Exhibit 10.9
 
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
 
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (“Agreement”) is made and entered
into effective as of the 17th day of December, 2008, by and between Michael
Newman (“Executive”) and Sun Healthcare Group, Inc., a Delaware corporation
(“Sun” or “Company”).
 
WHEREAS, Executive serves as the Executive Vice President and General Counsel of
Sun;
 
WHEREAS, Sun and Executive are parties to that certain Employment Agreement
dated as of March 22, 2005, as amended on October 12, 2006, October 31, 2007 and
March 31, 2008 (the “Existing Agreement”); and
 
WHEREAS, Sun and Executive wish to amend and restate the Existing Agreement upon
the terms set forth in this Agreement to comply with Section 409A of the
Internal Revenue Code of 1986, as amended (the “Code”), effective as of the date
hereof.
 
NOW, THEREFORE, in consideration of the above recitals and the mutual covenants
and agreements contained herein, Executive and Sun agree as follows:
 
Section 1: Employment; Term of Employment.
 
(a)  
Employment.  Sun agrees to employ Executive and Executive agrees to accept
employment with Sun, subject to the terms and conditions of this Agreement.

 
(b)  
Term of Employment.  The period of Executive’s employment under this Agreement
commenced as of March 22, 2005 (the effective date of the Existing Agreement,
referred to herein as the “Effective Date”) and shall continue until terminated
in accordance with Section 5 below.  As used in this Agreement, the phrase
“Employment Term” refers to Executive's period of employment from the Effective
Date until the date his employment is terminated.

 
Section 2: Duties and Responsibilities.  Executive shall devote his full
employment time, efforts, skills and attention exclusively to his duties as
Executive Vice Executive and General Counsel; provided, however, that to the
extent the following activities do not materially interfere or conflict with his
duties and responsibilities hereunder, Executive may (i) serve as a member of
the boards of directors of other corporations with the prior written consent of
the Chief Executive Officer of Sun; and (ii) engage in charitable, civic and
religious affairs.
 
Section 3: Compensation, Benefits and Related Matters.
 
(a)  
Annual Base Salary.  During the Employment Term, Sun shall pay to Executive a
base salary at an annual rate of $280,000 ("Base Salary"), such salary to be
payable in accordance with Sun's customary payroll practices as in effect from

 

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time to time (but not less frequently than monthly).  The annual Base Salary
will be reviewed at least annually for possible merit increases and any increase
in Executive's annual base salary rate shall thereafter constitute "Base Salary"
for purposes of this Agreement.

 
(b)  
Cash Bonus/Incentive Compensation.  In addition to the Base Salary provided for
in Section 3(a) above, Executive shall be entitled to receive an annual bonus
(“Bonus”) in accordance with the Sun Healthcare Group, Inc.  Executive Bonus
Plan, as it may be amended from time to time by the Compensation Committee of
the Board of Directors; provided, however, that no amendment shall be effective
if it reduces the percentage of Base Salary that would constitute the minimum or
maximum potential amount of the Bonus as compared to the prior year, unless such
amendment has been agreed to in writing by Executive.  The Bonus shall be
payable at the same time as other annual bonuses are paid to senior management
personnel with respect to that fiscal year.  Subject to the provisions of
Section 6, in order to have earned and to be paid any such Bonus, Executive 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 Sun’s ability to
deduct such Bonus.

 
(c)  
Equity Incentive.  During the Employment Term, Executive shall be eligible to be
granted equity incentive awards during his employment on the same basis as other
senior executive officers of Sun.  Such equity incentive awards may include
stock options and restricted units.  Executive's eligibility, rights and
entitlement to such equity incentive awards shall be governed by the applicable
equity incentive plan, award agreement, award and/or grant.

 
(d)  
Retirement and Benefit Plans.  During the Employment Term, Executive shall be
eligible to participate in or receive benefits under any pension plan, 401(k)
savings plan, nonqualified deferred compensation plan, supplemental executive
retirement plan, medical and dental benefits plan, life insurance plan,
short-term and long-term disability plans, or any other employee benefit or
fringe benefit plan, generally made available by Sun to senior executives in
accordance with the eligibility requirements of such plans and subject to the
terms and conditions set forth in this Agreement.  Such plans, programs and
arrangements are subject to change during employment at the sole discretion of
the Company.

 
(e)  
Sick, Holiday and Vacation Pay.  Executive is entitled to holiday and sick pay
consistent with Sun's Employee Handbook or other policy applicable to senior
executives.  Sick and Holiday Pay is subject to change during employment at the
sole discretion of the Company.  Executive shall be entitled to up to 160 hours
of vacation per year, which shall accrue at the rate of 6.152 hours per pay
period (26 pay periods).  However, in accordance with Sun's Employee Handbook or
other policy applicable to senior executives, vacation hours shall be subject to
an accrual cap of two times Executive's annual allotment of vacation hours and
shall be subject to change during employment at the sole discretion of the
Company.

 

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(f)  
Indemnification, Liability/Insurance.  Executive shall be entitled to
indemnification by Sun to the extent required by applicable law and the charter
and bylaws of Sun.  In addition, Sun shall maintain during Executive's
employment customary directors and officers' liability insurance and Executive
shall be covered by such insurance.

 
(g)  
Taxes.  All compensation payable to Executive shall be subject to withholding
for all applicable federal, state and local income taxes, occupational taxes,
Social Security and similar mandatory withholdings.

 
Section 4: Medical Reimbursement.  Upon proof of payment, Sun agrees to
reimburse Executive out of pocket costs for maintaining his current medical
insurance.  Said costs are estimated to be $990 per month.  During this time
Executive will not participate in Sun's health plan.  Executive agrees that he
will provide such proof of payment to Sun promptly after Executive incurs each
such cost.
 
Section 5: Termination of Employment.  Sun, at any time in its sole discretion,
may terminate Executive as Executive Vice President and General Counsel and from
all other positions with Sun and its direct and indirect subsidiaries.  Upon
termination, Executive (or his beneficiary or estate as the case may be) shall
be entitled to receive the compensation and benefits described in Section 6
below.
 
(a)  
Termination by Sun for “Good Cause.”  Sun may, at any time, by written notice to
Executive 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 Executive as an officer and
employee and from all other positions with Sun for Good Cause.  Sun may relieve
Executive of his duties and responsibilities pending a final determination of
whether Good Cause exists, and such action shall not constitute Good Reason (as
defined in Section 5(c) below) for purposes of this Agreement.  Payment to
Executive upon a termination for Good Cause is set forth in Section 6(a).  "Good
Cause" for termination shall mean any one of the following:

 
(1)  
Any criminal conviction (including conviction on 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 Chief Executive Officer of Sun,
renders Executive unsuitable as an officer or employee of Sun.

 
(2)  
Executive's continued failure to substantially perform the duties reasonably
requested by the Chief Executive Officer of Sun and commensurate with his
position as Executive Vice President and General Counsel of Sun (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 Chief Executive Officer of Sun, which demand specifically identifies
the manner in which the Chief Executive Officer of Sun believes that Executive
has not

 

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substantially performed his duties, and which performance, in the sole
discretion of the Chief Executive Officer is determined to not be substantially
corrected by Executive  within ten (10) calendar days of receipt of such demand;

 
(3)  
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 Executive
which, in the sole discretion of the Chief Executive Officer of Sun, renders
Executive unsuitable as an officer or employee; and

 
(4)  
Breach of any of the covenants set forth in Section 8 of this Agreement.

 
Regardless of whether Executive's employment initially was considered to be
terminated for any reason other than Good Cause, Executive's employment will be
considered to have been terminated for Good Cause for purposes of this Agreement
if the Chief Executive Officer of Sun subsequently determines that Executive
engaged in an act constituting Good Cause.
 
(b)  
Termination by Sun without Good Cause.  Sun may at any time in its sole
discretion, by written notice to Executive at least five (5) business days prior
to date of termination specified in such notice, terminate Executive as an
officer and employee and from all other positions with Sun.  If such termination
is made by Sun other than by reason of Executive's death or Disability (as
defined in Section 5(e)) and Good Cause does not exist, such termination shall
be treated as a termination without Good Cause and Executive shall be entitled
to payment in accordance with Section 6(b).

 
(c)  
Termination by Executive for Good Reason.  Executive may, at any time at his
option within sixty (60) calendar days following an event or condition that
constitutes Good Reason (as defined below), resign for Good Reason,  as an
officer and employee and from all other positions with Sun by written notice to
Sun at least thirty (30) calendar 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 Executive upon a termination for Good Reason is
set forth in Section 6(b).

 
“Good Reason” shall mean the occurrence of any one of the following events or
conditions without Executive's written consent:
 
 
(1)
A meaningful and detrimental reduction in Executive’s authority, duties or
responsibilities or a meaningful and detrimental change in his reporting
responsibilities;

 
 
(2)
A material failure of Sun to comply with the compensation provisions as set
forth in Sections 3(a) - 3(c) (other than a reduction of compensation uniformly
applicable to other members of Senior Management or as a result of disciplinary
action against Executive) or a material failure of Sun

 

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to comply with the benefits provisions as set forth in Sections 3(d) - 3(g)
(collectively, the “Benefits”) (other than a reduction of Benefits uniformly
applicable to other members of senior management); or

 
 
(3)
A material relocation of Executive's principal work location to a place other
than Orange County or Los Angeles County, California;

 
provided that Sun is provided with notice and opportunity to cure such breach
and Executive terminates his employment with Sun, in each case within the time
periods prescribed under this Section 5(c).
 
Notwithstanding any provision of this Paragraph 5(c) to the contrary, the
occurrence of a “Change in Control” (as defined in Section 6 below) shall not,
by itself, constitute Good Reason hereunder.
 
(d)  
Voluntary Resignation Without Good Reason.  Executive may, at any time at his
option with thirty (30) calendar days written notice to Sun, voluntarily resign
without Good Reason as an officer and employee and from all positions with
Sun.  Payment to Executive upon his voluntary resignation without Good Reason is
set forth in Section 6(a).  Resignation from employment shall automatically
constitute resignation from all positions of any subsidiary or affiliated
corporation.

 
(e)  
Death or Disability.  Executive's employment under this Agreement shall
terminate automatically as of the date of Executive's death.  Sun, at any time
by written notice to Executive at least five (5) business days prior to the date
of termination specified in such notice, terminate Executive as an officer and
employee and from all other positions with Sun by reason of his
Disability.  "Disability" shall mean any physical or mental condition or illness
that prevents Executive from performing the essential duties of his position
(where such failure cannot be remedied with reasonable accommodation) for a
period of 120 substantially consecutive calendar days, as determined by a
physician selected by Sun and reasonably acceptable to Executive or, if
Executive is incapacitated, reasonably acceptable to the Director of Medicine or
equivalent senior physician at a hospital of Executive's choice.  In addition,
Executive's receipt of disability benefits under Sun's long-term disability
benefits plan or receipt of Social Security disability benefits shall be deemed
conclusive evidence of Disability for purpose of this Agreement.  Payment to
Executive upon his termination by reason of his death or Disability is set forth
in Section 6(d).

 
Section 6: Payments Upon Termination.
 
(a)  
Payment Upon Termination for Good Cause, or Resignation without Good Reason.  In
the event of termination of his employment pursuant to Sections 5(a) or 5(d),
Executive, or his estate where applicable, shall be paid any earned but unpaid
Base Salary through the date of termination and any accrued but unused vacation
through the date of termination in accordance with Company policy,

 

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which shall be paid to Executive in a lump sum in cash upon or promptly
following (and in all events within 30 days after) the date of termination of
employment (collectively, the “Accrued Obligations”).

 
 
Executive also shall 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 shall cease as of the date of termination, except to the
extent Executive 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) or 5(d),
Executive shall not be entitled to any compensation or benefits under this
Agreement except as set forth in this Section 6(a).

 
(b)  
Payment Upon Termination by Sun without Good Cause or by Executive for Good
Reason.  In the event of termination of employment pursuant to Sections 5(b) or
5(c), Executive shall be entitled to a lump sum severance payment in an amount
equal to one (1) year Base Salary or, in the event such termination occurs on or
within two (2) years following the change of a “Change in Control,” two (2)
years Base Salary, with such amount to be paid to Executive in the month
immediately following the month in which Executive’s termination of employment
occurs.  Executive also shall be entitled to (i) any earned Bonus pursuant to
Section 3(b) for the fiscal year prior to the fiscal year of termination in the
event Executive was employed the entire prior fiscal year but is not employed by
Sun on the date said Bonus is paid, payable to Executive in a lump sum in cash
at the time that annual bonuses are paid to senior management personnel with
respect to that fiscal year, but in any event within seventy-five (75) days
after the conclusion of the fiscal year to which such Bonus relates; (ii) a pro
rata portion of the Bonus for the fiscal year of termination (determined by
multiplying the amount Executive would have received based upon actual
performance had his employment continued through the end of the fiscal year by a
fraction, the numerator of which is the number of days during the year of
termination that Executive is employed by the Company and the denominator of
which is 365 or 366, as applicable), payable to Executive at the time that
annual bonuses are paid to senior management personnel with respect to that
fiscal year, but in any event within seventy-five (75) days after the conclusion
of the fiscal year to which such Bonus relates; and (iii) any Accrued
Obligations payable to Executive as set forth in Section 6(a).  Notwithstanding
the foregoing, Executive's right to receive the severance payment hereunder
shall be conditioned upon his execution of a release in favor of Sun, which
shall not be inconsistent with the terms of this Agreement and which Executive
shall deliver to the Company within twenty-one (21) days following the date of
his termination of employment.  Executive's participation in any other
retirement and benefit plans and perquisites shall cease as of the date of
termination, except Executive 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 (x) the first
anniversary of the date of termination or (y) the date on which Executive or his

 

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eligible dependents become eligible to participate in a plan of a successor
employer.

 
(c)  
"Change in Control." For purposes of this Agreement, a "Change in Control" shall
be deemed to have occurred if any of the following events occurs:

 
(1)  
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
Sun (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 Sun;

 
(2)  
A merger or consolidation of Sun with any other corporation, other than a merger
or consolidation which would result in the voting securities of Sun 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
Sun or surviving entity outstanding immediately after such merger or
consolidation;

 
(3)  
A sale or other disposition by Sun of all or substantially all of Sun's assets;

 
(4)  
During any period of two (2) consecutive years, 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 Sun'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;

 
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 Sun (“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 Sun continues as
a holding company of an entity or entities that conduct the business or
businesses formerly conducted by Sun, or any transaction undertaken for the
purpose of reincorporating Sun under the laws of another jurisdiction, if such
transaction does not materially affect the beneficial ownership of Sun's capital
stock.  Executive's 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.

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(d)  
Payment Upon Termination for Death or Disability.  In the event of termination
of his employment pursuant to Section 5(e), Executive, or his

 
 
estate where applicable, shall be paid any Accrued Obligations payable as set
forth in Section 6(a).

 
 
Executive, or his estate where applicable, also shall receive his vested
benefits (including those that vest by reason of death or disability) in
accordance with the terms of Sun's compensation and benefit plans, and his
participation in such plans and all other perquisites shall cease as of the date
of termination, except to the extent Executive 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(e), Executive shall not be entitled to any compensation or benefits
under this Agreement except as set forth in this Section 6(d).

 
 
In the event Employee is unable to work due to death or disability on the date
of payment of Bonus as required by Section 3(b) above, Executive or his estate
shall be paid any unpaid Bonus for the prior fiscal year which shall be prorated
based on the number of days of employment (including holidays, vacation and sick
days and weekends during the period of employment) during the prior fiscal year
divided by 365 or 366, as applicable, which shall be paid in a lump sum in cash
at the time that annual bonuses are paid to senior management personnel with
respect to that fiscal year, but in any event within seventy-five (75) days
after the conclusion of the fiscal year to which such Bonus relates.  Executive
also shall receive a pro rata portion (based on the number of days of employment
(including holidays, vacation and sick days and weekends during the period of
employment) in the fiscal year of termination divided by 365 or 366, as
applicable) of the Bonus, if any, for the fiscal year in which the termination
pursuant to Section 5(e) occurs, which shall be paid in a lump sum in cash at
the time that annual bonuses are paid to senior management personnel with
respect to that fiscal year, but in any event within 75 days after the
conclusion of the fiscal year to which such Bonus relates.

 
Section 7: Additional Payments.
 
(a)  
Gross-Up Payments.  Notwithstanding anything herein to the contrary, if it is
determined that any payment or distribution by Sun to or for the benefit of the
Executive (whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise, but determined without regard to any
additional payments required under this Section 7) (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the Internal Revenue 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 Executive shall be entitled to an additional payment (a
"Gross-Up Payment") in an amount that will place Executive in the same after-tax
economic position that he would have enjoyed if the Excise Tax had not applied
to the payment.

 

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(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).

 
(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

 

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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 sue 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.

 
(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).

 
(f)  
Section 409A.  Notwithstanding anything to the contrary in this Section 7, any
payment under this Section 7 shall be paid to Executive promptly but in no event
later than the last day of the end of Executive’s taxable year following the
taxable year in which Executive (or Sun) pays or remits the related taxes.

 
Section 8: Protection of Sun's Interests.

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(a)  
Confidentiality.  Executive 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 Chief Executive Officer of
Sun, directly or indirectly disclose to any person or organization any secret or
"Confidential Information" that Executive may learn or has learned by reason of
his association with Sun.  The term "Confidential Information" means any
information not previously disclosed to the public or to the trade by Sun's
management with respect to Sun's products, services, business practices,
facilities and methods, salary and benefit information, legal matters and claims
(asserted and unasserted), 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, compliance and clinical processes, policies
and procedures.

 
(b)  
Exclusive Property.  Executive confirms that all Confidential Information is and
shall remain the exclusive property of Sun.  All business records, papers and
documents kept or made by Executive relating to the business of Sun shall be and
remain the property of Sun.  Upon the termination of Executive's employment for
any reason or upon the request of Sun at any time, Executive shall promptly
deliver to Sun, and shall not without the consent of the Board of Directors of
Sun, retain copies of, Confidential Information, or any written materials not
previously made available to the public, or records and documents made by
Executive or coming into Executive's possession concerning the business or
affairs of Sun.

 
(c)  
Nonsolicitation.  Executive 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.

 
(d)  
Non-Disparagement.  Executive shall not during his employment under this
Agreement and for two 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 Executive or his reputation or that reflect
negatively on Executive's performance, skills or ability.

 
(e)  
Relief.  Without intending to limit the remedies available to Sun, Executive
acknowledges that a breach of any of the covenants in Section 8 may result in

 

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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 Executive 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.

 
Section 9: Taxes.  Sun shall withhold from any compensation and benefits payable
under this Agreement all applicable federal, state, local, and other withholding
taxes.
 
Section 10: 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.

 
(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.

 
(c)  
Entire Agreement.  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 this Agreement
and this Agreement shall supersede all prior agreements, negotiations,
correspondence, undertakings and communications of the parties, oral or written,
with respect to the subject matter hereof.

 
(d)  
Resolution of Disputes.  Any disputes arising under or in connection with this
Agreement shall be resolved by binding arbitration, to be held in Orange County,
California in accordance with the National Rules for the Resolution of
Employment Disputes and procedures of the American Arbitration
Association.  Executive and Sun shall mutually select the arbitrator.  If
Executive 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.  The fees of the arbitrator and any
administrative fees of AAA shall be paid by Sun.  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(d) pending final resolution of matters that are
sent to arbitration.

 
 
 

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(e)  
Attorneys' Fees.  In the event Executive prevails on the merits on any claim,
action or proceeding: (i) contesting or otherwise relating to the existence of
Good Cause in the event of Executive's 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 Executive's termination of employment during the Term for
Good Reason, Sun shall pay or reimburse Executive on an after-tax basis for
reasonable 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 Executive as a result
of such claim, action or proceeding.

 
(f)  
Governing Law.  The validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the State of California.

 
(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:
Attention: Chief Executive Officer
18831 Von Karman Avenue; Suite 400
Irvine, California 92612

To Executive:

Michael Newman
352 North California Street
San Gabriel, CA  91775

(h)  
Successors and Assigns.  This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and assigns.

 
(i)  
No Claim Against Assets.  Nothing in this Agreement shall be construed as giving
Executive any claim against any specific assets of Sun or as imposing any
trustee relationship upon Sun in respect of Executive.  Sun shall not be
required to establish a special or separate fund or to segregate any of its
assets in order to provide for the satisfaction of its obligations under this
Agreement.  Executive's rights under this Agreement shall be limited to those of
an unsecured general creditor of Sun and its affiliates.

 

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(j)  
Counterparts.  This Agreement may be executed in any number of counterparts,
each of which so executed shall be deemed to be an original, and such
counterparts will together constitute but one Agreement

 
(k)  
Section 409A.

 
(l)  
If Executive is a “specified employee” within the meaning of Treasury Regulation
Section 1.409A-1(i) as of the date of Executive’s separation from service
(within the meaning of Treasury Regulation Section 1.409A-1(h)(1), without
regard to the optional alternative definitions available thereunder) and any
payment or benefit provided in Section 6 hereof constitutes a “deferral of
compensation” within the meaning of Section 409A of the Code, Executive shall
not be entitled to any such payment or benefit until the earlier of: (i) the
date which is six (6) months after his separation from service for any reason
other than death, or (ii) the date of his death.  The provisions of this
paragraph shall only apply if, and to the extent, required to avoid the
imputation of any tax, penalty or interest pursuant to Section 409A of the
Code.  Any amounts otherwise payable to Executive upon or in the six (6) month
period following his separation from service that are not so paid by reason of
this Section 10(k)(1) shall be paid (without interest) as soon as practicable
(and in all events within thirty (30) days) after the date that is six (6)
months after Executive’s separation from service (or, if earlier, as soon as
practicable, and in all events within thirty (30) days, after the date of his
death).

 
 
(2)
To the extent that any reimbursements pursuant to Sections 4, 6(b), 7(e) and
10(e) are taxable to Executive, any reimbursement payment due to Executive
pursuant to such provision shall be paid to Executive on or before the last day
of Executive’s taxable year following the taxable year in which the related
expense was incurred.  The benefits and reimbursements pursuant to Sections 4,
6(b), 7(e) and 10(e) are not subject to liquidation or exchange for another
benefit and the amount of such benefits and reimbursements that Executive
receives in one taxable year shall not affect the amount of such benefits and
reimbursements that Executive receives in any other taxable year.

 
 
(3)
It is intended that any amounts payable under this Agreement and Sun’s and
Executive’s exercise of authority or discretion hereunder shall comply with and
avoid the imputation of any tax, penalty or interest under Section 409A of the
Code.  This Agreement shall be construed and interpreted consistent with that
intent.

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
 

 
/s/ Michael Newman
MICHAEL NEWMAN
   
SUN HEALTHCARE GROUP, INC.
   
By:  /s/ Richard K. Matros
Richard K. Matros
Its Chairman and Chief Executive Officer
 

 
 
 

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