Exhibit 10.12


    EXHIBIT
      10.12

    


    


    Stock
      Option Grant

    


    Sun
      Healthcare Group, Inc.

    2004
      Equity Incentive Plan

    


    Name
      of Optionee:                            [______]

    


    Shares
      Subject to Option:             
         [______] shares of common stock, par value $.01 (“Common
      Stock”), of Sun Healthcare Group, Inc. (the “Company”).

    


    Type
      of Option:                                
       Nonqualified Stock Option

    


    Exercise
      Price Per Share:                   $[______]

    


    Date
      of Grant:                                      [______],
      2007

    


    Date
      Exercisable/Vesting:                
      This option may be exercised to the extent the shares of Common Stock subject
      to
      this option have vested at any time after the Date of Grant. The option vests
      as
      follows (1) This option will vest with respect to 25% on each of the first
      four
      anniversaries of the Date of Grant, subject in each case to the Terms; (2)
      This
      option vests upon your termination of Service by the Company without Good Cause
      or your resignation from Service for Good Reason (as defined in the Terms);
      and
      (3) This option vests upon the date of a Change in Control if you are employed
      by the Company or a Parent or Subsidiary on that date (as defined in the
      Terms).

    


    Expiration
      Date:                                  [______],
      2014

    


    By
      signing your name below, you accept this option and acknowledge and agree that
      this option is granted under and governed by the terms and conditions
      (collectively, the “Terms”) of the Sun Healthcare Group, Inc. 2004 Equity
      Incentive Plan and the Stock Option Agreement, both of which are hereby made
      a
      part of this document.

    


    Optionee:                                          
      Sun
      Healthcare Group, Inc.

     

    ________________________                           
______________________________
                                                                                                     
      By: Richard K. Matros

                                                                                                          Title:
      Chief Executive Officer

     

    CONSENT
      OF SPOUSE

     

    In
      consideration of the Corporation’s execution of this award agreement, the
      undersigned spouse of the Grantee agrees to be bound by all of the terms and
      provisions hereof and of the Plan.

    


     

    __________________________________   ______________________

    SECTION
      1. SIGNATURE
      OF SPOUSE      DATE


    
      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

     

    Stock
      Option Agreement

    


    


    Sun
      Healthcare Group, Inc. 

    2004
      Equity Incentive Plan

    


    SECTION
      2. GRANT
      OF OPTION.

     

    (a) Option.
      On the
      terms and conditions set forth in this Agreement and each Notice of Stock Option
      Grant referencing this Agreement (the “Notice”), the Company grants to the
      Optionee on the Date of Grant an option to purchase at the Exercise Price a
      number of shares of Common Stock, all as set forth in the Notice. Each such
      Notice, together with this referenced Agreement, shall be a separate option
      governed by the terms of this Agreement.

     

    (b) Plan
      and Defined Terms.
      This
      option is granted under and subject to the terms of the 2004 Equity Incentive
      Plan (the “Plan”), which is incorporated herein by this reference. Capitalized
      terms are defined in the Plan.

     

    (c) Scope
      of this Agreement.
      This
      Agreement shall apply both to this option (or options) and to the shares of
      Common Stock acquired upon the exercise of such option(s).

     

    SECTION
      3. RIGHT
      TO EXERCISE.

     

    Subject
      to the conditions set forth in this Agreement, all or part of this option may
      be
      exercised prior to its expiration at the time or times set forth in the
      Notice.

     

    SECTION
      4. TRANSFER
      OR ASSIGNMENT OF OPTION.

     

    (a) Generally.
      This
      option shall be exercisable during the Optionee’s lifetime, only by the
      Optionee. Except as otherwise provided in subsection (b) below, this option
      and
      the rights and privileges conferred hereby shall not be sold, pledged or
      otherwise transferred (whether by operation of law or otherwise) other than
      by
      will or the laws of descent and distribution and shall not be subject to sale
      under execution, attachment, levy or similar process.

     

    (b) Permitted
      Transfers.
      The
      Optionee shall be permitted to transfer this option, in connection with his
      or
      her estate plan, to the Optionee’s spouse, siblings, parents, children and
      grandchildren or trusts for the benefit of such persons or partnerships,
      corporations, limited liability companies or other entities owned solely by
      such
      persons, including trusts for such persons.

     

    SECTION
      5. EXERCISE
      PROCEDURES.

     

    (a) Notice
      of Exercise.
      The
      Optionee or the Optionee’s representative may exercise this option by giving
      written notice to the Company specifying the election to exercise this option,
      the number of shares of Common Stock for which it is being exercised and the
      form of payment. Exhibit
      A
      is an
      example of a “Notice of Exercise”. The Notice of Exercise shall be signed by the
      person exercising this option. In the event that this option is being exercised
      by the Optionee’s representative, the notice shall be accompanied by proof
      (satisfactory to the Company) of the representative’s right to exercise this
      option. The Optionee or the Optionee’s representative shall deliver to the
      Company, at the time of giving the notice, payment in a form permissible under
      Section 5 for the full amount of the Purchase Price.

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

    

    (b) Issuance
      of Common Stock.
      After
      receiving a proper notice of exercise, the Company shall cause to be issued
      a
      certificate or certificates for the shares of Common Stock as to which this
      option has been exercised, registered in the name of the person exercising
      this
      option (or in the names of such person and his or her spouse as community
      property or as joint tenants with right of survivorship). 

     

    (c) Withholding
      Requirements.
      The
      Company may withhold any tax (or other governmental obligation) as a result
      of
      the exercise of this option, as a condition to the exercise of this option,
      and
      the Optionee shall make arrangements satisfactory to the Company to enable
      it to
      satisfy all such withholding requirements. The Optionee shall also make
      arrangements satisfactory to the Company to enable it to satisfy any withholding
      requirements that may arise in connection with the vesting or disposition of
      shares of Common Stock purchased by exercising this option.

     

    SECTION
      6. PAYMENT
      FOR SHARES OF COMMON STOCK.

     

    (a) Cash
      or Check.
      All or
      part of the Purchase Price may be paid in cash or by check.

     

    (b) Alternative
      Methods of Payment.
      At the
      sole discretion of the Committee, all or any part of the Purchase Price and
      any
      applicable withholding requirements may be paid by one or more of the following
      methods:

     

    (i) Surrender
      of Stock.
      By
      surrendering, or attesting to the ownership of, shares of Common Stock that
      are
      already owned by the Optionee free and clear of any restriction or limitation,
      unless the Company specifically agrees to accept such shares of Common Stock
      subject to such restriction or limitation. Such shares of Common Stock shall
      be
      surrendered to the Company in good form for transfer and shall be valued at
      their Fair Market Value on the date of the applicable exercise of this option.
      The Optionee shall not surrender, or attest to the ownership of, shares of
      Common Stock in payment of the Purchase Price (or withholding) if such action
      would cause the Company to recognize compensation expense (or additional
      compensation expense) with respect to this option for financial reporting
      purposes that otherwise would not have occurred.

     

    (ii) Exercise/Sale.
      By the
      delivery (on a form prescribed by the Company) of an irrevocable direction
      (A)
      to a securities broker approved by the Company to sell shares of Common Stock
      and to deliver all or part of the sales proceeds to the Company, or (B) to
      pledge shares of Common Stock to a securities broker or lender approved by
      the
      Company as security for a loan, and to deliver all or part of the loan proceeds
      to the Company.

     

    Should
      the Committee exercise its discretion to permit the Optionee to exercise this
      option in whole or in part in accordance with this subsection (b) above, it
      shall have no obligation to permit such alternative exercise with respect to
      the
      remainder of this option or with respect to any other option to purchase shares
      of Common Stock held by the Optionee.

     

    SECTION
      7. TERM
      AND EXPIRATION.

     

    (a) Basic
      Term.
      Subject
      to earlier termination in accordance with subsection (b) below, the exercise
      period of this option shall expire on the expiration date set forth in the
      Notice, or in the event of the Optionee's death, the date that is one (1) year
      after the Optionee's Service terminates because of his or her death, if
      later.

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

    

    (b) Termination
      of Service.
      If the
      Optionee’s Service terminates for any reason, then the exercise period for this
      option shall expire on the earliest of the following occasions (or such later
      date as the Committee may determine):

     

    (i) The
      expiration date determined pursuant to subsection (a) above;

     

    (ii) The
      date
      three (3) months after the termination of the Optionee’s Service for any reason
      other than death, Disability or Cause;

     

    (iii) The
      date
      six (6) months after the termination of the Optionee’s Service by reason of
      Disability or retirement pursuant to any then current formal retirement policy
      of the Company; 

     

    (iv) The
      date
      twelve (12) months after the Optionee’s death; or

     

    (v) The
      date
      of termination of the Optionee’s Service if such termination is for Cause or if
      Cause exists on such date.

     

    The
      Optionee (or in the case of the Optionee’s death or disability, the Optionee’s
      representative) may exercise all or part of this option at any time before
      its
      expiration under the preceding sentence, but only to the extent that this option
      had become exercisable for vested shares of Common Stock on or before the date
      the Optionee’s Service terminates. When the Optionee’s Service terminates, this
      option shall expire immediately with respect to the number of shares of Common
      Stock for which this option is not yet vested.

     

    (c) Leaves
      of Absence.
      For any
      purpose under this Agreement, Service shall be deemed to continue while the
      Optionee is on a bona fide leave of absence, if such leave was approved by
      the
      Company in writing or if continued crediting of Service for such purpose is
      expressly required by the terms of such leave or by applicable law (as
      determined by the Company).

     

    SECTION
      8. ADJUSTMENT
      OF SHARES OF COMMON STOCK.

     

    (a) Adjustment
      Generally.
      If
      there shall be any change in the Common Stock of the Company, through merger,
      consolidation, reorganization, recapitalization, stock dividend, stock split,
      reverse stock split, split up, spin-off, combination of shares of Common Stock,
      exchange of shares of Common Stock, dividend in kind or other like change in
      capital structure or distribution (other than normal cash dividends) to
      stockholders of the Company, an adjustment shall be made to this option so
      that
      this option shall thereafter be exercisable for such securities, cash and/or
      other property as would have been received in respect of the Common Stock
      subject to the option had such option been exercised in full immediately prior
      to such change or distribution, and such an adjustment shall be made
      successively each time any such change shall occur.

    


    (b) Modification
      of Option.
      In the
      event of any change or distribution described in subsection (a) above, in order
      to prevent dilution or enlargement of the Optionee's rights hereunder, the
      Committee may adjust, in an equitable manner, the number and kind of shares
      of
      Common Stock that may be issued under this Agreement, the Exercise Price
      applicable to this option, and the Fair Market Value of the Common Stock and
      other value determinations applicable to this option. Appropriate adjustments
      may also be made by the Committee in the terms of this option to reflect such
      changes or distributions and to modify any other terms of this option then
      outstanding, on an equitable basis, including modifications of performance
      targets and changes in the length of performance periods.


    
      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

    

    SECTION
      9. 
      MISCELLANEOUS PROVISIONS.

     

    (a) Rights
      as a Shareholder.
      Neither
      the Optionee nor the Optionee’s representative shall have any rights as a
      shareholder with respect to any shares of Common Stock subject to this option
      until the Optionee or the Optionee’s representative becomes entitled to receive
      such shares of Common Stock by (i) filing a notice of exercise, and (ii) paying
      the Purchase Price as provided in this Agreement.

     

    (b) Tenure.
      Nothing
      in the Notice, Agreement or Plan shall confer upon the Optionee any right to
      continue in Service for any period of specific duration or interfere with or
      otherwise restrict in any way the rights of the Company (or any Parent or
      Subsidiary employing or retaining the Optionee) or of the Optionee, which rights
      are hereby expressly reserved by each, to terminate his or her Service at any
      time and for any reason, with or without Cause.

     

    (c) Notification.
      Any
      notification required by the terms of this Agreement shall be given in writing
      and shall be deemed effective upon personal delivery or upon deposit with the
      United States Postal Service, by registered or certified mail, with postage
      and
      fees prepaid. A notice shall be addressed to the Company at its principal
      executive office and to the Optionee at the address that he or she most recently
      provided to the Company.

     

    (d) Entire
      Agreement.
      The
      Notice, this Agreement and the Plan (and, if applicable, any employment or
      severance agreement between the parties) constitute the entire contract between
      the parties hereto with regard to the subject matter hereof. They supersede
      any
      other agreements, representations or understandings (whether oral or written
      and
      whether express or implied) which relate to the subject matter
      hereof.

     

    (e) Waiver.
      No
      waiver of any breach or condition of this Agreement shall be deemed to be a
      waiver of any other or subsequent breach or condition whether of like or
      different nature.

     

    (f) Successors
      and Assigns.
      The
      provisions of this Agreement shall inure to the benefit of, and be binding
      upon,
      the Company and its successors and assigns and upon the Optionee, the Optionee’s
      assigns and the legal representatives, heirs and legatees of the Optionee’s
      estate, whether or not any such person shall have become a party to this
      Agreement and have agreed in writing to be join herein and be bound by the
      terms
      hereof.

     

    (g) Choice
      of Law.
      This
      Agreement shall be governed by, and construed in accordance with, the laws
      of
      the State of Delaware as such laws are applied to contracts entered into and
      performed in such State. 

    
      
        
        

      

      
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    EXHIBIT
      A

    


    Sample
      Notice of Exercise

    


    


    Sun
      Healthcare Group, Inc.

    18831
      Von
      Karman

    Suite
      400

    Irvine,
      CA 92612-1537

    Attn:
      Corporate Secretary

    


    


    


    I
      hereby
      exercise my stock option granted under the Sun Healthcare Group, Inc. 2004
      Equity Incentive Plan (the “Plan”) and notify you of my desire to purchase the
      shares of Common Stock that have been offered pursuant to the Plan and related
      Option Agreement as described below.

    


    I
      shall
      pay for the shares of Common Stock by delivery of a check payable to Sun
      Healthcare Group, Inc. (the “Company”) in the amount described below in full
      payment for such shares of Common Stock plus all amounts required to be withheld
      by the Company under state, federal or local law as a result of such exercise
      or
      shall provide such documentation as is satisfactory to the Company demonstrating
      that I am exempt from any withholding requirement.

    


    This
      notice of exercise is delivered this ___ day of ___________________ (month)
      ____(year).

    


    
      	
              No.
                shares of Common
 Stock to be Acquired

            	
              Type
                of Option

            	
              Exercise
                Price

            	
              Total

            
	 	
              Nonqualified
                Stock
 Option

            	 	 
	
              Estimated
                Withholding

            	 	 	 
	 	 	
              Amount
                Paid

            	 


    

    


    
      	
              Very
                truly yours,

            
	 
	 
	
              ______________________

            
	
              Signature
                of Optionee

            
	 
	 
	
              Optionee’s
                Name and Mailing Address

            
	
              ______________________

            
	
              ______________________

            
	
              ______________________

            
	 
	
              Optionee’s
                Social Security Number

            
	 
	
              _____________________