ex109.htm


    Exhibit
10.9

     

    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 Michael Newman (“Executive”)
and Sun Healthcare Group,
Inc., a Delaware corporation (“Sun” or “Company”).

     

    WHEREAS,
Executive serves as the Executive Vice President and General Counsel of
Sun;

     

    WHEREAS,
Sun and Executive are parties to that certain Employment Agreement dated as of
March 22, 2005, as amended on October 12, 2006, October 31, 2007 and March 31,
2008 (the “Existing Agreement”); and

     

    WHEREAS,
Sun and Executive 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, Executive and Sun agree as follows:

     

    Section
1: Employment;
Term of Employment.

     

    
      	
              (a)  

            	
              Employment.  Sun
      agrees to employ Executive and Executive agrees to accept employment with
      Sun, subject to the terms and conditions of this
  Agreement.

            


    

     

    
      	
              (b)  

            	
              Term
      of Employment.  The period of Executive’s employment
      under this Agreement commenced as of March 22, 2005 (the effective date of
      the Existing Agreement, referred to herein as the “Effective Date”) and
      shall continue until terminated in accordance with Section 5
      below.  As used in this Agreement, the phrase “Employment Term”
      refers to Executive's period of employment from the Effective Date until
      the date his employment is
terminated.

            


    

     

    Section
2: Duties
and Responsibilities.  Executive shall devote his full
employment time, efforts, skills and attention exclusively to his duties as
Executive Vice Executive and General Counsel; provided, however, that to the
extent the following activities do not materially interfere or conflict with his
duties and responsibilities hereunder, Executive may (i) serve as a member of
the boards of directors of other corporations 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.  During the Employment Term, Sun shall pay
      to Executive a base salary at an annual rate of $280,000 ("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 Executive'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, Executive 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 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 Executive.  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, Executive 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.  During the Employment Term, Executive shall
      be eligible to be granted equity incentive awards during his employment on
      the same basis as other senior executive officers of Sun.  Such
      equity incentive awards may include stock options and restricted
      units.  Executive's eligibility, rights and entitlement to such
      equity incentive awards shall be governed by the applicable equity
      incentive plan, award agreement, award and/or
  grant.

            


    

     

    
      	
              (d)  

            	
              Retirement
      and Benefit Plans.  During the Employment Term, Executive
      shall be eligible to participate in or receive benefits under any pension
      plan, 401(k) savings plan, nonqualified deferred compensation plan,
      supplemental executive retirement plan, medical and dental benefits plan,
      life insurance plan, short-term and long-term disability plans, or any
      other employee benefit or fringe benefit plan, generally made available by
      Sun to senior executives in accordance with the eligibility requirements
      of such plans and subject to the terms and conditions set forth in this
      Agreement.  Such plans, programs and arrangements are subject to
      change during employment at the sole discretion of the
      Company.

            


    

     

    
      	
              (e)  

            	
              Sick,
      Holiday and Vacation Pay.  Executive is entitled to
      holiday and sick pay consistent with Sun's Employee Handbook or other
      policy applicable to senior executives.  Sick and Holiday Pay is
      subject to change during employment at the sole discretion of the
      Company.  Executive shall be entitled to up to 160 hours of
      vacation per year, which shall accrue at the rate of 6.152 hours per pay
      period (26 pay periods).  However, in accordance with Sun's
      Employee Handbook or other policy applicable to senior executives,
      vacation hours shall be subject to an accrual cap of two times Executive's
      annual allotment of vacation hours and shall be subject to change during
      employment at the sole discretion of the
  Company.

            


    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	
              (f)  

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

            


    

     

    
      	
              (g)  

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

            


    

     

    Section
4: Medical
Reimbursement.  Upon proof of payment, Sun agrees to reimburse
Executive out of pocket costs for maintaining his current medical
insurance.  Said costs are estimated to be $990 per
month.  During this time Executive will not participate in Sun's
health plan.  Executive agrees that he will provide such proof of
payment to Sun promptly after Executive incurs each such cost.

     

    Section
5: Termination
of Employment.  Sun, at any time in its sole discretion, may
terminate Executive as Executive Vice President and General Counsel and from all
other positions with Sun and its direct and indirect
subsidiaries.  Upon termination, Executive (or his beneficiary or
estate as the case may be) shall be entitled to receive the compensation and
benefits described in Section 6 below.

     

    
      	
              (a)  

            	
              Termination
      by Sun for “Good Cause.”  Sun may, at any time, by
      written notice to Executive 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
      Executive as an officer and employee and from all other positions with Sun
      for Good Cause.  Sun may relieve Executive of his duties and
      responsibilities pending a final determination of whether Good Cause
      exists, and such action shall not constitute Good Reason (as defined in
      Section 5(c) below) for purposes of this Agreement.  Payment to
      Executive 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 (including conviction on a nolo  contendere
      plea) under the laws of the United States or any state or other political
      subdivision thereof which, in the sole discretion of the Chief Executive
      Officer of Sun, renders Executive unsuitable as an officer or employee of
      Sun.

            


    

     

    
      	
              (2)  

            	
              Executive'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 General Counsel 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 Executive has not 

            


    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	
               

            	
              substantially
      performed his duties, and which performance, in the sole discretion of the
      Chief Executive Officer is determined to not be substantially corrected by
      Executive  within ten (10) calendar days of receipt of such
      demand;

            


    

     

    
      	
              (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
      Executive which, in the sole discretion of the Chief Executive Officer of
      Sun, renders Executive unsuitable as an officer or employee;
      and

            


    

     

    
      	
              (4)  

            	
              Breach
      of any of the covenants set forth in Section 8 of this
      Agreement.

            


    

     

    Regardless
of whether Executive's employment initially was considered to be terminated for
any reason other than Good Cause, Executive's employment will be considered to
have been terminated for Good Cause for purposes of this Agreement if the Chief
Executive Officer of Sun subsequently determines that Executive engaged in an
act constituting Good Cause.

     

    
      	
              (b)  

            	
              Termination
      by Sun without Good Cause.  Sun may at any time in its
      sole discretion, by written notice to Executive at least five (5) business
      days prior to date of termination specified in such notice, terminate
      Executive as an officer and employee and from all other positions with
      Sun.  If such termination is made by Sun other than by reason of
      Executive's death or 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 Executive shall be entitled to payment in
      accordance with Section 6(b).

            


    

     

    
      	
              (c)  

            	
              Termination
      by Executive for Good Reason.  Executive may, at any time
      at his option within sixty (60) calendar 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) calendar 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 Executive 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 Executive's written consent:

     

    
      	
               
      

            	
              (1)

            	
              A
      meaningful and detrimental reduction in Executive’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) (other than a reduction of compensation
      uniformly applicable to other members of Senior Management or as a result
      of disciplinary action against Executive) or a material failure of
      Sun

            


    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	
            	
               

            	
              to
      comply with the benefits provisions as set forth in Sections 3(d) - 3(g)
      (collectively, the “Benefits”) (other than a reduction of Benefits
      uniformly applicable to other members of senior management);
      or

            


    

     

    
      	
               
      

            	
              (3)

            	
              A
      material relocation of Executive'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 Without Good Reason.  Executive 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 Executive 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.  Executive's employment under this
      Agreement shall terminate automatically as of the date of Executive's
      death.  Sun, at any time by written notice to Executive at least
      five (5) business days prior to the date of termination specified in such
      notice, terminate Executive 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
      Executive from performing the essential duties of his position (where such
      failure cannot be remedied with reasonable accommodation) for a period of
      120 substantially consecutive calendar days, as determined by a physician
      selected by Sun and reasonably acceptable to Executive or, if Executive is
      incapacitated, reasonably acceptable to the Director of Medicine or
      equivalent senior physician at a hospital of Executive's
      choice.  In addition, Executive's receipt of disability benefits
      under Sun's long-term disability benefits plan or receipt of Social
      Security disability benefits shall be deemed conclusive evidence of
      Disability for purpose of this Agreement.  Payment to Executive
      upon his termination by reason of his death or Disability is set forth in
      Section 6(d).

            


    

     

    Section
6: Payments
Upon Termination.

     

    
      	
              (a)  

            	
              Payment
      Upon Termination for Good Cause, or Resignation without Good
      Reason.  In the event of termination of his employment
      pursuant to Sections 5(a) or 5(d), Executive, or his estate where
      applicable, shall be paid any earned but unpaid Base Salary through the
      date of termination and any accrued but unused vacation through the date
      of termination in accordance with Company
  policy,

            


    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	
               

            	
              which
      shall be paid to Executive 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”).

            


    

     

    
      	
               
      

            	
              Executive
      also shall 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 Executive 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) or 5(d), Executive 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 Executive for Good
      Reason.  In the event of termination of employment
      pursuant to Sections 5(b) or 5(c), Executive shall be entitled to a lump
      sum severance payment in an amount equal to one (1) year Base Salary or,
      in the event such termination occurs on or within two (2) years following
      the change of a “Change in Control,” two (2) years Base Salary, with such
      amount to be paid to Executive in the month immediately following the
      month in which Executive’s termination of employment
      occurs.  Executive also shall 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 Executive was employed the entire prior
      fiscal year but is not employed by Sun on the date said Bonus is paid,
      payable to Executive 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) a pro rata portion of the
      Bonus for the fiscal year of termination (determined by multiplying the
      amount Executive 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 Executive is employed by the Company and the denominator of which is
      365 or 366, as applicable), payable to Executive 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) any
      Accrued Obligations payable to Executive as set forth in Section
      6(a).  Notwithstanding the foregoing, Executive'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 Executive shall deliver to the
      Company within twenty-one (21) days following the date of his termination
      of employment.  Executive's participation in any other
      retirement and benefit plans and perquisites shall cease as of the date of
      termination, except Executive 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 (x) the first anniversary of the date of termination or (y) the date on
      which Executive 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 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.  Executive's continued employment without objection following a
Change in Control shall not, by itself, constitute consent to or a waiver of
rights with respect to any circumstances constituting Good Reason
hereunder.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
              (d)  

            	
              Payment
      Upon Termination for Death or Disability.  In the event
      of termination of his employment pursuant to Section 5(e), Executive, or
      his

            


    

     

    
      	
               
      

            	
              estate
      where applicable, shall be paid any Accrued Obligations payable as set
      forth in Section 6(a).

            


    

     

    
      	
               
      

            	
              Executive,
      or his estate where applicable, also shall receive his vested benefits
      (including those that vest by reason of death or disability) 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 Executive 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(e), Executive shall
      not be entitled to any compensation or benefits under this Agreement
      except as set forth in this Section
6(d).

            


    

     

    
      	
               
      

            	
              In
      the event Employee is unable to work due to death or disability on the
      date of payment of Bonus as required by Section 3(b) above, Executive or
      his estate shall be paid any unpaid Bonus for the prior fiscal year which
      shall be prorated based on the number of days of employment (including
      holidays, vacation and sick days and weekends during the period of
      employment) during the prior fiscal year divided by 365 or 366, as
      applicable, which shall be paid 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.  Executive also shall receive a pro rata portion (based
      on the number of days of employment (including holidays, vacation and sick
      days and weekends during the period 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 pursuant to Section 5(e)
      occurs, which shall be paid 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 75 days after the conclusion of the
      fiscal year to which such Bonus
relates.

            


    

     

    Section
7: Additional
Payments.

     

    
      	
              (a)  

            	
              Gross-Up
      Payments.  Notwithstanding anything herein to the
      contrary, if it is determined that any payment or distribution by Sun to
      or for the benefit of the Executive (whether paid or payable or
      distributed or distributable pursuant to the terms of this Agreement or
      otherwise, but determined without regard to any additional payments
      required under this Section 7) (a "Payment") 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 Executive shall be entitled to an additional
      payment (a "Gross-Up Payment") in an amount that will place Executive in
      the same after-tax economic position that he would have enjoyed if the
      Excise Tax had not applied to the
payment.

            


    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	
              (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
      and the assumptions to be utilized in arriving at such determination,
      shall be made by Sun’s independent auditors or such other certified public
      accounting firm reasonably acceptable to Executive as may be designated by
      Sun (the "Accounting Firm") which shall provide detailed supporting
      calculations both to Sun and Executive within fifteen business days of
      Executive’s date of termination or any other date reasonably requested by
      Sun or Executive on which a determination under Section 7 is necessary or
      advisable.  Within five days of the receipt by Executive 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 Executive.  If the Accounting
      Firm determines that no Excise Tax is payable by Executive, Sun shall
      cause the Accounting Firm to provide Executive 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 Executive’s federal
      income tax return.  Any determination by the Accounting Firm
      shall be binding upon Executive and Sun.  As a result of the
      uncertainty in the application of Section 4999 of the Code at the time of
      the initial determination by the Accounting Firm hereunder, it is possible
      that Gross-Up Payments which will not have been made by Sun should have
      been made (“Underpayment”), consistent with the calculations required to
      be made hereunder.  In the event that Sun exhausts its remedies
      pursuant to Section 7(c) and Executive thereafter is required to make a
      payment of any Excise Tax, the Accounting Firm shall determine the amount
      of the Underpayment that has occurred and any such Underpayment shall be
      promptly paid by Sun to the applicable taxing authorities for the benefit
      of Executive (or directly to Executive in the event Executive previously
      paid the related tax amounts).

            


    

     

    
      	
              (c)  

            	
              Procedures.  Executive
      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 Executive knows of such claim and Executive shall apprise Sun of the
      nature of the claim and the date on which the claim is requested to be
      paid.  Executive agrees not to pay the claim until the
      expiration of the thirty-day period following the date on which Executive
      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 Executive in writing prior to the expiration of the Notice Period
      that it desires to contest the claim, Executive 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 Executive; (iii) cooperate with Sun in good faith in
      contesting the claim; and (iv) permit Sun to participate in any
      proceedings relating to the claim.  Executive 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, Executive 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 Executive to pay such claim and pursue a refund, Sun
      shall pay such claim on Executive’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
      Executive 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 Executive 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 Executive’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
  Executive.

            


    

     

    
      	
              (d)  

            	
              Repayments.  If,
      after a Claim Payment is made by Sun, Executive becomes entitled to a
      refund with respect to the claim to which such Claim Payment relates,
      Executive 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 Executive shall not be entitled to any refund
      with respect to the claim and Sun does not promptly notify Executive 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 Executive.

            


    

     

    
      	
              (e)  

            	
              Further
      Assurances.  Sun shall indemnify Executive and hold him
      harmless, on an after-tax basis, from any costs, expenses, penalties,
      fines, interest or other liabilities (“Losses”) incurred by Executive 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 Executive's behalf by Sun
      hereunder.  Sun shall pay all legal fees and expenses incurred
      under Section 7 and shall promptly reimburse Executive for the reasonable
      expenses incurred by him in connection with any actions taken by Sun or
      required to be taken by Executive 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 Executive promptly but in no event later than the last
      day of the end of Executive’s taxable year following the taxable year in
      which Executive (or Sun) pays or remits the related
  taxes.

            


    

     

    Section
8: Protection
of Sun's Interests.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
              (a)  

            	
              Confidentiality.  Executive
      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 Executive 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, legal matters and claims (asserted and unasserted), 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.  Executive confirms that all Confidential
      Information is and shall remain the exclusive property of
      Sun.  All business records, papers and documents kept or made by
      Executive relating to the business of Sun shall be and remain the property
      of Sun.  Upon the termination of Executive's employment for any
      reason or upon the request of Sun at any time, Executive 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 Executive or coming into Executive's possession
      concerning the business or affairs of
Sun.

            


    

     

    
      	
              (c)  

            	
              Nonsolicitation.  Executive
      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.

            


    

     

    
      	
              (d)  

            	
              Non-Disparagement.  Executive
      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 Executive or his
      reputation or that reflect negatively on Executive's performance, skills
      or ability.

            


    

     

    
      	
              (e)  

            	
              Relief.  Without
      intending to limit the remedies available to Sun, Executive 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 Executive 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: Taxes.  Sun
shall withhold from any compensation and benefits payable under this Agreement
all applicable federal, state, local, and other withholding taxes.

     

    Section
10: 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 shall be resolved by binding arbitration, to be held
      in Orange County, California in accordance with the National Rules for the
      Resolution of Employment Disputes and procedures of the American
      Arbitration Association.  Executive and Sun shall mutually
      select the arbitrator.  If Executive 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.  The fees of the arbitrator and any administrative fees
      of AAA shall be paid by Sun.  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.  In the event Executive prevails on the merits on
      any claim, action or proceeding: (i) contesting or otherwise relating to
      the existence of Good Cause in the event of Executive'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
      Executive's termination of employment during the Term for Good Reason, Sun
      shall pay or reimburse Executive on an after-tax basis for reasonable
      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 Executive as a
      result of such claim, action or
proceeding.

            


    

     

    
      	
              (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:
Chief Executive Officer

    18831 Von
Karman Avenue; Suite 400

    Irvine,
California 92612

    


    To
Executive:

    


    Michael
Newman

    352 North
California Street

    San
Gabriel, CA  91775


    


    
      	
              (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.

            


    

     

    
      	
              (i)  

            	
              No
      Claim Against Assets.  Nothing in this Agreement shall be
      construed as giving Executive any claim against any specific assets of Sun
      or as imposing any trustee relationship upon Sun in respect of
      Executive.  Sun shall not be required to establish a special or
      separate fund or to segregate any of its assets in order to provide for
      the satisfaction of its obligations under this
      Agreement.  Executive's rights under this Agreement shall be
      limited to those of an unsecured general creditor of Sun and its
      affiliates.

            


    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	
              (j)  

            	
              Counterparts.  This
      Agreement may be executed in any number of counterparts, each of which so
      executed shall be deemed to be an original, and such counterparts will
      together constitute but one
Agreement

            


    

     

    
      	
              (k)  

            	
              Section
      409A.

            


    

     

    
      	
              (l)  

            	
              If
      Executive is a “specified employee” within the meaning of Treasury
      Regulation Section 1.409A-1(i) as of the date of Executive’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, Executive 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 Executive upon or in the
      six (6) month period following his separation from service that are not so
      paid by reason of this Section 10(k)(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 Executive’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
      10(e) are taxable to Executive, any reimbursement payment due to Executive
      pursuant to such provision shall be paid to Executive on or before the
      last day of Executive’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 10(e) are not
      subject to liquidation or exchange for another benefit and the amount of
      such benefits and reimbursements that Executive receives in one taxable
      year shall not affect the amount of such benefits and reimbursements that
      Executive receives in any other taxable
year.

            


    

     

    
      	
               
      

            	
              (3)

            	
              It
      is intended that any amounts payable under this Agreement and Sun’s and
      Executive’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.

            


    

     

    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

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

     

    


     

    
      
        
          	
                  
                    /s/
      Michael Newman

                  

                
	
                  MICHAEL
      NEWMAN

                
	 
      
	 
      
	
                  SUN
      HEALTHCARE GROUP, INC.

                
	 
      
	 
      
	
                  
                    By:  /s/
      Richard K. Matros

                  

                
	
                  Richard
      K. Matros

                
	
                  Its
      Chairman and Chief Executive Officer