EXHIBIT 10.5

 

 

 

 

[date]

 

 

 

[name and address]

 

                    Re:Severance Agreement
Dear                   :

               TheCreditors' Committee, as defined herein in Section 8, has approved a retention program foryou that will apply in the event of the termination of your services (hereinafter referredto 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.  *Effectivenessand Term.* On execution by the Company and you, this Agreement shall be effective andshall continue so long as you are employed by the Company; *provided, however,* thatyou may terminate this Agreement and decline to participate in the Retention Program bydelivering written notice to such effect to the Company and to the Creditors' Committee atany time prior to your acceptance of any payment under the Retention Program.
*               2.  *PriorSeverance Agreement.* Except as provided herein, any prior agreement, arrangement orunderstanding between you and the Company, relating to or in connection with the possiblepayment of severance to you upon termination of your employment, is hereby terminated andsuperceded in its entirety by this Agreement. 

               3.  *Effectof Involuntary Termination.* In the event of your Involuntary Termination, the Companyshall make either the Mitigation Election or the Non-compete Election at the time of suchInvoluntary Termination.

               (a)*  SeverancePayment Under Mitigation Option.* In the event the Company makes the MitigationElection and subject to your execution of a release in favor of the Company, the Companyshall (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 ratethen in effect. You agree to notify the Company in writing 

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within ten business days after obtaining any employment during the twoyears after your Involuntary Termination. On the first anniversary of your InvoluntaryTermination, the Company shall be entitled to withdraw from the Escrow Account an amountequal to the sum of any signing bonuses and all salary earned by you subsequent to yourInvoluntary Termination through the first anniversary of such date (regardless of whethersuch 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 suchamounts. On the last day of each month commencing with the first month after the firstanniversary of your Involuntary Termination and ending with the twelfth month after suchanniversary, you may receive an amount equal to the Monthly Severance Payment followingdelivery to the Company of your sworn statement that you are entitled to receive suchamount hereunder.

               (b)*  SeverancePayment Under Non-compete Option.* In the event the Company makes the Non-competeElection and subject to your execution of a release in favor of the Company, the Companyshall 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 thissubsection by seeking other employment or otherwise, nor shall the amount of any paymentor benefit provided for in this subsection be reduced by any compensation earned by you asthe result of employment by another employer or by pension benefits paid by the Company oranother employer after the date of termination or otherwise. 

               (c)*  CertainBenefits.* In the event of your Involuntary Termination, you and your eligibledependents shall continue to be eligible to participate during the Benefit ContinuationPeriod in the medical, dental, health, life, and other fringe benefit plans andarrangements applicable to you immediately prior to you Involuntary Termination on thesame terms and conditions in effect for you and your dependents immediately prior to suchInvoluntary Termination. 

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

               4.*  Effectof Other Terminations.*In the event that your employment with the Company terminatesfor reasons other than your Involuntary Termination, the Company shall pay you the fullamount of any earned but unpaid salary through the date of such termination, plus a cashpayment (calculated on the basis of your salary at the rate then in effect) for all unusedpaid time off which you have earned as of the date of such termination and a cash paymentfor any unreimbursed expenses. As of the date of such termination, you shall immediatelyrelinquish the right to any additional payments or benefits from the Company under thisAgreement.

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               5.*  Protectionof the Company's Interests.*
               (a)*  NoCompeting Employment.*You shall not, unless you receive the prior written consent ofthe 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 connectedwith, as an officer, employee, partner, stockholder, consultant, or otherwise, anyindividual, partnership, firm, corporation, or other business organization or entity thatcompetes with the Company (other than an entity that began competing with the Companyafter 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 theNon-compete Election by the Company, and (iii) during the Restricted Period in the eventof termination of your employment for any other reason; *provided, however,*thatthis Section shall not proscribe your ownership, either directly or indirectly, of lessthan five percent of any class of securities which are listed on a national securitiesexchange or quoted on the automated quotation system of the National Association ofSecurities Dealers, Inc.; *provided, further,*that this Section shall not proscribeyour employment with a competing entity in a capacity which is not responsible for thegeneration of operating revenue; and *provided further*, that you shall be releasedfrom the foregoing obligations following the Non-compete Election by the Company if theCompany fails to timely pay any amount due to you under this Agreement.

               (b)*  NoInterference.*During the Restricted Period, you shall not, whether for your ownaccount or for the account of any other individual, partnership, firm, corporation, orother business organization (other than the Company), intentionally solicit, endeavor toentice away from the Company, or otherwise interfere with the relationship of the Companywith any person who is employed by or otherwise engaged to perform services for theCompany or any person or entity who is, or was within the then most recent twelve-monthperiod, 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 yourobligations 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 thatyou may learn or have learned by reason of your association with the Company.

               (d)*  ExclusiveProperty.*You hereby confirm that all Confidential Information is and shall remain theexclusive property of the Company. All business records, papers, and documents kept ormade 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 ofthe Company at any time, you shall promptly deliver to the Company, and shall not withoutthe prior written consent of the Company, retain 

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copies of any Confidential Information or records and documents made byyou 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 thata breach of any of the covenants contained in this Section may result in materialirreparable injury to the Company for which there is no adequate remedy at law, that itwill not be possible to measure damages for such injuries precisely and that, in the eventof such a breach or threat thereof, the Company shall be entitled to obtain a temporaryrestraining order and/or a preliminary injunction restraining you from engaging inactivities prohibited by this Section or such other relief as may be required tospecifically enforce any of the covenants of this Section.

               6.*  LegalFees and Expenses.*The Company shall pay or reimburse you on an after-tax basis forall costs and expenses (including, without limitation, court costs and reasonable legalfees 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 yourtermination of employment during the Term, (ii) contesting, disputing, or enforcing anyright, benefits, or obligations under this Agreement, or (iii) arising out of orchallenging the validity, advisability, or enforceability of this Agreement or anyprovision thereof; *provided*, *however*,**that this provision shall notapply if the relevant trier-of-fact determines that your claim or position was frivolousand without reasonable foundation.

               7.*  Successors;Binding Agreement.*This Agreement shall be binding upon and inure to the benefit ofyou (and your personal representatives and heirs), the Company, and any organization whichsucceeds to substantially all of the business or assets of the Company, whether by meansof merger, consolidation, acquisition of all or substantially all of the assets of theCompany, or otherwise. This Agreement shall inure to the benefit of and be enforceable byyour personal or legal representatives, executors, administrators, successors, heirs,distributees, devisees, and legatees. If you should die while any amount would still bepayable to you hereunder if you had continued to live, all such amounts, unless otherwiseprovided herein, shall be paid in accordance with the terms of this Agreement to yourdevisee, 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 ofyour Involuntary Termination and ending on the earlier to occur of (i) the secondanniversary of the date of your Involuntary Termination or (ii) the date that you and yourdependents are eligible and elect coverage under the plans of a subsequent employer whichprovide substantially equivalent or greater benefits to you and your dependents than themedical, dental, health, life, and other fringe benefit plans and arrangements applicableto 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) yourfelony conviction, (ii) a determination by the board of directors of the Company that youhave 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 bythe Company (other than any such failure resulting from your incapacity due to physical ormental illness or any such actual or anticipated failure resulting from a resignation byyou for Good Reason) after a written demand for substantial performance is delivered toyou by the board of directors of the Company, which demand specifically identifies themanner in which the board of directors of the Company believes that you have notsubstantially performed your duties, and which performance is not substantially correctedby you within 10 days of receipt of such demand.

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

               (d)*  "Creditors'Committee"* means the statutory committee of creditors appointed in the jointlyadministered cases filed by the Company on October 14, 1999, with the United StatesBankruptcy Court for the District of Delaware pursuant to title 11 of the United StatesCode.

               (e)*  "Disability"*means your inability to engage in substantial gainful activity by reason of anymedically determinable mental or physical impairment which can be expected to result indeath or which has lasted or can be expected to last a continuous period of not less than12 months.

               (f)*  "EscrowAccount"*means either an interest bearing escrow account or a comparable securitydevice acceptable to you.

               (g)*  "GoodReason"*means a resignation of your employment as a result of any of thefollowing:

     (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 theclauses above shall not constitute Good Reason unless it is communicated by you to theCompany in writing and is not corrected by the Company in a manner which is reasonablysatisfactory to you (including full retroactive correction with respect to any monetarymatter) within 10 days of the Company's receipt of such written notice from you.

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

               (i)*  "Mitigation Election"*means the election of the Company, exercised by givingwritten notice to you, to apply the procedures governing payment of severance specified insubsection 3(a).

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

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

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

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

If to the Company:

Sun Healthcare Group, Inc.

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101 Sun Avenue, NEAlbuquerque, NM 87109     Attention: General Counsel

If to you:

[address]

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

               10.*  Miscellaneous.*
               (a)*  Amendments,Waivers, Etc.* No provision of this Agreement may be modified, waived or dischargedunless such waiver, modification or discharge is agreed to in writing. No waiver by eitherparty 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 bedeemed a waiver of similar or dissimilar provisions or conditions at the same or at anyprior or subsequent time. No agreements or representations, oral or otherwise, express orimplied, with respect to the subject matter hereof have been made by either party whichare not expressly set forth in this Agreement.

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

               (c)*  Validity.*The invalidity or unenforceability of any provision of this Agreement shall not affectthe validity or enforceability of any other provision of this Agreement, which shallremain in full force and effect.

               (d)*  Counterparts.*This Agreement may be executed in several counterparts, each of which shall be deemedto 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 andlocal withholding taxes.

               (f)*  Sourceof Payments.*Except as expressly provided herein, all payments provided under thisAgreement shall be paid in cash from the general funds of the Company, and no special orseparate fund shall be established, and no other segregation of assets made, to assurepayment. You will have no right, title, or interest whatsoever in or to any investmentswhich the Company may make to aid it in meeting its obligations hereunder. To the extentthat any person acquires a right to receive payments from the Company hereunder, suchright 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 receivepayments from the Company arose.

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

               (h)*  EntireAgreement.*This Agreement sets forth the entire agreement and understanding of theparties hereto with respect to the matters covered hereby and supersedes all prioragreements and understandings of the parties with respect to the subject matter hereof.

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

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

Sincerely,
SUN HEALTHCARE GROUP, INC.
                                                              Richard K. Matros    Chief Executive Officer
 

Agreed to as of this           dayof                        .

                                                             [name]**