Amendment No. 1 to EMPLOYMENT AGREEMENT
EXHIBIT
10.5
Amendment
No. 1
to
THIS
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT (“Agreement”) effective as of October
12, 2006, by and between Xxxxxxx Xxxxxx (“Executive”) and Sun Healthcare Group,
Inc., a Delaware corporation (“Sun”);
WHEREAS,
Sun and Executive entered into an Employment Agreement dated as of March 22,
2005 (the “Employment Agreement”), and they desire to amend the Employment
Agreement on the terms and conditions (including the terms and conditions of
Executive’s bonus eligibility, as approved by the Compensation Committee of the
Board of Directors of Sun 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, Executive and Sun agree as follows:
1. Section
3(b) of the Employment Agreement is hereby amended and restated as
follows:
(b) Cash
Bonus/Incentive Compensation.
In
addition to the Base Salary provided for in Section 3(a) above, Executive
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 Sun; 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 Executive. 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, Executive must be employed by Sun 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.
2. 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
and the assumptions to be utilized in arriving at such determination, shall
be
made by Sun’s independent auditors or such other certified public accounting
firm reasonably acceptable to Executive as may be designated by Sun (the
"Accounting Firm") which shall provide detailed supporting calculations both
to
Sun and Executive within fifteen business days of Executive’s date of
termination or any other date reasonably requested by Sun or Executive on which
a determination under Section 7 is necessary or advisable. Within five days
of
the receipt by Executive 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 Executive. If the Accounting Firm determines that no Excise Tax
is
payable by Executive, Sun shall cause the Accounting Firm to provide Executive
and Sun with an opinion that Sun has substantial authority under the Internal
Revenue Code and regulations thereunder not to report an Excise Tax on
Executive’s federal income tax return. Any determination by the Accounting Firm
shall be binding upon Executive and Sun. As a result of the uncertainty in
the
application of Section 4999 of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Gross-Up Payments which
will not have been made by Sun should have been made (“Underpayment”),
consistent with the calculations required to be made hereunder. In the event
that Sun exhausts its remedies pursuant to Section 7(c) and Executive thereafter
is required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by Sun to the
applicable taxing authorities for the benefit of Executive (or directly to
Executive in the event Executive previously paid the related tax
amounts).
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(c) Procedures.
Executive 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 Executive
knows
of such claim and Executive shall apprise Sun of the nature of the claim and
the
date on which the claim is requested to be paid. Executive agrees not to pay
the
claim until the expiration of the thirty-day period following the date on which
Executive 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 Executive
in writing prior to the expiration of the Notice Period that it desires to
contest the claim, Executive 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 Executive; (iii)
cooperate with Sun in good faith in contesting the claim; and (iv) permit Sun
to
participate in any proceedings relating to the claim. Executive 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, Executive 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 Executive to pay such claim and pursue a refund,
Sun shall pay
such
claim
on Executive’s
behalf
(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 Executive 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
Executive 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 Executive’s
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 Executive.
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(d) Repayments.
If,
after a Claim Payment is made by Sun, Executive becomes entitled to a refund
with respect to the claim to which such Claim Payment relates, Executive 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 Executive shall not be entitled to any refund
with respect to the claim and Sun does not promptly notify Executive 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
Executive.
(e)
Further
Assurances.
Sun
shall indemnify Executive and hold him harmless, on an after-tax basis, from
any
costs, expenses, penalties, fines, interest or other liabilities (“Losses”)
incurred by Executive 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 Executive’s behalf by Sun hereunder. Sun shall
pay all legal fees and expenses incurred under Section 7 and shall promptly
reimburse Executive for the reasonable expenses incurred by him in connection
with any actions taken by Sun or required to be taken by Executive 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).
3. Except
for the changes set forth herein, the Employment Agreement shall remain in
full
force and effect.
4.
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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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 X.
Xxxxxx
October
12, 2006
Its
Chief
Executive Officer
Date
4
Schedule
A
Executive’s
Bonus for any fiscal year shall be based on the criteria set forth below. There
are two components to his Bonus: EBITDA and individual goals, which are defined
and outlined below. The EBITDA component of the Bonus shall equal 70% of the
Maximum Amount (as defined below) and the individual goals component of the
Bonus shall equal up
to
30% of
the Maximum Amount. In no event shall his Bonus exceed 100% of his Base Salary
for such fiscal year.
1. Maximum
Amount.
The
maximum amount of the Bonus shall be determined solely by reference to earnings
before interest, taxes, depreciation and amortization of Sun (“EBITDA”), as
published by Sun in its press release announcing financial results for the
fiscal 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
potential amount of the Bonus shall be 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 Bonus will be zero; if actual EBITDA is 95% of target EBITDA,
the maximum amount of the Bonus (the “Maximum Amount”) shall equal 10% of Base
Salary; if actual EBITDA is 100% of target EBITDA, the Maximum Amount shall
equal 50% of Base Salary (if actual EBITDA is greater than 95% but less than
100% of target EBITDA, the Maximum Amount will be pro rated between 10% and
50%
of Base Salary); and if actual EBITDA is 120% (or greater) of target EBITDA,
the
Maximum Amount shall equal 100% of Base Salary (if actual EBITDA is greater
than
100% but less than 120% of target EBITDA, the Maximum Amount will be pro rated
between 50% and 100% of Base Salary).
2, EBITDA
Component.
The
EBITDA component of the Bonus shall equal 70% of the Maximum Amount.
3. Individual
Goals Component.
The
Chief Executive Officer of Sun (the “CEO”) shall establish the individual goals
each year after consulting with Executive, the Compensation Committee, and
such
others as the CEO deems appropriate. The amount of the individual goals
component of the Bonus shall be an amount up
to
30% of
the Maximum Amount, with the final amount to be determined as follows: after
the
fiscal year end, the CEO shall make a recommendation to the Compensation
Committee as to what extent the goals have been met. The Compensation Committee
shall determine the amount of this component of the Bonus to be paid to
Executive based upon the level of attainment of the goals.
4. Timing
of
Payment.
Both
components of the Bonus shall be paid to Executive at the time specified in
Section 3(b).
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