EMPLOYMENT AGREEMENT
EXHIBIT
10.1
THIS
EMPLOYMENT AGREEMENT ("Agreement") is entered into this 12th day of October,
2006, by and between Xxxxxxx
Xxxxxx
("Xx.
Xxxxxx") and Sun
Healthcare Group, Inc., a
Delaware corporation ("Sun"
or
"Company").
WHEREAS,
Xx. Xxxxxx has served as the Chairman of the Board of Directors and Chief
Executive Officer ("CEO") of Sun since November 2001;
WHEREAS, Sun and Xx. Xxxxxx entered into an Employment Agreement dated February
28, 2002 (the “Existing Agreement”), which was scheduled to terminate on
November 6, 2005, but which was extended pursuant to the terms thereof until
November 6, 2006; and
WHEREAS,
Sun and Xx. Xxxxxx desire to enter into a new employment agreement, which shall
set forth 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 Sun on March 28, 2006) of Xx. Xxxxxx’ employment as
CEO.
NOW,
THEREFORE, in consideration of the above recitals and the mutual covenants
and
agreements contained herein, Xx. Xxxxxx and Sun agree as follows:
Section
1: Term of Employment.
Sun
agrees to employ Xx. Xxxxxx and Xx. Xxxxxx agrees to accept employment with
Sun,
subject to the terms and conditions of this Agreement. Unless earlier terminated
pursuant to the provisions of Sections 5 and 6 hereof, the initial term of
employment of Xx. Xxxxxx under this Agreement is for a period of three (3)
years
(the "Initial Term”), commencing as of March 28, 2006 (the "Effective Date"),
and terminating March 27, 2009. Thereafter, this Agreement shall be renewed
for
successive one (1) year periods (each such period a “Renewal Term”) (the Initial
Term and all full or partial Renewal Terms occurring prior to termination or
non-renewal of this Agreement being collectively referred to as the “Term”)
unless earlier terminated pursuant to the provisions of Sections 5 and 6 hereof,
or by written notice of non-renewal given by either party to the other not
less
than ninety (90) days prior to the expiration of the Initial Term or then
current Renewal Term, as the case may be.
Section
2. Duties and
Responsibilities.
Xx.
Xxxxxx is employed as CEO and is engaged as Chairman of the Board of Directors
of Sun. During the Term, Xx. Xxxxxx shall devote his full employment time,
efforts, skills and attention exclusively to advancing and rendering profitable
the business interests of Sun, its direct and indirect subsidiaries and their
lines of business; provided,
however, that to the extent the following activities do not materially interfere
or conflict with his duties and responsibilities hereunder and as imposed by
applicable laws, rules and regulations, Xx. Xxxxxx may (i) continue to serve
as
a member of the boards of directors of the companies previously disclosed in
writing to the Board of Directors of Sun ("Board of Directors"), (ii) engage
in
charitable, civic and religious affairs and (iii) with the prior written consent
of the Board of Directors, serve as a member of the board of directors of other
companies. Xx. Xxxxxx agrees to report to and render such services,
commensurate with his positions as Chairman or CEO, as the Board of Directors
may from time to time reasonably direct. In addition, at the reasonable request
of the Board of Directors, Xx. Xxxxxx shall serve as director or senior
executive officer of one or more direct or indirect subsidiaries of Sun without
additional compensation.
1
Section
3: Compensation, Benefits and Related Matters.
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a.
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Annual
Base Salary.
Sun shall pay during the Term to Xx. Xxxxxx a base salary at an annual
rate of $700,000 ("Base Salary"), such salary to be payable in accordance
with Sun's customary payroll practices (but not less frequently than
monthly). If Sun’s EBITDA for fiscal year 2006 equals or exceeds the
amount of EBITDA set forth in Sun’s budget for 2006 as approved by the
Board of Directors, Xx. Xxxxxx’ base salary will be increased to an annual
rate of $750,000 retroactive to November 5, 2005. On or about each
anniversary of the Effective Date during the Term, the Board of Directors
or the Compensation Committee of the Board of Directors shall review
Xx.
Xxxxxx’ annual base salary for possible merit increases in its sole
discretion, and any increase in Xx. Xxxxxx’ annual base salary rate shall
thereafter constitute “Base Salary” for purposes of this Agreement. The
parties intend that such retroactive increase not be treated as or
deemed
to be deferred compensation for purposes of Section 409A of the Internal
Revenue Code of 1986, as amended (the “Code”) and the rules and
regulations promulgated thereunder.
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b.
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Cash
Bonus/Incentive Compensation.
In
addition to the Base Salary provided for in Section 3(a) above, Xx.
Xxxxxx
shall be entitled 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. 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, in
order to
have earned and to be paid any such Bonus, Xx. Xxxxxx must be employed
by
Sun 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 Code to the extent necessary to preserve the
Company’s ability to deduct such bonus.
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c.
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Restricted
Stock and Options.
Xx. Xxxxxx shall participate in such restricted stock and option
plans of
the Company as are made available generally to senior executive officers
of the Company. Any grants under such plans shall be made by the
Board of
Directors (or appropriate committee thereof) in its sole discretion
and
such plans are subject to change during the Term at the sole discretion
of
the Company.
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d.
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Retirement
and Benefit Plans.
During the Term, Xx. Xxxxxx shall be entitled to participate in all
retirement plans, health benefit programs, insurance programs and
other
similar employee welfare benefit arrangements available generally
to
senior executive officers of Sun from time to time. Such plans, programs
and arrangements are subject to change during the Term at the sole
discretion of the Company.
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e.
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Paid
Time Off.
During the Term, Xx. Xxxxxx shall be entitled to paid time off in
accordance with Sun's policy for senior executive
officers.
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f.
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Indemnification
Liability/Insurance.
Xx. Xxxxxx shall be entitled to indemnification by Sun to the fullest
extent permitted by applicable law and the charter and by laws of
Sun. In
addition, Sun shall maintain during Xx. Xxxxxx' employment customary
director's and officers' liability insurance and Xx. Xxxxxx shall
be
covered by such insurance.
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g.
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Taxes.
All compensation payable to Xx. Xxxxxx shall be subject to withholding
for
all applicable federal, state and local income taxes, occupational
taxes,
Social Security and similar mandatory
withholdings.
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h.
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Expenses.
Xx. Xxxxxx shall be entitled to reimbursement for expenses incurred
by him
in connection with the discharge of his duties hereunder. All such
expense
reimbursement shall be subject to and shall be submitted, documented
and
paid in accordance with the expense reimbursement policies of the
Company,
as such policies may change from time to
time.
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Section
4: [Reserved]
Section
5. Termination.
Sun may,
at any time, in its sole discretion, terminate Xx. Xxxxxx as Chairman and
CEO and from all other positions with Sun and its direct and indirect
subsidiaries; provided, however, that Sun shall provide Xx. Xxxxxx with at
least
five (5) business days prior written notice of such termination and shall make
the payments associated with such termination in accordance with Section 6.
Notwithstanding any provision in Section 1 hereof, the Term shall end on the
date of Xx. Xxxxxx' termination of employment in accordance with this Agreement.
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a.
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Termination
by Sun for "Good Cause."
Sun may at any time, by written notice to Xx. Xxxxxx at least five
(5)
business days prior to the date of termination specified in such
notice
and specifying the acts or omissions believed to constitute Good
Cause (as
defined below), terminate Xx. Xxxxxx as Chairman and CEO and from all
other positions with Sun and its direct and indirect subsidiaries
for Good
Cause. Sun may relieve Xx. Xxxxxx of his duties and responsibilities
pending a final determination of whether Good Cause exists, and such
action shall not constitute Good Reason (as defined below) for purposes
of
this Agreement. Payment to Xx. Xxxxxx upon a termination for Good
Cause is
set forth in Section 6(a). "Good Cause" for termination shall mean
any one
of the following:
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1.
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Any
felony criminal conviction (including conviction pursuant to a nolo
contendere plea) under the laws of the United States or any state
or other
political subdivision thereof which, in the sole discretion of the
Board
of Directors, renders Xx. Xxxxxx unsuitable for the position of either
Chairman or CEO;
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2.
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Any
act of financial malfeasance or financial impropriety, as determined
by
the Board of Directors in good
faith;
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3.
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Xx.
Xxxxxx' continued willful failure to perform the duties reasonably
requested by the Board of Directors and commensurate with his positions
as
Chairman and CEO (other than any such failure resulting from his
incapacity due to his physical or mental condition) after a written
demand
for substantial performance is delivered to him by the Board of Directors,
which demand specifically identifies the manner in which the Board
of
Directors believes that he has not substantially performed his duties,
and
which performance is not substantially corrected by him within ten
(10)
days of receipt of such demand;
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4.
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Any
material workplace misconduct or willful failure to comply with Sun's
general policies and procedures as they may exist from time to time
by Xx.
Xxxxxx which, in the good faith determination of the Board of Directors,
renders Xx. Xxxxxx unsuitable for the position of either Chairman
or CEO;
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5.
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Any
material breach by Xx. Xxxxxx of the provisions of this Agreement
which
has not been cured by Xx. Xxxxxx thirty (30) days following delivery
of
notice to Xx. Xxxxxx specifying such material breach, or the repetition
of
any such material breach after it has been cured;
or
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6.
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Any
act of moral turpitude, as determined by the Board of Directors in
good
faith.
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b.
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Termination
by Sun without Good Cause.
Sun may at any time, by written notice to Xx. Xxxxxx at least five
(5)
business days prior to date of termination specified in such notice,
terminate Xx. Xxxxxx as Chairman and CEO and from all other positions
with
Sun and its direct and indirect subsidiaries. If such termination
is made
by Sun other than by reason of Xx. Xxxxxx' death, Disability (as
defined
in Section 5(e)) or expiration of the Term, and Good Cause does not
exist,
such termination shall be treated as a termination without Good Cause
and
Xx. Xxxxxx shall be entitled to payment in accordance with Section
6(b).
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c.
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Termination
by Xx. Xxxxxx for Good Reason.
Xx. Xxxxxx may, at any time at his option within sixty (60) days
following
an event or condition that constitutes Good Reason (as defined below),
resign for Good Reason as Chairman and CEO and from all other positions
with Sun and its direct and indirect subsidiaries by written notice
to Sun
at least thirty (30) days prior to the date of termination specified
in
such notice; provided, however, that Sun has not substantially corrected
the event or condition that would constitute Good Reason prior to
the date
of termination. Payment to Xx. Xxxxxx upon a termination for Good
Reason
is set forth in Section 6(b).
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1.
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“Good
Reason" shall mean the occurrence of any one of the following events
or
conditions (but only if Xx. Xxxxxx provides a notice of resignation
to Sun
within sixty (60) days following such event or
condition):
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(a)
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A
meaningful and detrimental reduction, without Xx. Xxxxxx' written
consent, in the nature of his responsibilities at Sun, or a meaningful
and
detrimental change in his reporting responsibilities or
titles;
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(b)
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A
reduction of compensation as set forth in Sections 3(a) and 3(b)
(collectively the "Compensation"), a reduction of the benefits set
forth
in Sections 3(d) - 3(f) (collectively, the "Benefits") (other than
a
reduction of Benefits uniformly applicable to other members of senior
management), or failure by Sun to pay to Xx. Xxxxxx any portion of
the
Compensation or Benefits within seven (7) business days of the date
such
compensation or other payments and benefits are due;
or
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(c)
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A
change in Xx. Xxxxxx' principal work location to a place other than
Orange
County, California.
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d.
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Voluntary
Resignation.
Xx. Xxxxxx may, at any time at his option with thirty (30) calendar
days
written notice to Sun, voluntarily resign without Good Reason as
Chairman
and CEO and from all other positions with Sun and its direct and
indirect
subsidiaries. Payment to Xx. Xxxxxx upon his voluntary resignation
without
Good Reason is set forth in Section 6(a). Resignation from Sun shall
automatically constitute resignation from all positions of any
subsidiary.
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e.
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Death
or Disability.
Xx. Xxxxxx' employment under this Agreement and the Term shall terminate
automatically as of the date of Xx. Xxxxxx' death. Sun may, at any
time by
written notice to Xx. Xxxxxx at least five (5) business days prior
to the
date of termination specified in such notice, terminate Xx. Xxxxxx
as
Chairman and CEO and from all other positions with Sun and its direct
or
indirect subsidiaries by reason of his Disability. "Disability" shall
mean
any physical or mental condition or illness that prevents Xx. Xxxxxx'
from
performing his duties hereunder in any material respect for a period
of
120 substantially consecutive calendar days, as determined by a physician
selected by Sun or, if Xx. Xxxxxx is incapacitated, reasonably acceptable
to the Director of Medicine or equivalent senior physician at Xxxx
Hospital. Payment to Xx. Xxxxxx upon his termination by reason of
his
death or Disability is set forth in Section
6(a).
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Section
6: Payments Upon
Termination.
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a.
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Payment
Upon Termination for Good Cause, Resignation without Good Reason,
Death or
Disability.
In
the event of termination of employment during the Term pursuant to
Sections 5(a), 5(d) or 5(e), Xx. Xxxxxx, or his estate where
applicable, shall be paid any earned but unpaid Base Salary through
the
date of termination and any accrued and unused paid time off through
the
date of termination. In addition, in the case of a termination of
employment pursuant to Sections 5(e), but not Sections 5(a) or 5(d),
Xx.
Xxxxxx or his estate shall be paid any accrued and unpaid Bonus for
any
prior fiscal year and a pro rata portion (based on the number of
days of
employment in the fiscal year of termination divided by 365) of the
Bonus,
if any, for the fiscal year in which the termination occurs.
Xx. Xxxxxx' shall also receive his vested benefits in accordance with
the terms of Sun's compensation and benefit plans, and his participation
in such plans and all other perquisites (including, but not limited
to,
his car allowance) shall cease as of the date of termination, except
to
the extent Xx. Xxxxxx may elect to continue coverage as under any
welfare
benefit plans as required by Part 6, Title I of the Employee Retirement
Income Security Act of 1974, as amended. Upon a termination under
Section
5(a), 5(d) or 5(e), Xx. Xxxxxx shall not be entitled to any compensation
or benefits under this Agreement except as set forth in this Section
6(a).
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b.
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Payment
Upon Termination by Sun without Good Cause, or following expiration
of the
Term, or by Xx. Xxxxxx for Good Reason.
In
the event of termination of employment during the Term pursuant to
Sections 5(b) or 5(c) or at the expiration of the Term following
Sun's
provision to Xx. Xxxxxx of a notice of non-extension, as provided
in
Section 1, Xx. Xxxxxx shall be entitled to a lump sum severance
payment in an amount equal to the greater of: (i) the unpaid and
unearned
portion of his Base Salary for the remainder of the Initial Term
or then
current Renewal Term, as the case may be, or (ii) two (2) year's
Base
Salary or, in the event such termination occurs on or within two
years
following the date of a Change in Control, three (3) year's Base
Salary.
Notwithstanding the foregoing, Xx. Xxxxxx' right to receive the severance
payment hereunder shall be conditioned upon his execution and delivery
of
a general release in favor of Sun, which shall not be inconsistent
with
the terms of this Agreement, and such other documents and instruments
as
are reasonably required by Sun. Xx. Xxxxxx shall also be entitled
to any
accrued and unpaid Bonus for any prior fiscal year and a pro rata
portion
(based on the number of days of employment in the fiscal year of
termination divided by 365) of the Bonus, if any, for the fiscal
year in
which the termination occurs and payment of any accrued paid time
off
pursuant to Section 3(e) in accordance with Company policy. Xx. Xxxxxx'
participation in any other retirement and benefit plans and perquisites
(including, but not limited to, his car allowance) shall cease as
of the
date of termination, except Xx. Xxxxxx and his eligible dependents
(as
determined under Sun's health plan) shall be entitled to continuing
coverage under Sun's health plans on the same basis as active employees
until the earlier of (i) the second anniversary of the date of termination
or (ii) the date of Xx. Xxxxxx or his eligible dependents become
eligible to participate in a plan of a successor employer. A termination
of Xx. Xxxxxx' employment during the Term without Good Cause (other
than
by reason of his death or Disability) within six (6) months preceding
a
Change in Control shall be treated as if such termination occurred
on the
date of such Change in Control if it is reasonably demonstrated that
the
termination was at the request of the third party who has taken steps
reasonably calculated to effect such Change in Control or otherwise
arose
in connection with or in anticipation of such Change in
Control.
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c.
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"Change
in Control."
For purposes of this Section 6, a "Change in Control" shall be deemed
to
have occurred if any of the following events
occurs:
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1.
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Any
"person" or "group" (within the meaning of Sections 13(d) and 14(d)(2)
of
the Securities Exchange Act of 1934, as amended (the "1934 Act")),
other
than a trustee or other fiduciary holding securities under an employee
benefit plan of the Company (an "Acquiring Person"), is or becomes
the
"beneficial owner" (as defined in Rule 13d-3 under the 1934 Act),
directly
or indirectly, of more than 33 1/3% of the then outstanding voting
stock
of the Company;
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2.
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A
merger or consolidation of the Company with any other corporation,
other
than a merger or consolidation which would result in the voting securities
of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted
into
voting securities of the surviving entity) at least 51% of the combined
voting power of the voting securities of the Company or surviving
entity
outstanding immediately after such merger or
consolidation;
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3.
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A
sale or other disposition by the Company of all or substantially
all of
the Company's assets;
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4.
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During
any period of two (2) consecutive years (beginning on or after the
Effective Date), individuals who at the beginning of such period
constitute the Board of Directors and any new director (other than
a
director who is a representative or nominee of an Acquiring Person)
whose
election by the Board of Directors or nomination for election by
the
Company's shareholders was approved by a vote of at least a majority
of
the directors then still in office who either were directors at the
beginning of the period or whose election or nomination was previously
so
approved, no longer constitute a majority of the Board of
Directors;
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provided,
however,
in no
event shall any acquisition of securities, a change in the composition of the
Board of Directors or a merger or other consolidation pursuant to a plan of
reorganization under chapter 11 of the Bankruptcy Code with respect to the
Company ("Chapter 11 Plan"), or a liquidation under the Bankruptcy Code
constitute a Change in Control. In addition, notwithstanding Sections 6(c)(1),
6(c)(2), 6(c)(3) and 6(c)(4), a Change in Control shall not be deemed to have
occurred in the event of a sale or conveyance in which the Company continues
as
a holding company of an entity or entities that conduct the business or
businesses formerly conducted by the Company, or any transaction undertaken
for
the purpose of reincorporating the Company under the laws of another
jurisdiction, if such transaction does not materially affect the beneficial
ownership of the Company's capital stock. Xx. Xxxxxx' continued employment
without objection following a Change in Control shall not, by itself, constitute
consent to or a waiver of rights with respect to any circumstances constituting
Good Reason hereunder. A Change in Control shall not, by itself, constitute
Good
Reason hereunder.
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d.
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Cooperation.
Following the expiration or a termination of this Agreement for any
reason, Xx. Xxxxxx shall provide such cooperation as is reasonably
required by the Company, including, without limitation, consulting
with
the Company with respect to litigation and/or matters that relate
to facts
and circumstances that occurred during the Term of his employment
by the
Company, and executing such documents and instruments relating to
such
Term of employment as are reasonably requested by
Sun.
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Section
7: Additional Payments.
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x.
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Xxxxx-Up
Payments.
Notwithstanding anything herein to the contrary, if it is determined
that
any payment to Xx. Xxxxxx pursuant to this Agreement would be subject
to
the excise tax imposed by Section 4999 of the Code or any interest
or
penalties with respect to such excise tax (such excise tax, together
with
any interest or penalties thereon, is herein referred to as an "Excise
Tax"), then Xx. Xxxxxx shall be entitled to an additional payment
(a
"Gross-Up Payment") in an amount that will place Xx. Xxxxxx in the
same
after-tax economic position that he would have enjoyed if the Excise
Tax
had not applied to the payment. The amount of the Gross-Up Payment
shall
be determined by an accounting firm retained by Sun (the "Accounting
Firm") using such formulas as the Accounting Firm deems appropriate.
No
Gross-Up Payment shall be payable hereunder if the Accounting Firm
determines that the payments are not subject to an Excise Tax.
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b.
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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 Sun and Xx. Xxxxxx
within
fifteen days of Xx. Xxxxxx' date of termination or any other date
reasonably requested by Sun or Xx. Xxxxxx on which a determination
under
Section 7 is necessary or advisable. Within five days of the receipt
by
Xx. Xxxxxx and Sun of the Accounting Firm's determination of the
initial Gross-Up Payment, Sun 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. Xxxxxx, Sun shall cause the Accounting Firm to provide Xx. Xxxxxx
and
Sun with an opinion that Sun has substantial authority under the
Code and
regulations thereunder not to report an Excise Tax on Xx. Xxxxxx'
federal
income tax return. Any determination by the Accounting Firm shall
be
binding upon Xx. Xxxxxx and Sun. 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. Xxxxxx with respect to any payment
(hereinafter and "Underpayment"), Sun, after exhausting its remedies
under
Section 7(c) below, shall promptly pay to the applicable taxing
authorities for the benefit of Xx. Xxxxxx (or directly to Xx. Xxxxxx
in
the event Xx. Xxxxxx previously paid the related tax amounts) an
additional Gross-Up Payment in respect of the
Underpayment.
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c.
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Procedures. Xx.
Xxxxxx shall notify Sun in writing of any claim by the Internal Revenue
Service that, if successful, would require the payment by Sun of
a
Gross-Up Payment. Such notice shall be given as soon as practicable
after
Xx. Xxxxxx knows of such claim and shall apprise Sun of the nature
of the
claim and the date on which the claim is requested to be paid. Xx.
Xxxxxx
agrees not to pay the claim until the expiration of the thirty-day
period
following the date on which Xx. Xxxxxx notifies Sun, or such shorter
period ending on the date the taxes with respect to such claim are
due
(the "Notice Period"). If Sun notifies Xx. Xxxxxx in writing prior
to the
expiration of the Notice Period that it desires to contest the claim,
Xx.
Xxxxxx shall: (i) give Sun any information reasonably requested by
Sun
relating to the claim; (ii) take such action in connection with the
claim
as Sun may reasonably request, including, without limitation, accepting
legal representation with respect to such claim by an attorney reasonably
selected by Sun and reasonably acceptable to Xx. Xxxxxx; (iii) cooperate
with Sun in good faith in contesting the claim; and (iv) permit Sun
to
participate in any proceedings relating to the claim. Xx. Xxxxxx
shall
permit Sun to control all proceedings related to the claim and, at
its
option, permit Sun 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 Sun, Xx. Xxxxxx 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 Sun shall determine; provided, however,
that
if Sun directs Xx. Xxxxxx to pay such claim and pursue a refund,
Sun shall
pay such claim on Xx. Xxxxxx’ behalf on an after-tax and interest-free
basis (the "Claim Payment"). Sun's control of the contest related
to the
claim shall be limited to the issues related to the Gross-Up Payment
and
Xx. Xxxxxx 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 Sun does not notify Xx. Xxxxxx in writing prior to
the end
of the Notice Period of its desire to contest the claim, Sun shall
pay to
the applicable taxing authorities on Xx. Xxxxxx’ behalf an
additional Gross-Up Payment in respect of the excess parachute payments
that are the subject of the
claim.
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d.
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Repayments.
If, after a Claim Payment is made by Sun, Xx. Xxxxxx becomes entitled
to a
refund with respect to the claim to which such Claim Payment relates,
Xx.
Xxxxxx shall pay Sun 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. Xxxxxx
shall not be entitled to any refund with respect to the claim and
Sun does
not promptly notify Xx. Xxxxxx 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.
Xxxxxx.
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e.
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Further
Assurances.
Sun shall indemnify Xx. Xxxxxx and hold him harmless, on an after-tax
basis, from any costs, expenses, penalties, fines, interest or other
liabilities ("Losses") incurred by Xx. Xxxxxx with respect to the
exercise
by Sun of any of its rights under Section 7, including, without
limitation, any Losses related to Sun's decision to contest a claim
or any
imputed income to him resulting from any Claim Payment or action
taken on
Xx. Xxxxxx' behalf by Sun hereunder. Sun shall pay all legal fees
and
expenses incurred under Section 7 and shall promptly reimburse
Xx. Xxxxxx for the reasonable expenses incurred by him in connection
with any actions taken by Sun or required to be taken by Xx. Xxxxxx
hereunder. Sun 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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Section
8: Protection of Sun's
Interests.
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a.
|
Ownership
of Property.
Xx. Xxxxxx acknowledges and agrees that any and all property developed,
discovered or created by him during the pendency of his employment
by the
Company, including, without limitation, any and all copyrights,
trademarks, trade secrets or other intellectual property is and shall
remain the sole and exclusive property of the Company and Xx. Xxxxxx
hereby sells, assigns and otherwise transfers all of his right, title
and
interest in and to such property, if any, to the
Company.
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b.
|
Confidentiality.
Xx. Xxxxxx agrees that he will not at any time, during or after the
term
of this Agreement, except in performance of his obligations to Sun
hereunder or with the prior written consent of the Board of Directors,
directly or indirectly disclose to any person or organization any
secret
or "Confidential Information" that Xx. Xxxxxx may learn or has learned
by
reason of his association with Sun and its direct and indirect
subsidiaries. For purposes of all of this Section 8 only, "Sun" shall
also
include Sun's direct and indirect subsidiaries. The term "Confidential
Information" means any information not previously disclosed to the
public
or to the trade by Sun's management may need rewording with respect
to
Sun's products, services, business practices, facilities and methods,
salary and benefit information, trade secrets and other intellectual
property, systems, procedures, manuals, confidential reports, product
price lists, pricing information, customer lists, financial information
(including revenues, costs or profits associated with any of Sun's
products or lines of business), business plans, prospects or
opportunities.
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10
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c.
|
Exclusive
Property.
Xx. Xxxxxx confirms that all Confidential Information is and shall
remain
the exclusive property of Sun. All business records, papers and documents
kept or made by Xx. Xxxxxx relating to the business of Sun shall
be and
remain the property of Sun. Upon the expiration or termination of
Xx.
Xxxxxx' employment with Sun for any reason or upon the request of
Sun at
any time, Xx. Xxxxxx shall promptly deliver to Sun, and shall not
without
the consent of the Board of Directors, retain copies of, Confidential
Information, or any written materials not previously made available
to the
public, or records and documents made by Xx. Xxxxxx or coming into
Xx.
Xxxxxx' possession concerning the business or affairs of
Sun.
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|
d.
|
Nonsolicitation.
Xx. Xxxxxx shall not, during his employment under this Agreement,
and for
two (2) years following the termination of this Agreement, for whatever
reason or cause, in any manner induce, attempt to induce, or assist
others
to induce, or attempt to induce, any employee, agent, representative
or
other person associated with Sun or any customer, patient or client
of Sun
to terminate his or her association or contract with Sun, nor in
any
manner, directly or indirectly, interfere with the relationship between
Sun and any of such persons or
entities.
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|
e.
|
Relief.
Without intending to limit the remedies available to Sun, Xx. Xxxxxx
acknowledges that a breach of any of the covenants in Section 8 may
result
in material irreparable injury to Sun for which there is no adequate
remedy at law, that it will not be possible to measure damages for
such
injuries precisely and that, in the event of such a breach or threat
thereof, Sun shall be entitled to obtain a temporary restraining
order
and/or a preliminary or permanent injunction restraining Xx. Xxxxxx
from
engaging in activities prohibited by Section 8 or such other relief
as may
be required to specifically enforce any of the covenants in Section
8.
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|
f.
|
Non-Disparagement.
Xx. Xxxxxx shall not during his employment under this Agreement and
for
two (2) years following termination of the Agreement, for whatever
reason,
make any statements that are intended to or that would reasonably
be
expected to harm Sun or any of its subsidiaries or affiliates, their
respective predecessors, successors, assigns and employees and their
respective past, present or future officers, directors, shareholders,
employees, trustees, fiduciaries, administrators, agents or
representatives. Sun and its officers and directors will not make
any
statements that are intended to or that would reasonably be expected
to
harm Xx. Xxxxxx or his reputation or that reflect negatively on Matros’
performance, skills or ability.
|
Section
9: Miscellaneous
Provisions.
|
a.
|
Amendments,
Waivers, Etc.
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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11
|
b.
|
Validity.
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision
of
this Agreement, which shall remain in full force and
effect.
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|
c.
|
Entire
Agreement.
This Agreement sets forth the entire agreement and understanding
of the
parties hereto with respect to the matters covered hereby. 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 this Agreement and this Agreement shall supersede
all prior agreements, including the Existing Agreement, negotiations,
correspondence, undertakings and communications of the parties, oral
or
written, with respect to the subject matter hereof.
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|
d.
|
Resolution
of Disputes.
Any disputes arising under or in connection with this Agreement may,
at
the election of Xx. Xxxxxx or Sun, be resolved by binding arbitration,
to
be held in Orange County, California in accordance with the rules
and
procedures of the American Arbitration Association. If arbitration
is
elected, Xx. Xxxxxx and Sun shall mutually select the arbitrator.
If Xx.
Xxxxxx and Sun cannot agree on the selection of an arbitrator, each
party
shall select an arbitrator and the two arbitrators shall select a
third
arbitrator who shall resolve the dispute. Judgment upon the award
rendered
by the arbitrator may be entered in any court having jurisdiction
thereof.
Nothing herein shall limit the ability of Sun to obtain the injunctive
relief described in Section 8(e) pending final resolution of matters
that
are sent to arbitration.
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|
e.
|
Attorneys'
Fees.
Sun shall pay or reimburse Xx. Xxxxxx on an after-tax basis for all
costs
and expenses (including, without limitation, court costs, costs of
arbitration and reasonable legal fees and expenses which reflect
common
practice with respect to the matters involved) incurred by Xx. Xxxxxx
if
Xx. Xxxxxx prevails on the merits of any claim, action or proceeding
(i)
contesting or otherwise relating to the existence of Good Cause in
the
event of Xx. Xxxxxx' termination of employment during the Term for
Good
Cause; (ii) enforcing any right, benefit or obligation under this
Agreement, or otherwise enforcing the terms of this Agreement or
any
provision thereof; or (iii) asserting or otherwise relating to the
existence of Good Reason in the event of Xx. Xxxxxx' termination of
employment during the Term for Good
Reason.
|
|
f.
|
Governing
Law.
The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of
California.
|
12
|
g.
|
Notice. For
the purpose of this Agreement, notice, demands and all other communication
provided for in this Agreement shall be in writing and shall be deemed
to
have been duly given when delivered by hand delivery or overnight
courier
or mailed by United States certified or registered mail, return receipt
requested, postage prepaid, addressed as follows or to other addresses
as
each party may have furnished to the
other:
|
To Sun:
Sun
Healthcare Group, Inc.
Attention:
General Counsel
00000
Xxx
Xxxxxx, Xxxxx 000
Xxxxxx,
Xxxxxxxxxx 00000-0000
To
Xx.
Xxxxxx:
Xx.
Xxxxxxx Xxxxxx
00
Xxxxxx
Xxxxx
Xxxxxxx
Xxxxx, Xxxxxxxxxx 00000
The
parties hereto have executed this Agreement as of the date first above
written.
| /s/ Xxxxxxx Xxxxxx | October 12, 2006 |
| XXXXXXX XXXXXX | Date |
| SUN HEALTHCARE GROUP, INC. | |
| By /s/ Xxxxxxx Xxxxxx | October 12, 2006 |
| Its Executive Vice President | Date |
13
Schedule
A
Xx.
Xxxxxx 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.
Xxxxxx 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.
Xxxxxx 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).
14
