee.

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