Exhibit 10.40
2003-2005 EXECUTIVE STRATEGIC INCENTIVE PLAN
OF ALDERWOODS GROUP CANADA INC.
Resolution
Whereas, at its January 14, 2003 meeting, the Board of Directors ("Board") of
Alderwoods Group, Inc. ("AGI") approved the Strategic Plan prepared by the
senior management team; and
Whereas the services of the senior management team are provided through the
Management Services Agreement between AGI and Alderwoods Group Canada Inc.
("AGCI"), a subsidiary of AGI; and
Whereas AGCI wishes to motivate and reward the senior management team for
achieving the financial objectives of the Strategic Plan.
RESOLVED, that the 2003-2005 Executive Strategic Incentive Plan of Alderwoods
Group Canada Inc. as attached hereto is hereby adopted to be effective
retroactive to January 1, 2003; and
Further RESOLVED, that the Compensation Committee of AGI is hereby authorized to
take such necessary actions as are required to implement and administer the Plan
in accordance with its terms.
2003-2005 EXECUTIVE STRATEGIC INCENTIVE PLAN
OF ALDERWOODS GROUP CANADA INC.
PURPOSE
1. The purpose of the 2003-2005 Executive Strategic Incentive Plan ("Plan") of
Alderwoods Group Canada Inc. ("AGSI") is to motivate and reward the AGCI
senior management team as defined hereunder for achieving the financial
objectives of the Strategic Plan that were approved by the Board of
Directors ("Board") of Alderwoods Group, Inc. ("AGI") on January 14, 2003.
PLAN TYPE
2. Under the Plan, the participants will have the opportunity to earn cash
awards that will be payable by AGCI in accordance with paragraph 18 hereof
based on the level of achievement in attaining the AGI Net Debt reduction
and EBITDA performance objectives of the Strategic Plan as hereinafter
described.
ADMINISTRATION
3. The Plan will be administered by the Compensation Committee of AGI
("Committee").
4. The Committee may delegate certain of its administrative responsibilities
to the President and Chief Executive Officer, the Executive Vice-President
and Chief Finance Officer and/or the Secretary of AGI.
5. All determinations and decisions made by the Committee pursuant to the
terms of the Plan will be final, conclusive and binding on all persons,
including, without limitation, AGCI, its affiliates and subsidiaries, all
participants in the Plan and their estates and beneficiaries.
6. The Committee may, in its discretion, require a participant's guardian or
legal representative to supply it with evidence the Committee deems
necessary to establish the authority of the guardian or legal
representative to act on behalf of the participant.
ELIGIBILITY
7. The following employees of AGCI will be designated as the "senior
management team" and will be eligible for grants under the Plan:
---------------------------
Name
---------------------------
John S. Lacey
---------------------------
Paul A. Houston
---------------------------
Kenneth A. Sloan
---------------------------
Ross Caradonna
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May 14, 2003 Page 2
2003-2005 EXECUTIVE STRATEGIC INCENTIVE PLAN
OF ALDERWOODS GROUP CANADA INC.
PERFORMANCE PERIOD
8. The Performance Period ("Period") for purposes of the Plan shall be from
January 1, 2003 to December 31, 2005 inclusive.
CURRENCY
9. All dollar amounts identified in this Plan are in U.S. currency.
NET DEBT REDUCTION POOL TARGETS
10. For purposes of the Plan, the Net Debt Reduction targets for the Period
(from the December 28, 2002 Net Debt amount of $714 million) shall be as
follows:
------------------------------- -----------------
Threshold Performance $160 million
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Target Performance $210 million
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Maximum Performance $255 million
------------------------------- -----------------
NET DEBT/EBITDA RATIO POOL TARGETS
11. For purposes of the Plan, the Net Debt/EBITDA Ratio targets for the Period
(as compared to the Net Debt/EBITDA Ratio for the year ended December 28,
2002 of 5.09) are as follows:
------------------------------- ----------------------
3 Year Average
------------------------------- ----------------------
Threshold Performance 4.20
------------------------------- ----------------------
Target Performance 3.95
------------------------------- ----------------------
Maximum Performance 3.75
------------------------------- ----------------------
MAXIMUM AWARD POOLS
12. The maximum award pools shall consist of a $5.2 million pool for Net Debt
Reduction and a $2.8 million pool for the Net Debt/EBITDA Ratio.
POOL ALLOCATION
13. The maximum award pools shall be allocated as follows amongst the
participants:
--------------------------- --------------------------- ---------------------------
Name Maximum Net Debt Maximum Net Debt/EBITDA
Reduction Pool Pool
--------------------------- --------------------------- ---------------------------
John S. Lacey $2,400,000 $ 400,000
--------------------------- --------------------------- ---------------------------
Paul A. Houston $2,400,000 $1,600,000
--------------------------- --------------------------- ---------------------------
Kenneth A. Sloan $ 400,000 $ 200,000
--------------------------- --------------------------- ---------------------------
Ross Caradonna 0 $ 600,000
--------------------------- --------------------------- ---------------------------
May 14, 2003 Page 3
2003-2005 EXECUTIVE STRATEGIC INCENTIVE PLAN
OF ALDERWOODS GROUP CANADA INC.
AWARD PAYMENTS
14. Each maximum award pool shall be payable by AGCI after the completion of
the Period in accordance with the following schedule:
------------------------------------ ----------------------------------
Performance Achievement Percentage of Maximum Award Pool
Payable
------------------------------------ ----------------------------------
Below Threshold 0%
------------------------------------ ----------------------------------
Threshold 50%
------------------------------------ ----------------------------------
Target 75%
------------------------------------ ----------------------------------
Maximum 100%
------------------------------------ ----------------------------------
Pro-rata vesting will apply to each award pool for results that occur
between the Threshold and Maximum Performance objectives based on the above
schedule.
15. No portion of a maximum award pool will be payable if the Threshold
Performance objective for that pool is not achieved or if AGI breaches any
of its financial covenants, debt repayment covenants or any other material
covenants of the outstanding debt instruments of AGI during the Period.
16. If a participant is terminated with Just Cause under any circumstances, no
payments shall be made to him under the Plan and all rights of such
participant hereunder shall be immediately forfeited.
17. If a participant (i) is terminated without Just Cause, (ii) resigns with
Stated Good Reason, (iii) dies or (iv) becomes Totally Disabled prior to
the end of the Period, he shall be entitled to a pro-rata share in the Net
Debt Reduction and Net Debt/EBITDA Ratio pools based on his service from
January 1, 2003 to the date of his termination, resignation, retirement,
death or Total Disability and the pro-rata share shall be determined by the
Committee and payable by AGCI after the end of the Period.
18. Any award earned under the Plan will be paid by AGCI in cash, as soon as
possible after the completion of the Period, but no later than March 31,
2006, subject to the approval by the Board of the financial statements for
the fiscal year ending December 31, 2005. Such payments will be subject to
any federal, provincial, state and local taxes, domestic or foreign, or
other withholdings required by law or regulation.
19. In the event of a Change in Control, the award pools accrued by AGCI for
accounting purposes to the end of the fiscal quarter prior to the Change in
Control shall immediately vest 100% and become payable to the participants
or to their estates within 30 days of such event. Such payments will be
subject to any federal, provincial, state and local taxes, domestic or
foreign, or other withholdings required by law or regulation.
EXTRAORDINARY ITEMS
May 14, 2003 Page 4
2003-2005 EXECUTIVE STRATEGIC INCENTIVE PLAN
OF ALDERWOODS GROUP CANADA INC.
20. The Committee shall have the discretion to include or exclude any material
extraordinary items (e.g. mergers, acquisitions, divestitures, significant
changes in accounting, etc.) that were not anticipated in the Strategic
Plan, or make other appropriate adjustments to reflect the effect of such
event, in its determination of the level of achievement of the performance
objectives under the Plan.
PLAN AMENDMENT, SUSPENSION OR TERMINATION
21. The Plan may be amended, suspended or terminated at any time by the Board
of Directors of AGCI upon the recommendation of the Committee. Such
amendment, suspension or termination will not, however, affect awards
earned to the date of such amendment, suspension or termination.
EFFECTIVE DATE
22. The Effective Date of the Plan shall be January 1, 2003.
EXPIRY
23. If not previously expired by reason of a Change in Control, the Plan will
expire immediately after the award payments have been made in the year 2006
to the participants for the Period.
ACCOUNTING CONSEQUENCES
24. AGCI will be required to accrue an earnings charge for each accounting
period for any projected award payments under the Plan prior to the end of
the Period. Such earning charges shall be excluded from the calculation of
EBITDA for purpose of calculating Net Debt/EBITA Ratio awards under the
Plan.
RETIREMENT BENEFIT CONSEQUENCES
25. Incentive awards earned under the Plan will not be included within the
definition of compensation or earnings for purposes of calculating benefits
under or contributions to any pension, retirement or savings plan of AGCI,
or of its affiliates or subsidiaries.
NON-TRANSFERABILITY
26. No rights under the Plan prior to the end of the Period may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated,
other than by will or by the laws of descent and distribution, or pursuant
to a domestic relations order.
May 14, 2003 Page 5
2003-2005 EXECUTIVE STRATEGIC INCENTIVE PLAN
OF ALDERWOODS GROUP CANADA INC.
GENERAL
27. If any provision of the Plan is held illegal or invalid for any reason, the
illegality or invalidity will not affect the remaining parts of the Plan,
and the Plan will be construed and enforced as if the illegal or invalid
provision had not been included.
28. The granting of awards and the cash payouts under the Plan will be subject
to all applicable laws, rules and regulations.
29. The Plan is intended to constitute an "unfunded" plan for purposes of
providing incentive compensation. With respect to any payments not yet made
to a participant, the participant's rights shall be no greater than those
of a general creditor of AGCI, or its affiliates or subsidiaries.
30. To the extent not preempted by federal law, domestic or foreign, the Plan
will be construed in accordance with and governed by the laws of the
Province of Ontario.
PLAN DEFINITIONS
31. "Change in Control" means a Change in Control as defined in the May 1, 2003
employment agreements between John S. Lacey and Paul A. Houston and AGCI.
32. "EBITDA" for purposes of the Plan means AGI's consolidated earnings (loss)
from operations before interest expense, taxes and investment income earned
in excess of $1,100,000 during the Period, adding back all depreciation and
amortization charges made during the Period, any provisions for asset
impairment or goodwill impairment made during the Period, and any earnings
charges required to be accrued during the Period for potential award
payments under the Plan.
33. "Just Cause" means willful misconduct or willful neglect of duty by the
participant, including, but not limited to, intentional wrongful disclosure
of confidential or proprietary information of AGCI, its affiliates or
subsidiaries, intentional wrongful engagement in any competitive activity
prohibited by the terms of the participant's employment agreement, and the
intentional material breach of any provision of the participant's
employment agreement.
34. "Net Debt" for purposes of the Plan means AGI's consolidated gross long
term debt less its cash and cash equivalents at any time during the Period.
35. "Net Debt/EBITDA Ratio" for a year means the Net Debt of AGI at the end of
a year divided by the EBITDA for the year.
36. "Stated Good Reason" has the meaning set forth in paragraph 3 of the May 1,
2003 employment agreements between John S. Lacey and Paul A. Houston and
AGCI.
37. "Totally Disabled" means a physical handicap or medical condition for which
the participant is receiving benefit payments under a long term disability
plan sponsored by AGCI, or its affiliates or subsidiaries.
May 14, 2003 Page 6