Amendment No. 1 to EMPLOYMENT AGREEMENT
EXHIBIT
10.6
Amendment
No. 1
to
THIS
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT (“Agreement”) effective as of October
12, 2006, by and between Xxxxxxx X. Xxxxxxx (“Xx. Xxxxxxx”) and Sun Health
Specialty Services, Inc., a New Mexico corporation (“SHSS”);
WHEREAS,
SHSS is a wholly owned subsidiary of SunBridge Healthcare Corporation
(“SunBridge” or “Company”) which is a wholly owned subsidiary of Sun Healthcare
Group, Inc. (“SHG”);
WHEREAS,
SunBridge and its direct and indirect subsidiaries (collectively, “the LTC
subsidiaries”) provide inpatient services throughout the United States, in many
instances under the “SunBridge” trade name;
WHEREAS,
SHSS has Services Agreements with the LTC subsidiaries to provide employees,
including Xx. Xxxxxxx, to the LTC subsidiaries;
WHEREAS,
effective January 1, 2006, Xx. Xxxxxxx was appointed President and Chief
Operating Officer of SunBridge, the other LTC subsidiaries and SHG Services,
Inc., the subsidiary of SHG that is a holding company for other operating
subsidiaries of SHG that are not LTC subsidiaries (“SHG Services”);
and
WHEREAS,
SHSS and Xx. Xxxxxxx entered into an Employment Agreement dated as of February
28, 2002 (the “Employment Agreement”), and they desire to amend the Employment
Agreement on the terms and conditions (including the terms and conditions of
his
bonus eligibility, as approved by the Compensation Committee of the Board of
Directors of SHG on March 28, 2006) set forth below (capitalized terms used
in
this Agreement without definition shall have the meanings provided in the
Employment Agreement).
NOW,
THEREFORE, in consideration of the above recitals and the mutual covenants
and
agreements contained herein, Xx. Xxxxxxx and SHSS agree as follows:
1. Section
2
of the Employment Agreement is hereby amended and restated as
follows:
Section
2: Duties and Responsibilities.
Xx.
Xxxxxxx shall devote his full employment time, efforts, skills and attention
exclusively to advancing and rendering profitable the business interests of
SunBridge, the other LTC subsidiaries and SHG Services by serving as President
and Chief Operating Officer thereof.
2. Section
3(b) of the Employment Agreement is hereby amended and restated as
follows:
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(b) Cash
Bonus/Incentive Compensation.
In
addition to the Base Salary provided for in Section 3(a) above, Xx. Xxxxxxx
shall be eligible to receive an annual bonus (“Bonus”) in accordance with
Schedule A hereto, as it may be amended from time to time by the Compensation
Committee of the Board of Directors of SHG; provided, however, that no amendment
shall be effective if it reduces the potential amount of the Bonus, when
compared to the prior year, unless such amendment has been agreed to in writing
by Xx. Xxxxxxx. Such Bonus shall be payable at the same time as other annual
bonuses are paid to senior management personnel. Subject to the provisions
of
Section 6(b) and Section 6(d), in order to have earned and to be paid any such
Bonus, Xx. Xxxxxxx must be employed by SHSS or one of its affiliates on the
date
of such payment. It is intended that the Bonus described in this Section 3(b)
qualify as "performance based compensation" under Section 162(m) of the Internal
Revenue Code, to the extent necessary to preserve the Company’s ability to
deduct such bonus.
3. Section
7(b), Section 7(c), Section 7(d) and Section 7(e) of the Employment Agreement
are hereby amended and restated as follows:
(b)
Determination
of Gross-Up Payment.
Subject
to the provisions of Section 7(c), all determinations required under this
Section 7, including whether a Gross-Up Payment is required, the amount of
the
payments constituting parachute payments, and the amount of the Gross-Up
Payment, shall be made by the Accounting Firm, which shall provide detailed
supporting calculations both to SHG and Xx. Xxxxxxx within fifteen business
days
of Xx. Xxxxxxx’ date of termination or any other date reasonably requested by
SHG or Xx. Xxxxxxx on which a determination under Section 7 is necessary or
advisable. Within five days of the receipt by Xx. Xxxxxxx and SHG of the
Accounting Firm’s determination
of
the
initial
Gross-Up Payment, SHG
shall
pay the amount of such Gross-Up Payment to the applicable taxing authorities
for
the benefit of Xx. Xxxxxx.
If the
Accounting Firm determines that no Excise Tax is payable by Xx. Xxxxxxx, SHG
shall cause the Accounting Firm to provide Xx. Xxxxxxx and SHG with an opinion
that SHG has substantial authority under the Internal Revenue Code and
regulations thereunder not to report an Excise Tax on Xx. Xxxxxxx’ federal
income tax return. Any determination by the Accounting Firm shall be binding
upon Xx. Xxxxxxx and SHG. If the initial Gross-Up Payment is insufficient to
cover the amount of the Excise Tax that is ultimately determined to be owing
by
Xx. Xxxxxxx with respect to any payment (hereinafter an “Underpayment”), SHG,
after exhausting its remedies under Section 7(c) below, shall promptly pay
to
the
applicable taxing authorities for the benefit of Xx. Xxxxxxx (or directly to
Xx.
Xxxxxxx in the event Xx. Xxxxxxx previously paid the related tax
amounts)
an
additional Gross-Up Payment in respect of the Underpayment.
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(c) Procedures.
Xx.
Xxxxxxx shall notify SHG in writing of any claim by the Internal Revenue Service
that, if successful, would require the payment by SHG of a Gross-Up Payment.
Such notice shall be given as soon as practicable after Xx. Xxxxxxx knows of
such claim and Xx. Xxxxxxx shall apprise SHG of the nature of the claim and
the
date on which the claim is requested to be paid. Xx. Xxxxxxx agrees not to
pay
the claim until the expiration of the thirty-day period following the date
on
which Xx. Xxxxxxx notifies SHG, or such shorter period ending on the date the
taxes with respect to such claim are due (the "Notice Period"). If SHG notifies
Xx. Xxxxxxx in writing prior to the expiration of the Notice Period that it
desires to contest the claim, Xx. Xxxxxxx shall: (i) give SHG any information
reasonably requested by SHG relating to the claim; (ii) take such action in
connection with the claim as SHG may reasonably request, including, without
limitation, accepting legal representation with respect to such claim by an
attorney reasonably selected by SHG and reasonably acceptable to Xx. Xxxxxxx;
(iii) cooperate with SHG in good faith in contesting the claim; and (iv) permit
SHG to participate in any proceedings relating to the claim. Xx. Xxxxxxx shall
permit SHG to control all proceedings related to the claim and, at its option,
permit SHG to pursue or forgo any and all administrative appeals, proceedings,
hearings, and conferences with the taxing authority in respect of such claim.
If
requested by SHG, Xx. Xxxxxxx agrees either to pay the tax claimed and xxx
for a
refund or contest the claim in any permissible manner and 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 SHG shall determine;
provided,
however, that if SHG directs Xx. Xxxxxxx to pay such claim and pursue a refund,
SHG shall pay
such
claim on
Xx. Xxxxxxx’ behalf (the
"Claim Payment"). SHG’s control of the contest related to the claim shall be
limited to the issues related to the Gross-Up Payment and Xx. Xxxxxxx shall
be
entitled to settle or contest, as the case may be, any other issue raised by
the
Internal Revenue Service or other taxing authority. If SHG does not notify
Xx.
Xxxxxxx in writing prior to the end of the Notice Period of its desire to
contest the claim, SHG shall pay to the applicable taxing authorities on
Xx. Xxxxxxx’ behalf an additional Gross-Up Payment in respect of the excess
parachute payments that are the subject of the claim. Any
Gross-Up Payment shall be made without additional tax consequences to Xx.
Xxxxxxx.
(d) Repayments.
If,
after a Claim Payment is made by SHG, Xx. Xxxxxxx becomes entitled to a refund
with respect to the claim to which such Claim Payment relates, Xx. Xxxxxxx
shall
pay SHG the amount of the refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after a Claim Payment is made
by
Sun, a determination is made that Xx. Xxxxxxx shall not be entitled to any
refund with respect to the claim and SHG does not promptly notify Xx. Xxxxxxx
of
its intent to contest the denial of refund, then the amount of the Claim Payment
shall offset the amount of the additional Gross-Up Payment then owing to Xx.
Xxxxxxx.
(e)
Further
Assurances.
SHSS
shall indemnify Xx. Xxxxxxx and hold him harmless, on an after-tax basis, from
any costs, expenses, penalties, fines, interest or other liabilities (“Losses”)
incurred by Xx. Xxxxxxx with respect to the exercise by SHG of any of its rights
under Section 7, including, without limitation, any Losses related to SHG’s
decision to contest a claim or any imputed income to him resulting from any
Claim Payment or action taken on Xx. Xxxxxxx’ behalf by SHSS hereunder. SHSS
shall pay all legal fees and expenses incurred under Section 7 and shall
promptly reimburse Xx. Xxxxxxx for the reasonable expenses incurred by him
in connection with any actions taken by SHSS or SHG or required to be taken
by
Xx. Xxxxxxx hereunder. SHSS shall also pay all of the fees and expenses of
the
Accounting Firm, including, without limitation, the fees and expenses related
to
the opinion referred to in Section 7(b).
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4. Except
for the changes set forth herein, the Employment Agreement shall remain in
full
force and effect.
5.
Miscellaneous.
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(a)
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Amendments,
Waivers, Etc.
Except as otherwise provided herein, no provision of this Agreement
may be
modified, waived or discharged unless such waiver, modification or
discharge is agreed to in writing signed by both parties. No waiver
by
either party hereto at any time of any breach by the other party
hereto
of, or compliance with, any condition or provision of this Agreement
to be
performed by such other party shall be deemed a waiver of similar
or
dissimilar provisions or conditions at the same or at any prior or
subsequent time.
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(b)
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Entire
Agreement.
The Employment Agreement, as amended by this Agreement, sets forth
the
entire agreement and understanding of the parties hereto with respect
to
the matters covered hereby and supersedes all prior agreements and
understandings of the parties with respect to the subject matter
hereof.
No agreements or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof have been made by either
party
which are not expressly set forth in the Employment Agreement, as
amended
hereby, and the Employment Agreement, as so amended, shall supersede
all
prior agreements, negotiations, correspondence, undertakings and
communications of the parties, oral or written, with respect to the
subject matter hereof.
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(c)
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Counterparts.
This Agreement may be executed in one or more counterparts, each
of which,
when so executed and delivered, shall be deemed an original, but
all such
counterparts together shall constitute one and the same
instrument.
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[Signatures
Commence on Immediately Following Page]
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The
parties hereto have executed this Agreement as of the date first above
written.
/s/
Xxxxxxx X.
Xxxxxxx October
12, 2006
Xxxxxxx
X. Xxxxxxx
SUN
HEALTH SPECIALTY SERVICES, INC.
By
/s/
Xxxxxxx Xxxxxx
October
12, 2006
Its
Vice
President
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Schedule
A
Xx.
Xxxxxxx shall be eligible to receive a Bonus for any fiscal year
based on
the criteria set forth below. There are two components to his Bonus:
EBITDA and EVC, which are defined and outlined below. In the event
performance thresholds are met as outlined below, his minimum bonus
shall
be no less than 10% of his Base Salary, and his maximum Bonus shall
not
exceed 120% of his Base Salary.
1. Xx.
Xxxxxxx shall be eligible for a payment of up to 60% of his Base
Salary
based on earnings before interest, taxes, depreciation and amortization
of
Sun (“EBITDA”), as published by Sun in its press release announcing
financial results for the year in which the Base Salary was earned,
but
excluding the effect of actuarial adjustments for self-insurance
for
general and professional liability. The Compensation Committee reserves
the right to make adjustments to the calculation, including the inclusion
or exclusion of discontinued operations. The Compensation Committee
shall
establish the EBITDA target each year. The
EBITDA component of the Bonus shall be paid based upon actual EBITDA
attained as a percentage of the target EBITDA as follows: if actual
EBITDA
is less than 95% of target EBITDA, the amount of this component will
be
zero; if actual EBITDA is 95% of target EBITDA, the amount will be
5% of
Base Salary; if actual EBITDA is 100% of target EBITDA, the amount
will be
25% of Base Salary (if actual EBITDA is greater than 95% but less
than
100% of target EBITDA, the amount will be pro rated between 5% and
25% of
Base Salary); and if actual EBITDA is 120% (or greater) of target
EBITDA,
the amount will be 60% of Base Salary (if actual EBITDA is greater
than
100% but less than 120% of target EBITDA, the amount will be pro
rated
between 25% and 60% of Base Salary).
2. Xx.
Xxxxxxx shall be eligible for a payment of up to 60% of his Base
Salary
based on equity value creation (“EVC”). EVC shall be calculated as follows
(such calculations to be based on the audited consolidated financial
statements of SHG for the year in which the Base Salary was earned):
(i)
9.0 x EBITDA (as calculated above), (ii) less long-term debt, including
the current portion, (iii) plus unrestricted cash, (iv) less 25%
of
accrued self-insurance obligations, including the current portion
and net
of restricted cash; provided, however, that the Compensation Committee
reserves the right to exclude discontinued operations and to require
pro
forma calculations of EVC to take into account acquisitions, divestitures
and material restructurings. The Compensation Committee shall establish
the EVC targets each year. The EVC component of the Bonus shall be
paid
based upon the actual EVC attained as a percentage of the target
EVC, as
follows: if
actual EVC is less than 90% of target EVC, the amount of this component
will be zero; if actual EVC is 90% of target EVC, the amount will
be 5% of
Base Salary; if actual EVC is 100% of target EVC, the amount will
be 25%
of Base Salary (if actual EVC is greater than 90% but less than 100%
of
target EVC, the amount will be pro rated between 5% and 25% of Base
Salary); and if actual EVC is 140% (or greater) of target EVC , the
amount
will be 60% of Base Salary (if actual EVC is greater than 100% but
less
than 140% of target EVC, the amount will be pro rated between 25%
and 60%
of Base Salary).
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