Document:

Exhibit 10.1

 

AMENDED AND RESTATED

EMPLOYMENT AGREEMENT

 

This amended and restated
agreement is effective as of the 1st  day of August, 2005

 

BETWEEN:

 

Alderwoods Group Canada Inc.

 

(the “Company”)

 

-And-

 

John S. Lacey

 

(the “Chairman”)

 

WHEREAS:

 

The Company is a
wholly-owned subsidiary of Alderwoods Group, Inc., a Delaware corporation (“AGI”),
the holding entity for a corporate group engaged in the operation of funeral
homes, insurance and cemeteries in Canada and the United States;

 

Alderwoods Group Services
Inc. and the Chairman entered into an Employment Agreement dated January 2,
2002 and an Amended and Restated Employment Agreement dated May 1, 2003 (the “Prior
Agreements”);

 

Alderwoods Group Services
Inc. amalgamated with Alderwoods Group Canada Inc. (“AGCI”) on December 29,2002;
and

 

The Company and the
Chairman wish to enter into a new agreement which will supersede the Prior
Agreements and will provide the Chairman with an incentive to act as Chairman
of the Company.

 

IN CONSIDERATION of
the mutual covenants contained herein, the parties agree as follows:

 

 

Definitions

 

1.                                       “Change in Control” means any one of the following events
that occurs during the term of this Agreement:

 

a)                                      the
acquisition by any individual, entity or group (a “Person”) of beneficial
ownership of 30% or more of the combined voting power of the then outstanding
Voting Stock (as defined below) of AGI; provided, however, that
the following acquisitions will not constitute a Change in Control: (1) any
issuance of Voting Stock of AGI directly from AGI that is approved by the
Incumbent Board (as defined below), (2) any acquisition by AGI of Voting Stock
of AGI, (3) any acquisition of Voting Stock of AGI by any employee benefit plan
(or related trust) sponsored or maintained by AGI or any subsidiary of AGI, or
(4) any acquisition of Voting Stock of AGI by any Person pursuant to a Business
Combination (as defined below) that would not constitute a Change in Control;

 

b)                                     the
consummation of a reorganization, amalgamation, merger or consolidation, a sale
or other disposition of all or substantially all of the assets of AGI, or any
other transaction (each, a “Business Combination”) in which all or
substantially all of the individuals and entities who were the beneficial
owners of Voting Stock of AGI immediately prior to such Business Combination
beneficially own, directly or indirectly, immediately following such Business
Combination less than 40% of the combined voting power of the then outstanding
shares of Voting Stock of the entity resulting from such Business Combination;

 

c)                                      individuals
who, as of the effective date of this Agreement constitute the Board of
Directors of AGI (the “Incumbent Board”) cease for any reason to constitute at
least a majority of the Board; provided, however, that any
individual becoming a Director subsequent to such effective date whose
election, or nomination for election by AGI’s stockholders, was approved by a
vote of at least two-thirds of the Directors then comprising the Incumbent
Board (either by a specific vote or by approval of the proxy statement of AGI
in which such person is named as a nominee for director, without objection to
such nomination) will be deemed to have been a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial assumption
of office occurs as a result of an actual or threatened election contest with
respect to the election or removal of Directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or

 

d)                                     the
approval by the stockholders of AGI of a complete liquidation or dissolution of
AGI, except pursuant to a Business Combination that would not constitute a
Change in Control.

 

2.                                       “Just Cause” means willful misconduct or willful neglect of
duty by the Chairman, including, but not limited to, intentional wrongful
disclosure of confidential or proprietary information of the Company or AGI or
any of its subsidiaries; intentional wrongful engagement in any competitive
activity prohibited by paragraphs 25, 26 and 27; and the intentional material
breach of any provision of this Agreement.

 

3.                                       “Stated Good Reason” means the occurrence of one or more of
the following events (regardless of whether any other reason, other than Just
Cause, exists for the termination of Chairman’s employment):

 

a)                                      the
geographic relocation by more than 25 miles of the Chairman’s principal work
location;

 

b)                                     any
material reduction in the Chairman’s job duties or responsibilities;

 

c)                                      any
material reduction in the Chairman’s level of compensation or benefits;

 

d)                                     any
adverse change to the Chairman’s title or function;

 

2

 

e)                                      any
change in the organizational reporting relationship between the Chairman and
the Board of Directors;

 

f)                                        harassment
by AGI or the Company; or

 

g)                                     any
circumstance in which the Chairman was induced by the actions of the Company or
AGI to terminate his employment other than on a purely voluntary basis.

 

4.                                       “Services” has the meaning set forth in the Management
Services Agreements by and between the Company and AGI and the Company and
certain subsidiaries of AGI.

 

5.                                       “Termination without Just Cause” includes, but is not
limited to, any unilateral change in the material terms and conditions of the
Chairman’s employment.

 

6.                                       “Voting Stock” means securities entitled to vote generally
in the election of directors.

 

Entire
Agreement

 

7.                                       The
Chairman and the Company agree that this Agreement represents the entire
employment agreement between the parties and that any and all prior agreements,
written or verbal, express or implied (including, without limitation, the Prior
Agreements), between the parties relating to or in any way connected with the
employment of the Chairman by the Company or any related, associated,
affiliated, predecessor or parent corporations are declared null and void and
are superseded by the terms of this Agreement and by the terms of the 2003-2005
Executive Strategic Incentive Plan of Alderwoods Group Canada, Inc. and the
2005-2007 Executive Strategic Incentive Plan of Alderwoods Group Canada Inc.
There are no representations, warranties, forms, conditions, undertakings, or
collateral agreements, express, implied or statutory between the parties other
than as expressly set forth in this Agreement. 
No waiver or modification of this Agreement shall be valid unless in
writing and duly executed by both the Company and the Chairman.

 

Employment

 

8.                                       The
Company agrees to employ the Chairman, and the Chairman agrees to be employed
by the Company for a fixed term beginning on the date hereof and ending on the
earlier of December 31, 2007, unless extended by mutual agreement, or the
effective date of the termination of the Chairman’s employment with the Company
(such period of time referred to herein as the “Initial Term of Employment”).  The Company will continue to employ the
Chairman, and the Chairman agrees to be employed by the Company following the
Initial Term of Employment for an additional term beginning on January 1,
2008 and ending on the earlier of July 31, 2008, unless extended by mutual
agreement, or the effective date of the termination of the Chairman’s
employment with the Company (such period of time referred to herein as the “Notice
Period”).  The Initial Term of Employment
and the Notice Period are collectively referred to herein as “the term of this
Agreement.”

 

9.                                       The
Chairman agrees that he will at all times faithfully, industriously, and to the
best of his skill, ability, and talents, perform all of the duties required of
his position in a manner which is in the best interests of the Company and in
accordance with the Company’s objectives. 
The Chairman acknowledges and agrees that the duties required of his
position include, without limitation, the provision of Services on behalf of,
and for the account of, the Company.

 

Base
Compensation

 

10.

 

a)                                      The
Chairman will receive a base salary as follows:

 

3

 

i)                                         commencing
from the date of this Agreement and for the remainder of calendar year 2005,
$305,000 U.S. per annum;

 

ii)                                      for
calendar year 2006, $425,000 U.S. per annum;

 

iii)                                   for
calendar year 2007, $450,000 U.S. per annum; and

 

iv)                                  during
the Notice Period, $450,000 U.S. per annum.

 

b)                                     The
Chairman’s base salary is payable in accordance with the Company’s customary
payroll practices and is subject to deductions required by applicable law.

 

c)                                      The
Company shall reimburse the Chairman for all reasonable expenses incurred by
the Chairman during the term of this Agreement in the course of the Chairman
performing his duties under this Agreement. 
These reimbursements shall be consistent with the Company’s policies in
effect from time to time with respect to travel, entertainment and other
reimbursable business expenses, subject to the Company’s requirements
applicable generally with respect to reporting and documentation of such
expenses.

 

Short
Term Incentive Plan - Annual Bonus

 

11.           During
2005, the Chairman will be entitled to participate in a short term incentive
plan as adopted by the Company from time to time, subject to a maximum of 100%
of the Chairman’s annual base salary, less deductions required by applicable
law.  The bonus payable under such plan
will be paid in full within 75 days after the end of each year.  With the exception of the bonus that becomes
payable under paragraphs 17, 18 or 19, the Chairman’s entitlement to a bonus
under the short term incentive plan will be based on the financial performance
of AGI as determined under the terms of such incentive plan.  The Chairman will not be eligible to
participate in the short term incentive plan during calendar years 2006 and
2007 or during the Notice Period.

 

12.           The
short term incentive plan bonus is subject to the following conditions and
exceptions:

 

a)                                      In
order to qualify for and receive the annual bonus during 2005, the Chairman
must be employed by the Company or its successor at the time the bonus is paid
unless the Chairman is terminated without Just Cause or the Chairman resigns in
compliance with paragraphs 18 or 19.

 

b)                                     If
the Chairman’s employment is terminated without Just Cause or the Chairman
resigns in compliance with paragraphs 18 or 19 after the end of 2005 but before
the bonus amount is paid, the Chairman shall receive the bonus for that
completed year calculated in accordance with terms of the short term incentive
plan.  The payment shall be made by the
Company within seven days of the termination or resignation and will be subject
to deductions required by applicable law. 
If the bonus amount has not been determined within seven days of the
termination or resignation it will be paid in full within 75 days of the
subject year end.

 

c)                                      If,
before the end of 2005, the Chairman’s employment is terminated by the Company
or its successor without Just Cause or the Chairman resigns in compliance with
paragraphs 18 or 19, the bonus which the Chairman will be entitled to receive
under paragraphs 17, 18 or 19 for that year will be equal to the bonus that
would have been paid for the full year based upon a bonus level equal to 100%
of the Chairman’s base salary without regard to the financial performance of
AGI, but will be prorated on the basis of the number of days in the year up to
and including the date of termination.

 

4

 

Stock
Options

 

13.                                 In
2005, the Chairman will receive a grant of stock options covering 75,000 shares
of AGI common stock.  No further grants
of stock options will be made to the Chairman during the term of this
Agreement, unless otherwise determined by the Board of Directors of AGI in its
sole discretion.

 

Nothing in this Agreement
shall have any effect with respect to any stock option agreement or agreements
made prior to the effective date of this Agreement.

 

Executive Strategic Incentive Plans

 

14.           The
Chairman shall continue to participate in the 2003-2005 Executive Strategic
Incentive Plan of Alderwoods Group Canada Inc. (the “2003-2005 Plan”), a copy
of which has been provided to the Chairman. 
Pursuant to action by AGI’s Board of Directors, the Chairman’s portion
of the maximum award pool relating to the Net Debt reduction goals under the
2003-2005 Plan will be paid to the Chairman by AGCI on August 1,
2005.  The Chairman shall be eligible to
participate in the 2005-2007 Executive Strategic Incentive Plan of Alderwoods
Group Canada, Inc., a copy of which shall be provided to the Chairman.

 

Benefits

 

15.                                 During
the term of this Agreement, the Chairman will be eligible to participate in the
following benefit plans:

 

a)                                      Group Benefits

 

The Chairman will
participate in the Company’s Group Benefit Plan and any other group perquisites
all as in effect from time to time.

 

b)                                     Vehicle Allowance

 

The Chairman will be
entitled to a vehicle allowance of $1,000.00 U.S. per month plus auto insurance
and operating expense coverage for the term of this Agreement.

 

c)                                      Club Membership

 

The Chairman will be
entitled to the amount of $2,500.00 U.S. per year for club memberships as
directed by the Chairman.

 

Stock
Ownership Requirement

 

16.                                 From
and after August 10, 2005 and until April 10, 2006 (the “Subsequent
Purchase Date”) the Chairman will hold 100,000 shares of common stock of
AGI.  From and after the Subsequent
Purchase Date and at all times during the remaining term of this Agreement, the
Chairman will hold a total of 200,000 shares of common stock of AGI.  Such common stock may be stock acquired by
the Chairman and owned by him outright or stock acquired and held through AGI’s
Employee Stock Purchase Plan.  In
connection with such stock ownership requirement, the Chairman agrees that on
or prior to August 10, 2005, he will acquire 100,000 shares of common
stock of AGI with the proceeds received under the 2003-2005 Plan, pursuant to
paragraph 14 above.  In addition, in
connection with such stock ownership requirement, the Chairman agrees that he
will acquire an additional 100,000 shares of common stock of AGI no later than
the Subsequent Purchase Date.

 

5

 

Termination
of Employment

 

17.           The
parties agree that the Chairman’s employment under this Agreement may be
terminated as follows:

 

a)                                      by
the Company, in writing, without notice of termination or pay in lieu thereof,
for Just Cause;

 

b)                                     by
the Company, in writing, not following a Change in Control as set forth in paragraph
18 below, at its sole discretion and for any reason other than Just Cause upon
payment to the Chairman in a lump sum, within seven days of such termination,
of an amount equal to the sum of sub-paragraphs (i) to (v) below:

 

i)                                         24
months’ base salary;

 

ii)                                      the
replacement value of all Chairman’s benefit coverage, including contributions
to the Registered Retirement Savings Plan, following the date of the Chairman’s
termination (such benefit coverage and contributions being calculated over 24
months following resignation or termination);

 

iii)                                   the
amount of any unpaid short term incentive bonus earned by the Chairman during
calendar year 2005 up to and including the date of termination calculated in
accordance with paragraph 12.  Such bonus
shall be payable regardless of the financial performance of the Company;

 

iv)                                  the
amount of any unpaid salary or vacation earned by the Chairman up to and
including the date of termination;

 

v)                                     a
lump sum retiring allowance equal to the greater of (a) $500,000 U.S. and (b)
15% of the sum of (i) his current annual salary plus (ii) the average of his
annual short term incentive plan payments over the preceding 36 months, for
each year of his total service with the Company and with The Loewen Group Inc.,
to a maximum of 50% of the said sum; and

 

vi)                                  in
addition, the Chairman shall be allowed to
exercise all stock options or share appreciation rights, whether vested or not,
granted to the Chairman including shares with respect to which such options
would not otherwise be exercisable on such termination.

 

Payments identified in the sub-paragraphs above will be subject to
deductions required by applicable law;

 

c)                                      by
the Company for any reason other than Just Cause or by the Chairman for Stated
Good Reason or pursuant to a voluntary resignation as set forth in paragraph 19
below following a Change in Control, both in compliance with paragraph 18 or
paragraph 19, as the case may be; or

 

d)                                     by
the Chairman, for any reason, upon thirty (30) days advance written notice to
the Company or upon expiration of the Notice Period, in which case the Company
will have no further obligation to the Chairman under this Agreement or
otherwise except to pay the Chairman the unpaid portion, if any, of the
Chairman’s base salary payable for the period through the date of termination
of the Chairman’s employment and a lump sum retiring allowance equal to the
greater of (a) $500,000 U.S. and (b) 15% of the sum of (i) his current annual
salary plus (ii) the average of his annual short term incentive plan payments
over the preceding 36 months, for each year of his total service with the
Company and with The Loewen Group Inc., to a maximum of 50% of the said sum.

 

6

 

Change
in Control

 

18.           If
a Change in Control occurs and, within two years of the effective date of the
Change in Control, the Company, in writing, terminates the Chairman without
Just Cause or the Chairman submits a written resignation for Stated Good Reason
to the Board of Directors of the Company, the Company shall, within seven days
of the date of resignation or termination, pay to the Chairman in a lump sum
equal to the sum of sub-paragraphs (i) to (v) below:

 

i)              24
months’ base salary;

 

ii)             the
replacement value of all Chairman’s benefit coverage, including contributions
to the Registered Retirement Savings Plan, following the date of the Chairman’s
termination (such benefit coverage and contributions being calculated over 24
months following resignation or termination);

 

iii)            the
amount of any unpaid bonus earned by the Chairman during calendar year 2005 up
to and including the date of termination calculated in accordance with
paragraph 12.  Such bonus will be payable
regardless of the financial performance of the Company;

 

iv)                                  the
amount of any unpaid salary or vacation earned by the Chairman up to and
including the date of resignation or termination;

 

v)                                     a
lump sum retiring allowance equal to the greater of (a) $500,000 U.S. and (b)
15% of the sum of (i) his current annual salary plus (ii) the average of his
annual short term incentive plan payments over the preceding 36 months, for
each year of his total service with the Company and with The Loewen Group Inc.,
to a maximum of 50% of the said sum; and

 

vi)                                  in
addition, the Chairman shall be allowed to
exercise all stock options or share appreciation rights, whether vested or not,
granted to the Chairman including shares with respect to which such options
would not otherwise be exercisable on such resignation or termination.

 

Payments identified in the sub-paragraphs above will be subject to
deductions required by applicable law.

 

Voluntary
Resignation Due to Change in Control

 

19.           In
the event that an agreement is reached which would result in a Change in
Control, but the Change in Control has not yet occurred, the Chairman can, for
any reason, submit his resignation in writing to the Company prior to the
effective date of the Change in Control. 
Any such resignation will be effective as of the date of the Change in
Control, and the Chairman shall continue to work for the Company up until that date.  Further, if
the Chairman resigns in these circumstances and continues to work for the
Company until the effective date of the Change in Control, then on the
effective date of the Change in Control the Company shall pay to the Chairman a
lump sum amount equal to the payments prescribed under paragraph 18(i) -
(v).  In the event that the Change in
Control does not occur, the Chairman shall not be entitled to the payments
prescribed under paragraph 18(i) - (v), and the resignation shall be deemed to
not have been tendered.

 

20.           Immediately
prior to the effective date of a Change in Control, the Chairman shall be
allowed to exercise all stock options or share appreciation rights, whether
vested or not, granted to the Chairman including shares with respect to which
such options would not otherwise be exercisable.  The Chairman shall be entitled to receive all
dividends declared and paid by AGI upon a Change in Control on the shares
received by the Chairman following the exercise of the Chairman’s stock options
or share appreciation rights.

 

7

 

Certain
Additional Payments by the Company

 

21.           The Chairman’s entitlements, if any, on
termination of employment, voluntary resignation, Change in Control,
retirement, total disability or death under the 2003-2005 Executive Strategic
Incentive Plan of Alderwoods Group Canada Inc. or the 2005-2007 Executive
Strategic Plan of Alderwoods Group Canada Inc. (the “Plans”) shall be
determined solely in accordance with the terms of the Plans as in effect from
time to time.

 

22.           In
the event that it is determined (as hereinafter provided) that any payment
(other than the Gross-Up Payments provided for in this paragraph 22 and Annex
A) or distribution by the Company, AGI or any of its affiliates to or for the
benefit of the Chairman, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise pursuant to
or by reason of any other agreement, policy, plan, program or arrangement,
including, without limitation, the lapse or termination of any restriction on
the vesting or exercisability of any benefit under any of the foregoing (a “Payment”),
would be subject to the excise tax imposed by Section 4999 of the United
States Internal Revenue Code of 1986, as amended (the “Code”) (or any successor
provision thereto), by reason of being considered “contingent on a change in
ownership or control,” within the meaning of Section 280G of the Code (or
any successor provision thereto) or to any similar tax imposed by U.S. state or
local law, or any interest or penalties with respect to such tax (such tax or
taxes, together with any such interest and penalties, being hereafter
collectively referred to as the “Excise Tax”), then the Chairman will be
entitled to receive an additional payment or payments (collectively, a “Gross-Up
Payment”).  The Gross-Up Payment will be
in an amount such that, after payment by the Chairman of all U.S. taxes
(including any interest or penalties imposed with respect to such taxes),
including any Excise Tax imposed upon the Gross-Up Payment, the Chairman
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
the Payment.  For purposes of determining
the amount of the Gross-Up Payment, the Chairman will be considered to pay any
applicable U.S. federal, state and local income taxes at the highest rate
applicable to the Chairman in effect in the year in which the Gross-Up Payment
will be made, net of the maximum reduction in U.S. federal income tax that
could be obtained from deduction of such state and local taxes.

 

23.           The
obligations set forth in paragraph 22 will be subject to the procedural
provisions described in Annex A.

 

Confidential
Information; Competitive Activity

 

24.

 

a)                                      The
Chairman agrees that he will not, without the prior written consent of the
Company, during the term of this Agreement or at any time thereafter, disclose
to any person not employed by the Company, or use in connection with engaging
in competition with the Company, any confidential or proprietary information of
the Company.  For purposes of this
Agreement, the term “confidential or proprietary information” includes all
information of any nature and in any form that is owned by the Company and that
is not publicly available (other than by Chairman’s breach of this paragraph
24) or generally known to persons engaged in businesses similar or related to
those of the Company.  Confidential or
proprietary information will include, without limitation, the Company’s
financial matters, customers, employees, industry contracts, strategic business
plans, product development (or other proprietary product data), marketing
plans, and all other secrets and all other information of a confidential or
proprietary nature.  The foregoing
obligations imposed by this paragraph 24 will not apply (i) during the term of
this Agreement, in the course of the business of and for the benefit of the
Company, (ii) if such confidential or proprietary information has become,
through no fault of the Chairman, generally known to the public or (iii) if the
Chairman is required by law to make disclosure (after giving the Company notice
and an opportunity to contest such requirement).

 

b)                                     The
Chairman agrees that, upon termination of this Agreement for any reason, the
Chairman will return to the Company, in good condition, all property of the
Company in his possession or under his control.

 

8

 

25.           In
addition, subject to the terms of paragraph 26, during the term of this
Agreement and for a period of 12 months thereafter, the Chairman will not,
without the prior written consent of the Company, which consent will not be
unreasonably withheld:

 

a)                                      Engage
in any Competitive Activity.  For
purposes of this Agreement, “Competitive Activity” means the Chairman’s
participation in the management of any business enterprise if such enterprise
engages in substantial and direct competition with the Company and such
enterprise’s sales of any product or service competitive with any product or
service of the Company amounted to 10% or more of such enterprise’s net sales
for its most recently completed fiscal year and if the Company’s net sales of
said product or service amounted to 10% or more of the Company’s net sales for
its most recently completed fiscal year. 
“Competitive Activity” will not include (i) the mere ownership of
securities in any such enterprise and the exercise of rights appurtenant
thereto or (ii) participation in the management of any such enterprise other
than in connection with the competitive operations of such enterprise.

 

b)                                     On
behalf of the Chairman or on behalf of any person, firm or company, directly or
indirectly, attempt to influence, persuade or induce, or assist any other
person in so persuading or inducing, any employee of the Company or any of its
subsidiaries to give up, or to not commence, employment or a business
relationship with the Company or any of its subsidiaries.

 

26.           During
the term of this Agreement and for a period of 24 months thereafter, the
Chairman will not without the prior written consent of the Company, directly or
indirectly, accept employment from, act as a consultant to or otherwise advise
with respect to any company that is designated in writing to the Chairman by
the Board of Directors of AGI as a Major Competitor of the Company.

 

27.

 

a)                                      The
Chairman and the Company agree that the covenants contained in paragraphs 24,
25 and 26 are reasonable under the circumstances, and further agree that if in
the opinion of any court of competent jurisdiction any such covenant is not
reasonable in any respect, such court will have the right, power and authority
to excise or modify any provision or provisions of such covenants as to the
court will appear not reasonable and to enforce the remainder of the covenants
as so amended.  The Chairman acknowledges
and agrees that the remedy at law available to the Company for breach of any of
his obligations under paragraphs 24, 25 and 26 would be inadequate and that
damages flowing from such a breach may not readily be susceptible to being
measured in monetary terms.  Accordingly,
the Chairman acknowledges, consents and agrees that, in addition to any other
rights or remedies that the Company may have at law, in equity or under this
Agreement, upon adequate proof of his violation of any such provision of this
Agreement, the Company will be entitled to immediate injunctive relief and may
obtain a temporary order restraining any threatened or further breach, without
the necessity of proof of actual damage.

 

b)                                     During
the term of this Agreement, the Chairman will not serve as employee of, nor
business consultant to, any other company or business without the prior express
approval of a majority of the independent Directors of AGI.  The directorships currently held by the
Chairman are as listed on Annex B to this Agreement.  The Chairman will not accept any additional
directorships without the prior express approval of a majority of the
independent Directors of AGI.  The
provisions of this paragraph 27(b) are in addition to, and in no way derogate
from, any and all other provisions of this Agreement.

 

28.                                 For
purposes of paragraphs 24, 25, 26 and 27, the term “Company” will also include
AGI and any subsidiary of AGI.

 

9

 

General

 

29.           The
parties confirm that the provisions of this Agreement are fair and reasonable
and that the total compensation and benefits payable under paragraphs 17, 18,
19 or 21 are reasonable estimates of the damages which would be suffered by the
Chairman.  Any amount paid under
paragraphs 17, 18 or 19 shall be in full satisfaction of all claims whatsoever
relating to the Chairman’s employment or for the termination of the Chairman’s
employment, including claims for salary, bonus, benefits, vacation pay,
termination pay and/or severance pay pursuant to the Ontario Employment
Standards Act, as amended, including sections 57 and 58 thereof.

 

30.           Any
payment made to the Chairman under paragraphs 17, 18, 19 or 21 of this
Agreement shall be paid to the Chairman by the Company regardless of any offer
of alternate employment made to the Chairman by the Company or by any other
prospective employer, whether accepted by the Chairman or not.  The Chairman will not be required to mitigate
any damages arising from this Agreement and any amounts and benefits to be
provided to the Chairman hereunder shall not be reduced or set off against any
amounts earned by the Chairman from alternate employment, including self-employment,
or by other means.

 

31.           Any
payment other than for base salary while employed by the Company made to the
Chairman under this Agreement shall be made by way of a lump sum payment or, at
the Chairman’s option, in such other manner as he may direct, less deductions
required by applicable law.

 

32.           Where
the context requires, the singular shall include the plural and the plural
shall include the singular. Masculine pronouns shall be deemed to be read as
feminine pronouns and vice versa. Words importing persons shall include
individuals, partnerships, associations, trusts, unincorporated organizations
and corporations and vice versa.

 

33.           The
division of this Agreement into paragraphs and the insertion of headings are
for the convenience of reference only and shall not affect the construction or
interpretation of this Agreement.  The
terms “this Agreement,” “hereof,” “hereunder” and similar expressions refer to
this Agreement only and not to any particular paragraph and include any
agreement or instrument supplemental or ancillary to the Agreement.  References herein to paragraphs are to
paragraphs of this Agreement unless something in the subject matter or context
is inconsistent therewith.

 

34.           All
dollar amounts identified in this contract are in U.S. currency.

 

35.           The
parties’ respective rights and obligations under paragraphs 17, 18, 19, 21, 22,
23, 24, 25, 26, 27, 29, 30, 39 and 40 will survive any termination or
expiration of this Agreement or the termination of the Chairman’s employment
for any reason whatsoever.

 

Governing
Laws

 

36.           This
Agreement shall be governed by the laws of the Province of Ontario without
giving effect to the principles of conflict of laws thereof. Each party to this
Agreement hereby consents and submits himself or itself to the jurisdiction of
the courts of the Province of Ontario for the purposes of any legal action or
proceeding arising out of this Agreement.

 

Severability

 

37.           All
terms and covenants contained in this Agreement are severable and in the event
that any of them is held to be invalid by any competent court in the Province
of Ontario, the invalid provision shall be deleted and the balance of this
Agreement shall be interpreted as if such invalid clause or covenant were not
contained herein.

 

10

 

Continuity

 

38.

 

a)                                      This
Agreement shall be binding upon and inure to the benefit of (i) the Chairman
and his heirs, executors, administrators and legal representatives and (ii) the
Company, its related corporations, affiliates, and associates, and any other
entity or organization which shall succeed to substantially all or any distinct
portion of the business, divisions or property of the Company or its related
corporations, affiliates, and associates, whether by means of amalgamation,
merger, consolidation, acquisition, and/or sale of all or part of the shares or
assets of the Company or otherwise, including by operation of law or by
succession to the business of AGI pursuant to a plan of reorganization approved
by the U.S. Bankruptcy Court.  In
addition, the Company will require any such successor expressly to assume and
agree, by written agreement, to perform this Agreement in the same manner and
to the same extent the Company would be required to perform if no such
succession had taken place.

 

b)                                     If
the Chairman should die while any amount would still be payable to the Chairman
hereunder if the Chairman had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to the devisee, legatee or other designee of the Chairman or, if
there is no such designee, to the estate of the Chairman.

 

Legal
Advice

 

39.                                 The
Chairman acknowledges that he has obtained or has had an opportunity to obtain
independent legal advice in connection with this Agreement, and further
acknowledges that he has read, understands, and agrees to be bound by all of
the terms and conditions contained herein.

 

40.                                 The
Company agrees to reimburse the Chairman for all reasonable legal expenses incurred
in connection with any dispute involving the Chairman, the Company, its related
corporations, affiliates, successors, or assigns, or any other third party, as
between any of them, arising from the validity, interpretation, or enforcement
of this Agreement or any of its terms, including all reasonable legal expenses
incurred by the Chairman in respect of any action or actions commenced by the
Chairman to obtain, enforce, or retain any right, benefit or payment provided
for in this Agreement regardless of whether such expenses are incurred during
the term of this Agreement or after; provided that, in regard to such matters,
the Chairman has not acted in bad faith or with no colorable claim of
success.  However, the Company shall not
be required to reimburse the Chairman for any legal costs or expenses in
relation to any action commenced by the Company to enforce the confidentiality
and non-competition provisions hereof and in respect of which in a court of
competent jurisdiction the Company is the prevailing party for either
preliminary or final remedy.

 

Notice

 

41.                                 Any
demand, notice or other communication to be given in connection with this
Agreement shall be given in writing by personal delivery, by registered mail or
by electronic means of communication addressed to the recipient as follows:

 

To the Chairman:

 

John S. Lacey

7071 Bayview Avenue

Suite 507

Thornhill, Ontario L3T
7Y8

 

11

 

To the Company:

 

Alderwoods Group Canada Inc.

259 Yorkland Road

Toronto. Ontario M2J 5B2

 

Attention: 
Senior Vice-President, Legal & Compliance

 

With a copy to:

 

Alderwoods Group, Inc.

311 Elm Street

Suite 1000, First Floor

Cincinnati, OH 45202

 

Attention:  Senior Vice-President, Legal & Compliance

 

or such other address, individual
or electronic communication as may be designated by notice given by either
party to the other.

 

Additional

 

42.           The
failure of a party to insist upon strict adherence to any term of this
Agreement on any occasion shall not be considered a waiver of such party’s
rights or deprive such party of the right thereafter to insist upon strict
adherence to that term or any other term of this Agreement.

 

43.           Nothing
herein expressed or implied is intended or shall be construed to confer upon or
give to any person, other than (a) the parties to this Agreement, (b) any
permitted assignees of the Company and the Chairman, and (c) AGI, as
contemplated by paragraphs 11, 13, 16, 24, 25, 26, 27 and 28, any rights or
remedies under or by reason of this Agreement and AGI shall be a third party
beneficiary of this Agreement.

 

12

 

IN WITNESS WHEREOF the
Chairman has executed and the Company has caused its duly authorized
representative to execute this Agreement as of the date set forth on the first
page of this Agreement.

 

 

	
   

  	
  ALDERWOODS GROUP CANADA INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ellen Neeman

  	
   

  
	
   

  	
   

  	
  Ellen
  Neeman

  
	
   

  	
   

  	
  Senior
  Vice-President, Legal & Compliance

  
	
   

  	
   

  	
   

  
	
   

  	
  ALDERWOODS GROUP, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ A. G. Eames

  	
   

  
	
   

  	
   

  	
  A.
  G. Eames

  
	
   

  	
   

  	
  Director

  
	
   

  	
   

  	
   

  
	
  Witness:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  /s/ Azalea Angeles

  	
   

  	
  /s/ John S. Lacey

  	
   

  
	
   

  	
  John S. Lacey

  
					

 

13

 

ANNEX A

 

Excise
Tax Gross-Up Procedural Provisions

 

1.                                       Subject
to the provisions of paragraph 5 of this Annex, all determinations required to
be made under paragraph 22 of this Agreement and this Annex A, including
whether an Excise Tax is payable by the Chairman and the amount of such Excise
Tax and whether a Gross-Up Payment is required to be paid by the Company to the
Chairman and the amount of such Gross-Up Payment, if any, will be made by a
U.S. nationally recognized accounting firm (the “National Firm”) selected by
the Chairman in his sole discretion. The Chairman will direct the National Firm
to submit its determination and detailed supporting calculations to both the
Company and the Chairman within 30 calendar days after the date of his
termination of employment, if applicable, and any such other time or times as
may be requested by the Company or the Chairman. If the National Firm
determines that any Excise Tax is payable by the Chairman, the Company will pay
the required Gross-Up Payment to the Chairman within five business days after
receipt of such determination and calculations with respect to any Payment to
the Chairman. If the National Firm determines that no Excise Tax is payable by
the Chairman with respect to any material benefit or amount (or portion
thereof), it will, at the same time as it makes such determination, furnish the
Company and the Chairman with an opinion that the Chairman has substantial
authority not to report any Excise Tax on his U. S. federal, state or local
income or other tax return with respect to such benefit or amount. As a result
of the uncertainty in the application of Section 4999 of the Code and the
possibility of similar uncertainty regarding applicable U. S. state or local
tax law at the time of any determination by the National Firm hereunder, it is
possible that Gross-Up Payments that will not have been made by the Company should
have been made (an “Underpayment”), consistent with the calculations required
to be made hereunder. In the event that the Company exhausts or fails to pursue
its remedies pursuant to paragraph 5 of this Annex and the Chairman thereafter
is required to make a payment of any Excise Tax, the Chairman will direct the
National Firm to determine the amount of the Underpayment that has occurred and
to submit its determination and detailed supporting calculations to both the
Company and the Chairman as promptly as possible. Any such Underpayment will be
promptly paid by the Company to, or for the benefit of, the Chairman within
five business days after receipt of such determination and calculations.

 

2.                                       The
Company and the Chairman will each provide the National Firm access to and
copies of any books, records and documents in the possession of the Company or
the Chairman, as the case may be, reasonably requested by the National Firm,
and otherwise cooperate with the National Firm in connection with the
preparation and issuance of the determinations and calculations contemplated by
paragraph 1 of this Annex. Any determination by the National Firm as to the
amount of the Gross-Up Payment will be binding upon the Company and the
Chairman.

 

3.                                       The
U.S. federal, state and local income or other tax returns filed by the Chairman
will be prepared and filed on a consistent basis with the determination of the
National Firm with respect to the Excise Tax payable by the Chairman. The
Chairman will report and make proper payment of the amount of any Excise Tax,
and at the request of the Company, provide to the Company true and correct
copies (with any amendments) of his federal income tax return as filed with the
U.S. Internal Revenue Service and corresponding state and local tax returns, if
relevant, as filed with the applicable taxing authority, and such other
documents reasonably requested by the Company, evidencing such payment. If
prior to the filing of the Chairman’s federal income tax return, or
corresponding state or local tax return, if relevant, the National Firm
determines that the amount of the Gross-Up Payment should be reduced, the
Chairman will within five business days pay to the Company the amount of such
reduction.

 

4.                                       The
fees and expenses of the National Firm for its services in connection with the
determinations and calculations contemplated by paragraph 1 of this Annex will
be borne by the Company. If such fees and expenses are initially paid by the
Chairman, the Company will reimburse the Chairman the full amount of such fees
and expenses within five business days after receipt from the Chairman of a
statement therefor and reasonable evidence of his payment thereof.

 

A-1

 

5.                                       The
Chairman will notify the Company in writing of any claim by the U.S. Internal
Revenue Service or any other U.S. taxing authority that, if successful, would
require the payment by the Company of a Gross-Up Payment. Such notification
will be given as promptly as practicable but no later than 10 business days
after the Chairman actually receives notice of such claim and the Chairman will
further apprise the Company of the nature of such claim and the date on which
such claim is requested to be paid (in each case, to the extent known by the Chairman).
The Chairman will not pay such claim prior to the expiration of the
30-calendar-day period following the date on which he gives such notice to the
Company or, if earlier, the date that any payment of amount with respect to
such claim is due. If the Company notifies the Chairman in writing prior to the
expiration of such period that it desires to contest such claim, the Chairman
will:

 

(A)                              provide
the Company with any written records or documents in his possession relating to
such claim reasonably requested by the Company;

 

(B)                                take
such action in connection with contesting such claim as the Company reasonably
requests in writing from time to time, including without limitation accepting
legal representation with respect to such claim by an attorney competent in
respect of the subject matter and reasonably selected by the Company;

 

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

 

(D)                               permit
the Company to participate in any proceedings relating to such claim;

 

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

 

6.                                       If,
after the receipt by the Chairman of an amount advanced by the Company pursuant
to paragraph 5 of this Annex, the Chairman receives any refund with respect to
such claim, the Chairman will (subject to the Company’s complying with the
requirements of such paragraph 5) promptly pay to the Company the amount of
such refund (together with any interest paid or credited thereon after any
taxes applicable thereto). If, after the receipt by the Chairman of an amount
advanced by the Company pursuant to paragraph 5 of this Annex, a determination
is made that the Chairman is not entitled to any refund with respect to such
claim and the Company does not notify the Chairman in writing of its intent to
contest such denial or refund prior to the expiration of 30 calendar days after
such determination, then such advance will be forgiven and will not be required
to be repaid and the amount of any such advance will offset, to the

 

A-2

 

extent thereof, the amount of Gross-Up Payment
required to be paid by the Company to the Chairman pursuant to paragraph 22 of
this Agreement and this Annex A.

 

A-3

 

ANNEX B

 

Current Directorships

 

Cancer Care Ontario

 

Canadian Tire Corporation

 

Doncaster Consolidated

 

Telus Corporation

 

Tricap Restructuring Fund
[Western Forest Products]

 

Canadian Imperial Bank of
CommerceExhibit 10.2

 

AMENDED AND RESTATED

EMPLOYMENT AGREEMENT

 

This amended and restated
agreement is effective as of the 1st day of August, 2005

 

BETWEEN:

 

Alderwoods Group Canada Inc.

 

(the “Company”)

 

-And-

 

Paul A. Houston

 

(the “Executive”)

 

WHEREAS:

 

The Company is a
wholly-owned subsidiary of Alderwoods Group, Inc., a Delaware corporation (“AGI”),  the holding entity for a corporate group
engaged in the operation of funeral homes, insurance and cemeteries in Canada
and the United States;

 

Alderwoods Group Services
Inc. and the Executive entered into an Employment Agreement dated January 2,
2002 and an Amended and Restated Employment Agreement dated May 1, 2003 (the “Prior
Agreements”);

 

Alderwoods Group Services
Inc. amalgamated with Alderwoods Group Canada Inc. (“AGCI”) on December 29,
2002; and

 

The
Company and the Executive wish to enter into a new agreement which will
supersede the Prior Agreements and will provide the Executive with an incentive
to act as President and Chief Executive Officer of the Company.

 

IN CONSIDERATION of the mutual covenants contained herein, the
parties agree as follows:

 

 

Definitions

 

1.                                       “Change in Control” means any one of the following events that
occurs during the term of this Agreement:

 

a)                                      the acquisition by any individual, entity or
group (a “Person”) of beneficial ownership of 30% or more of the combined
voting power of the then outstanding Voting Stock (as defined below) of AGI; provided,
however, that the following acquisitions will not constitute a Change in
Control: (1) any issuance of Voting Stock of AGI directly from AGI that is
approved by the Incumbent Board (as defined below), (2) any acquisition by AGI
of Voting Stock of AGI, (3) any acquisition of Voting Stock of AGI by any
employee benefit plan (or related trust) sponsored or maintained by AGI or any
subsidiary of AGI, or (4) any
acquisition of Voting Stock of AGI by any Person pursuant to a Business
Combination (as defined below) that would not constitute a Change in Control;

 

b)                                     the consummation of a reorganization,
amalgamation, merger or consolidation, a sale or other
disposition of all or substantially all of the assets of AGI, or other
transaction (each, a “Business Combination”) in which all or substantially all
of the individuals and entities who were the beneficial owners of Voting Stock
of AGI immediately prior to such Business Combination beneficially own,
directly or indirectly, immediately following such Business Combination less
than 40% of the combined voting power of the then outstanding shares of Voting
Stock of the entity resulting from such Business Combination;

 

c)                                      individuals who, as of the effective date of this
Agreement, constitute the Board of Directors of AGI (the “Incumbent Board”)
cease for any reason to constitute at least a majority of the Board; provided,
however, that any individual becoming a Director subsequent to such
effective date whose election, or nomination for election by AGI’s
stockholders, was approved by a vote of at least two-thirds of the Directors
then comprising the Incumbent Board (either by a specific vote or by approval
of the proxy statement of AGI in which such person is named as a nominee for
director, without objection to such nomination) will be deemed to have been a
member of the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of an actual
or threatened election contest with respect to the election or removal of
Directors or other actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board; or

 

d)                                     the approval by the stockholders of AGI of a
complete liquidation or dissolution of AGI, except pursuant to a Business
Combination that would not constitute a Change in Control.

 

2.                                       “Just Cause” means willful misconduct or willful neglect of
duty by the Executive, including, but not limited to, intentional wrongful
disclosure of confidential or proprietary information of the Company or AGI or
any of its subsidiaries; intentional wrongful engagement in any competitive
activity prohibited by paragraphs 25, 26 and 27; and the intentional material
breach of any provision of this Agreement.

 

3.                                       “Stated Good Reason” means the occurrence of one or more of the
following events (regardless of whether any other reason, other than Just
Cause, exists for the termination of Executive’s employment):

 

a)                                      the geographic relocation by more than 25 miles
of the Executive’s principal work location;

 

b)                                     any material reduction in the Executive’s job
duties or responsibilities;

 

c)                                      any material reduction in the Executive’s level
of compensation or benefits;

 

d)                                     any adverse change to the Executive’s title or
function;

 

e)                                      any change in the organizational reporting
relationship between the Executive and the Board of Directors;

 

2

 

f)                                        harassment by AGI or the Company; or

 

g)                                     any circumstance in which the Executive was
induced by the actions of the Company or AGI to terminate his employment other
than on a purely voluntary basis.

 

4.                                       “Services” has the meaning set forth in the
Management Services Agreements by and between the Company and AGI and the
Company and certain subsidiaries of AGI.

 

5.                                       “Termination without Just Cause” includes, but is not limited to, any unilateral
change in the material terms and conditions of the Executive’s employment.

 

6.                                       “Voting Stock” means securities entitled to vote generally in
the election of directors.

 

Entire Agreement

 

7.                                       The Executive and the Company agree that this
Agreement represents the entire agreement between the parties and that any and
all prior agreements, written or verbal, express or implied (including, without
limitation, the Prior Agreements), between the parties relating to or in any
way connected with the employment of the Executive by the Company or any
related, associated, affiliated, predecessor or parent corporations are
declared null and void and are superseded by the terms of this Agreement and by
the terms of the 2003-2005 Executive Strategic Incentive Plan of Alderwoods Group
Canada Inc. and the 2005-2007 Executive Strategic Incentive Plan of Alderwoods
Group Canada Inc.  There are no
representations, warranties, forms, conditions, undertakings, or collateral
agreements, express, implied or statutory between the parties other than as
expressly set forth in this Agreement. 
No waiver or modification of this Agreement shall be valid unless in
writing and duly executed by both the Company and the Executive.

 

Employment

 

8.                                       The Company agrees to employ the Executive, and
the Executive agrees to be employed by the Company, for a fixed term beginning
on the date hereof and ending on the earlier of December 31, 2007, unless
extended by mutual agreement, or the effective date of the termination of the
Executive’s employment with the Company (such period of time referred to herein
as the “Initial Term of Employment”). 
The Company will continue to employ the Executive and the Executive
agrees to be employed by the Company following the Initial Term of Employment
for an additional term beginning on January 1, 2008 and ending on the
earlier of March 31, 2008, unless extended by mutual agreement, or the
effective date of the termination of Executive’s employment (such period of
time referred to herein as the “Notice Period”).  The Initial Term of Employment and the Notice
Period are collectively referred to herein as the “term of this Agreement.”

 

9.                                       The Executive agrees that he will hold the
position of President and Chief Executive Officer and will at all times
faithfully, industriously, and to the best of his skill, ability, and talents,
perform all of the duties required of his position in a manner which is in the
best interests of the Company and in accordance with the Company’s objectives,
and will devote his full working time and attention to these duties.  The Executive also agrees that, as part of
the Executive’s duties, the Executive shall occupy and perform the offices of
President and Chief Executive Officer of AGI, on behalf of the Company, for the
term of this Agreement.  The Executive
acknowledges and agrees that the duties required of his position include,
without limitation, the provision of Services on behalf of, and for the account
of, the Company.

 

Base Compensation

 

10.

 

a)                                      In consideration for the Executive’s continued performance
of his duties as President and Chief Executive Officer, the Executive will
receive a base salary as follows:

 

i)                                         commencing from the date of this Agreement and
for the remainder of calendar year 2005, $755,000 U.S. per annum;

 

3

 

ii)                                      for calendar year 2006, during the remainder of
the Initial Term of Employment and during the Notice Period, $800,000 U.S. per
annum

 

b)                                     The Executive’s base salary is payable in
accordance with the Company’s customary payroll practices and is subject to
deductions required by applicable law.

 

c)                                      The Company shall reimburse the Executive for all
reasonable expenses incurred by the Executive during the term of this Agreement
in the course of the Executive performing his duties under this Agreement.  These reimbursements shall be consistent with
the Company’s policies in effect from time to time with respect to travel,
entertainment and other reimbursable business expenses, subject to the Company’s
requirements applicable generally with respect to reporting and documentation
of such expenses.

 

Short Term Incentive Plan - Annual Bonus

 

11.                                 During the Initial Term of Employment, the
Executive will be entitled to participate in a short term incentive plan as
adopted by the Company from time to time, subject to a maximum (a) for calendar
year 2005, of 100% of the Executive’s annual base salary; and (b) for calendar
years 2006 and 2007, of 150% of the Executive’s annual base salary, less
deductions required by applicable law. 
The bonus payable under such plan will be paid in full within 75 days
after the end of each year.  With the
exception of the bonus that becomes payable under paragraphs 17, 18 or 19, the Executive’s entitlement to a bonus under the
short term incentive plan will be based on the financial performance of AGI as
determined under the terms of such incentive plan.

 

12.                                 The short term incentive plan bonus is subject to
the following conditions and exceptions:

 

a)                                      In order to qualify for and receive the annual
bonus payable during the Initial Term of Employment, the Executive must be
employed by the Company or its successor at the time the bonus is paid unless
the Executive is terminated without Just Cause or the Executive resigns in
compliance with paragraphs 18 or 19.

 

b)                                     If the Executive’s employment is terminated
without Just Cause or the Executive resigns in compliance with paragraphs 18 or
19 after the end of the year during the Initial Term of Employment but before
the bonus amount is paid, the Executive shall receive the bonus for that
completed year calculated in accordance with terms of the short term incentive
plan.  The payment shall be made by the
Company within seven days of the termination or resignation and will be subject
to deductions required by applicable law. 
If the bonus amount has not been determined within seven days of the
termination or resignation it will be paid in full within 75 days of the
subject year end.

 

c)                                      If, before the end of a year during the Initial
Term of Employment, the Executive’s employment is terminated by the Company or
its successor without Just Cause or the Executive resigns in compliance with
paragraphs 18 or 19,  the bonus which the
Executive will be entitled to receive under paragraphs 17, 18
or 19 for that year will be equal to the bonus that would have been paid for
the full year based upon a bonus level equal to 150% of the Executive’s salary
without regard to the financial performance of AGI, but will be prorated on the
basis of the number of days in the year up to and including the date of
termination.

 

Stock Options

 

13.                                 In
2005, the Executive will receive a grant of stock options covering 130,000
shares of AGI common stock.  No further
grants of stock options will be made to the Executive during the term of this
Agreement, unless otherwise determined by the Board of Directors of AGI in its
sole discretion.

 

Nothing in this Agreement shall have any effect with
respect to any stock option agreement or agreements made prior to the effective
date of this Agreement.

 

4

 

Executive Strategic Incentive Plans

 

14.                                 The Executive shall continue to participate in
the 2003-2005 Executive Strategic Incentive Plan of Alderwoods Group Canada
Inc. (the “2003-2005 Plan”), a copy of which has been provided to the
Executive.  Pursuant to action by
AGI’s Board of Directors, the Executive’s portion of the maximum award pool
relating to the Net Debt reduction goals under the 2003-2005 Plan will be paid
to the Executive by AGCI on August 1, 2005.  The
Executive shall be eligible to participate in the 2005-2007 Executive Strategic
Incentive Plan of Alderwoods Group Canada, Inc., a copy of which shall be
provided to the Executive.

 

Benefits

 

15.                                 During the term of this Agreement, the Executive
will be eligible to participate in the following benefit plans:

 

a)                                      Group Benefits

 

The Executive will participate
in the Company’s Group Benefit Plan and any other group perquisites all as in
effect from time to time.

 

b)                                     Vehicle Allowance

 

The Executive will be entitled
to a vehicle allowance of $1,000.00 U.S. per month plus auto insurance and
operating expense coverage for the term of this Agreement.

 

c)                                      Club Membership

 

The Executive will be entitled
to the amount of $2,500.00 U.S. per year for club memberships as directed by
the Executive.

 

Stock
Ownership Requirement

 

16.                                 From
and after August 10, 2005 and until April 10, 2006 (the “Subsequent
Purchase Date”) the Executive will hold 100,000 shares of common stock of
AGI.  From and after the Subsequent Purchase
Date and at all times during the remaining term of this Agreement, the
Executive will hold a total of 200,000 shares of common stock of AGI.  Such common stock may be stock acquired by
the Executive and owned by him outright or stock acquired and held through AGI’s
Employee Stock Purchase Plan.  In
connection with such stock ownership requirement, the Executive agrees that on
or prior to August 10, 2005, he will acquire 100,000 shares of common
stock of AGI with the proceeds received under the 2003-2005 Plan, pursuant to
paragraph 14 above.  In addition, in
connection with such stock ownership requirement, the Executive agrees that he
will acquire an additional 100,000 shares of common stock of AGI no later than
the Subsequent Purchase Date.

 

Termination of Employment

 

17.                                 The parties agree that the Executive’s employment
under this Agreement may be terminated as follows:

 

a)                                      by the Company, in
writing, without notice of termination or pay in lieu thereof, for Just Cause;

 

b)                                     by the Company, in writing, not following a
Change in Control as set forth in paragraph 18 below, at its sole discretion
and for any reason other than Just Cause upon payment to the Executive in a
lump sum, within seven days of such termination, of an amount equal to the sum
of sub-paragraphs (i) to (v) below:

 

i)                                         24 months’ base salary;

 

5

 

ii)                                      the replacement value of all Executive’s benefit
coverage, including all monies that would have been contributed to the
Registered Retirement Savings Plan, following the date of the Executive’s
termination (such benefit coverage and contributions being calculated over 24
months following resignation or termination);

 

iii)                                   the amount of any unpaid short term incentive
plan bonus earned by the Executive during the Initial Term of Employment up to
and including the date of termination calculated in accordance with paragraph
12.  Such bonus shall be payable
regardless of the financial performance of the Company;

 

iv)                                  the amount of any unpaid salary or vacation
earned by the Executive up to and including the date of termination;

 

v)                                     a
lump sum retiring allowance equal to 15% of the sum of (i) his current annual
salary plus (ii) the average of his annual short term incentive plan payments
over the preceding 36 months, for each year of his total service with the
Company and with The Loewen Group Inc., to a maximum of 100% of the said sum; and

 

vi)                                  in addition, the Executive shall be allowed to
exercise all stock options or share appreciation rights, whether vested or not,
granted to the Executive including shares with respect to which such options
would not otherwise be exercisable on such termination.

 

Payments
identified in the sub paragraphs above will be subject to deductions required
by applicable law;

 

c)                                      by
the Company for any reason other than Just Cause or by the Executive for Stated
Good Reason or pursuant to a voluntary resignation as set forth in paragraph 19
below following a Change in Control, in compliance with paragraph 18 or
paragraph 19, as the case may be; or

 

d)                                     by
the Executive, for any reason, upon thirty (30) days advance written notice to
the Company or upon expiration of the Notice Period, in which case the Company
will have no further obligation to the Executive under this Agreement or
otherwise except to pay the Executive the unpaid portion, if any, of the
Executive’s base salary payable for the period through the date of termination
of the Executive’s employment and a lump sum retiring allowance equal to 15% of
the sum of (i) his current annual salary plus (ii) the average of his annual
short term incentive plan payments over the preceding 36 months, for each year
of his total service with the Company and with The Loewen Group Inc., to a
maximum of 100% of the said sum.

 

Change in Control

 

18.                                 If a Change in Control occurs and, within two
years of the effective date of the Change in Control, the Company terminates
the Executive without Just Cause or the Executive submits a written resignation
for Stated Good Reason to the Board of Directors of the Company, the Company
shall, within seven days of the date of resignation or termination, pay to the
Executive in a lump sum equal to the sum of sub-paragraphs (i) to (v) below:

 

i)                                         24 months’ base salary;

 

ii)                                      the replacement value of all Executive’s benefit
coverage, including contributions to the Registered Retirement Savings Plan,
following the date of the Executive’s termination (such benefit coverage and
contributions being calculated over 24 months following resignation or
termination);

 

iii)                                   The amount of any unpaid short term incentive
plan bonus earned by the Executive up to and including the date of termination
calculated in accordance with paragraph 12. Such bonus will be payable
regardless of the financial performance of the Company;

 

6

 

iv)                                  The amount of any unpaid salary or vacation
earned by the Executive up to and including the date of resignation or
termination; and

 

v)                                     a
lump sum retiring allowance equal to 15% of the sum of (i) his current annual
salary plus (ii) the average of his annual short term incentive plan payments
over the preceding 36 months, for each year of his total service with the
Company and with The Loewen Group Inc., to a maximum of 100% of the said sum; and

 

vi)                                  in addition, the Executive shall be allowed to
exercise all stock options or share appreciation rights, whether vested or not,
granted to the Executive including shares with respect to which such options
would not otherwise be exercisable on such resignation or termination.

 

Payments
identified in the sub-paragraphs above will be subject to deductions required
by applicable law.

 

Voluntary Resignation Due to Change in Control

 

19.                                 In the event that an agreement is reached which
would result in a Change in Control, but the Change in Control has not yet
occurred, the Executive can, for any reason, submit his resignation in writing
to the Company prior to the effective date of the Change in Control.  Any such resignation will be effective as of
the date of the Change in Control, and the Executive shall continue to work for
the Company up until that date. Further, if the Executive resigns in these
circumstances and continues to work for the Company until the effective date of
the Change in Control, then on the effective date of the Change in Control the
Company shall pay to the Executive a lump sum amount equal to the payments
prescribed under paragraph 18(i) - (v). In the event that the Change in Control
does not occur, the Executive shall not be entitled to the payments prescribed
under paragraph 18(i) - (v), and the resignation shall be deemed to not have
been tendered.

 

20.                                 Immediately prior to the effective date of a
Change in Control, the Executive shall be allowed to exercise all stock options
or share appreciation rights, whether vested or not, granted to the Executive
including shares with respect to which such options would not otherwise be
exercisable. The Executive shall be entitled to receive all dividends declared
and paid by AGI upon a Change in Control on the shares received by the
Executive following the exercise of the Executive’s stock options or share
appreciation rights.

 

Certain Additional Payments by the Company

 

21.                                 The Executive’s entitlements, if any, on
termination of employment, voluntary resignation, Change in Control,
retirement, total disability or death under the 2003-2005 Executive Strategic
Incentive Plan of Alderwoods Group Canada Inc. or the 2005-2007 Executive
Strategic Incentive Plan of Alderwoods Group Canada Inc. (the “Plans”) shall be
determined solely in accordance with the terms of the Plans as in effect from
time to time.

 

22.                                 In the event that it is determined (as
hereinafter provided) that any payment (other than the Gross-Up Payments
provided for in this paragraph 22 and Annex A) or distribution by the Company,
AGI or any of its affiliates to or for the benefit of the Executive, whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise pursuant to or by reason of any other agreement, policy,
plan, program or arrangement, including without limitation the lapse or
termination of any restriction on the vesting or exercisability of any benefit
under any of the foregoing (a “Payment”), would be subject to the excise tax
imposed by Section 4999 of the United States Internal Revenue Code of
1986, as amended (the “Code”) (or any successor provision thereto), by reason
of being considered “contingent on a change in ownership or control,” within
the meaning of Section 280G of the Code (or any successor provision
thereto) or to any similar tax imposed by U.S. state or local law, or any
interest or penalties with respect to such tax (such tax or taxes, together
with any such interest and penalties, being hereafter collectively referred to
as the “Excise Tax”), then the Executive will be entitled to receive an
additional payment or payments (collectively, a “Gross-Up Payment”).  The Gross-Up Payment will be in an amount
such that, after payment by the Executive of all U.S. taxes (including any
interest or penalties imposed with respect to such taxes), including any Excise
Tax imposed upon the Gross-Up Payment, the Executive

 

7

 

retains
an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Payment.  For purposes of determining the
amount of the Gross-Up Payment, the Executive will be considered to pay any
applicable U.S. federal, state and local income taxes at the highest rate
applicable to the Executive in effect in the year in which the Gross-Up Payment
will be made, net of the maximum reduction in U.S. federal income tax that
could be obtained by the Executive from deduction of such state and local
taxes.

 

23.                                 The obligations set forth in paragraph 22 will be
subject to the procedural provisions described in Annex A.

 

Confidential Information; Competitive Activity

 

24.

 

a)                                      The Executive agrees that he will not, without the prior written consent of the
Company, during the term of this Agreement or at any time thereafter, disclose
to any person not employed by the Company, or use in connection with engaging
in competition with the Company, any confidential or proprietary information of
the Company.  For purposes of this
Agreement, the term “confidential or proprietary information” includes all
information of any nature and in any form that is owned by the Company and that
is not publicly available (other than by Executive’s breach of this paragraph
24) or generally known to persons engaged in businesses similar or related to
those of the Company.  Confidential or
proprietary information will include, without limitation, the Company’s
financial matters, customers, employees, industry contracts, strategic business
plans, product development (or other proprietary product data), marketing
plans, and all other secrets and all other information of a confidential or
proprietary nature.  The foregoing
obligations imposed by this paragraph 24 will not apply (i) during the term of
this Agreement, in the course of the business of and for the benefit of the
Company, (ii) if such confidential or proprietary information has become,
through no fault of the Executive, generally known to the public or (iii) if
the Executive is required by law to make disclosure (after giving the Company
notice and an opportunity to contest such requirement).

 

b)                                     The
Executive agrees that, upon termination of this Agreement for any reason, the
Executive will return to the Company, in good condition, all property of the
Company in his possession or under his control.

 

25.           In addition, subject to the terms of paragraph
26, during the term of this Agreement and for a period of 12 months thereafter,
the Executive will not, without the prior written consent of the Company, which
consent will not be unreasonably withheld:

 

a)                                      Engage in any Competitive Activity.  For purposes of this Agreement, “Competitive
Activity” means the Executive’s participation in the management of any business enterprise if such enterprise engages
in substantial and direct competition with the Company and such enterprise’s
sales of any product or service competitive with any product or service of the
Company amounted to 10% or more of such enterprise’s net sales for its most
recently completed fiscal year and if the Company’s net sales of said product
or service amounted to 10% or more of the Company’s net sales for its most
recently completed fiscal year.  “Competitive
Activity” will not include (i) the mere ownership of securities in any such
enterprise and the exercise of rights appurtenant thereto or (ii) participation
in the management of any such enterprise other than in connection with the
competitive operations of such enterprise.

 

b)                                     On behalf of the Executive or on behalf of any person, firm or company,
directly or indirectly, attempt to influence, persuade or induce, or assist any
other person in so persuading or inducing, any employee of the Company or any
of its subsidiaries to give up, or to not commence, employment or a business
relationship with the Company or any of its subsidiaries.

 

26.           During the
term of this Agreement and for a period of 24 months thereafter, the Executive
will not without the prior written consent of the Company, directly or
indirectly, accept employment from, act as a consultant to or otherwise advise
with respect to any company that is designated in writing to the Executive by
the Board of Directors of AGI as a Major Competitor of the Company.

 

8

 

27.

 

a)                                      The
Executive and the Company agree that the covenants contained in paragraphs 24,
25 and 26 are reasonable under the circumstances, and further agree that if in
the opinion of any court of competent jurisdiction any such covenant is not
reasonable in any respect, such court will have the right, power and authority to
excise or modify any provision or provisions of such covenants as to the court
will appear not reasonable and to enforce the remainder of the covenants as so amended.  The Executive acknowledges and agrees that
the remedy at law available to the Company for breach of any of his obligations
under paragraphs 24, 25 and 26 would be inadequate and that damages flowing
from such a breach may not readily be susceptible to being measured in monetary
terms.  Accordingly, the Executive
acknowledges, consents and agrees that, in addition to any other rights or
remedies that the Company may have at law, in equity or under this Agreement,
upon adequate proof of his violation of any such provision of this Agreement,
the Company will be entitled to immediate injunctive relief and may obtain a
temporary order restraining any threatened or further breach, without the
necessity of proof of actual damage.

 

b)                                     During
the term of this Agreement, the Executive will not serve as employee of, nor
business consultant to, any other company or business without the prior express
approval of a majority of the independent Directors of AGI.  The directorships currently held by the
Executive are as listed on Annex B to this Agreement.  The Executive will not accept any additional
directorships without the prior express approval of a majority of the
independent Directors of AGI. The provisions of this paragraph 27(b) are in
addition to, and in no way derogate from, any and all other provisions of this
Agreement.

 

28.           For
purposes of paragraphs 24, 25, 26 and 27, the term “Company” will also include
AGI and any subsidiary of AGI.

 

General

 

29.           The parties confirm that the provisions of this
Agreement are fair and reasonable and that the total compensation and benefits
payable under paragraphs 17, 18, 19 or 21 are reasonable estimates of the
damages which would be suffered by the Executive.  Any amount paid under paragraphs 17, 18 or 19 shall be in full satisfaction of all claims
whatsoever relating to the Executive’s employment or for the termination of the
Executive’s employment, including claims for salary, bonus, benefits, vacation
pay, termination pay and/or severance pay pursuant to the Ontario Employment Standards Act, as amended, including sections 57
and 58 thereof.

 

30.           Any payment made to the Executive under
paragraphs 17, 18, 19 or 21 of this Agreement shall be paid to the Executive by
the Company regardless of any offer of alternate employment made to the
Executive by the Company or by any other prospective employer, whether accepted
by the Executive or not.  The Executive
will not be required to mitigate any damages arising from this Agreement and
any amounts and benefits to be provided to the Executive hereunder shall not be
reduced or set off against any amounts earned by the Executive from alternate
employment, including self-employment, or by other means.

 

31.           Any payment other than for base salary while
employed by the Company made to the Executive under this Agreement shall be
made by way of a lump sum payment or, at the Executive’s option, in such other
manner as he may direct, less deductions required by applicable law.

 

32.           Where the context requires, the singular shall
include the plural and the plural shall include the singular. Masculine
pronouns shall be deemed to be read as feminine pronouns and vice versa. Words importing persons shall include
individuals, partnerships, associations, trusts, unincorporated organizations
and corporations and vice versa.

 

33.           The division of this Agreement into paragraphs
and the insertion of headings are for the convenience of reference only and
shall not affect the construction or interpretation of this Agreement. The
terms “this Agreement”, “hereof”, “hereunder” and similar expressions refer to
this Agreement only and not to any particular paragraph and include any
agreement or instrument supplemental or ancillary to the Agreement.

 

9

 

References
herein to paragraphs are to paragraphs of this Agreement unless something in
the subject matter or context is inconsistent therewith.

 

34.           All dollar amounts identified in this contract
are in U.S. currency.

 

35.           The parties’ respective rights and obligations
under paragraphs 17, 18, 19, 21, 22, 23, 24, 25, 26, 27, 29, 30, 39 and 40 will
survive any termination or expiration of this Agreement or the termination of
the Executive’s employment for any reason whatsoever.

 

Governing Laws

 

36.           This Agreement shall be governed by the laws of
the Province of Ontario without giving effect to the principles of conflict
of laws thereof. Each party to this Agreement hereby consents and submits
himself or itself to the jurisdiction of the courts of the Province of Ontario
for the purposes of any legal action or proceeding arising out of this
Agreement.

 

Severability

 

37.           All terms and covenants contained in this
Agreement are severable and in the event that any of them is held to be invalid
by any competent court in the Province of Ontario, the invalid provision shall
be deleted and the balance of this Agreement shall be interpreted as if such
invalid clause or covenant were not contained herein.

 

Continuity

 

38.           This Agreement shall be binding upon and inure to
the benefit of (i) the Executive and his heirs, executors, administrators and
legal representatives and (ii) the Company, its related corporations,
affiliates, and associates, and any other entity or organization which shall
succeed to substantially all or any distinct portion of the business, divisions
or property of the Company or its related corporations, affiliates, and
associates, whether by means of amalgamation, merger, consolidation,
acquisition, and/or sale of all or part of the shares or assets of the Company
or otherwise, including by operation of law or by succession to the business of
AGI pursuant to a Plan of Reorganization approved by the U.S. Bankruptcy
Court.  In addition, the Company will
require any such successor expressly to assume and agree, by written agreement,
to perform this Agreement in the same manner and to the same extent the Company
would be required to perform if no such succession had taken place.

 

Legal Advice

 

39.           The Executive acknowledges that he has obtained
or has had an opportunity to obtain independent legal advice in connection with
this Agreement, and further acknowledges that he has read, understands, and
agrees to be bound by all of the terms and conditions contained herein.

 

40.           The Company agrees to reimburse the Executive for
all reasonable legal expenses incurred in connection with any dispute involving
the Executive, the Company, its related corporations, affiliates, successors,
or assigns, or any other third party, as between any of them, arising from the
validity, interpretation, or enforcement of this Agreement or any of its terms,
including all reasonable legal expenses incurred by the Executive in respect of
any action or actions commenced by the Executive to obtain, enforce, or retain
any right, benefit or payment provided for in this Agreement regardless of
whether such expenses are incurred during the term of the Agreement or after;
provided that, in regard to such matters, the Executive has not acted in bad
faith or with no colorable claim of success. 
However, the Company shall not be required to reimburse the Executive for
any legal costs or expenses in relation to any action commenced by the Company
to enforce the confidentiality or non-competition provisions hereof and in
respect of which in a court of competent jurisdiction the Company is the
prevailing party for either preliminary or final remedy.

 

10

 

Notice

 

41.                                 Any demand, notice or other communication to be
given in connection with this Agreement shall be given in writing by personal
delivery, by registered mail or by electronic means of communication addressed
to the recipient as follows:

 

To the Executive:

 

Paul A. Houston

5 Hewison Court

Ajax, Ontario, L1T 3X7

 

To the Company:

 

Alderwoods Group Canada Inc.

259 Yorkland Road

Toronto, Ontario M2J 5B2

 

Attention: Senior
Vice-President, Legal & Compliance

 

With a copy to:

 

Alderwoods Group, Inc.

311 Elm Street

Suite 1000, First Floor

Cincinnati, OH 45202

 

Attention: Senior
Vice-President, Legal & Compliance

 

or such other address, individual or electronic
communication as may be designated by notice given by either party to the
other.

 

Additional

 

42.           The failure of a party to insist upon strict
adherence to any term of this Agreement on any occasion shall not be considered
a waiver of such party’s rights or deprive such party of the right thereafter
to insist upon strict adherence to that term or any other term of this
Agreement.

 

43.           Nothing
herein expressed or implied is intended or shall be construed to confer upon or
give to any person, other than a) the parties to this Agreement, b) any
permitted assignees of the Company and the Chairman, and c) AGI, as
contemplated by paragraphs 9, 11, 13, 16, 24, 25, 26, 27 and 28 any rights or
remedies under or by reason of this Agreement and AGI shall be a third party
beneficiary of this Agreement.

 

11

 

IN
WITNESS WHEREOF the Executive has executed and the Company and AGI have
caused their duly authorized representatives to execute this Agreement as of
the date set forth on the first page of this Agreement.

 

 

	
   

  	
  ALDERWOODS GROUP CANADA INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ellen Neeman

  	
   

  
	
   

  	
   

  	
    Ellen Neeman

  
	
   

  	
   

  	
    Senior Vice-President, Legal & Compliance

  
	
   

  	
   

  
	
   

  	
  ALDERWOODS GROUP, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ A. G. Eames

  	
   

  
	
   

  	
   

  	
    A. G. Eames

  
	
   

  	
   

  	
    Director

  
	
   

  	
   

  
	
  Witness:

  	
   

  
	
   

  	
   

  
	
  /s/ John S. Lacey

  	
   

  	
  /s/ Paul A. Houston

  	
   

  
	
   

  	
  Paul A. Houston

  
					

 

12

 

ANNEX A

 

Excise Tax Gross-Up Procedural Provisions

 

1.                                       Subject to the provisions of paragraph 5 of this
Annex, all determinations required to be made under paragraph 22 of this Agreement
and this Annex A, including whether an Excise Tax is payable by the Executive
and the amount of such Excise Tax and whether a Gross-Up Payment is required to
be paid by the Company to the Executive and the amount of such Gross-Up
Payment, if any, will be made by a U.S. nationally recognized accounting firm
(the “National Firm”) selected by the Executive in his sole discretion. The
Executive will direct the National Firm to submit its determination and
detailed supporting calculations to both the Company and the Executive within
30 calendar days after the date of his termination of employment, if
applicable, and any such other time or times as may be requested by the Company
or the Executive. If the National Firm determines that any Excise Tax is payable
by the Executive, the Company will pay the required Gross-Up Payment to the
Executive within five business days after receipt of such determination and
calculations with respect to any Payment to the Executive. If the National Firm
determines that no Excise Tax is payable by the Executive with respect to any
material benefit or amount (or portion thereof), it will, at the same time as
it makes such determination, furnish the Company and the Executive with an
opinion that the Executive has substantial authority not to report any Excise
Tax on his U.S. federal, state or local income or other tax return with respect
to such benefit or amount. As a result of the uncertainty in the application of
Section 4999 of the Code and the possibility of similar uncertainty
regarding applicable U. S. state or local tax law at the time of any
determination by the National Firm hereunder, it is possible that Gross-Up
Payments that will not have been made by the Company should have been made (an “Underpayment”),
consistent with the calculations required to be made hereunder. In the event
that the Company exhausts or fails to pursue its remedies pursuant to paragraph
5 of this Annex and the Executive thereafter is required to make a payment of
any Excise Tax, the Executive will direct the National Firm to determine the
amount of the Underpayment that has occurred and to submit its determination
and detailed supporting calculations to both the Company and the Executive as
promptly as possible. Any such Underpayment will be promptly paid by the
Company to, or for the benefit of, the Executive within five business days
after receipt of such determination and calculations.

 

2.                                       The Company and the Executive will each provide
the National Firm access to and copies of any books, records and documents in
the possession of the Company or the Executive, as the case may be, reasonably
requested by the National Firm, and otherwise cooperate with the National Firm
in connection with the preparation and issuance of the determinations and calculations
contemplated by paragraph 1 of this Annex. Any determination by the National
Firm as to the amount of the Gross-Up Payment will be binding upon the Company
and the Executive.

 

3.                                       The U.S. federal, state and local income or other
tax returns filed by the Executive will be prepared and filed on a consistent
basis with the determination of the National Firm with respect to the Excise
Tax payable by the Executive. The Executive will report and make proper payment
of the amount of any Excise Tax, and at the request of the Company, provide to
the Company true and correct copies (with any amendments) of his federal income
tax return as filed with the U.S. Internal Revenue Service and corresponding
state and local tax returns, if relevant, as filed with the applicable taxing
authority, and such other documents reasonably requested by the Company,
evidencing such payment. If prior to the filing of the Executive’s federal
income tax return, or corresponding state or local tax return, if relevant, the
National Firm determines that the amount of the Gross-Up Payment should be
reduced, the Executive will within five business days pay to the Company the
amount of such reduction.

 

4.                                       The fees and expenses of the National Firm for
its services in connection with the determinations and calculations
contemplated by paragraph 1 of this Annex will be borne by the Company. If such
fees and expenses are initially paid by the Executive, the Company will
reimburse the Executive the full amount of such fees and expenses within five
business days after receipt from the Executive of a statement therefor and
reasonable evidence of his payment thereof.

 

5.                                       The Executive will notify the Company in writing
of any claim by the U.S. Internal Revenue Service or any other U.S. taxing
authority that, if successful, would require the payment by the Company of a
Gross- Up

 

A-1

 

Payment. Such notification will be given as promptly as
practicable but no later than 10 business days after the Executive actually
receives notice of such claim and the Executive will further apprise the
Company of the nature of such claim and the date on which such claim is
requested to be paid (in each case, to the extent known by the Executive). The
Executive will not pay such claim prior to the expiration of the
30-calendar-day period following the date on which he gives such notice to the
Company or, if earlier, the date that any payment of amount with respect to
such claim is due. If the Company notifies the Executive in writing prior to
the expiration of such period that it desires to contest such claim, the
Executive will:

 

(A)                              provide the Company with any written records or documents in his
possession relating to such claim reasonably requested by the Company;

 

(B)                                take such action in connection with contesting such claim as the Company
reasonably requests in writing from time to time, including without limitation
accepting legal representation with respect to such claim by an attorney
competent in respect of the subject matter and reasonably selected by the
Company;

 

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

 

(D)                               permit the Company to participate in any proceedings relating to such
claim;

 

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

 

6.                                       If, after the receipt by the Executive of an
amount advanced by the Company pursuant to paragraph 5 of this Annex, the
Executive receives any refund with respect to such claim, the Executive will
(subject to the Company’s complying with the requirements of such paragraph 5)
promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon after any taxes applicable thereto). If,
after the receipt by the Executive of an amount advanced by the Company
pursuant to paragraph 5 of this Annex, a determination is made that the
Executive is not entitled to any refund with respect to such claim and the
Company does not notify the Executive in writing of its intent to contest such
denial or refund prior to the expiration of 30 calendar days after such
determination, then such advance will be forgiven and will not be required to
be repaid and the amount of any such advance will offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid by the Company to
the Executive pursuant to paragraph 22 of this Agreement and this Annex A.

 

A-2

 

ANNEX B

 

Current
Directorships

 

CFM Corporation

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