EXHIBIT 10.12

 
Sun Healthcare Group, Inc. Executive Bonus Plan

Effective January 1, 2010, annual incentive bonuses of senior management
(“Executives”) of Sun Healthcare Group, Inc. (“Sun”) and senior management of
SunBridge Healthcare Corporation (“SunBridge”) shall be determined pursuant to
this plan.  This plan is intended to provide bonuses that qualify for the
performance-based compensation exemption of Section 162(m) (“Section 162(m)”) of
the Internal Revenue Code of 1986, as amended (the “Code”).  This plan is
adopted under Section 10 of Sun’s Amended and Restated 2004 Equity Incentive
Plan (the “Plan”), and bonuses awarded under this plan shall be Benefits under
the Plan that are subject to all of the terms and conditions of the Plan.

The incentive bonus (the “Bonus”) of an Executive for any fiscal year (the
“Applicable Fiscal Year”) shall be based on the criteria set forth below.   For
Mr. Matros, Mr. Mathies and Dr. Hunker, the Bonus will be based upon achievement
of the EBITDA and quality of care targets as described below.  For Mr. Shaul,
Mr. Newman and Ms. Chrispell, the Bonus will be determined solely by achievement
of the EBITDA target as described below.

1.           EBITDA.  Within the first ninety (90) days of the Applicable Fiscal
Year, the Compensation Committee of the Board of Directors of Sun (the
“Committee”) shall establish a target for Sun’s consolidated earnings before
interest, taxes, depreciation and amortization (“EBITDA”) and the target Bonus
for each executive for the Applicable Fiscal Year.  EBITDA shall be measured
using the normalized EBITDA of Sun as published by Sun in its press release
announcing financial results for the Applicable Fiscal Year,  which normalizing
adjustments consist of actuarial adjustments for self insurance for general and
professional liability, EBITDA of discontinued operations, and nonrecurring
costs related to acquisitions and other similar events. When determining whether
the EBITDA target has been achieved, the Committee shall make adjustments to the
EBITDA target to eliminate the effect of discontinued operations or any change
in accounting policies or practices.

Subject to the provisions of Section 2, the amount of the Bonus for the
Applicable Fiscal Year shall be based upon normalized EBITDA attained as a
percentage of the target normalized EBITDA as follows (percentages in the tables
are percentages of target Bonus):

% of
normalized
EBITDA
target
80%
90%
95%
100%
105%
110%
115%
% of target
Bonus
funded
30%
50%
95%
100%
125%
150%
175%

If normalized EBITDA is less than 80% of target normalized EBITDA, no Bonus will
be paid to any Executive.  If normalized EBITDA exceeds 115% of target
normalized EBITDA, each Bonus will equal the percentage of target Bonus set
forth in the last column of the table above.  If normalized EBITDA is greater
than the percentage of target normalized EBITDA shown in one column but less
than the percentage shown in the adjacent column, the percentage of target
 
 

--------------------------------------------------------------------------------

 
Bonus will be prorated on a straight-line basis between the percentages shown in
the applicable columns of the table.

In no case, however, shall the amount of any Executive’s Bonus exceed (i) the
amount that has been accrued for such Bonus in the calculation of normalized
EBITDA and (ii) the applicable limit set forth in Section 10(a) of the Plan.

2.           Quality of Care Component.    If the quality of care target is met,
the Bonus shall be paid in the amount determined as set forth above.  If the
quality of care target is not met, the Committee shall deduct such amount of the
Bonus for each of Mr. Matros, Mr. Mathies and Dr. Hunker as it determines in its
discretion from the amount otherwise payable.  The quality of care target is met
if quality of care at skilled nursing centers operated by SunBridge and its
subsidiaries is better than or equal to the quality of care at skilled nursing
centers of SunBridge’s for-profit peer group of companies for the Applicable
Fiscal Year (or the twelve month period ending as close as possible to the end
of Applicable Fiscal Year for which data are available at the time the Committee
considers the amount of the Bonus), in each case as measured by the Health
Deficiency Index reported by PointRight, Inc. or whichever independent reporting
entity is then used by Sun to provide such information.

3.           Committee Certification and Timing of Payment.  As soon as
practicable after the end of the Applicable Fiscal Year, the Committee shall
determine the amount of Sun’s normalized EBITDA for such year.  No Bonus shall
be paid to an Executive for the Applicable Fiscal Year unless and until the
Committee has certified, by resolution or other appropriate action in writing,
the normalized EBITDA earned by Sun, the normalized EBITDA earned by Sun as a
percentage of the target normalized EBITDA and the amount of the Bonus earned by
each Executive.  Any Bonuses shall be paid to each executive as soon as
practicable after completion of the year-end audit for the Applicable Fiscal
Year and following the Committee’s certification described above  (but in no
event later than March 15 of the calendar year following the Applicable Fiscal
Year to which the Bonus relates).

4.           Recoupment of Bonus Payments.  A Bonus paid to an Executive is
subject to recoupment, to the extent determined to be appropriate by the
Committee, if each of the following circumstances occur: (1) the amount of the
Bonus was calculated based on the achievement of normalized EBITDA, the
calculation of which was based on financial statements that are subsequently the
subject of an accounting restatement due to noncompliance with any financial
reporting requirement under the securities laws; (2) fraud or intentional
misconduct by any Executive, or any officer or employee that reports to an
Executive was a significant contributing factor to such noncompliance; and (3)
the restated financial statements are issued and completed prior to the issuance
and completion of the financial statements for the third fiscal year following
the Applicable Fiscal Year to which the Bonus relates.  In such circumstances, a
Bonus will be subject to recoupment only to the extent a lesser Bonus would have
been paid to an Executive based upon normalized EBITDA, as restated, and only as
to the net amount of such portion of the Bonus after reduction for the
Executive’s tax liability on that portion of the Bonus.  By accepting a Bonus,
each Executive agrees to promptly make any Bonus reimbursement required by the
Committee in accordance with this section, and that Sun, SunBridge and their
respective affiliates may deduct from any amounts owed to the executive from
time to time (such as wages or other compensation) any amounts the Executive is
required to reimburse Sun and/or
 
2

--------------------------------------------------------------------------------

 
SunBridge pursuant to this section.  This section does not limit any other
remedies Sun, SunBridge or their respective affiliates may have available in the
circumstances, which may include, without limitation, dismissing the executive
or initiating other disciplinary procedures.  The provisions of this section are
in addition to (and not in lieu of) any rights to repayment Sun, SunBridge or
their respective affiliates may have under Section 304 of the Sarbanes-Oxley Act
of 2002 and other applicable laws.
 
5.           Administration.  This plan shall be administered by the Committee,
which shall consist solely of two or more members of the Board of Directors of
Sun who are “outside directors” within the meaning of Treasury Regulation
Section 1.162-27(e)(3) under Section 162(m).  The Committee shall have the same
administrative authority with respect to this plan as provided for under the
Plan.

6.           Section 162(m).  This plan is intended to provide bonuses that
qualify for the performance-based compensation exemption of Section 162(m).  Any
provision, application or interpretation of this plan inconsistent with this
intent to satisfy the standards in Section 162(m) shall be disregarded.

 
3

--------------------------------------------------------------------------------