ex107.htm


    Exhibit
10.7

     

    AMENDED
AND RESTATED

    EMPLOYMENT
AGREEMENT

     

    THIS
AMENDED AND RESTATED EMPLOYMENT AGREEMENT ("Agreement") is made and entered into
effective as of the 17th day of December, 2008, by and between L. Bryan Shaul (“Mr. Shaul”)
and Sun Healthcare Group,
Inc., a Delaware corporation (“Sun” or the “Company”).

     

    WHEREAS,
Mr. Shaul serves as the Executive Vice President and Chief Financial Officer of
Sun;

     

    WHEREAS,
Sun and Mr. Shaul are parties to that certain Employment Agreement dated as of
February 14, 2005, as amended on October 12, 2006, October 31, 2007 and March
31, 2008 (the “Existing Agreement”); and

     

    WHEREAS,
Sun and Mr. Shaul wish to amend and restate the Existing Agreement upon the
terms set forth in this Agreement to comply with Section 409A of the Internal
Revenue Code of 1986, as amended (the “Code”), effective as of the date
hereof.

     

    NOW,
THEREFORE, in consideration of the above recitals and the mutual covenants and
agreements contained herein, Mr. Shaul and Sun agree as follows:

     

    Section
1: Employment.  Sun
agrees to employ Mr. Shaul and Mr. Shaul agrees to accept employment with Sun,
subject to the terms and conditions of this Agreement.

     

    Section
2: Duties
and Responsibilities.  Mr. Shaul shall devote his full
employment time, efforts, skills and attention exclusively to his duties as
Executive Vice President and Chief Financial Officer; provided, however, that to
the extent the following activities do not materially interfere or conflict with
his duties and responsibilities hereunder, Mr. Shaul may (i) serve as a member
of the boards of directors of other corporation with the prior written consent
of the Chief Executive Officer of Sun; and (ii) engage in charitable, civic and
religious affairs.

     

    Section
3: Compensation,
Benefits and Related Matters.

     

    
      	
              a.  

            	
              Annual
      Base Salary.  Sun shall pay to Mr. Shaul a base salary at
      an annual rate of $400,000 ("Base Salary"), such salary to be payable in
      accordance with Sun's customary payroll practices as in effect from time
      to time (but not less frequently than monthly).  The annual base
      salary will be reviewed at least annually for possible merit increases and
      any increase in Mr. Shaul's annual base salary rate shall thereafter
      constitute "Base Salary" for purposes of this
  Agreement.

            


    

     

    
      	
              b.  

            	
              Cash
      Bonus/Incentive Compensation.  In addition to the Base
      Salary provided for in Section 3(a) above, Mr. Shaul shall be entitled to
      receive an annual bonus (“Bonus”) in accordance with the Sun Healthcare
      Group, Inc.  Executive Bonus Plan, as it may be amended from
      time to time by the Compensation Committee of the Board of Directors;
      provided, however, that no amendment shall be
  effective

            


    

     

    
      
        
        

      

      
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              if
      it reduces the percentage of Base Salary that would constitute the minimum
      or maximum potential amount of the Bonus as compared to the prior year,
      unless such amendment has been agreed to in writing by Mr. Shaul. The
      Bonus shall be payable at the same time as other annual bonuses are paid
      to senior management personnel with respect to that fiscal year. Subject
      to the provisions of Section 6, in order to have earned and to be paid any
      such Bonus, Mr. Shaul must be employed by Sun on the date of such
      payment.  It is intended that the Bonus described in this
      Section 3(b) qualify as “performance based compensation” under Section
      162(m) of the Code to the extent necessary to preserve Sun’s ability to
      deduct such Bonus.

            


    

     

    
      	
              c.  

            	
              Equity
      Incentive.  Mr. Shaul shall be entitled to the following
      equity incentive as of the date his employment
  begins:

            


    

     

    
      	
              1.  

            	
              A
      non-qualified stock option ("Stock Option") to purchase 150,000 shares of
      Common Stock of Sun at an exercise price per share equal to the fair
      market value of the Common Stock on the date of this
      Agreement.  One-fifth of the shares of Common Stock underlying
      the Stock Option will vest effective as of February 14, 2005, and
      one-fifth will vest on each of the next four anniversaries of February 14,
      2005 thereafter, provided that Mr. Shaul is employed by Sun or any of its
      subsidiaries on each such date of vesting.  The Stock Option
      shall have a 7 year term.  Mr. Shaul acknowledges that Sun has
      satisfied its obligation to grant such Stock
  Option.

            


    

     

    
      	
              2.  

            	
              Restricted
      stock units ("RSUs") with respect to 20,000 shares of Sun common
      stock.  One-fourth of the restricted stock units will vest on
      February 14, 2006, and one-fourth will vest on each of the next three
      anniversaries of February 14, 2006 thereafter.  Mr. Shaul
      acknowledges that Sun has satisfied its obligation to grant such
      RSUs.

            


    

     

    
      	
              3.  

            	
              If,
      during the Term, Mr. Shaul's employment with Sun is terminated for any
      reason other than his death or Disability (as defined in Section 5(e)),
      Good Cause (as defined in Section 5(a)) or his voluntary resignation
      without Good Reason (as defined in Section 5(c)), then the unvested
      portion of his Stock Options and RSUs will thereupon immediately be
      vested.

            


    

     

    
      	
              d.  

            	
              Retirement
      and Benefit Plans.  During his employment, Mr. Shaul
      shall be entitled to participate in all retirement plans, health benefit
      programs, insurance programs and other similar employee welfare benefit
      arrangements available generally to senior executive officers of
      Sun.  Such plans, programs and arrangements are subject to
      change during employment at the sole discretion of the
      Company.

            


    

     

    
      	
              e.  

            	
              Paid
      Time Off.  Mr. Shaul shall be entitled to paid time off
      in addition to holiday and sick time, of not less than 160 hours per
      year.

            


    

     

    
      
        
        

      

      
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              f.  

            	
              Indemnification
      Liability/Insurance.  Mr. Shaul shall be entitled to
      indemnification by Sun to the fullest extent permitted by applicable law
      and the charter and bylaws of Sun.  In addition, Sun shall
      maintain during Mr. Shaul's employment customary director's and officers'
      liability insurance and Mr. Shaul shall be covered by such
      insurance.

            


    

     

    
      	
              g.  

            	
              Taxes.  All
      compensation payable to Mr. Shaul shall be subject to withholding for all
      applicable federal, state and local income taxes, occupational taxes,
      Social Security and similar mandatory
  withholdings.

            


    

     

    Section
4: Travel
and Relocation.  Sun will reimburse certain of Mr. Shaul's
expenses to move his primary residence to Southern California; provided that
reimbursable expenses will be limited to house hunting trips, actual moving
expenses and temporary housing expenses.  Any real estate expenses Mr.
Shaul incurs in connection with the purchase or sale of any real property will
not be reimbursed by Sun.  Sun will also pay Mr. Shaul a $50,000
relocation allowance, net of applicable taxes, upon the completion of the
relocation of his primary residence to Southern California.  For the
purposes of this Paragraph 4, the term "Southern California" shall be limited to
those portions of the Counties of Orange, Riverside, Los Angeles and San Diego
that are located within a reasonable commuting distance from Sun's executive
offices in Irvine, California.  Until such relocation of his primary
residence is completed, Mr. Shaul shall be entitled to reimbursement for
reasonable travel and housing expenses incurred by him in connection with his
performance of services pursuant to this Agreement.  Mr. Shaul agrees
that Sun has satisfied its obligations pursuant to this Section 4.

     

    Section
5: Termination.  Sun
may, at any time in its sole discretion, terminate Mr. Shaul as Executive Vice
President and Chief Financial Officer and from all other positions with Sun and
its direct and indirect subsidiaries; provided, however, that Sun shall provide
Mr. Shaul with at least five (5) business days prior written notice of such
termination and shall make the payments associated with such termination in
accordance with Section 6.

     

    
      	
              a.  

            	
              Termination
      by Sun for "Good Cause." Sun may at any time, by written notice to
      Mr. Shaul at least five (5) business days prior to the date of termination
      specified in such notice and specifying the acts or omissions believed to
      constitute Good Cause (as defined below), terminate Mr. Shaul as an
      officer and employee and from all other positions with Sun for Good
      Cause.  Sun may relieve Mr. Shaul of his duties and
      responsibilities pending a final determination of whether Good Cause
      exists, and such action shall not constitute Good Reason (as defined
      below) for purposes of this Agreement.  Payment to Mr. Shaul
      upon a termination for Good Cause is set forth in Section
      6(a).  "Good Cause" for termination 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 Sun, renders Mr. Shaul unsuitable as an
      officer or employee of Sun.

            


    

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    
      	
              2.  

            	
              Mr.
      Shaul's continued failure to substantially perform the duties reasonably
      requested by the Chief Executive Officer of Sun and commensurate with his
      position as Executive Vice President and Chief Financial Officer of Sun
      (other than any such failure resulting from his incapacity due to his
      physical or mental condition) after a written demand for substantial
      performance is delivered to him by the Chief Executive Officer of Sun,
      which demand specifically identifies the manner in which the Chief
      Executive Officer of Sun believes that he has not substantially performed
      his duties, and which performance is not substantially corrected by him
      within ten (10) days of receipt of such demand;
  and

            


    

     

    
      	
              3.  

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

            


    

     

    
      	
              b.  

            	
              Termination
      by Sun without Good Cause.  Sun may at any time, by
      written notice to Mr. Shaul at least five (5) business days prior to date
      of termination specified in such notice, terminate Mr. Shaul as an officer
      or employee and from all other positions with Sun.  If such
      termination is made by Sun other than by reason of Mr. Shaul's death,
      Disability (as defined in Section 5(e)) and Good Cause does not exist,
      such termination shall be treated as a termination without Good Cause and
      Mr. Shaul shall be entitled to payment in accordance with Section
      6(b).

            


    

     

    
      	
              c.  

            	
              Termination
      by Mr. Shaul for Good Reason.  Mr. Shaul may, at any time
      at his option within sixty (60) days following an event or condition that
      constitutes Good Reason (as defined below), resign for Good Reason as an
      officer and employee and from all other positions with Sun by written
      notice to Sun at least thirty (30) days prior to the date of termination
      specified in such notice; provided, however, that Sun has not
      substantially corrected the event or condition that would constitute Good
      Reason prior to the date of termination.  Payment to Mr. Shaul
      upon a termination for Good Reason is set forth in Section
      6(b).

            


    

     

    "Good
Reason" shall mean the occurrence of any one of the following events or
conditions without Mr. Shaul’s written consent:

     

    
      	
               
      

            	
              1.

            	
              A
      meaningful and detrimental reduction in Mr. Shaul’s authority, duties or
      responsibilities or a meaningful and detrimental change in his reporting
      responsibilities;

            


    

     

    
      	
               
      

            	
              2.

            	
              A
      material failure of Sun to comply with the compensation provisions as set
      forth in Sections 3(a) - 3(c) or the benefit provisions as set forth in
      Sections 3(d) - 3(f) (collectively, the “Benefits”) (other than a
      reduction of Benefits uniformly applicable to other members of senior
      management); or

            


    

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    
      	
               
      

            	
              3.

            	
              A
      material relocation of Mr. Shaul’s principal work location to a place
      other than Orange County or Los Angeles County,
  California;

            


    

     

    provided that Sun is provided
with notice and opportunity to cure such breach and Executive terminates his
employment with Sun, in each case within the time periods prescribed under this
Section 5(c).

     

    Notwithstanding
any provision of this Paragraph 5(c) to the contrary, the occurrence of a
“Change in Control” (as defined in Section 6 below) shall not, by itself,
constitute Good Reason hereunder.

     

    
      	
              d.  

            	
              Voluntary
      Resignation.  Mr. Shaul may, at any time at his option
      with thirty (30) calendar days written notice to Sun, voluntarily resign
      without Good Reason as an officer and employee and from all positions with
      Sun.  Payment to Mr. Shaul upon his voluntary resignation
      without Good Reason is set forth in Section 6(a).  Resignation
      from employment shall automatically constitute resignation from all
      positions of any subsidiary or affiliated
  corporation.

            


    

     

    
      	
              e.  

            	
              Death
      or Disability.  Mr. Shaul's employment under this
      Agreement shall terminate automatically as of the date of Mr. Shaul's
      death.  Sun, at any time by written notice to Mr. Shaul at least
      five (5) business days prior to the date of termination specified in such
      notice, terminate Mr. Shaul as an officer and employee and from all other
      positions with Sun by reason of his Disability.  “Disability”
      shall mean any physical or mental condition or illness that prevents Mr.
      Shaul from performing his duties hereunder in any material respect for a
      period of 120 substantially consecutive calendar days, as determined by a
      physician selected by Sun and reasonably acceptable to Mr. Shaul or, if
      Mr. Shaul is incapacitated, reasonably acceptable to the Director of
      Medicine or equivalent senior physician at a hospital of Mr. Shaul's
      choice.  Payment to Mr. Shaul upon his termination by reason of
      his death or Disability is set forth in Section
  6(a).

            


    

     

    Section
6: Payments
Upon Termination.

     

    
      	
              a.  

            	
              Payment
      Upon Termination for Good Cause, Resignation without Good Reason, Death or
      Disability.  In the event of termination of his
      employment pursuant to Sections 5(a), 5(d) or 5(e), Mr. Shaul, or his
      estate where applicable, shall be paid any earned but unpaid Base Salary
      through the date of termination and any accrued and unused paid time off
      through the date of termination in accordance with Company policy, which
      shall be paid to Mr. Shaul or his estate or beneficiary, as applicable, in
      a lump sum in cash upon or promptly following (and in all events within 30
      days after) the date of termination of employment (collectively, the
      “Accrued Obligations”).  In addition, in the case of a
      termination of employment pursuant to Sections 5(e), but not Sections 5(a)
      or 5(d), Mr. Shaul or his estate shall be paid (i) any accrued and unpaid
      bonus for any prior fiscal year, which shall be paid to Mr. Shaul or his
      estate or beneficiary, as applicable, in a lump sum in cash at the time
      that annual bonuses are paid to senior management personnel with respect
      to that fiscal year, but in any event within


            


    

     

    
      
        
        

      

      
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              seventy-five
      (75) days after the conclusion of the fiscal year to which such Bonus
      relates; and (ii) a pro rata portion (based on the number of days of
      employment in the fiscal year of termination divided by 365 or 366, as
      applicable) of the bonus, if any, for the fiscal year in which the
      termination occurs, which shall be paid at the time that annual bonuses
      are paid to senior management personnel with respect to that fiscal year,
      but in any event within seventy-five (75) days after the conclusion of the
      fiscal year to which such Bonus relates.  Mr. Shaul shall also
      receive his vested benefits in accordance with the terms of Sun's
      compensation and benefit plans, and his participation in such plans and
      all other perquisites shall cease as of the date of termination, except to
      the extent Mr. Shaul may elect to continue coverage as under any welfare
      benefit plans as required by Part 6, Title I of the Employee Retirement
      Income Security Act of 1974, as amended.  Upon a termination
      under Section 5(a), 5(d) or 5(e), Mr. Shaul shall not be entitled to any
      compensation or benefits under this Agreement except as set forth in this
      Section 6(a).

            


    

     

    
      	
              b.  

            	
              Payment
      Upon Termination by Sun without Good Cause or by Mr. Shaul for Good
      Reason.  In the event of termination of employment
      pursuant to Sections 5(b) or 5(c), Mr. Shaul shall be entitled to a lump
      sum severance payment in an amount equal to two year's Base Salary, with
      such amount to be paid to Mr. Shaul in the month immediately following the
      month in which Mr. Shaul’s termination of employment
      occurs.  Mr. Shaul shall also be entitled to: (i) any earned
      Bonus pursuant to Section 3(b) for the fiscal year prior to the fiscal
      year of termination in the event Mr. Shaul was employed the entire prior
      fiscal year but is not employed by Sun on the date said Bonus is paid,
      payable to Mr. Shaul in a lump sum in cash at the time that annual bonuses
      are paid to senior management personnel with respect to that fiscal year,
      but in any event within seventy-five (75) days after the conclusion of the
      fiscal year to which such Bonus relates; (ii) an amount equal to the
      annual bonus compensation which he would have earned for the year in which
      his termination occurs (determined by multiplying the amount Mr. Shaul
      would have received based upon actual performance had his employment
      continued through the end of the fiscal year by a fraction, the numerator
      of which is the number of days during the year of termination that Mr.
      Shaul is employed by the Company and the denominator of which is 365 or
      366, as applicable), payable to Mr. Shaul at the time that annual bonuses
      are paid to senior management personnel with respect to that fiscal year,
      but in any event within seventy-five (75) days after the conclusion of the
      fiscal year to which such Bonus relates; and (iii) payment of any Accrued
      Obligations payable as set forth in Section
      6(a).  Notwithstanding the foregoing, Mr. Shaul's right to
      receive the severance payment hereunder shall be conditioned upon his
      execution of a release in favor of Sun, which shall not be inconsistent
      with the terms of this Agreement and which Mr. Shaul shall deliver to the
      Company within twenty-one (21) days following the date of his termination
      of employment.  Mr. Shaul's participation in any other
      retirement and benefit plans and perquisites shall cease as of the date of
      termination, except Mr. Shaul and his eligible dependents (as determined
      under Sun's health plan) shall be entitled to continuing coverage under
      Sun's health plans on the same basis as active employees until the earlier
      of (i) the first

            


    

     

    
      
        
        

      

      
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               anniversary
      of the date of termination or (ii) the date on which Mr. Shaul or his
      eligible dependents become eligible to participate in a plan of a
      successor employer.

            


    

     

    
      	
              c.  

            	
              "Change
      in Control." For purposes of this Agreement, a "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 Sun (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;

            


    

     

    
      	
              2.  

            	
              A
      merger or consolidation of Sun with any other corporation, other than a
      merger or consolidation which would result in the voting securities of Sun
      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 Sun or surviving entity outstanding immediately after such
      merger or consolidation;

            


    

     

    
      	
              3.  

            	
              A
      sale or other disposition by Sun of all or substantially all of Sun's
      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 Sun'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 Sun
(“Chapter 11 Plan”), or a liquidation under the Bankruptcy Code constitute a
Change in Control.  In addition, notwithstanding Sections 6(c)(1),
6(c)(2), 6(c)(3) and 6(c)(4), a Change in Control shall not be deemed to have
occurred in the event of a sale or conveyance in which Sun continues as a
holding company of an entity or entities that conduct the business or businesses
formerly conducted by Sun, or any transaction undertaken for the purpose of
reincorporating Sun under the laws of another jurisdiction, if such transaction
does not materially affect the beneficial ownership of Sun's capital
stock.  Mr. Shaul’s continued employment without objection following a
Change in Control shall not, by itself, constitute 

    
      
        
        

      

      
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    consent
to or a waiver of rights with respect to any circumstances constituting Good
Reason hereunder.

     

    Section
7: Additional
Payments.

     

    
      	
              a.  

            	
              Gross-Up
      Payments.  Notwithstanding anything herein to the
      contrary, if it is determined that any payment to Mr. Shaul pursuant to
      this Agreement would be subject to the excise tax imposed by Section 4999
      of the Internal Revenue Code or any interest or penalties with respect to
      such excise tax (such excise tax, together with any interest or penalties
      thereon, is herein referred to as an “Excise Tax”), then Mr. Shaul shall
      be entitled to an additional payment (a “Gross-Up Payment”) in an amount
      that will place Mr. Shaul in the same after-tax economic position that he
      would have enjoyed if the Excise Tax had not applied to the
      payment.  The amount of the Gross-Up Payment shall be determined
      by an accounting firm retained by Sun (the “Accounting Firm”) using such
      formulas as the Accounting Firm deems appropriate.  No Gross-Up
      Payment shall be payable hereunder if the Accounting Firm determines that
      the payments are not subject to an Excise
Tax.

            


    

     

    
      	
              b.  

            	
              Determination
      of Gross-Up Payment.  Subject to the provisions of
      Section 7(c), all determinations required under this Section 7, including
      whether a Gross-Up Payment is required, the amount of the payments
      constituting parachute payments, and the amount of the Gross-Up Payment,
      shall be made by the Accounting Firm, which shall provide detailed
      supporting calculations both to Sun and Mr. Shaul within fifteen business
      days of Mr. Shaul’s date of termination or any other date reasonably
      requested by Sun or Mr. Shaul on which a determination under Section 7 is
      necessary or advisable.  Within five days of the receipt by Mr.
      Shaul and Sun of the Accounting Firm’s determination of the initial
      Gross-Up Payment, Sun shall pay the amount of such Gross-Up Payment to the
      applicable taxing authorities for the benefit of Mr. Shaul. If the
      Accounting Firm determines that no Excise Tax is payable by Mr. Shaul, Sun
      shall cause the Accounting Firm to provide Mr. Shaul and Sun with an
      opinion that Sun has substantial authority under the Internal Revenue Code
      and regulations thereunder not to report an Excise Tax on Mr. Shaul’s
      federal income tax return.  Any determination by the Accounting
      Firm shall be binding upon Mr. Shaul and Sun. If the initial Gross-Up
      Payment is insufficient to cover the amount of the Excise Tax that is
      ultimately determined to be owing by Mr. Shaul with respect to any payment
      (hereinafter an “Underpayment”), Sun, after exhausting its remedies under
      Section 7(c) below, shall promptly pay to the applicable taxing
      authorities for the benefit of Mr. Shaul (or directly to Mr. Shaul in the
      event Mr. Shaul previously paid the related tax amounts) an additional
      Gross-Up Payment in respect of the
Underpayment.

            


    

     

    
      	
              c.  

            	
              Procedures.  Mr.
      Shaul shall notify Sun in writing of any claim by the Internal Revenue
      Service that, if successful, would require the payment by Sun of a
      Gross-Up Payment.  Such notice shall be given as soon as
      practicable after Mr. Shaul knows of such claim and Mr. Shaul shall
      apprise Sun of the nature of the
claim

            


    

     

    
      
        
        

      

      
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              and
      the date on which the claim is requested to be paid.  Mr. Shaul
      agrees not to pay the claim until the expiration of the thirty-day period
      following the date on which Mr. Shaul notifies Sun, or such shorter period
      ending on the date the taxes with respect to such claim are due (the
      “Notice Period”).  If Sun notifies Mr. Shaul in writing prior to
      the expiration of the Notice Period that it desires to contest the claim,
      Mr. Shaul shall: (i) give Sun any information reasonably requested by Sun
      relating to the claim; (ii) take such action in connection with the claim
      as Sun may reasonably request, including, without limitation, accepting
      legal representation with respect to such claim by an attorney reasonably
      selected by Sun and reasonably acceptable to Mr. Shaul; (iii) cooperate
      with Sun in good faith in contesting the claim; and (iv) permit Sun to
      participate in any proceedings relating to the claim.  Mr. Shaul
      shall permit Sun to control all proceedings related to the claim and, at
      its option, permit Sun to pursue or forgo any and all administrative
      appeals, proceedings, hearings, and conferences with the taxing authority
      in respect of such claim.  If requested by Sun, Mr. Shaul agrees
      either to pay the tax claimed and sue for a refund or contest the claim in
      any permissible manner and to prosecute such contest to a determination
      before any administrative tribunal, in a court of initial jurisdiction and
      in one or more appellate courts as Sun shall determine; provided, however,
      that if Sun directs Mr. Shaul to pay such claim and pursue a refund, Sun
      shall pay such claim on Mr. Shaul’s behalf (the “Claim
      Payment”).  Sun’s control of the contest related to the claim
      shall be limited to the issues related to the Gross-Up Payment and Mr.
      Shaul shall be entitled to settle or contest, as the case may be, any
      other issue raised by the Internal Revenue Service or other taxing
      authority.  If Sun does not notify Mr. Shaul in writing prior to
      the end of the Notice Period of its desire to contest the claim, Sun shall
      pay to the applicable taxing authorities on Mr. Shaul’s behalf an
      additional Gross-Up Payment in respect of the excess parachute payments
      that are the subject of the claim.  Any Gross-Up Payment shall
      be made without additional tax consequences to Mr.
  Shaul.

            


    

     

    
      	
              d.  

            	
              Repayments.  If,
      after a Claim Payment is made by Sun, Mr. Shaul becomes entitled to a
      refund with respect to the claim to which such Claim Payment relates, Mr.
      Shaul shall pay Sun the amount of the refund (together with any interest
      paid or credited thereon after taxes applicable thereto).  If,
      after a Claim Payment is made by Sun, a determination is made that Mr.
      Shaul shall not be entitled to any refund with respect to the claim and
      Sun does not promptly notify Mr. Shaul of its intent to contest the denial
      of refund, then the amount of the Claim Payment shall offset the amount of
      the additional Gross-Up Payment then owing to Mr.
  Shaul.

            


    

     

    
      	
              e.  

            	
              Further
      Assurances.  Sun shall indemnify Mr. Shaul and hold him
      harmless, on an after-tax basis, from any costs, expenses, penalties,
      fines, interest or other liabilities (“Losses”) incurred by Mr. Shaul with
      respect to the exercise by Sun of any of its rights under Section 7,
      including, without limitation, any Losses related to Sun’s decision to
      contest a claim or any imputed income to him resulting from any Claim
      Payment or action taken on Mr. Shaul’s behalf by Sun
      hereunder.  Sun shall pay all legal fees and expenses incurred
      under Section 7 and shall promptly 

            


    

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    
      	
               

            	
              reimburse
      Mr. Shaul for the reasonable expenses incurred by him in connection with
      any actions taken by Sun or required to be taken by Mr. Shaul
      hereunder.  Sun shall also pay all of the fees and expenses of
      the Accounting Firm, including, without limitation, the fees and expenses
      related to the opinion referred to in Section
  7(b).

            


    

     

    
      	
              f.  

            	
              Section
      409A.  Notwithstanding anything to the contrary in this
      Section 7, any payment under this Section 7 shall be paid to Mr. Shaul
      promptly but in no event later than the last day of the end of Mr. Shaul’s
      taxable year following the taxable year in which Mr. Shaul (or Sun) pays
      or remits the related taxes.

            


    

     

    Section
8: Protection
of Sun’s Interests.

     

    
      	
              a.  

            	
              Confidentiality.  Mr.
      Shaul agrees that he will not at any time, during or after the term of
      this Agreement, except in performance of his obligations to Sun hereunder
      or with the prior written consent of the Chief Executive Officer of Sun,
      directly or indirectly disclose to any person or organization any secret
      or “Confidential Information” that Mr. Shaul may learn or has learned by
      reason of his association with Sun.  The term “Confidential
      Information” means any information not previously disclosed to the public
      or to the trade by Sun’s management with respect to Sun’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 Sun's products or lines of
      business), business plans, prospects or opportunities, compliance and
      clinical processes, policies and
procedures.

            


    

     

    
      	
              b.  

            	
              Exclusive
      Property.  Mr. Shaul confirms that all Confidential
      Information is and shall remain the exclusive property of
      Sun.  All business records, papers and documents kept or made by
      Mr. Shaul relating to the business of Sun shall be and remain the property
      of Sun.  Upon the termination of Mr. Shaul’s employment for any
      reason or upon the request of Sun at any time, Mr. Shaul shall promptly
      deliver to Sun, and shall not without the consent of the Board of
      Directors of Sun, retain copies of, Confidential Information, or any
      written materials not previously made available to the public, or records
      and documents made by Mr. Shaul or coming into Mr. Shaul’s possession
      concerning the business or affairs of
Sun.

            


    

     

    
      	
              c.  

            	
              Nonsolicitation.  Mr.
      Shaul shall not, during his employment under this Agreement, and for two
      (2) years following the termination of this Agreement, for whatever reason
      or cause, 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 Sun or any customer, patient or client of Sun to
      terminate his or her association or contract with Sun, nor in any manner,
      directly or indirectly, interfere with the relationship between Sun and
      any of such persons or entities.

            


    

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    
      	
              d.  

            	
              Non-Disparagement.  Mr.
      Shaul shall not during his employment under this Agreement and for two
      years following termination of the Agreement, for whatever reason, make
      any statements that are intended to or that would reasonably be expected
      to harm Sun 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.  Sun and
      its officers and directors will not make any statements that are intended
      to or that would reasonably be expected to harm Mr. Shaul or his
      reputation or that reflect negatively on Mr. Shaul's performance, skills
      or ability.

            


    

     

    
      	
              e.  

            	
              Relief.  Without
      intending to limit the remedies available to Sun, Mr. Shaul acknowledges
      that a breach of any of the covenants in Section 8 may result in material
      irreparable injury to Sun 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, Sun
      shall be entitled to obtain a temporary restraining order and/or a
      preliminary or permanent injunction restraining Mr. Shaul from engaging in
      activities prohibited by Section 8 or such other relief as may be required
      to specifically enforce any of the covenants in Section
  8.

            


    

     

    Section
9: Miscellaneous
Provisions.

     

    
      	
              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 signed by both parties.  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.

            


    

     

    
      	
              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.  

            	
              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.  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
      and this Agreement shall supersede all prior agreements, negotiations,
      correspondence, undertakings and communications of the parties, oral or
      written, with respect to the subject matter
  hereof.

            


    

     

    
      	
              d.  

            	
              Resolution
      of Disputes.  Any disputes arising under or in connection
      with this Agreement may, at the election of Mr. Shaul or Sun, be resolved
      by binding

            


    

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    
      	
               

            	
              arbitration,
      to be held in Orange County, California in accordance with the rules and
      procedures of the American Arbitration Association.  If
      arbitration is elected, Mr. Shaul and Sun shall mutually select the
      arbitrator.  If Mr. Shaul and Sun cannot agree on the selection
      of an arbitrator, each party shall select an arbitrator and the two
      arbitrators shall select a third arbitrator who shall resolve the
      dispute.  Judgment upon the award rendered by the arbitrator may
      be entered in any court having jurisdiction thereof.  Nothing
      herein shall limit the ability of Sun to obtain the injunctive relief
      described in Section 8(d) pending final resolution of matters that are
      sent to arbitration.

            


    

     

    
      	
              e.  

            	
              Attorneys’
      Fees.  Sun shall pay or reimburse Mr. Shaul on an
      after-tax basis for all costs and expenses (including, without limitation,
      court costs, costs of arbitration and reasonable legal fees and expenses
      which reflect common practice with respect to the matters involved)
      incurred by Mr. Shaul as a result of any claim, action or proceeding (i)
      contesting or otherwise relating to the existence of Good Cause in the
      event of Mr. Shaul's termination of employment during the Term for Good
      Cause; (ii) enforcing any right, benefit or obligation under this
      Agreement, or otherwise enforcing the terms of this Agreement or any
      provision thereof; or (iii) asserting or otherwise relating to the
      existence of Good Reason in the event of Mr. Shaul’s termination of
      employment during the Term for Good Reason; provided, however that this
      provision shall not apply if the relevant trier-of-fact determines that
      Mr. Shaul claim or position was without reasonable
    foundation.

            


    

     

    
      	
              f.  

            	
              Governing
      Law.  The validity, interpretation, construction and
      performance of this Agreement shall be governed by the laws of the State
      of California.

            


    

     

    
      	
              g.  

            	
              Notice.  For
      the purpose of this Agreement, notice, demands and all other communication
      provided for in this Agreement shall be in writing and shall be deemed to
      have been duly given when delivered by hand delivery or overnight courier
      or mailed by United States certified or registered mail, return receipt
      requested, postage prepaid, addressed as follows or to other addresses as
      each party may have furnished to the
other:

            


    

     

    To
Sun:

    


    Attention:
General Counsel

    18831 Von
Karman Avenue; Suite 400

    Irvine,
California 92612

    


    To Mr.
Shaul:

    


    16732
Westfield Lane

    Huntington
Beach, California  92649

    


    
      	
              h.  

            	
              Successors
      and Assigns.  This Agreement shall be binding upon and
      shall inure to the benefit of the parties hereto and their respective
      successors and assigns.

            


    

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    
      	
              i.  

            	
              Section
      409A.

            


    

     

    
      	
              1.  

            	
              If
      Mr. Shaul is a “specified employee” within the meaning of Treasury
      Regulation Section 1.409A-1(i) as of the date of Mr. Shaul’s separation
      from service (within the meaning of Treasury Regulation Section
      1.409A-1(h)(1), without regard to the optional alternative definitions
      available thereunder) and any payment or benefit provided in Section 6
      hereof constitutes a “deferral of compensation” within the meaning of
      Section 409A of the Code, Mr. Shaul shall not be entitled to any such
      payment or benefit until the earlier of: (i) the date which is six (6)
      months after his separation from service for any reason other than death,
      or (ii) the date of his death.  The provisions of this paragraph
      shall only apply if, and to the extent, required to avoid the imputation
      of any tax, penalty or interest pursuant to Section 409A of the
      Code.  Any amounts otherwise payable to Mr. Shaul upon or in the
      six (6) month period following his separation from service that are not so
      paid by reason of this Section 9(i)(1) shall be paid (without interest) as
      soon as practicable (and in all events within thirty (30) days) after the
      date that is six (6) months after Mr. Shaul’s separation from service (or,
      if earlier, as soon as practicable, and in all events within thirty (30)
      days, after the date of his death).

            


    

     

    
      	
              2.  

            	
              To
      the extent that any reimbursements pursuant to Sections 4, 6(b), 7(e) and
      9(e) are taxable to Mr. Shaul, any reimbursement payment due to Mr. Shaul
      pursuant to such provision shall be paid to Mr. Shaul on or before the
      last day of Mr. Shaul’s taxable year following the taxable year in which
      the related expense was incurred.  The benefits and
      reimbursements pursuant to Sections 4, 6(b), 7(e) and 9(e) are not subject
      to liquidation or exchange for another benefit and the amount of such
      benefits and reimbursements that Mr. Shaul receives in one taxable year
      shall not affect the amount of such benefits and reimbursements that Mr.
      Shaul receives in any other taxable
year.

            


    

     

    
      	
              3.  

            	
              It
      is intended that any amounts payable under this Agreement and Sun’s and
      Mr. Shaul’s exercise of authority or discretion hereunder shall comply
      with and avoid the imputation of any tax, penalty or interest under
      Section 409A of the Code.  This Agreement shall be construed and
      interpreted consistent with that
intent.

            


    

     

    


     

    [Signatures
Commence on Immediately Following Page]

    
      
        
        

      

      
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    IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date
first above written.

     

    


     

    


     

    
      
        
          
            	
                    
                      /s/
      L. Bryan Shaul

                    

                  
	
                    L.
      BRYAN SHAUL

                  
	 
      
	 
      
	
                    SUN
      HEALTHCARE GROUP, INC.

                     

                  
	 
      
	 
      
	
                    
                      By:
      /s/ Michael Newman

                    

                  
	
                    Michael
      Newman

                  
	
                    Its
      Executive Vice President

                  
	 
      


          

        

      

    

    


     

     

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