EXHIBIT 10.6

 

 

 

 

[date]

 

 

 

[name and address]

 

 

Re:     Severance Agreement
 

Dear [name]:

          SunHealthcare Group Inc. ("SHG") hereby offers you a severance agreement that willapply in the event of the termination of your services (hereinafter referred to as"employment") to SHG (the "Agreement"). Capitalized terms nototherwise defined, shall have the meanings specified in Section 9.

1.     **Effectiveness and Term.**On execution by SHG and you, this Agreement shall be effective and shall continue so longas you are employed by SHG or one of its subsidiaries.

2.     **Prior Severance Agreement.**Except as provided herein, any prior agreement, arrangement or understanding between youand SHG, relating to or in connection with the possible payment of severance to you upontermination of your employment, is hereby terminated and superceded in its entirety bythis Agreement.

3.     **Effect of Involuntary Termination.**

       a.     **SeverancePayment.** In the event of your Involuntary Termination, subject to your executionof a release in favor of SHG, SHG shall pay you an amount equal to one times your annualsalary at the rate then in effect.

       b.     **CertainBenefits.** In the event of your Involuntary Termination, your right to participatein any retirement or benefits plans and perquisites shall cease as of the date oftermination, except that you and your eligible dependents (as determined under SHG'shealth plans) shall be entitled to continuing coverage under SHG's health plans on thesame basis as active employees until the earlier of (1) the first anniversary of the dateof 

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termination; or (2) the date you or your eligible dependents becomeeligible to participate in a plan of a successor employer.

       c.     **AccruedWages, Etc.** In the event of your Involuntary Termination, SHG shall pay you thefull amount of any earned but unpaid salary through the date of such termination, plus acash 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. As of the date of such termination, you shallimmediately relinquish the right to any additional payments or benefits from SHG underthis Agreement.

4.     **Effect of Change in Control.**In the event of your termination as a result of a Change in Control, you shall be entitledto an amount equal to two times your annual salary at the rate then in effect.

5.     **Effect of Other Terminations.**In the event that your employment with SHG terminates for reasons other than yourInvoluntary Termination or a Change in Control, SHG shall pay you the full amount of anyearned 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 paidtime off which you have earned as of the date of such termination and a cash payment forany unreimbursed expenses. As of the date of such termination, you shall immediatelyrelinquish the right to any additional payments of benefits from SHG under this Agreement.Your right to participate in any retirement or benefits plans and perquisites shall ceaseas of the date of termination. You and your eligible dependents may elect to continuecoverage under COBRA of any health, dental and vision plans in effect at the time.

6.     **Protection of SHG's Interests.**
       a.     **Confidentiality.**You agree that you will not at any time, during or after the term of this Agreement,except in performance of you obligations to SHG hereunder or with the prior writtenconsent of the Chief Executive Officer of SHG, directly or indirectly disclose to anyperson or organization any secret or "Confidential Information" that you maylearn or have learned by reason of your association with SHG. The term "ConfidentialInformation" means any information not previously disclosed to the public or to thetrade by SHG's management with respect to SHG's products, services, business practices,facilities and methods, salary and benefit information, trade secrets and otherintellectual property, systems, procedures, manuals, confidential reports, product pricelists, pricing information, customer lists, financial information (including revenues,costs

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or profits associated with any of SHG's products or lines of business),business plans, prospects or opportunities, compliance and clinical processes, policiesand procedures. 

       b.     **ExclusiveProperty.** You confirm that all Confidential Information is and shall remain theexclusive property of SHG. All business records, papers and documents kept or made by yourelating to the business of SHG shall be and remain the property of SHG. Upon thetermination of your employment for any reason or upon the request of SHG at any time, youshall promptly deliver to SHG, and shall not without the consent of the Chief ExecutiveOfficer of SHG, retain copies of, Confidential Information, or any written materials notpreviously made available to the public, or records and documents made by you or cominginto your possession concerning the business or affairs of SHG. 

       c.     **Nonsolicitation.**You shall not, during your employment under this Agreement, and for two (2) yearsfollowing the termination of this Agreement, for whatever reason, 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 SHG or any customer, patient or client ofSHG to terminate his or her association or contract with SHG, nor in any manner, directlyor indirectly, interfere with the relationship between SHG and any of such persons orentities.

       d.     **Non-Disparagement.**You shall not during your employment under this Agreement and for two years followingtermination of the Agreement, for whatever reason, make any statements that are intendedto or that would reasonably be expected to harm SHG or any of its subsidiaries oraffiliates, their respective predecessors, successors, assigns and employees and theirrespective past, present or future officers, directors, shareholders, employees, trustees,fiduciaries, administrators, agents or representatives. SHG and its officers and directorswill not make any statements that are intended to or that would reasonably be expected toharm your or your reputation or that reflect negatively on your performance, skills, orability. 

       e.     **Relief.**Without intending to limit the remedies available to SHG, you acknowledges that a breachof any of the covenants in Section 6 may result in material irreparable injury to SHG forwhich there is no adequate remedy at law, that it will not be possible to measure damagesfor such injuries precisely and that, in the event of such a breach or threat thereof, SHGshall be entitled to obtain a temporary restraining order and/or a preliminary orpermanent injunction restraining you from engaging in activities prohibited by Section 6or such other relief as may be required to specifically enforce any of the covenants inSection 6.

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7.     **Legal Fees and Expenses.**SHG 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 whichreflect common practice with respect to the matters involved) incurred by you as a resultof any claim, action or proceeding (a) contesting, disputing, or enforcing any right,benefits, or obligations under this Agreement, or (b) arising out of or challenging thevalidity, 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.

8.     **Successors; Binding Agreement.**This Agreement shall be binding upon and inure to the benefit of you (and your personalrepresentatives and heirs), SHG, and any organization which succeeds to substantially allof the business or assets of SHG, or otherwise. This Agreement shall inure to the benefitof and be enforceable by your personal or legal representatives, executors,administrators, successors, heirs, distributees, devisees, and legatees. If you should diewhile any amount would still be payable to you hereunder if you had continued to live, allsuch amounts, unless otherwise provided herein, shall be paid in accordance with the termsof this Agreement to your devisee, legatee, or other designee or, if there is no suchdesignee, to your estate. 

9.     **Definitions.** Thefollowing capitalized terms shall have the meanings specified below:

       a.     "GoodCause" shall mean any one of the following:

            (1)     Anycriminal conviction under the laws of the United States or any state or other politicalsubdivision thereof which, in the good faith determination of the Chief Executive Officerof SHG, renders you unsuitable as an officer or employee of SHG.

            (2)     Yourcontinued failure to substantially perform the duties reasonably requested by the ChiefExecutive Officer of SHG and commensurate with your position as Vice President ofCompliance (other than any such failure resulting from your incapacity due to yourphysical or mental condition) after a written demand for substantial performance isdelivered to you by the Chief Executive Officer of SHG, which demand specificallyidentifies the manner in which the Chief Executive Officer of SHG believes that you havenot substantially performed your duties, and which performance is not substantiallycorrected by your within ten (10) days of receipt of such demand; and 

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            (3)     Anymaterial workplace misconduct or willful failure to comply with SHG's general policies andprocedures as they may exist from time to time by you which, in the good faithdetermination of the Chief Executive Officer of SHG, renders you unsuitable as an officeror employee.

       b.     "Changein 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 and Exchange Act of 1934, as amended (the "1934 Act")), otherthan a trustee or other fiduciary holding securities under an employee benefit plan of SHG(an "Acquiring Person"), is or becomes the "beneficial owner" (asdefined in Rule 13d-3 under the 1934 Act), directly or indirectly, of more than 33 1/3% ofthe then outstanding voting stock of SHG;

            (2)     Amerger or consolidation of SHG with any other corporation, other than a merger orconsolidation which would result in the voting securities of SHG outstanding immediatelyprior thereto continuing to represent (either by remaining outstanding or by beingconverted into voting securities of the surviving entity) at least 51% of the combinedvoting power of the voting securities of SHG or surviving entity outstanding immediatelyafter such merger or consolidation;

            (3)     Asale or other disposition by SHG of all or substantially all of SHG's assets;

            (4)     Duringany period of two (2) consecutive years, individuals who at the beginning of such periodconstitute the Board of Directors and any new director (other than a director who is arepresentative or nominee of an Acquiring Person) whose election by the Board of Directorsor nomination for election by SHG's shareholders was approved by a vote of at least amajority of the directors then still in office who either were directors at the beginningof the period or whose election or nomination was previously so approved, no longerconstitute a majority of the Board of Directors;

provided, however, in no event shall any acquisition of securities, achange in the composition of the Board of Directors or a merger or other consolidationpursuant to a plan of reorganization under chapter 11 of the Bankruptcy Code with respectto SHG ("Chapter 11 Plan"), or a liquidation under the Bankruptcy Codeconstitute a Change in 

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Control. In addition, notwithstanding Sections 9(b)(1), 9(b)(2),9(b)(3) and 9(b)(4), a Change in Control shall not be deemed to have occurred in the eventof a sale or conveyance in which SHG continues as a holding company of an entity orentities that conduct the business or businesses formerly conducted by SHG, or anytransaction undertaken for the purpose of reincorporating SHG under the laws of anotherjurisdiction, if such transaction does not materially affect the beneficial ownership ofSHG's capital stock. Your continued employment without objection following a Change inControl shall not, by itself, constitute consent to or a waiver of rights with respect toany circumstances constituting Good Reason hereunder. A Change in Control shall not, byitself, constitute Good Reason hereunder. A termination of your employment without GoodCause (other than by reason of your death or Disability) within six (6) months preceding aChange in Control shall be treated as if such termination occurred on the date of suchChange in Control if it is reasonably demonstrated that the termination was at the requestof the third party who has taken steps reasonably calculated to effect such Change inControl or otherwise arose in connection with or in anticipation of such Change inControl.

       c.     "Disability"means your inability to engage in substantial gainful activity by reason of any medicallydeterminable mental or physical impairment which can be expected to result in death orwhich has lasted or can be expected to last for a period of 120 substantially consecutivecalendar days.

       d.     "GoodReason" means a resignation of your employment as a result of any of the following:(1) a meaningful and detrimental alteration in your position or the nature of yourresponsibilities, or a meaningful and detrimental change in your reportingresponsibilities or titles, as in effect immediately prior to your termination ofemployment; (2) a reduction by SHG in your annual base salary as in effect immediatelyprior to your termination of employment, a reduction in your target annual bonus(expressed as a percentage of base salary) as in effect immediately prior to yourtermination of employment, or a failure by SHG to provide you with any other form ofcompensation or benefit being provided to you immediately prior to your termination ofemployment; (3) the relocation of your regular office worksite outside of Albuquerque, NewMexico; or (4) a material breach by SHG of the provisions of this Agreement.

Provided, however, that an event described in the clauses above shallnot constitute Good Reason unless it is communicated by you to SHG in writing and is notcorrected by SHG in a manner which is reasonably satisfactory to you (including fullretroactive correction with respect to any monetary matter) within 10 days of SHG'sreceipt of such written notice from you.

       e.     "InvoluntaryTermination" means (1) your termination of employment by SHG other than for GoodCause or Disability; or (2) your resignation of employment with SHG for Good Reason.

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       f.     "SHG"means Sun Healthcare Group, Inc. and any and all of its direct and indirect subsidiaries.

10.     **Notices.** For purpose ofthis Agreement, notices and all other communications provided for in this Agreement shallbe in writing and shall be deemed to have been duly given when delivered or mailed byUnited States registered mail, return receipt requested, postage prepaid, addressed asfollows:

          If to SHG:

          Sun Healthcare Group, Inc.          Attention: General Counsel          101 Sun Avenue N.E.          Albuquerque, New Mexico 87109

          If to you:

           [address]

 

11.     **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.     **Validity.**The invalidity or unenforceability of any provision of this Agreement shall not affect thevalidity or enforceability of any other provision of this Agreement, which shall remain infull force and effect.

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

       d.     **Withholding.**Amounts paid to you hereunder shall be subject to all applicable federal, stateand local withholding taxes.

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       e.     **Sourceof Payments.** Except as expressly provided herein, all payments provided under thisAgreement shall be paid in cash from the general funds of SHG and no special or separatefund shall be established, and no other segregation of assets made, to assure payment. Youwill have no right, title, or interest whatsoever in or to any investments which SHG maymake to aid in it meeting its obligations hereunder. To the extent that any personacquires a right to receive payments from SHG hereunder, such right shall be not greaterthan the right of an unsecured creditor of SHG whose claim arose on the date such right toreceive payments from SHG arose.

       f.     **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.

       g.     **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.

       h.     **GoverningLaw; Choice of Forum.** The validity, interpretation, construction and performanceof this 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 party in the State of NewMexico before a court of competent jurisdiction. The parties to this Agreement eachknowingly and voluntarily submit and consent to the courts of the State of New Mexicoexercising personal jurisdiction over each of them in any action or proceeding related tothe validity, interpretation, construction, performance, enforcement or breach of thisAgreement.

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

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Sincerely,

SUN HEALTHCARE GROUP, INC.

 

Richard K. MatrosChief Executive Officer

 

Agreed to as of this       day of                        .

 

[name]