EXHIBIT
10.1
EMPLOYMENT
AGREEMENT
THIS EMPLOYMENT AGREEMENT
("Agreement") is entered into this 12th day of October, 2006, by
and between Richard Matros ("Mr. Matros") and
Sun Healthcare Group, Inc. ,
a Delaware corporation
("Sun" or "Company").
WHEREAS, Mr. Matros has served as
the Chairman of the Board of Directors and Chief Executive Officer
("CEO") of Sun since November 2001;
WHEREAS,
Sun and Mr. Matros 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 Mr. Matros 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 Mr. Matros’
employment as CEO.
NOW, THEREFORE, in consideration of
the above recitals and the mutual covenants and agreements
contained herein, Mr. Matros and Sun agree as follows:
Section 1: Term of
Employment. Sun
agrees to employ Mr. Matros and Mr. Matros 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 Mr.
Matros 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. Mr. Matros is employed as CEO and is engaged as
Chairman of the Board of Directors of Sun. During the Term, Mr.
Matros 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, Mr. Matros 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. Mr. Matros 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,
Mr. Matros shall serve as director or senior executive officer of
one or more direct or indirect subsidiaries of Sun without
additional compensation.
Section
3: Compensation, Benefits and Related
Matters.
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Annual Base Salary.
Sun shall pay during the Term to Mr.
Matros 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, Mr. Matros’ 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 Mr. Matros’
annual base salary for possible merit increases in its sole
discretion, and any increase in Mr. Matros’ 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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Cash
Bonus/Incentive Compensation. In addition to the Base Salary provided for in
Section 3(a) above, Mr. Matros 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, Mr. Matros 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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Restricted Stock and
Options. Mr.
Matros 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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Retirement and Benefit
Plans. During
the Term, Mr. Matros 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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Paid
Time Off. During
the Term, Mr. Matros shall be entitled to paid time off in
accordance with Sun's policy for senior executive
officers.
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Indemnification
Liability/Insurance. Mr. Matros 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
Mr. Matros' employment customary director's and officers' liability
insurance and Mr. Matros shall be covered by such
insurance.
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Taxes. All compensation payable to Mr. Matros 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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Expenses. Mr. Matros 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
5. Termination.
Sun may, at any time, in its sole
discretion, terminate Mr. Matros as Chairman and CEO and from
all other positions with Sun and its direct and indirect
subsidiaries; provided, however, that Sun shall provide Mr. Matros
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
Mr. Matros' termination of employment in accordance with this
Agreement.
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Termination by Sun for "Good
Cause." Sun may
at any time, by written notice to Mr. Matros 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 Mr. Matros as
Chairman and CEO and from all other positions with Sun and its
direct and indirect subsidiaries for Good Cause. Sun may relieve
Mr. Matros 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 Mr. Matros 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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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 Mr. Matros unsuitable
for the position of either Chairman or CEO;
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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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Mr. Matros'
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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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 Mr. Matros which, in the good faith determination of the Board
of Directors, renders Mr. Matros unsuitable for the position of
either Chairman or CEO;
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Any material
breach by Mr. Matros of the provisions of this Agreement which has
not been cured by Mr. Matros thirty (30) days following delivery of
notice to Mr. Matros specifying such material breach, or the
repetition of any such material breach after it has been cured;
or
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Any act of
moral turpitude, as determined by the Board of Directors in good
faith.
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Termination by Sun without Good
Cause. Sun may
at any time, by written notice to Mr. Matros at least five (5)
business days prior to date of termination specified in such
notice, terminate Mr. Matros 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 Mr. Matros'
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 Mr. Matros shall be
entitled to payment in accordance with Section 6(b).
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Termination by Mr. Matros for Good
Reason. Mr.
Matros 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 Mr. Matros upon a termination for
Good Reason is set forth in Section 6(b).
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“Good
Reason" shall mean the occurrence of any one of the following
events or conditions (but only if Mr. Matros provides a notice of
resignation to Sun within sixty (60) days following such event or
condition):
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A meaningful
and detrimental reduction, without Mr. Matros' 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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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 Mr. Matros 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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A change in Mr.
Matros' principal work location to a place other than Orange
County, California.
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Voluntary Resignation.
Mr. Matros 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 Mr. Matros 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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Death or Disability.
Mr. Matros' employment under this
Agreement and the Term shall terminate automatically as of the date
of Mr. Matros' death. Sun may, at any time by written notice to Mr.
Matros at least five (5) business days prior to the date of
termination specified in such notice, terminate Mr. Matros 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 Mr. Matros' 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
Mr. Matros is incapacitated, reasonably acceptable to the Director
of Medicine or equivalent senior physician at Hoag Hospital.
Payment to Mr. Matros 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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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), Mr. Matros, 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), Mr. Matros 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. Mr. Matros' 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 Mr. Matros 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), Mr. Matros 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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Payment Upon Termination by Sun without Good
Cause, or following expiration of the Term, or by Mr. Matros
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 Mr. Matros of a notice of
non-extension, as provided in Section 1, Mr. Matros 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
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