EXHIBIT 10.3

THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR
EXEMPTION FROM REGISTRATION UNDER THE FOREGOING LAWS. THIS WARRANT AND THE
SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.

THIS WARRANT SHALL BE VOID AFTER 5:00 P.M. EASTERN TIME ON FEBRUARY 13, 2009
(the "EXPIRATION DATE").

No. ____

 

SUN HEALTHCARE GROUP, INC.
WARRANT TO PURCHASE ________ SHARES OF
COMMON STOCK, PAR VALUE $0.01 PER SHARE

     For VALUE RECEIVED, ________________________ ("Warrantholder"), is entitled
to purchase, subject to the provisions of this Warrant, from Sun Healthcare
Group, Inc., a Delaware corporation ("Company"), at any time not later than 5:00
P.M., Eastern time, on the Expiration Date, at an exercise price per share equal
to $12.65 (the exercise price in effect being herein called the "Warrant
Price"), ________ shares ("Warrant Shares") of the Company's Common Stock, no
par value ("Common Stock"). The number of Warrant Shares purchasable upon
exercise of this Warrant and the Warrant Price shall be subject to adjustment
from time to time as described herein.

     Section 1. Registration. The Company or its transfer agent shall maintain
books for the transfer and registration of the Warrant. Upon the initial
issuance of this Warrant, the Company shall issue and register the Warrant in
the name of the Warrantholder.

     Section 2. Transfers. As provided herein, this Warrant may be transferred
only pursuant to a registration statement filed under the Securities Act of
1933, as amended ("Securities Act"), or an exemption from such registration.
Subject to such restrictions, the Company shall transfer this Warrant from time
to time upon the books to be maintained by the Company for that purpose, upon
surrender thereof for transfer properly endorsed or accompanied by appropriate
instructions for transfer and such other documents as may be reasonably required
by the Company, including, if required by the Company, an opinion of its counsel
to the effect that such transfer is exempt from the registration requirements of
the Securities Act of 1933, to establish that such transfer is being made in
accordance with the terms hereof, and a new Warrant shall be issued to the
transferee and the surrendered Warrant shall be canceled by the Company.

1

--------------------------------------------------------------------------------

     Section 3. Exercise of Warrant.

     (a) Subject to the provisions hereof, the Warrantholder may exercise this
Warrant in whole or in part at any time prior to 5:00 p.m. Eastern Time on the
Expiration Date upon surrender of the Warrant, together with delivery of the
duly executed Warrant exercise form attached hereto as Appendix A (the "Exercise
Agreement") and payment by cash, certified check or wire transfer of funds or by
utilization of the cashless exercise provisions herein contained for the
aggregate Warrant Price for that number of Warrant Shares then being purchased,
to the Company on any business day at the Company's address herein set forth in
Section 13. The Warrant Shares so purchased shall be deemed to be issued to the
Warrantholder or such Warrantholder's designee, as the record owner of such
shares, as of the close of business on the date on which this Warrant shall have
been surrendered (or evidence of loss, theft or destruction thereof and security
or indemnity satisfactory to the Company), the Warrant Price shall have been
paid and the completed Exercise Agreement shall have been delivered (such date,
a "Date of Exercise"). Certificates for the Warrant Shares so purchased,
representing the aggregate number of shares specified in the Exercise Agreement,
shall be delivered to or as directed by the Warrantholder within a reasonable
time, not exceeding three (3) business days, after the Date of Exercise. The
certificates so delivered shall be in such denominations as may be requested by
the Warrantholder and shall be registered in the name of such Warrantholder or
such other name as shall be designated by such Warrantholder. If this Warrant
shall have been exercised only in part, then, unless this Warrant has expired,
the Company shall, at its expense, at the time of delivery of such certificates,
deliver to the Warrantholder a new Warrant representing the number of shares
with respect to which this Warrant shall not then have been exercised. As used
herein, "business day" means a day, other than a Saturday or Sunday, on which
banks in New York City are open for the general transaction of business.

     

(b) If by the third business day after a Date of Exercise the Company fails to
deliver the required number of Warrant Shares in the manner required pursuant to
Section 3(a), then the Warrantholder will have the right to rescind such
exercise.

     (c) If the Warrant Shares issuable upon exercise of this Warrant are not
registered pursuant to an effective registration statement that names the
Warrantholder as a selling stockholder or the prospectus thereunder is not then
available for the resale of such Warrant Shares, then the Warrantholder may
notify the Company in an Exercise Agreement of its election to utilize cashless
exercise, in which event the Company shall issue to the Warrantholder the number
of Warrant Shares determined as follows:

2

--------------------------------------------------------------------------------

X = Y [(A-B)/A]

                                                                        where:

X = the number of Warrant Shares to be issued to the Warrantholder.

Y = the number of Warrant Shares with respect to which this Warrant is being
exercised.

A = the average of the closing prices for the five trading days immediately
prior to (but not including) the Date of Exercise.

B = the Warrant Price.

For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Warrantholder,
and the holding period for the Warrant Shares shall be deemed to have commenced,
on the date this Warrant was originally issued.

     (d) Notwithstanding anything to the contrary contained herein, the number
of shares of Common Stock that may be acquired by the Warrantholder upon any
exercise of this Warrant (or otherwise in respect hereof) shall be limited to
the extent necessary to insure that, following such exercise (or other
issuance), the total number of shares of Common Stock then beneficially owned by
such Warrantholder and its Affiliates and any other persons whose beneficial
ownership of Common Stock would be aggregated with the Warrantholder's for
purposes of Section 13(d) of the Exchange Act, does not exceed 9.999% of the
total number of issued and outstanding shares of Common Stock (including for
such purpose the shares of Common Stock issuable upon such exercise). For such
purposes, beneficial ownership shall be determined in accordance with Section
13(d) of the Exchange Act and the rules and regulations promulgated thereunder.
This provision shall not restrict the number of shares of Common Stock which a
Warrantholder may receive or beneficially own in order to determine the amount
of securities or other consideration that such Warrantholder may receive in the
event of a merger of business combination as contemplated in Section 8 of this
Warrant. This restriction may not be waived.

     Section 4. Compliance with the Securities Act of 1933. The Company may
cause the legend set forth on the first page of this Warrant to be set forth on
each Warrant or similar legend on any security issued or issuable upon exercise
of this Warrant, for so long as such legends are required in accordance with the
Subscription Agreement (as hereinafter defined), unless counsel for the Company
is of the opinion as to any such security that such legend is unnecessary.

     Section 5. Payment of Taxes. The Company will pay any documentary stamp
taxes attributable to the initial issuance of Warrant Shares issuable upon the
exercise of the Warrant; provided, however, that the Company shall not be
required to pay any tax or taxes which may be payable in respect of any transfer
involved in the issuance or delivery of any certificates for Warrant Shares in a
name other than that of the registered Warrantholder in respect of which such
shares are issued, and in such case, the Company shall not be required to issue
or deliver any certificate for Warrant Shares or any Warrant until the person
requesting the same has paid to the Company the amount of such tax or has
established to the Company's reasonable satisfaction that such tax has been
paid. The Warrantholder shall be responsible for income and gift taxes due under
federal, state or other law, if any such tax is due.

3

--------------------------------------------------------------------------------

     Section 6. Mutilated or Missing Warrants. In case this Warrant shall be
mutilated, lost, stolen, or destroyed, the Company shall issue in exchange and
substitution of and upon cancellation of the mutilated Warrant, or in lieu of
and substitution for the Warrant lost, stolen or destroyed, a new Warrant of
like tenor and for the purchase of a like number of Warrant Shares, but only
upon receipt of evidence reasonably satisfactory to the Company of such loss,
theft or destruction of the Warrant, and with respect to a lost, stolen or
destroyed Warrant, reasonable indemnity or bond with respect thereto, if
requested by the Company.

     Section 7. Reservation of Common Stock. The Company hereby represents and
warrants that there have been reserved, and the Company shall at all applicable
times keep reserved until issued (if necessary) as contemplated by this Section
7, out of the authorized and unissued shares of Common Stock, sufficient shares
to provide for the exercise of the rights of purchase represented by this
Warrant. The Company agrees that all Warrant Shares issued upon exercise of the
Warrant shall be, at the time of delivery of the certificates for such Warrant
Shares upon the due exercise of this Warrant, duly authorized, validly issued,
fully paid and non-assessable shares of Common Stock of the Company.

     Section 8. Adjustments. Subject and pursuant to the provisions of this
Section 8, the Warrant Price and number of Warrant Shares subject to this
Warrant shall be subject to adjustment from time to time as set forth
hereinafter.

     (a) If the Company shall, at any time or from time to time while this
Warrant is outstanding, pay a dividend or make a distribution on its Common
Stock in shares of Common Stock, subdivide its outstanding shares of Common
Stock into a greater number of shares or combine its outstanding shares of
Common Stock into a smaller number of shares or issue by reclassification of its
outstanding shares of Common Stock any shares of its capital stock (including
any such reclassification in connection with a consolidation or merger in which
the Company is the continuing corporation), then the number of Warrant Shares
purchasable upon exercise of the Warrant and the Warrant Price in effect
immediately prior to the date upon which such change shall become effective,
shall be adjusted by the Company so that the Warrantholder thereafter exercising
the Warrant shall be entitled to receive the number of shares of Common Stock or
other capital stock which the Warrantholder would have received if the Warrant
had been exercised immediately prior to such event upon payment of a Warrant
Price that has been adjusted to reflect a fair allocation of the economics of
such event to the Warrantholder. Such adjustments shall be made successively
whenever any event listed above shall occur.

     (b) If any capital reorganization, reclassification of the capital stock of
the Company, consolidation or merger of the Company with another corporation in
which the Company is not the survivor, or sale, transfer or other disposition of
all or substantially all of the Company's assets to another corporation shall be
effected, then, as a condition of such reorganization, reclassification,
consolidation, merger, sale, transfer or other disposition, lawful and adequate
provision shall be made whereby each Warrantholder shall thereafter have the
right to purchase and receive upon the basis and upon the terms and conditions
herein specified and in lieu of the Warrant Shares immediately theretofore
issuable upon exercise of the Warrant, such shares of stock, securities or
assets (including cash) as would have been issuable or payable with respect to
or in exchange for a number of Warrant Shares equal to the number of Warrant
Shares immediately theretofore issuable upon exercise of the Warrant, had such
reorganization, reclassification, consolidation, merger, sale, transfer or other
disposition not taken place, and in any such case appropriate provision shall be
made with respect to the rights and interests of each Warrantholder to the end
that the provisions hereof (including, without limitation, provision for
adjustment of the Warrant Price) shall thereafter be applicable, as nearly
equivalent as may be practicable in relation to any shares of stock, securities
or assets (including cash) thereafter deliverable upon the exercise thereof. The
Company shall not effect any such consolidation, merger, sale, transfer or other
disposition unless prior to or simultaneously with the consummation thereof the
successor corporation (if other than the Company) resulting from such
consolidation or merger, or the corporation purchasing or otherwise acquiring
such assets or other appropriate corporation or entity shall assume the
obligation to deliver to the Warrantholder of the Warrant such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
Warrantholder may be entitled to purchase, and the other obligations under this
Warrant. The provisions of this paragraph (b) shall similarly apply to
successive reorganizations, reclassifications, consolidations, mergers, sales,
transfers or other dispositions.

4

--------------------------------------------------------------------------------

     (c) In case the Company shall fix a payment date for the making of a
distribution to all holders of Common Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing corporation) of evidences of indebtedness or assets (other than (i)
cash dividends or cash distributions payable out of consolidated earnings or
earned surplus or (ii) dividends or distributions referred to in Section 8(a)),
or subscription rights or warrants, the Warrant Price to be in effect after such
payment date shall be determined by multiplying the Warrant Price in effect
immediately prior to such payment date by a fraction, the numerator of which
shall be the total number of shares of Common Stock outstanding multiplied by
the Market Price (as defined below) per share of Common Stock immediately prior
to such payment date, less the fair market value (as determined by the Company's
Board of Directors in good faith) of said assets or evidences of indebtedness so
distributed, or of such subscription rights or warrants, and the denominator of
which shall be the total number of shares of Common Stock outstanding multiplied
by such Market Price per share of Common Stock immediately prior to such payment
date. "Market Price" as of a particular date (the "Valuation Date") shall mean
the following: (a) if the Common Stock is then listed on a national stock
exchange, the closing sale price of one share of Common Stock on such exchange
on the last trading day prior to the Valuation Date; (b) if the Common Stock is
then quoted on the NASDAQ Stock Market, Inc. National Market System or SmallCap
Market System ("Nasdaq"), the closing sale price of one share of Common Stock on
Nasdaq on the last trading day prior to the Valuation Date or, if no such
closing sale price is available, the average of the high bid and the low asked
price quoted on Nasdaq on the last trading day prior to the Valuation Date; or
(c) if the Common Stock is not then listed on a national stock exchange or
quoted on Nasdaq, the Fair Market Value of one share of Common Stock as of the
Valuation Date, shall be determined in good faith by the Board of Directors of
the Company and the Warrantholder. The Board of Directors of the Company shall
respond promptly, in writing, to an inquiry by the Warrantholder prior to the
exercise hereunder as to the Market Value of a share of Common Stock as
determined by the Board of Directors of the Company. In the event that the Board
of Directors of the Company and the Warrantholder are unable to agree upon the
Market Value in respect of subpart (c) hereof, the Company and the Warrantholder
shall jointly select an appraiser, who is experienced in such matters. The
decision of such appraiser shall be final and conclusive, and the cost of such
appraiser shall be borne evenly by the Company and the Warrantholder. Such
adjustment shall be made successively whenever such a payment date is fixed.

5

--------------------------------------------------------------------------------

     (d) In the event that, as a result of an adjustment made pursuant to this
Section 8, the Warrantholder shall become entitled to receive any shares of
capital stock of the Company other than shares of Common Stock, the number of
such other shares so receivable upon exercise of this Warrant shall be subject
thereafter to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Warrant Shares
contained in this Warrant.

     Section 9. Fractional Interest. The Company shall not be required to issue
fractions of Warrant Shares upon the exercise of the Warrant. If any fractional
share of Common Stock would, except for the provisions of the first sentence of
this Section 9, be delivered upon such exercise, the Company, in lieu of
delivering such fractional share, shall pay to the exercising Warrantholder an
amount in cash equal to the Fair Market Value of such fractional share of Common
Stock on the date of exercise. As used in this Warrant, "Fair Market Value" of a
share of Common Stock as of a particular date (the "Valuation Date") shall mean
the following: (a) if the Common Stock is then listed on a national stock
exchange, the closing sale price of one share of Common Stock on such exchange
on the last trading day prior to the Valuation Date; (b) if the Common Stock is
then quoted on Nasdaq, the closing sale price of one share of Common Stock on
Nasdaq on the last trading day prior to the Valuation Date or, if no such
closing sale price is available, the average of the high bid and the low sales
price quoted on Nasdaq on the last trading day prior to the Valuation Date; or
(c) if the Common Stock is not then listed on a national stock exchange or
quoted on Nasdaq, the Fair Market Value of one share of Common Stock as of the
Valuation Date, shall be determined in good faith by the Board of Directors of
the Company.

     Section 10. Benefits. Nothing in this Warrant shall be construed to give
any person, firm or corporation (other than the Company and the Warrantholder)
any legal or equitable right, remedy or claim, it being agreed that this Warrant
shall be for the sole and exclusive benefit of the Company and the
Warrantholder.

     Section 11. Notices to Warrantholder. Upon the happening of any event
requiring an adjustment of the Warrant Price, the Company shall promptly give
written notice thereof to the Warrantholder at the address appearing in the
records of the Company, stating the adjusted Warrant Price and the adjusted
number of Warrant Shares resulting from such event and setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based. Failure to give such notice to the Warrantholder or any
defect therein shall not affect the legality or validity of the subject
adjustment.

     Section 12. Identity of Transfer Agent. The Transfer Agent for the Common
Stock is American Stock Transfer & Trust Company. Upon the appointment of any
subsequent transfer agent for the Common Stock or other shares of the Company's
capital stock issuable upon the exercise of the rights of purchase represented
by the Warrant, the Company will mail to the Warrantholder a statement setting
forth the name and address of such transfer agent.

6

--------------------------------------------------------------------------------

     Section 13. Notices. Unless otherwise provided, any notice required or
permitted under this Warrant shall be given in writing and shall be deemed
effectively given as hereinafter described (i) if given by personal delivery,
then such notice shall be deemed given upon such delivery, (ii) if given by
telex or telecopier, then such notice shall be deemed given upon receipt of
confirmation of complete transmittal, (iii) if given by mail, then such notice
shall be deemed given upon the earlier of (A) receipt of such notice by the
recipient or (B) three days after such notice is deposited in first class mail,
postage prepaid, and (iv) if given by an internationally recognized overnight
air courier, then such notice shall be deemed given one day after delivery to
such carrier. All notices shall be addressed as follows: (i) if to the
Warrantholder, at its address as set forth in the Company's books and records
and, if to the Company, at the address as follows, or at such other address as
the Warrantholder or the Company may designate by ten days' advance written
notice to the other:

                                                If to the Company:

Sun Healthcare Group, Inc.
18831 Von Karman, Suite 400
Irvine, California 92612
Attention: General Counsel
Fax: (949) 255-7056

                                                With a copy to (other than for
Exercise Agreements):

O'Melveny & Myers LLP
114 Pacifica, Suite 100
Irvine, California 92618
Attention: Andor D. Terner, Esq.
Fax: (949) 737-2300

     Section 14. Registration Rights. The initial Warrantholder is entitled to
the benefit of certain registration rights with respect to the shares of Common
Stock issuable upon the exercise of this Warrant as provided in the Registration
Rights Agreement dated as of February 13, 2004, among the Company and the
original Warrantholders, and any subsequent holder hereof may be entitled to
such rights.

     Section 15. Successors. All the covenants and provisions hereof by or for
the benefit of the Warrantholder shall bind and inure to the benefit of its
respective successors and assigns hereunder.

7

--------------------------------------------------------------------------------

     Section 16. Governing Law; Consent to Jurisdiction; Waiver of Jury Trial.
This Warrant shall be governed by, and construed in accordance with, the
internal laws of the State of New York, without reference to the choice of law
provisions thereof. If a Warrantholder shall commence a proceeding against the
Company, or if the Company shall commence a proceeding against the
Warrantholder, to enforce any provisions of this Warrant, then the prevailing
party in such proceeding shall be reimbursed by the other party for its
attorney's fees and other costs and expenses incurred with the investigation,
preparation and prosecution of such proceeding. The Company and, by accepting
this Warrant, the Warrantholder, each irrevocably submits to the exclusive
jurisdiction of the courts of the State of New York located in New York County
and the United States District Court for the Southern District of New York for
the purpose of any suit, action, proceeding or judgment relating to or arising
out of this Warrant and the transactions contemplated hereby. Service of process
in connection with any such suit, action or proceeding may be served on each
party hereto anywhere in the world by the same methods as are specified for the
giving of notices under this Warrant. The Company and, by accepting this
Warrant, the Warrantholder, each irrevocably consents to the jurisdiction of any
such court in any such suit, action or proceeding and to the laying of venue in
such court. The Company and, by accepting this Warrant, the Warrantholder, each
irrevocably waives any objection to the laying of venue of any such suit, action
or proceeding brought in such courts and irrevocably waives any claim that any
such suit, action or proceeding brought in any such court has been brought in an
inconvenient forum. EACH OF THE COMPANY AND, BY ITS ACCEPTANCE HEREOF, THE
WARRANTHOLDER HEREBY WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY
LITIGATION WITH RESPECT TO THIS WARRANT AND REPRESENTS THAT COUNSEL HAS BEEN
CONSULTED SPECIFICALLY AS TO THIS WAIVER.

     Section 17. Call Provision. Notwithstanding any other provision contained
herein to the contrary, in the event that the closing bid price of a share of
Common Stock as traded on the Nasdaq (or such other exchange or stock market on
which the Common Stock may then be listed or quoted) exceeds 200% of the Warrant
Price (appropriately adjusted for any stock split, reverse stock split, stock
dividend or other reclassification or combination of the Common Stock occurring
after the date hereof) for twenty (20) consecutive trading sessions and during
such entire 20 trading sessions and for the 30 day period referenced below in
this section all of the Warrant Shares either (i) are registered pursuant to an
effective Shelf Registration Statement (as defined in the Registration Rights
Agreement) which is available for sales of such Warrant Shares or (ii) no longer
constitute Registrable Securities (as defined in the Registration Rights
Agreement), the Company, upon thirty (30) days prior written notice (the "Notice
Period") following such twenty (20) day period, to the Warrantholder, may call
this Warrant, in whole but not in part, at a redemption price equal to $0.01 per
share of Common Stock then purchasable pursuant to this Warrant; provided,
however, that the Company simultaneously redeems all Company Warrants (as
defined in Section 19 below) on the same terms. Notwithstanding any such notice
by the Company, the Warrantholder shall have the right to exercise this Warrant
prior to the end of the Notice Period. Notwithstanding the foregoing or anything
to the contrary contained herein, the Company and the Warrantholder agree that,
if and to the extent Section 3(d) of this Warrant would restrict the ability of
the Warrantholder to exercise this Warrant in full in the event the Company
delivers a notice of its election to call this Warrant under this Section, then
notwithstanding anything to the contrary set forth in such notice, such notice
shall be deemed automatically amended to apply only to such portion of this
Warrant as may be exercised by the Warrantholder by the expiration of the Notice
Period in accordance with Section 3(d). The Warrantholder will promptly (and in
any event, prior to the expiration of the Notice Period) notify the Company in
writing following receipt of a call notice under this Section if Section 3(d)
would restrict its exercise of the Warrant, specifying therein the number of
Warrant Shares so restricted.

8

--------------------------------------------------------------------------------

     Section 18. No Rights as Stockholder. Prior to the exercise of this
Warrant, the Warrantholder shall not have or exercise any rights as a
stockholder of the Company by virtue of its ownership of this Warrant.

     Section 19. Amendment; Waiver. This Warrant is one of a series of Warrants
of like tenor issued by the Company pursuant to the Subscription Agreement,
dated as of February 13, 2004, among the Company and the original Warrantholders
(collectively, the "Company Warrants"). Any term of this Warrant may be amended
or waived (including the adjustment provisions included in Section 8 of this
Warrant) upon the written consent of the Company and the holders of Company
Warrants representing at least 50% of the number of shares of Common Stock then
subject to outstanding Company Warrants (the "Majority Holders"); provided, that
(x) any such amendment or waiver must apply to all Company Warrants; and (y) the
number of Warrant Shares subject to this Warrant, the Warrant Price and the
expiration date of this Warrant may not be amended, and the right to exercise
this Warrant may not be altered or waived, without the written consent of the
Warrantholder.

     Section 20. Section Headings. The section heading in this Warrant are for
the convenience of the Company and the Warrantholder and in no way alter,
modify, amend, limit or restrict the provisions hereof.

9

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed, as
of this 13th day of February, 2004.

SUN HEALTHCARE GROUP, INC.

 

By:___________________________
Name:
Title:

10

--------------------------------------------------------------------------------

APPENDIX A
SUN HEALTHCARE GROUP, INC.
WARRANT EXERCISE FORM

To: Sun Healthcare Group, Inc.

     The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the within Warrant ("Warrant") for, and to purchase thereunder by
the payment of the Warrant Price and surrender of the Warrant, _______________
shares of Common Stock ("Warrant Shares") provided for therein, and requests
that certificates for the Warrant Shares be issued as follows:

_______________________________
Name

_______________________________
Address
_______________________________
_______________________________
Federal Tax ID or Social Security No.

and delivered by #9;

¨ certified mail to the above address, or
¨ electronically (provide DWAC Instructions:___________________), or
¨ other (specify: __________________________________________).

and, if the number of Warrant Shares shall not be all the Warrant Shares
purchasable upon exercise of the Warrant, that a new Warrant for the balance of
the Warrant Shares purchasable upon exercise of this Warrant be registered in
the name of the undersigned Warrantholder or the undersigned's Assignee as below
indicated and delivered to the address stated below.

Dated: ___________________, ____ Signature:______________________________

Note: The signature must correspond with            
______________________________
the name of the registered holder as written           Name (please print)
on the first page of the Warrant in every
particular, without alteration                                   
______________________________
or any change whatever, unless the Warrant           
______________________________
has been assigned.                                                  Address
                                                                             
______________________________
                                                                             
Federal Identification or
                                                                             
Social Security No.

                                                                          
Assignee:
                                                                           
_______________________________
                                                                           
_______________________________
                                                                           
_______________________________

By its delivery of this Exercise Notice, the undersigned represents and warrants
that in giving effect to the exercise evidenced hereby the Warrantholder will
not beneficially own in excess of the number of shares of Common Stock permitted
to be owned under Section 3(d) of this Warrant to which this notice relates.

 

--------------------------------------------------------------------------------

SUN HEALTHCARE GROUP, INC.

Warrant

List of Purchasers

 

Name of Stockholder

No. of Warrant Shares

1.

Advantage Advisers Augusta Fund, L.L.C.

34,000.00

2.

Ahab Partners, L.P.

60,000.00

3.

Ardsley Offshore Fund, Ltd.

137,760.00

4.

Ardsley Partners Fund II, L.P.

96,000.00

5.

Ardsley Partners Institutional Fund, L.P.

47,200.00

6.

Atlas Equity I, Ltd.

94,488.00

7.

Blackmore Offshore Fund, Ltd.

8,610.00

8.

Blackmore Partners, LP

3,350.00

9.

Blackmore Wallace Partners, LP

8,040.00

10.

Bristol Investment Fund, Ltd.

22,000.00

11.

Cerberus Partners, L.P.

314,960.00

12.

Chad Cooper

800.00

13.

Crescent International Ltd.

10,000.00

14.

Crestview Capital Master, L.L.C.

31,496.00

15.

Dunlap Capital Partners, L.P.

15,748.00

16.

Geduld Capital Partners, LLC

6,000.00

17.

Heimdall Investments Ltd.

62,992.00

18.

Itros I, L.P.

826.00

19.

Itros II QP, L.P.

7,730.00

20.

Itros Offshore, Ltd.

11,444.00

21.

JMB Capital Partners, L.P.

15,748.00

 

--------------------------------------------------------------------------------

 

22.

Langley Partners, L.P.

15,748.00

23.

Mexana Ltd.

40,000.00

24.

North Sound Legacy Fund LLC

3,779.00

25.

North Sound Legacy Institutional Fund LLC

41,574.00

26.

North Sound Legacy International Ltd.

80,630.00

27.

Omicron Master Trust

47,244.00

28.

Portside Growth and Opportunity Fund

31,496.00

29.

Scottwood Fund Ltd.

56,692.00

30.

Scottwood Partners, LP

37,795.00

31.

SDS Capital Group SPC, Ltd.

31,496.00

32.

Spectra Capital Management, LLC

12,598.00

33.

Straus Partners LP

23,622.00

34.

Straus-Gept Partners LP

15,748.00

35.

Triage Capital Management B, L.P.

25,196.00

36.

Triage Capital Management, L.P.

12,598.00

37.

Triage Offshore Fund, Ltd.

119,684.00

38.

Valor Capital Management, LP

12,598.00

39.

WPG - Farber Fund, L.P.

63,165.00

40.

WPG - Farber Institutional Fund, L.P.

19,952.00

41.

WPG - Farber Overseas, L.P.

4,188.00

42.

WPG - Farber QP Fund, L.P.

22,929.00

43.

Fuller & Thaler Behavioral Finance Fund, Ltd.*

62,160.00

* All warrants have an exercise price per share equal to $12.65, with the
exception of the warrant issued to Fuller & Thaler Behavioral Finance Fund,
Ltd., which has an exercise price per share equal to $12.82.