EXHIBIT 10.16

January 8, 2003

Mr. John Driscoll
4308 La Paloma Rd NW
Albuquerque, NM 87120

Re:     Severance Agreement

Dear John:

     SunScript Pharmacy Corporation ("SunScript") hereby offers you a severance
agreement (the "Agreement") that will apply in the event of the termination of
your services (hereinafter referred to as "employment") to all of Sun Healthcare
Group, Inc., and its direct and indirect subsidiaries, including but not limited
to SunScript (collectively, "SHG"). Capitalized terms not otherwise 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 long as you are employed by SHG.

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non-solicitation of SHG employees is hereby terminated and superceded in its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

3.     Effect of Involuntary Termination.

a.     Severance Payment. In the event of your Involuntary Termination, subject
to your execution of a release of claims in favor of SHG and SunScript, SHG
shall pay you an amount equal to eighteen (18) months of pay based on your
annual salary at the rate then in effect.

b.     Certain Benefits. In the event of your Involuntary Termination, your
right to participate in any retirement or benefits plans and perquisites shall
cease as of the date of termination. You and your eligible dependents may elect
to continue coverage under COBRA of any health, dental and vision plans in
effect at the time.

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c.      Accrued Wages, Etc. In the event of your Involuntary Termination,
SunScript 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 SunScript under
this Agreement.

4.     Effect of Change in Control. In the event of an Involuntary Termination
of your employment with SHG within one year following a Change in Control, you
shall be entitled to an amount equal to one and one-half 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 your Involuntary Termination or a Change in
Control, SunScript 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 of benefits from SHG
under this Agreement. Your right to participate in any retirement or benefits
plans and perquisites shall cease as of the date of termination. You and your
eligible dependents may elect to continue coverage 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 written consent of the Chief Executive Officer of
SHG, directly or indirectly disclose to any person or organization any secret or
"Confidential Information" that you may learn or have learned by reason of your
association with SHG. The term "Confidential Information" means any information
not previously disclosed to the public or to the trade by SunScript's and/or
SHG's management with respect to SunScript's and/or SHG's products, services,
business practices, 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 revenues, costs or profits associated with any
of SunScript's and/or SHG's products or lines of business), business plans,
prospects or opportunities, compliance and clinical processes, policies and
procedures.

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b.     Exclusive Property. You confirm that all Confidential Information is and
shall remain the exclusive property of SunScript and/or SHG. All business
records, papers and documents kept or made by you relating to the business of
SunScript and/or SHG shall be and remain the property of SunScript and/or SHG.
Upon the termination of your employment for any reason or upon the request of
SunScript and/or SHG at any time, you shall promptly deliver to SunScript and/or
SHG, and shall not without the consent of the Chief Executive Officer of SHG,
retain copies of, Confidential Information, or any written materials not
previously made available to the public, or records and documents made by you or
coming into your possession concerning the business or affairs of SunScript
and/or SHG.

c.     Nonsolicitation. You shall not, during your employment under this
Agreement, and for eighteen (18) months following 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 SunScript and/or SHG or any
customer, patient or client of SunScript and/or SHG to terminate his or her
association or contract with SunScript and/or SHG, nor in any manner, directly
or indirectly, interfere with the relationship between SunScript and/or SHG and
any of such persons or entities.

d.      Non-Disparagement. You shall not during your employment under this
Agreement and for eighteen (18) months following termination of the Agreement,
for whatever reason, make any statements that are intended to or that would
reasonably be expected to harm SunScript and/or SHG 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.
SunScript and SHG and their officers and directors will not make any statements
that are intended to or that would reasonably be expected to harm your or your
reputation or that reflect negatively on your performance, skills, or ability.

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e.     Non-Competition. For a period of one year after your employment with SHG
terminates or for so long as SHG or any portion thereof continues to engage in
the an institutional pharmacy business serving long term care facilities,
whichever period is shorter, you agree not to, directly or indirectly, serve as
an employee, officer or director of, or consult with or otherwise assist or act
in the service of, any institutional pharmacy company servicing long term care
facilities which does business in the United States of America and which has
operations in the any one or more of the States of Alabama, California,
Connecticut, Georgia, Massachusetts, New Jersey, North Carolina, Ohio,
Tennessee, Washington or West Virginia; provided, however, that this Section
6(e) shall be for the sole and exclusive benefit of SHG and, accordingly, shall
not be enforceable by and shall not inure to the benefit of any successor to the
institutional pharmacy business currently operated by SHG unless expressly
hereafter agreed to in a subsequent written document you execute and deliver to
that successor as determined in your sole and absolute discretion..

f.     Relief. Without intending to limit the remedies available to SunScript
and/or SHG, you acknowledges that a breach of any of the covenants in Section 6
may result in material irreparable injury to SunScript and/or SHG 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, SunScript and/or SHG shall be entitled to obtain a temporary
restraining order and/or a preliminary or permanent injunction restraining you
from engaging in activities prohibited by Section 6 or such other relief as may
be required to specifically enforce any of the covenants in Section 6.

7.     Legal Fees and Expenses. SunScript and/or 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 which reflect common practice
with respect to the matters involved) incurred by you as a result of 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 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.

8.     Successors; Binding Agreement. This Agreement shall be binding upon and
inure to the benefit of you (and your personal representatives and heirs),
SunScript, SHG, and any organization which succeeds to substantially all of the
business or assets of SunScript or SHG, 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.

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

a.  "Good Cause" shall mean any one of the following:

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

(2)   Your continued failure to substantially perform the duties reasonably
requested by the Chief Executive Officer of SHG and commensurate with your
position as President of SunScript (other than any such failure resulting from
your incapacity due to your physical or mental condition) after a written demand
for substantial performance is delivered to you by the Chief Executive Officer
of SHG, which demand specifically identifies the manner in which the Chief
Executive Officer of SHG believes that you have not substantially performed your
duties, and which performance is not substantially corrected by your within ten
(10) days of receipt of such demand; and

(3)   Any material workplace misconduct or willful failure to comply with
SunScript's and/or SHG's general policies and procedures as they may exist from
time to time by you which, in the good faith determination of the Chief
Executive Officer of SHG, renders you unsuitable as an officer or employee.

b.   "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 and Exchange Act of 1934, as amended (the "1934 Act")), other
than a trustee or other fiduciary holding securities under an employee benefit
plan of SHG (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 Healthcare Group, Inc.
("Parent");

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

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(3)   A sale or other disposition by Parent or SunScript of all or substantially
all of its respective 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
Parent'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 SHG ("Chapter 11 Plan"), or a liquidation under the Bankruptcy
Code constitute a Change in 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 event of a sale or conveyance in which SHG continues as
a holding company of an entity or entities that conduct the business or
businesses formerly conducted by SHG, or any transaction undertaken for the
purpose of reincorporating SHG under the laws of another jurisdiction, if such
transaction does not materially affect the beneficial ownership of SHG's capital
stock. Your 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. A Change in Control
shall not, by itself, constitute Good Reason hereunder. A termination of your
employment without Good Cause (other than by reason of your death or Disability)
within six (6) months preceding a Change in Control shall be treated as if such
termination occurred on the date of such Change in Control if it is reasonably
demonstrated that the termination was at the request of the third party who has
taken steps reasonably calculated to effect such Change in Control or otherwise
arose in connection with or in anticipation of such Change in Control.

c.   "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
for a period of 120 substantially consecutive calendar days.

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d.   "Good Reason" 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 your responsibilities, or a meaningful and detrimental change in
your reporting responsibilities or titles, as in effect immediately prior to
your termination of employment; (2) a reduction by SunScript and/or SHG 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 immediately prior to your termination of
employment, or a failure by SunScript and/or SHG to provide you with any other
form of compensation or benefit being provided to you immediately prior to your
termination of employment; (3) the relocation of your regular office worksite
outside of Albuquerque, New Mexico; or (4) a material breach by SunScript and/or
SHG 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 SunScript and/or SHG
in writing and is not corrected by SunScript and/or SHG in a manner which is
reasonably satisfactory to you (including full retroactive correction with
respect to any monetary matter) within 10 days of SunScript's and/or SHG's
receipt of such written notice from you.

e.   "Involuntary Termination" means (1) the termination of your employment by
SHG (including without limitation SunScript) other than for Good Cause or
Disability; or (2) your resignation of employment with SHG for Good Reason
(including without limitation SunScript).

f.   "SHG" means Sun Healthcare Group, Inc. and any and all of its direct and
indirect subsidiaries (including without limitation SunScript).

10.     Notices. For 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:

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If to SHG:

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

If to you:

Mr. John Driscoll
4308 La Paloma Rd NW
Albuquerque, NM 87120

11.     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.     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.     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.

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

e.     Source of Payments. Except as expressly provided herein, all payments
provided under this Agreement shall be paid in cash from the general funds of
SHG 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 SHG may make to aid in it
meeting its obligations hereunder. To the extent that any person acquires a
right to receive payments from SHG hereunder, such right shall be not greater
than the right of an unsecured creditor of SHG whose claim arose on the date
such right to receive payments from SHG arose.

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f.     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.

g.     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.

h.     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 party 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 SHG the enclosed copy of this letter which will then
constitute our agreement on this subject.

 

Sincerely,

SUN HEALTHCARE GROUP, INC.

                    /s/ Richard K. Matros                                    
                    Richard K. Matros
                    Chief Executive Officer

                    Agreed to as of this 8th day of January, 2003.

                    /s/ John
Driscoll                                            
                   JOHN DRISCOLL

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