EXHIBIT 10.5

 

 

 

 

[date]

 

 

 

[name and address]

 

                    Re: Severance Agreement

Dear                    :

               The Creditors' Committee, as defined herein in Section 8, has
approved a retention program for you that will apply in the event of the
termination of your services (hereinafter referred to as "employment") to the
Company. This letter agreement (the "Agreement") sets forth such terms.
Capitalized terms not otherwise defined, shall have the meanings specified in
Section 8.

               1.  Effectiveness and Term. On execution by the Company and you,
this Agreement shall be effective and shall continue so long as you are employed
by the Company; provided, however, that you may terminate this Agreement and
decline to participate in the Retention Program by delivering written notice to
such effect to the Company and to the Creditors' Committee at any time prior to
your acceptance of any payment under the Retention Program.

               

2.  Prior Severance Agreement. Except as provided herein, any prior agreement,
arrangement or understanding between you and the Company, relating to or in
connection with the possible payment of severance to you upon termination of
your employment, is hereby terminated and superceded in its entirety by this
Agreement.

               3.  Effect of Involuntary Termination. In the event of your
Involuntary Termination, the Company shall make either the Mitigation Election
or the Non-compete Election at the time of such Involuntary Termination.

               (a)  Severance Payment Under Mitigation Option. In the event the
Company makes the Mitigation Election and subject to your execution of a release
in favor of the Company, the Company shall (i) pay you an amount equal to your
annual salary at the rate then in effect and (ii) deposit into the Escrow
Account an amount equal to your annual salary at the rate then in effect. You
agree to notify the Company in writing

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within ten business days after obtaining any employment during the two years
after your Involuntary Termination. On the first anniversary of your Involuntary
Termination, the Company shall be entitled to withdraw from the Escrow Account
an amount equal to the sum of any signing bonuses and all salary earned by you
subsequent to your Involuntary Termination through the first anniversary of such
date (regardless of whether such bonuses and/or salary is deferred at the
election of either you or your new employer) and any interest earned on that
amount in the Escrow Account which is allocable to such amounts. On the last day
of each month commencing with the first month after the first anniversary of
your Involuntary Termination and ending with the twelfth month after such
anniversary, you may receive an amount equal to the Monthly Severance Payment
following delivery to the Company of your sworn statement that you are entitled
to receive such amount hereunder.

               (b)  Severance Payment Under Non-compete Option. In the event the
Company makes the Non-compete Election and subject to your execution of a
release in favor of the Company, the Company shall pay you an amount equal to
two times your annual salary at the rate then in effect. You shall not be
required to mitigate the amount of any payments provided in this subsection by
seeking other employment or otherwise, nor shall the amount of any payment or
benefit provided for in this subsection be reduced by any compensation earned by
you as the result of employment by another employer or by pension benefits paid
by the Company or another employer after the date of termination or otherwise.

               (c)  Certain Benefits. In the event of your Involuntary
Termination, you and your eligible dependents shall continue to be eligible to
participate during the Benefit Continuation Period in the medical, dental,
health, life, and other fringe benefit plans and arrangements applicable to you
immediately prior to you Involuntary Termination on the same terms and
conditions in effect for you and your dependents immediately prior to such
Involuntary Termination.

               (d)  Accrued Wages, Etc. In the event of your Involuntary
Termination, the Company shall pay you the full amount of any earned but unpaid
salary through the date of such termination, plus a cash payment (calculated on
the basis of your salary at the rate then in effect) for all unused paid time
off which you have earned as of the date of such termination and a cash payment
for any unreimbursed expenses.

               4.  Effect of Other Terminations. In the event that your
employment with the Company terminates for reasons other than your Involuntary
Termination, the Company shall pay you the full amount of any earned but unpaid
salary through the date of such termination, plus a cash payment (calculated on
the basis of your salary at the rate then in effect) for all unused paid time
off which you have earned as of the date of such termination and a cash payment
for any unreimbursed expenses. As of the date of such termination, you shall
immediately relinquish the right to any additional payments or benefits from the
Company under this Agreement.

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               5.  Protection of the Company's Interests.

               (a)  No Competing Employment. You shall not, unless you receive
the prior written consent of the Company, directly or indirectly, own an
interest in, manage, operate, join, control, lend money, or render financial or
other assistance to or participate in or be connected with, as an officer,
employee, partner, stockholder, consultant, or otherwise, any individual,
partnership, firm, corporation, or other business organization or entity that
competes with the Company (other than an entity that began competing with the
Company after your termination of employment) (i) as long as you are employed by
the Company, (ii) during the Restricted Period in the event of your Involuntary
Termination and the Non-compete Election by the Company, and (iii) during the
Restricted Period in the event of termination of your employment for any other
reason; provided, however, that this Section shall not proscribe your ownership,
either directly or indirectly, of less than five percent of any class of
securities which are listed on a national securities exchange or quoted on the
automated quotation system of the National Association of Securities Dealers,
Inc.; provided, further, that this Section shall not proscribe your employment
with a competing entity in a capacity which is not responsible for the
generation of operating revenue; and provided further, that you shall be
released from the foregoing obligations following the Non-compete Election by
the Company if the Company fails to timely pay any amount due to you under this
Agreement.

               (b)  No Interference. During the Restricted Period, you shall
not, whether for your own account or for the account of any other individual,
partnership, firm, corporation, or other business organization (other than the
Company), intentionally solicit, endeavor to entice away from the Company, or
otherwise interfere with the relationship of the Company with any person who is
employed by or otherwise engaged to perform services for the Company or any
person or entity who is, or was within the then most recent twelve-month period,
a customer, client, or supplier of the Company.

               (c)  Confidentiality. You hereby covenant and agree that you will
not at any time, except in performance of your obligations to the Company
hereunder or with the prior written consent of the Company, directly or
indirectly disclose to any person any secret or Confidential Information that
you may learn or have learned by reason of your association with the Company.

               (d)  Exclusive Property. You hereby confirm that all Confidential
Information is and shall remain the exclusive property of the Company. All
business records, papers, and documents kept or made by you in whatever form
maintained, whether documentary, computerized, or otherwise, relating to the
business of the Company shall be and remain the property of the Company. On
termination of your employment with the Company for any reason or upon the
request of the Company at any time, you shall promptly deliver to the Company,
and shall not without the prior written consent of the Company, retain

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copies of any Confidential Information or records and documents made by you or
coming into your possession concerning the business or affairs of the Company.

               (e)  Relief. Without intending to limit the remedies available to
the Company, you acknowledge that a breach of any of the covenants contained in
this Section may result in material irreparable injury to the Company 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, the Company shall be entitled to obtain a temporary restraining
order and/or a preliminary injunction restraining you from engaging in
activities prohibited by this Section or such other relief as may be required to
specifically enforce any of the covenants of this Section.

               6.  Legal Fees and Expenses. The Company shall pay or reimburse
you on an after-tax basis for all costs and expenses (including, without
limitation, court costs and reasonable legal fees and expenses which reflect
common practice with respect to the matters involved) incurred by you as a
result of any claim, action, or proceeding (i) arising out of your termination
of employment during the Term, (ii) contesting, disputing, or enforcing any
right, benefits, or obligations under this Agreement, or (iii) arising out of or
challenging the validity, advisability, or enforceability of this Agreement or
any provision thereof; provided, however, that this provision shall not apply if
the relevant trier-of-fact determines that your claim or position was frivolous
and without reasonable foundation.

               7.  Successors; Binding Agreement. This Agreement shall be
binding upon and inure to the benefit of you (and your personal representatives
and heirs), the Company, and any organization which succeeds to substantially
all of the business or assets of the Company, whether by means of merger,
consolidation, acquisition of all or substantially all of the assets of the
Company, or otherwise. This Agreement shall inure to the benefit of and be
enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees, and legatees. If you
should die while any amount would still be payable to you hereunder if you had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to your devisee, legatee, or
other designee or, if there is no such designee, to your estate.

               8.  Definitions. The following capitalized terms shall have the
meanings specified below:

               (a)   "Benefit Continuation Period" means the period commencing
on the date of your Involuntary Termination and ending on the earlier to occur
of (i) the second anniversary of the date of your Involuntary Termination or
(ii) the date that you and your dependents are eligible and elect coverage under
the plans of a subsequent employer which provide substantially equivalent or
greater benefits to you and your dependents than the medical, dental, health,
life, and other fringe benefit plans and arrangements applicable to you
immediately prior to your Involuntary Termination.

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               (b)  "Cause" means a termination of your employment during the
Term which is a result of (i) your felony conviction, (ii) a determination by
the board of directors of the Company that you have violated any of the
protective covenants set forth in Section 5 of this Agreement or (iii) your
continued failure substantially to perform the duties reasonably requested by
the Company (other than any such failure resulting from your incapacity due to
physical or mental illness or any such actual or anticipated failure resulting
from a resignation by you for Good Reason) after a written demand for
substantial performance is delivered to you by the board of directors of the
Company, which demand specifically identifies the manner in which the board of
directors of the Company believes that you have not substantially performed your
duties, and which performance is not substantially corrected by you within 10
days of receipt of such demand.

               (c)  "Confidential Information" means any information not
previously disclosed to the public or to the trade by the management of the
Company with respect to the Company's services, products, facilities, and
methods, salary and benefit information, trade secrets, and other intellectual
property, systems, procedures, manuals, confidential reports, product price
lists, pricing information, customer lists, financial information (including the
revenues, costs, or profits associated with any of the Company's products or
lines of business), business plans, prospects, or opportunities.

               (d)  "Creditors' Committee" means the statutory committee of
creditors appointed in the jointly administered cases filed by the Company on
October 14, 1999, with the United States Bankruptcy Court for the District of
Delaware pursuant to title 11 of the United States Code.

               (e)  "Disability" means your inability to engage in substantial
gainful activity by reason of any medically determinable mental or physical
impairment which can be expected to result in death or which has lasted or can
be expected to last a continuous period of not less than 12 months.

               (f)  "Escrow Account" means either an interest bearing escrow
account or a comparable security device acceptable to you.

               (g)  "Good Reason" means a resignation of your employment as a
result of any of the following:

     (A)  a meaningful and detrimental alteration in your position or the nature
of your responsibilities, or a meaningful and detrimental change in your
reporting responsibilities or titles, as in effect immediately prior to your
termination of employment;

     (B)  a reduction by the Company in your annual base salary as in effect
immediately prior to your termination of employment; a reduction in your target
annual bonus (expressed as a percentage of base salary) as in effect

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immediately prior to your termination of employment; or a failure by the Company
to provide you with any other form of compensation or benefit being provided to
you immediately prior to your termination of employment;

     (C)  the relocation of your regular office worksite outside of Albuquerque,
New Mexico; or

     (D)  a material breach by the Company of the provisions of this Agreement;

provided

, however, that an event described in the clauses above shall not constitute
Good Reason unless it is communicated by you to the Company in writing and is
not corrected by the Company in a manner which is reasonably satisfactory to you
(including full retroactive correction with respect to any monetary matter)
within 10 days of the Company's receipt of such written notice from you.

               (h)   "Involuntary Termination" means (i) your termination of
employment by the Company other than for Cause or Disability or (ii) your
resignation of employment with the Company and its subsidiaries during the Term
for Good Reason.

               (i)   "Mitigation Election" means the election of the Company,
exercised by giving written notice to you, to apply the procedures governing
payment of severance specified in subsection 3(a).

               (j)   "Monthly Severance Payment" means one-twelfth of any amount
in the Escrow Account remaining after the withdrawal by the Company referred to
in Section 3(a), minus the amount of any salary earned by you during such month,
plus interest applicable to the Monthly Severance Amount, net of all applicable
withholding taxes.

               (k)   "Non-compete Election" means the election of the Company,
exercised by giving written notice to you, to apply the procedures governing
payment of severance specified in subsection 3(b).

               (l)   "Restricted Period" means a period of two years commencing
on the termination of your employment for any reason.

               9.  Notices. For the purpose of this Agreement, notices and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, addressed as
follows:

If to the Company:

Sun Healthcare Group, Inc.

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101 Sun Avenue, NE
Albuquerque, NM 87109
     Attention: General Counsel

If to you:

[address]

or to such other address as such person may have furnished to the others in
writing in accordance herewith, except that notice of change of address shall be
effective only upon receipt.

               10.  Miscellaneous.

               (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. 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. 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.

               (b)  Survival. This Agreement shall survive the entry of an order
confirming a chapter 11 plan of reorganization for the Company.

               (c)  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.

               (d)  Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.

               (e)  Withholding. Amounts paid to you hereunder shall be subject
to all applicable federal, state and local withholding taxes.

               (f)  Source of Payments. Except as expressly provided herein, all
payments provided under this Agreement shall be paid in cash from the general
funds of the Company, and no special or separate fund shall be established, and
no other segregation of assets made, to assure payment. You will have no right,
title, or interest whatsoever in or to any investments which the Company may
make to aid it in meeting its obligations hereunder. To the extent that any
person acquires a right to receive payments from the Company hereunder, such
right shall be no greater than the right of an unsecured creditor

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of the Company whose claim arose on the date such right to receive payments from
the Company arose.

               (g)  Headings. The headings contained in this Agreement are
intended solely for convenience of reference and shall not affect the rights of
the parties to this Agreement.

               (h)  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.

               (i)  Governing Law; Choice of Forum. The validity,
interpretation, construction, and performance of this Agreement shall be
governed by the laws of the State of New Mexico applicable to contracts entered
into and performed in such State. Any judicial action related to the validity,
interpretation, construction, performance, enforcement, or breach of this
Agreement shall be brought by either party or other interested person before the
United States Bankruptcy Court for the District of Delaware if brought prior to
the effective date of the Company's plan of reorganization under title 11 of the
United States Code or in the State of New Mexico before a Court of competent
jurisdiction. The parties to this Agreement each knowingly and voluntarily
submit and consent to the Courts of the State of New Mexico exercising personal
jurisdiction over each of them in any action or proceeding related to the
validity, interpretation, construction, performance, enforcement, or breach of
this Agreement.

               If this letter sets forth our agreement on the subject matter
hereof, kindly sign and return to the Company the enclosed copy of this letter
which will then constitute our agreement on this subject.

Sincerely,

SUN HEALTHCARE GROUP, INC.

                                                          

Richard K. Matros
Chief Executive Officer

 

Agreed to as of this           day of                        .

                                                             

[name]