December 17, 1999

 

 

Mr. Michael Hammes     
Via Fax & UPS

453 Merrill Street

Birmingham, MI 48009

Dear Mike:


I am pleased to extend an offer of employment to you as
President and Chief Executive Officer of Sunrise Medical Inc.
 on the terms set forth below:


I. General Terms of Employment.

	 Position
    	
 
 President and Chief Executive
            Officer. As President and Chief Executive Officer your duties will
            include, without limitation, the following responsibilities:

 

 

    
		(1) Management of the day to day operations
of Sunrise.

      
      
    
		(2) Control and management of
shareholder and investment relations,
  including without limitation, reporting
requirements under state
and federal
  securities laws.

      

      
    
		(3) Control and management
of all personnel decisions subject to Board of
  Directors approval with regard to decisions relating to
executive management
  personnel.

      

      
    
		(4) Control and management of any and all
      negotiations with respect to acquisitions, suppliers
 and customers subject
      to Board of Directors approval, where appropriate.

      

          
    
	Location: 
          
    	Carlsbad, California

      

          
    
	Start Date: 
          
    	
  
 January 24, 2000

  

          
    
	Reports to:
          
    	 Board of Directors

      

          
    
	Salary:
          
    	
  
  $550,000 per annum, paid biweekly in
            arrears. Your salary will be reviewed annually according to standard
            corporate practice. This is an exempt level position.

  

          
    
	Bonus Plan:
          
    	
  
  You will participate in the
            Management Incentive Bonus (MIB) plan at the 0/50/100% level. The
            MIB plan is attached as Exhibit A. A synopsis of this plan is
            included in Article II of this Agreement. Notwithstanding the terms
            and conditions of the MIB plan, the following shall apply:

  

          
    
		
      
        (1) Your fiscal 2000 bonus, which will be paid
              in September 2000, will be not less than the 50% of your salary
              multiplied by a fraction, the numerator of which is equal to the
              number of months worked (including any partial month) during the
              fiscal year and the denominator of which is equal to twelve.
          
        

      

    
		
      
        (2) To the extent there is any
inconsistency between the provisions
              of this Section titled "Bonus Plan"
and the MIB plan,
              this Section shall control.
          
        

      

    
	General

      Employee

      Benefits: 	 You will participate in our
fringe benefit programs
 (e.g., medical, dental, vision, life and accident insurance, 401(k)
Savings Plan, and long-term disability coverage) on the same basis as
other eligible Associates. Detailed benefits information will be sent
to you separately. There is a 60-day waiting period for most of our
benefit programs. Therefore, you may wish to investigate the health
insurance continuation program at your current employer or an
individual coverage plan. Sunrise's benefits may be revised from
time to time at Sunrise's sole discretion and are not part of a
contract of employment.

      

      
    
	Savings

      Plan:	 Upon meeting the eligibility
 requirements in Sunrise's
          Profit Sharing Plan/Savings (401(k)) Plan,
you will be entitled to
participate in the Savings Plan. A summary
plan description of the
Savings Plan has been provided to you.

      

      
    
	
          Executive

          Employee

          Benefits:

    	 In addition to
the MIB plan, the general employee
benefits and the Savings Plan, you will be provided the following
benefits:

      

      
    
		
      
        (1) You will be granted 1,000,000
non-qualified stock options on your
hire date in accordance with the terms and conditions of the Stock
Option Agreement attached as Exhibit B (the "Stock Option
Agreement"). You and Sunrise will execute such agreement upon
the commencement of your employment.

      

       
    

		
      
        (2) Upon meeting the eligibility
requirements of Sunrise's
Supplemental Executive Retirement Plan (the "SERP"), you
will be entitled to participate in the SERP. A summary plan
description of the SERP has been provided to you.

      

    
	Life Insurance:	 Sunrise will
provide you with $500,000 in
life insurance, which benefit is doubled under certain
circumstances. A travel rider will add an additional $1 million in
benefits if death occur while traveling.

      

      
    
	Vacation:	 You shall be entitled to vacation and personal days
consistent with Sunrise's practices and policies as they exist
from time to time. At a minimum, you will accrue five weeks of
vacation annually.

      

      
    
	Relocation Costs:	 You will be reimbursed for your moving
            expenses, temporary living expenses and home buying and selling
            costs. In addition, you will receive a tax gross up for certain
            eligible expenses. You will be expected to relocate your primary
            residence to the San Diego area within 12 months.

      

      
    
	Reimbursement:
            	 Sunrise
            shall reimburse you for any reasonable business expenses consistent
            with the Company's policies incurred by you in the course of your
            employment upon presentation of receipts or other appropriate
            documentation. Such reimbursements shall be made not less frequently
            than monthly. Such business expenses shall include expenses related
            to the maintenance of reasonable accommodations in Colorado to
            address your anticipated need to spend time on a regular and
            continuing basis at the Colorado manufacturing facilities of
            Sunrise.

      

            
    
	Legal Fees:
            	 You will be reimbursed for
            reasonable legal fees incurred in negotiating the terms of your
            employment with Sunrise up to $15,000.

      

            
    
	Hold Harmless:
            	 In the event that Guide fails
            to pay any consideration that you reasonably believe is due to you
            upon termination of your employment under the terms of your
            employment agreement with Guide, Sunrise will indemnify you and hold
            you harmless from such losses up to $500,000.00 (the "Loss
            Limit"). Such consideration shall include, without limitation,
            any salary, bonus, deferred compensation or other benefits provided
            under the employment agreement with Guide. Sunrise shall pay such
            amounts in three equal annual installments commencing with July 10,
            2000 upon reasonable proof by you of Guide's refusal to make any
            such payments. Such payments shall be made only if (i) you are
            employed by Sunrise at the time payment is due, or (ii) you have
            been terminated without "Cause" or resigned with
            "Good Reason". Such payments shall be in addition to any
            other payments due to you under any other agreement. Notwithstanding
            the foregoing, the Board of Directors may condition any payment
            hereunder upon the institution of legal proceedings against Guide
            for the purposes of enforcing your rights under your employment
            agreement with Guide. In the event the Board of Directors requires
            legal proceedings, Sunrise shall reimburse you for any costs and
            expenses including without limitation, attorney fees incurred in
            connection with such legal proceedings. Provided that any such
            reimbursement shall not be included for purposes of calculating
            payments subject to the Loss Limit. Such reimbursement shall be made
            in the same manner and time as reimbursements for business expenses.
            Should Guide subsequently make payments of such amounts, you shall
            reimburse Sunrise for such payment.

      

            
    
	At Will:	 Your employment status is At-Will. This means that
            you are free to resign from employment with Sunrise for any reason
            and similarly, Sunrise may terminate your employment at any time
            with or without cause.

      

      
    
	Termination of

      Employment:	 As noted above, you or Sunrise may terminate your
            employment at any time with or without cause. Your rights upon such
            termination will be determined in accordance with the Severance
            Agreement attached as Exhibit C (the "Severance
            Agreement") or the Change in Control Agreement attached as
            Exhibit D (the "CIC Agreement"). You and Sunrise shall
            execute such agreements upon your acceptance of this offer.

      

      
    
		
      
        (1) The Severance Agreement shall govern your rights upon termination of your
    employment for any reason when there has been no Change in Control as
    defined in the Severance Agreement.

        

        

      

    
		
      
        (2) The CIC Agreement shall govern your rights upon termination of your
    employment for any reason when there has been a Change in Control, as
    defined in the CIC Agreement.

      

    
	Confidentiality:	 You will be expected to sign Sunrise's
            standard Patent and Trade Secret Agreement. A copy of such agreement
            has been provided.

      

      
    
	Policies &
      Procedures: 	 Sunrise's policies and procedures may be revised
          from time  to time at Sunrise's sole discretion and are not
          part of a contract of employment.

      

      
    
	Miscellaneous:	 The following terms and provisions shall apply:

      

      
    
		(1) This Agreement shall be interpreted in accordance with and governed by
  the laws of the State of California. The parties consent to the jurisdiction
  of the courts of San Diego County, California.

      

      
    
		(2) If any provision of this Agreement is invalid or unenforeceable, at the
  option of the party for whose benefit such provision was intended, this
  Agreement shall be considered divisible as to such provision and the remainder
  of this Agreement shall be valid and binding as though such provision were
  originally excluded.

      

      
    
		(3) The Employment Documents, as defined below, constitute the
              entire agreement of the parties with respect to the terms and
              conditions of your employment with Sunrise. There are no other
              agreements between you and Sunrise on the subject identified
              above, express or implied. The Employment Documents may be amended
              only by a written instrument signed by the parties. Employment
              Documents shall mean the following agreements:

      

  
    
		
  
                 
  
	
                  
                    This Letter Agreement;
                  

    
	
                  
                    The Stock Option Agreement;
                  

    
	
                  
                    The Severance Agreement;
                  

    
	
                  
                    The CIC Agreement;
                  

    
	
                  
                    The Indemnification Agreement, dated April 28, 1998 between
                  you and Sunrise; and
                  

    
	
                  
                    The Associate Patent and Trade Secret Agreement.
                  

    


  
       
    

		(4) Any differences that may arise between the parties regarding the terms
  of this Agreement, or the construction thereof, or any matters dealt with
  arising under this Agreement shall be submitted to arbitration in accordance
  with terms and procedures identified in Section 5 of the CIC Agreement.

      

      
    
		(5) Any notice may be given to a party by personal delivery or by certified
  mail return receipt requested and first class mail to the address set forth
  herein or at an address provided in a notice for purposes of notice.

      

      
    
		(6) This Agreement may be executed in
              counterparts each of which shall be deemed an original agreement
              and all of which together shall be deemed a single instrument.
              This Agreement shall become binding on the execution and delivery
              of counterpart instruments by and to all of the parties.

      


    
	II. Synopsis of Certain Benefits Provided to You.

      


	Summary of

      Agreements:
	
  
  The following represents a summary
          of certain agreements between you and Sunrise. The specific terms and
          conditions of such agreements are detailed in the Stock Option
          Agreement, Severance Agreement and CIC Agreement (collectively, the
          "Contract Documents"). To the extent there is any
          inconsistency between this summary and the Contract Documents, the
          terms and conditions of the Contract Documents shall govern.

  


    
	MIB Plan:
	 Under the MIB Plan you are eligible
          to participate at the 0/50/100% level. This means you are eligible to
          earn a cash bonus as a percentage of your base salary and as modified
          by the achievement of your personal objectives established annually.
          The bonus is paid on September 1 each year (subject to deferral and
          possible forfeiture of a percentage as detailed in the MIB plan) based
          on Sunrise's financial results for the preceding fiscal year.

      


    
	Severance:
	 In the event of your termination for
          reasons other than Cause (as defined in the Severance Agreement) or
          your resignation for Good Reason (as defined) you will receive the
          following:

      


    
		
  
  
            (1) Three years salary;

             (2) A pro rated portion of your target bonus
            under the MIB Plan (and any successor and supplemental bonus plan or
            plans) in effect for the fiscal year during which the date of
            termination or resignation occurs;

             (3) Continuation for three years of all benefits
            and perquisites (health, life, etc.); and

             (4) Outplacement Services for three years or, at
            your option, a cash payment in lieu thereof equal to 25% of one year's
            compensation (salary plus target bonus).

  


       
    

	Change in Control:	 If there is a Change in Control, as defined
in the CIC Agreement of Sunrise followed by (i) your termination without Cause
or resignation for Good Reasons, as defined in the CIC Agreement, during the two
year period following the Change in Control or (ii) your resignation for any or
no reason during the thirteenth month following the Change in Control, you will
receive the following:

      

      
    
		
            
            (1) Three years salary;

            (2) Three years target bonus;

            (3) Continuation for three years of all benefits
            and perquisites (health, life, etc.); and

            (4) Outplacement Services for three years or, at
            your option, cash payment in lieu thereof equal to 25% of one year's
            compensation (salary plus target bonus).

            

      
       
    

	
          
          Stock Options: 	
 The Stock Option Agreement
          includes the following provisions:

            

      
    
	`	
      
          (1) Exercise price per share equal to the closing
          price of Sunrise stock on the day preceding your hire date.

        
          (2) Vesting:

        

    
       
    

		
  (a) 333,334 options will vest in equal installments over
    four years;

    
  
      
        
                          (b) 333,333 options will vest upon the earlier of
                          (i)
                          the seventh anniversary of your hire date; or (ii)
                          attainment by Sunrise of specified cumulative three
                          year earnings per share ("EPS") targets; and

                          (c) 333,333 options will vest upon the earlier of
                          (i)
                          the seventh anniversary of your hire date or (ii)
                          attainment by Sunrise of specified 6 month average
                          stock price targets.

        

      

       
    

		
      
          (3) With respect to calculations of EPS, you shall have the
          opportunity to present to the Board of Directors any proposed
          transaction that would significantly distort the measurement of your
          performance under the formulas set forth above for the purpose of
          allowing the Board of Directors to consider disregarding an
          extraordinary gain or loss in the measurement of the EPS targets
          referenced above. However, any suggested adjustment presented by you
          shall be subject to the sole and absolute discretion of the Board of
          Directors.

          (4) If there is a Change in Control, as defined in the Stock Option
          Agreement, all of your options covered by 2(a) and 2(b) above shall be
          immediately vested in full, and vesting of your options covered by
          2(c) above shall be accelerated to the extent that the effective per
          share sale price for Sunrise exceeds the referenced stock price
          targets. In the event your (i) employment is terminated following your
          death or disability; (ii) by the Company without Cause; or (iii) by
          you with Good Reason, all of your options covered by 2(a) shall be
          immediately vested in full. If your employment is terminated by the
          Company for Cause or by you without Good Reason, no further vesting
          will occur.

          (5) You shall be permitted to exercise all then vested options for
          six (6) months following any resignation or termination or one (1)
          year in the event of death or disability, as the case may be.

          (6) Sunrise shall file a registration statement covering your
          options to permit you to publicly sell the shares issued upon
          exercise.

          (7) You will not be receiving any additional annual grants
          of stock options during the first five years of employment.

      

       
    

	
      
      Savings Plan: 	
       The Savings Plan provides that Sunrise may, at the
      Board's discretion, make an annual contribution of 4% of your pre-tax,
      fiscal year earnings (up to the IRS maximum). In addition, the Board may
      authorize an annual contribution of and up to 6% of your earnings when
      Sunrise exceeds its profit plan. Profit Sharing contributions vest over a
      five year period from date of hire and accumulate investment earnings on a
      tax-deferred basis until retirement or early withdrawal from the Plan.

       
    

	
      
      Social Security Integration	
       In addition, your 401(k) account will receive an
      annual contribution of 8% to 11% (subject to Board discretion) on
      compensation earned over $72,600 but below $170,000. This plan is subject
      to the IRS maximums that may change from year to year.

       
    

	SERP:	 Under the SERP you are entitled to defer up to 25% of your
      bonus under the MIB actually earned and paid in such fiscal year. In
      addition, additional annual discretionary contributions may be made by
      Sunrise to a rabbi trust of between 8% and 11% on compensation over
      $170,000 earned in a fiscal year. This is a non-qualified plan.

      

      
    



      
    
    
  
  


We understand that there may be some short-term, transitional matters you
need to handle for Guide after you start with Sunrise, and that you will review
these with me prior to making any contractual commitment to Guide. We would
expect that any such commitments will be kept to a minimum and be completed as
soon as possible, but in any event within six months.

If you are in agreement with the terms and conditions described in this
letter, please sign the enclosed copy and return it to me by January 5, 2000. In
signing this, you are acknowledging that no promises have been made to you other
than what is included in this document. This offer is contingent on receiving
satisfactory results from your pre-employment drug screening.

Mike, we are pleased that you are interested in joining Sunrise and we look
forward to working with you. If you have any questions, please do not hesitate
to contact me.

Sincerely,

 

Murray Hutchison

Chairman, President and Chief Executive Officer

 

 

I accept this offer of employment on the terms and conditions set forth in
this letter.

 

Date:___________________           
_________________________________

                                         
        
Michael Hammes