Amendment No. 1 to EMPLOYMENT AGREEMENT
EXHIBIT
10.4
Amendment
No. 1
to
THIS
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT (“Agreement”) effective as of October
12, 2006, by and between L. Xxxxx Xxxxx (“Xx. Xxxxx”) and Sun Healthcare Group,
Inc., a Delaware corporation (“Sun”);
WHEREAS,
Sun and Xx. Xxxxx entered into an Employment Agreement dated as of February
14,
2005 (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 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, Xx. Xxxxx 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, Xx. Xxxxx
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 Xx. Xxxxx. 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. Xxxxx 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, shall be made by the Accounting Firm, which shall provide detailed
supporting calculations both to Sun and Xx. Xxxxx within fifteen business days
of Xx. Xxxxx’x date of termination or any other date reasonably requested by Sun
or Xx. Xxxxx on which a determination under Section 7 is necessary or advisable.
Within five days of the receipt by Xx. Xxxxx 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. Xxxxx.
If the
Accounting Firm determines that no Excise Tax is payable by Xx. Xxxxx, Sun
shall
cause the Accounting Firm to provide Xx. Xxxxx 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 Xx. Xxxxx’x federal income tax return.
Any determination by the Accounting Firm shall be binding upon Xx. Xxxxx 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. Xxxxx with respect
to any payment (hereinafter an “Underpayment”), Sun, after exhausting its
remedies under Section 7(c) below, shall promptly pay to the
applicable taxing authorities for the benefit of Xx. Xxxxx (or directly to
Xx.
Xxxxx in the event Xx. Xxxxx previously paid the related tax
amounts)
an
additional Gross-Up Payment in respect of the Underpayment.
1
(c) Procedures.
Xx.
Xxxxx 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. Xxxxx knows of
such
claim and Xx. Xxxxx shall apprise Sun of the nature of the claim and the date
on
which the claim is requested to be paid. Xx. Xxxxx agrees not to pay the claim
until the expiration of the thirty-day period following the date on which Xx.
Xxxxx 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. Xxxxx
in writing prior to the expiration of the Notice Period that it desires to
contest the claim, Xx. Xxxxx 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. Xxxxx; (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. Xxxxx 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. Xxxxx 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. Xxxxx to pay such claim and pursue a refund,
Sun shall pay
such
claim
on
Xx.
Xxxxx’x
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 Xx. Xxxxx 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.
Xxxxx 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. Xxxxx’x
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. Xxxxx.
0
(x) Repayments.
If,
after a Claim Payment is made by Sun, Xx. Xxxxx becomes entitled to a refund
with respect to the claim to which such Claim Payment relates, Xx. Xxxxx 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. Xxxxx shall not be entitled to any refund
with respect to the claim and Sun does not promptly notify Xx. Xxxxx 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.
Xxxxx.
(e)
Further
Assurances.
Sun
shall indemnify Xx. Xxxxx and hold him harmless, on an after-tax basis, from
any
costs, expenses, penalties, fines, interest or other liabilities (“Losses”)
incurred by Xx. Xxxxx 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. Xxxxx’x behalf by Sun hereunder. Sun shall
pay all legal fees and expenses incurred under Section 7 and shall promptly
reimburse Xx. Xxxxx for the reasonable expenses incurred by him in
connection with any actions taken by Sun or required to be taken by Xx. Xxxxx
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.
|
(a)
|
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.
|
|
(b)
|
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.
|
3
|
(c)
|
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.
|
The
parties hereto have executed this Agreement as of the date first above
written.
/s/
L. Xxxxx
Xxxxx October 12,
2006
L.
Xxxxx
Xxxxx
Date
SUN
HEALTHCARE GROUP, INC.
By_/s/
Xxxxxxx X. Matros_____________ October
12, 2006
Its
Chief
Executive Officer Date
4
Schedule
A
Xx.
Xxxxx’x Bonus for any fiscal year shall be based on the criteria set forth
below. There are three components to his Bonus: EBITDA, EVC and individual
goals, which are defined and outlined below. In no event shall his Bonus exceed
120% of his Base Salary for such fiscal year.
1. Maximum
Amount.
A) A
portion of the Bonus shall be based 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
potential amount of the EBITDA portion 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 maximum amount of this portion
(the “Maximum EBITDA Amount”) will be zero; if actual EBITDA is 95% of target
EBITDA, the Maximum EBITDA Amount will be 5% of Base Salary; if actual EBITDA
is
100% of target EBITDA, the Maximum EBITDA 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 Maximum EBITDA Amount will
be
60% of Base Salary (if actual EBITDA is greater than 100% but less than 120%
of
target EBITDA, the Maximum EBITDA amount will be pro rated between 25% and
60%
of Base Salary).
B)
Another portion of the Bonus shall be based on equity value creation (“EVC”).
EVC shall be calculated as follows (such calculations to be based on the audited
consolidated financial statements of Sun 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 potential amount of the EVC portion of the Bonus shall be 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 maximum amount of this portion (the
“Maximum EVC Amount”) will be zero; if actual EVC is 90% of target EVC, the
Maximum EVC Amount will be 5% of Base Salary; if actual EVC is 100% of target
EVC, the Maximum EVC Amount will be 25% of Base Salary (if actual EVC is greater
than 90% but less than 100% of target EVC, the Maximum EVC Amount will be pro
rated between 5% and 25% of Base Salary); and if actual EVC is 140% (or greater)
of target EVC, the Maximum EVC Amount will be 60% of Base Salary (if actual
EVC
is greater than 100% but less than 140% of target EVC, the Maximum EVC Amount
will be pro rated between 25% and 60% of Base Salary).
5
2, EBITDA
Component.
The
EBITDA component of the Bonus shall equal 80% of the Maximum EBITDA Amount.
3.
EVC
Component.
The EVC
component of the Bonus shall equal 80% of the Maximum EVC Amount.
4. Individual
Goals Component.
The
Chief Executive Officer of Sun (the “CEO”) shall establish the individual goals
each year after consulting with Xx. Xxxxx, 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
20% of
the Maximum EBITDA Amount plus up
to
20% of
the Maximum EVC 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 Xx.
Xxxxx based upon the level of attainment of the goals.
5. Timing
of Payment.
All
components of the Bonus shall be paid to Xx. Xxxxx at the time specified in
Section 3(b).
6
