EXHIBIT 4.1EXECUTION COPY

REGISTRATION RIGHTS AGREEMENT

                    REGISTRATIONRIGHTS AGREEMENT (the "Agreement"), dated as of February 28, 2002,between Sun Healthcare Group, Inc., a Delaware corporation (the "Company"),and the Persons identified on Schedule I hereto (the "Initial Holders").

W I T N E S S E T H:

                    WHEREAS,pursuant to the Joint Plan of Reorganization of Sun Healthcare Group, Inc. and itsaffiliated debtors and debtors in possession (the "Plan"), dated December 18,2001, the Company has agreed, among other things, to issue 10,000,000 million shares ofcommon stock, par value $0.01 per share of the Company (the "Common Stock"); and

                    WHEREAS,the Company has agreed to grant to Initial Holders the registration rights set forthherein; and

                    WHEREAS,this Agreement shall become effective upon the issuance of securities pursuant to thePlan;

                    NOW,THEREFORE, in consideration of the mutual covenants and agreements set forth herein andfor good and valuable consideration, the receipt and sufficiency of which is herebyacknowledged, the parties agree as follows:

ARTICLE I -

DEFINITIONS

                    Asused herein, unless the context otherwise requires, the following terms have the followingrespective meanings:

                    "AdverseDisclosure" means public disclosure of material non-public information, whichdisclosure in the good faith judgment of the chief executive officer or chief financialofficer of the Company (i) would be required to be made in any registration statementfiled with the Commission by the Company so that such registration statement would not bematerially misleading; (ii) would not be required to be made at such time but for thefiling of such registration statement; and (iii) the Company has a bona fide businesspurpose for avoiding.

                    "Agreement"has the meaning set forth in the recitals hereto.

                    "BlackoutPeriod" has the meaning set forth in Section 2.1(g).

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                    "Commission"means the Securities and Exchange Commission or any other Federal agency at the timeadministering the Securities Act.

                    "CommonStock" has the meaning set forth in the recitals hereto.

                    "Company"has the meaning set forth in the recitals hereto.

                    "ExchangeAct" means the Securities Exchange Act of 1934, or any similar Federal statute,and the rules and regulations of the Commission thereunder, all as the same shall be ineffect at the time. Reference to a particular section of the Securities Exchange Act of1934 shall include a reference to the comparable section, if any, of any such similarFederal statute.

                    "Holder"means an Initial Holder or a successor, assignee or transferee of an Initial Holder ascontemplated by Section 5.3 hereof, in each case for so long as such Initial Holder,successor, assignee or transferee holds Registrable Securities.

                    "InitialHolder" has the meaning set forth in the recitals hereto.

                    "ManagingUnderwriters" means any investment banker or investment bankers and manager ormanagers that administer the offering of Registrable Securities covered by anyregistration statement.

                    "ParticipatingHolders" means Holders of Registrable Securities who demand or participate in aregistration of their Registrable Securities pursuant to Sections 2.1 or 2.2.

                    "Person"means a corporation, an association, a partnership, an organization, business, anindividual, a governmental or political subdivision thereof or a governmental agency.

                    "Plan"has the meaning set forth in the recitals hereto.

                    "RegistrableSecurities" means any shares of Common Stock issued to an Initial Holder pursuantto the Plan and any Common Stock issuable to such Initial Holder pursuant to the Plan. Asto any particular Registrable Securities, once issued such securities shall cease to beRegistrable Securities when (a) a registration statement with respect to the sale of suchsecurities shall have become effective under the Securities Act and such securities shallhave been disposed of in accordance with such registration statement, (b) they shall havebeen disposed of (1) pursuant to Rule 144 (or any successor provision) under theSecurities Act, or (2) pursuant to another exemption from the registration requirements ofthe Securities Act pursuant to which the securities are freely tradable withoutrestrictions under the Securities Act, (c) such Securities may be disposed of pursuant toRule 144 (or any successive provision) within the volume limitations thereunder within a90-day period and pursuant to Rule 144(E) (or any successive provision of the SecuritiesAct), (d) they shall have been otherwise transferred, new 

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certificates for them not bearing a legend restricting further transfer shall have beendelivered by the Company and subsequent disposition of them shall not require registrationor qualification of them under the Securities Act or any similar state law then in force,(e) they shall be sold by the applicable Holder to the public pursuant to Section 1145 oftitle 11 of the United States Code, as amended, or (f) they shall have ceased to beoutstanding. Notwithstanding anything herein to the contrary, the registration rightsgranted hereunder shall terminate as to each Holder and with respect to such Securitiesupon the date that such Common Stock is no longer Registrable Securities.

                    "RegistrationExpenses" means all expenses incident to the Company's performance of orcompliance with Section 2, including, without limitation, (i) all registration, filing andNASD fees, all stock exchange listing fees, (ii) all fees and expenses of complying withsecurities or blue sky laws, (iii) all word processing, duplicating and printing expenses,messenger and delivery expenses, the fees and disbursements of counsel for the Company andof its independent public accountants, including the expenses of any special audits or"cold comfort" letters required by or incident to such performance andcompliance, (iv) the fees and disbursements of one counsel retained by all theParticipating Holders (selected by the Holders of a majority of the Registrable Securitiesincluded in a registration) in an amount not to exceed $10,000 per registration statement,(v) premiums and other costs of policies of insurance against liabilities arising out ofthe public offering of the Registrable Securities being registered and (vi) any fees anddisbursements of underwriters customarily paid by issuers or sellers of securities, butexcluding underwriting discounts and commissions and transfer taxes, if any, providedthat, in any case where Registration Expenses are not to be borne by the Company, suchexpenses shall not include salaries of Company personnel or general overhead expenses ofthe Company, auditing fees, premiums or other expenses relating to liability insurancerequired by underwriters of the Company or other expenses for the preparation of financialstatements or other data normally prepared by the Company in the ordinary course of itsbusiness or which the Company would have incurred in any event.

                    "SecuritiesAct" means the Securities Act of 1933, or any similar Federal statute, and therules and regulations of the Commission thereunder, all as of the same shall be in effectat the time. References to a particular section of the Securities Act of 1933 shallinclude a reference to the comparable section, if any, of any such similar Federalstatute.

                    "UnderwrittenOffering" means an offering registered under the Securities Act in whichsecurities of the Company are sold to an underwriter on a firm commitment basis forreoffering to the public.

ARTICLE II -

REGISTRATION UNDER SECURITIES ACT, ETC.

     2.1     Registration on Request

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             (a)     Followinga period of 180 days following the Effective Date of the Plan, a Holder (or group ofHolders) holding at least 500,000 shares of Common Stock which constitute RegistrableSecurities, subject to Section 2.1(c) hereof, may request, in writing, registration underthe Securities Act, of all or part of their Registrable Securities. Within 10 days afterreceipt of any such request, the Company will give notice of such request to the otherHolders. Thereafter, the Company will use all commercially reasonable efforts to effectthe registration on an appropriate form under the Securities Act and will include in suchregistration, subject to Section 2.1(c) hereof, all Registrable Securities held by anyParticipating Holder with respect to which the Company has received a written request forinclusion therein within 10 days after the receipt of the Company's notice. Allregistrations initiated by a Participating Holder pursuant to this Section 2.1(a) arereferred to herein as "Demand Registrations."

             (b)     Ifthe Participating Holders holding not less than a majority of the Registrable Securitiesincluded in any offering pursuant to a Demand Registration so elect by written request tothe Company, such offering shall be in the form of an Underwritten Offering. ParticipatingHolders holding a majority of the Registrable Securities included in such UnderwrittenOffering shall, after consulting with the Company, have the right to select the managingunderwriter or underwriters for the offering, subject to the right of the Company toapprove such managing underwriter or underwriters (which approval shall not beunreasonably withheld) and to select one co-managing underwriter reasonably acceptable tosuch Participating Holders.

             (c)     Ifthe managing underwriter or underwriters of a proposed offering of Registrable Securitiesincluded in a Demand Registration inform the Participating Holders of such RegistrableSecurities and the Company in writing that, in its or their opinion, the number ofsecurities requested to be included in such Demand Registration (including securities ofthe Company for its own account or for the account of other Persons which are not Holders)exceeds the number which can be sold in such offering without being likely to have anadverse effect on the price, timing or distribution of the securities offered or themarket for the securities offered, the Company will include in such registration all ofthe Registrable Securities sought to be registered therein by the Participating Holdersand only such lesser number of other securities requested to be included for the accountof the Company or for the account of other Persons which are not Holders as shall not, inthe opinion of the managing underwriter or underwriters, be likely to have such an effect.In the event that, despite the reduction of the number of securities to be offered for theaccount of the Company or for the account of Persons which are not Holders in suchregistration pursuant to the immediately preceding sentence, the number of RegistrableSecurities to be included in such registration exceeds the number which, in the opinion ofthe managing underwriter or underwriters, can be sold without having the adverse effectreferred to above, the number of Registrable Securities that can be included withouthaving such an adverse effect shall be allocated pro rata among the Participating Holderswhich have requested participation in the Demand Registration (based, for each suchParticipating Holder, on the percentage (such Participating Holder's "AllocationPercentage") derived by dividing (i) the number of

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Registrable Securities which such Participating Holder has requested to include in suchDemand Registration by (ii) the aggregate number of Registrable Securities which all suchParticipating Holders have requested to include).

             (d)     RegistrationStatement Form. Registrations under this Section 2.1 shall be on such appropriateregistration form of the Commission (i) as shall be selected by the Company and asshall be reasonably acceptable to the Participating Holders holding a majority ofRegistrable Securities requesting participation in the Demand Registration and, as shallbe reasonably acceptable to each Participating Holder and (ii) as shall permit thedisposition of such Registrable Securities in accordance with the intended method ormethods of disposition specified in their request for such registration.

             (e)     Expenses.The Company will pay all Registration Expenses in connection with any registrationrequested pursuant to this Section 2.1 prior to the time at which two such registrationsshall have been effected in which all of the Registrable Securities requested to beincluded in such registration shall have been registered pursuant to this Section 2.1. TheRegistration Expenses (and underwriting discounts and commissions and transfer taxes, ifany) in connection with each other registration requested under this Section 2.1 shall bepaid pro rata by the Participating Holders.

             (f)     EffectiveRegistration Statement. A Demand Registration requested pursuant to this Section 2.1shall not be deemed to have been effected (i) unless a registration statement withrespect thereto has been declared effective by the Commission, provided that aregistration which does not become effective after the Company has filed a registrationstatement with respect thereto solely by reason of the refusal to proceed of aParticipating Holder (other than a refusal to proceed based upon the advice of counselrelating to a matter with respect to the Company) shall be deemed to have been effected bythe Company at the request of a Participating Holder unless such Participating Holdershall have elected to pay all Registration Expenses in connection with such registration,(ii) if, after it has become effective, such registration becomes subject to anystop order, injunction or other order or requirement of the Commission or othergovernmental agency or court for any reason, or (iii) the conditions to closingspecified in the purchase agreement or underwriting agreement entered into in connectionwith such registration are not satisfied, other than by reason of some act or omission bythe Participating Holders.

             (g)     Exceptionsto Registration on Request. Notwithstanding anything in Section 2.1(a) above to thecontrary, the Company shall not be obligated to take any action to effect any suchregistration pursuant to Section 2.1(a) above:

                     (i)     Inany particular jurisdiction in which the Company would be required to execute a generalconsent to service of process in effecting such registration, unless the Company isalready subject to service in such jurisdiction and except as may be required by theSecurities Act;

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                     (ii)     Duringthe period starting with the date sixty (60) days prior to the Company's estimated date offiling of, and ending on the one hundred and twentieth (120th) day immediatelyfollowing the effective date of, any registration statement pertaining to securities ofthe Company;

                     (iii)     Duringthe period commencing on the seventh day prior to the effective date of any offering bythe Company that is registered under the Securities Act and ending on the 90th day afterthe offering is complete;

                     (iv)     Afterthe Company has effected two (2) such registrations pursuant to Section 2.1(a), and suchregistrations have been declared or ordered effective and at least 75% of the RegistrableSecurities requested to be included in such registrations have been registered pursuant toSection 2.1;

                     (v)     Ifthe Company shall have previously effected a Demand Registration at any time during theimmediately preceding 180 day period;

                     (vi)     If(A) the number of Registrable Securities identified in the Demand Registration shall beless than five percent (5%) of the then outstanding shares of Common Stock or (B) theRegistrable Securities identified in the Demand Registration shall have a current marketvalue as of the date of the demand of less than $17,500,000;

                     (vii)     Ifthe filing, initial effectiveness or use of a registration statement in respect of aDemand Registration would require the Company to make an Adverse Disclosure, and, in suchevent, the Company shall promptly give Participating Holders written notice of suchdetermination, then the Company shall be entitled to (x) postpone the filing of theregistration statement otherwise required to be prepared and filed by the Company pursuantto Section 2.1(a) hereof, or (y) elect that the effective registration statement not beused, in either case for a reasonable period of time, but not to exceed one hundred eighty(180) days after the date that the demand was made (a "Blackout Period");provided that the Company may not exercise this deferral right more than once per twelve(12) month period. Any such written notice shall contain a general statement of thereasons for such postponement or restriction on use and an estimate of the anticipateddelay. The Company shall promptly notify each Participating Holder of the expiration orearlier termination of such Blackout Period.

     2.2     Incidental Registration

             (a)     Rightto Include Registrable Securities. If the Company at any time proposes to registersecurities comprising shares of common stock of the Company for its own account or for theaccount of any holders of its securities under the Securities Act on Forms S-1, S-2 or S-3(other than (A) a registration under Section 2.1 hereof, (B) a registration solely forregistration of securities in connection with an employee benefit plan or dividendreinvestment plan or a merger or consolidation or incidental to an issuance of securitiesunder Rule 144A under the Securities Act or (C) a registration on any registration formwhich does not permit secondary sales or does not include 

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substantially the same information as would be required to be included in aregistration statement covering the sale of Registrable Securities (other than informationas to the selling stockholders and their intended method or methods of disposition)), itwill each such time give prompt written notice to each Holder of its intention to do soand of such Holder's rights under this Section 2.2. Upon the written request of any Holdermade within 30 days after the receipt of any such notice (which request shall specify theRegistrable Securities intended to be disposed of by such Holder and the intended methodof disposition thereof), the Company will, subject to Sections 2.2(b) hereof, effect theregistration under the Securities Act of all Registrable Securities which the Company hasbeen so requested to register by such Holder, to the extent requisite to permit thedisposition (in accordance with the intended methods thereof as aforesaid) of theRegistrable Securities so to be registered, by inclusion of such Registrable Securities inthe registration statement which covers the securities which the Company proposes toregister, provided that if, at any time after giving written notice of itsintention to register any securities and prior to the effective date of the registrationstatement filed in connection with such registration, the Company shall determine for anyreason either not to register or to delay registration of such securities, the Companymay, at its election, give written notice of such determination to each Holder and,thereupon, (i) in the case of a determination not to register, shall be relieved ofits obligation to register any Registrable Securities in connection with such registration(but not from its obligation to pay the Registration Expenses in connection therewith),without prejudice, however, to the rights of any Holder to request that such registrationbe effected as a registration under Section 2.1, and (ii) in the case of adetermination to delay registering, shall be permitted to delay registering anyRegistrable Securities, for the same period as the delay in registering such othersecurities. No registration effected under this Section 2.2 shall relieve the Company ofits obligation to effect any registration upon request under Section 2.1, nor shall anysuch registration hereunder be deemed to have been effected pursuant to Section 2.1. TheCompany will pay all Registration Expenses in connection with each registration ofRegistrable Securities requested pursuant to this Section 2.2. All registrations pursuantto Section 2.2(a) are referred to herein as "Piggyback Registrations."

             (b)     UnderwrittenOffering. If the offering pursuant to a Piggyback Registration is to be anUnderwritten Offering, then each Participating Holder making a request for its RegistrableSecurities to be included therein must, and the Company shall use its reasonable bestefforts to make such arrangements with the Managing Underwriters so that each suchParticipating Holder may, participate in such Underwritten Offering on the same terms asother Persons selling securities in such Underwritten Offering. If the offering pursuantto such registration is to be on any other basis, then each Participating Holder making arequest for a Piggyback Registration pursuant to this Section 2.2(a) must participate insuch offering on such basis. Notwithstanding any provision in this Agreement to thecontrary, any Participating Holder participating through a Piggyback Registration shallhave no right to change the intended method or methods of disposition otherwiseapplicable.

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             (c)     Priorityin Incidental Registrations.

                     (i)     Ifa Piggyback Registration is an underwritten primary registration on behalf of the Company,and the managing underwriters advise the Company that in their opinion the number ofsecurities requested to be included in such registration exceeds the number which can besold in such offering, the Company will include in such registration: (i) first, thesecurities the Company proposes to sell, and (ii) second, the securities proposed tobe included in such registration by the holders (including any Participating Holder) prorata among the Participating Holders exercising their respective piggyback registrationrights thereof based upon the total number of securities which each such ParticipatingHolder beneficially owns.

                     (ii)     Ifa Piggyback Registration is an underwritten secondary registration on behalf of holders(other than any Holders hereunder) of the Company's securities, and the managingunderwriters advise the Company that in their opinion the number of securities requestedto be included in such registration exceeds the number which can be sold in such offering,the Company will include in such registration: (i) first, the securities which suchholders (other than any Participating Holder) propose to sell; (ii) second, thesecurities the Company proposed to be included in such registration; and (iii) third,the securities proposed to be included in such registration by the holders (including anyParticipating Holder) pro rata among the Participating Holders exercising their respectivepiggyback registration rights based upon the total number of securities which each suchParticipating Holder beneficially owns.

     2.3     RegistrationProcedures. , If and whenever the Company is required to effect the registration ofany Registrable Securities under the Securities Act as provided in Sections 2.1 and 2.2the Company shall, as expeditiously as possible: 

             (a)     prepareand (as soon thereafter as possible) file with the Commission the requisite registrationstatement to effect such registration (including such audited financial statements as maybe required by the Securities Act or the rules and regulations promulgated thereunder) andthereafter cause such registration statement to become and remain effective, providedhowever that the Company may discontinue any registration of its securities which are notRegistrable Securities (and, under the circumstances specified in Section 2.2(a), itssecurities which are Registrable Securities) at any time prior to the effective date ofthe registration statement relating thereto;

             (b)     prepareand file with the Commission such amendments and supplements to such registrationstatement and the prospectus used in connection therewith as may be necessary to keep suchregistration statement effective and to comply with the provisions of the Securities Actwith respect to the disposition of all securities covered by such registration statementuntil such time as all of such securities have been disposed of in accordance with theintended methods of disposition by the seller or sellers thereof set forth in suchregistration statement;

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             (c)     furnishto each Participating Holder and each underwriter, if any, such number of conformed copiesof such registration statement and of each such amendment and supplement thereto (in eachcase including all exhibits), such number of copies of the prospectus contained in suchregistration statement (including each preliminary prospectus and any summary prospectus)and any other prospectus filed under Rule 424 under the Securities Act, in conformity withthe requirements of the Securities Act, and such other documents, as such ParticipatingHolder and such underwriter, if any, may reasonably request in order to facilitate thepublic sale or other disposition of the Registrable Securities;

             (d)     useits best efforts to register or qualify all Registrable Securities and other securitiescovered by such registration statement under such other securities laws or blue sky lawsof such jurisdictions as any seller thereof and any underwriter of the securities beingsold by such seller shall reasonably request, to keep such registrations or qualificationsin effect for so long as such registration statement remains in effect, and take any otheraction which may be reasonably necessary or advisable to enable such seller andunderwriter to consummate the disposition in such jurisdictions of the securities owned bysuch seller, except that the Company shall not for any such purpose be required to qualifygenerally to do business as a foreign corporation in any jurisdiction wherein it would notbut for the requirements of this subdivision (d) be obligated to be so qualified or toconsent to general service of process in any such jurisdiction;

             (e)     useits best efforts to cause all Registrable Securities covered by such registrationstatement to be registered with or approved by such other governmental agencies orauthorities as may be necessary to enable the seller or sellers thereof to consummate thedisposition of such Registrable Securities;

             (f)     notifyeach Participating Holder and the managing underwriter or underwriters, if any, promptlyand confirm such advice in writing promptly thereafter (v) when the registrationstatement, the prospectus or any prospectus supplement related thereto or post-effectiveamendment to the registration statement has been filed, and, with respect to theregistration statement or any post-effective amendment thereto, when the same has becomeeffective; (w) of any request by the Commission for amendments or supplements to theregistration statement or the prospectus or for additional information; (x) of theissuance by the Commission of any stop order suspending the effectiveness of theregistration statement or the initiation of any proceedings by any Person for thatpurpose; (y) if at any time the representations and warranties of the Company made ascontemplated by Section 2.4 below cease to be true and correct; and (z) of the receipt bythe Company of any notification with respect to the suspension of the qualification of anyRegistrable Securities for sale under the securities or blue sky laws of any jurisdictionor the initiation or threat of any proceeding for such purpose;

             (g)     notifyeach Participating Holder, at any time when a prospectus relating thereto is required tobe delivered under the Securities Act, upon discovery that, or upon the happening of anyevent as a result of which, the prospectus included in such registration statement, asthen in effect, includes an untrue statement of a material fact or 

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omits to state any material fact required to be stated therein or necessary to make thestatements therein not misleading in the light of the circumstances under which they weremade, and at the request of any Participating Holder promptly prepare and furnish to suchseller or Participating Holder and each underwriter, if any, a reasonable number of copiesof a supplement to or an amendment of such prospectus as may be necessary so that, asthereafter delivered to the purchasers of such securities, such prospectus shall notinclude an untrue statement of a material fact or omit to state a material fact requiredto be stated therein or necessary to make the statements therein not misleading in thelight of the circumstances under which they were made;

             (h)     makeevery reasonable effort to obtain the withdrawal of any order suspending the effectivenessof the registration statement at the earliest possible moment;

             (i)     otherwiseuse its best efforts to comply with all applicable rules and regulations of theCommission, and will furnish to each Participating Holder at least five business daysprior to the filing thereof a copy of any amendment or supplement to such registrationstatement or prospectus and shall not file any thereof to which such Participating Holdershall have reasonably objected on the grounds that such amendment or supplement does notcomply in all material respects with the requirements of the Securities Act or of therules or regulations thereunder;

             (j)     provideand cause to be maintained a transfer agent and registrar for all Registrable Securitiescovered by such registration statement from and after a date not later than the effectivedate of such registration statement;

             (k)     enterinto such agreements and take such other actions as any Participating Holder shallreasonably request in order to expedite or facilitate the disposition of such RegistrableSecurities;

             (l)     useits reasonable efforts to cause all Registrable Securities covered by the applicableregistration statement to be listed on each securities exchange or market on which any ofthe Company's securities of such class are then listed or quoted; and

             (m)     useits best efforts to provide a CUSIP number for the Registrable Securities, not later thanthe effective date of the registration statement.

The Company may require each seller of Registrable Securities as to which anyregistration is being effected to furnish the Company such information regarding suchseller and the distribution of such securities as the Company may from time to timereasonably request in writing.

The Holders agree by acquisition of the Registrable Securities that, upon receipt ofany notice from the Company of the occurrence of any event of the kind described insubdivision (f) of this Section 2.3, the Holders will forthwith discontinue theirrespective dispositions of Registrable Securities pursuant to the registration statementrelating to 

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such Registrable Securities until each such Holder's receipt of the copies of thesupplemented or amended prospectus contemplated by subdivision (f) of this Section 2.3and, if so directed by the Company, will deliver to the Company (at the Company's expense)all copies, other than permanent file copies, then in such Holder's possession of theprospectus relating to such Registrable Securities current at the time of receipt of suchnotice.

If any such registration statement refers to any Holder by name or otherwise as theholder of any securities of the Company, then such Holder shall have the right to require(i) the insertion therein of language, in form and substance satisfactory to suchHolder, to the effect that the holding by such Holder of such securities is not to beconstrued as a recommendation by such Holder of the investment quality of the Company'ssecurities covered thereby and that such holding does not imply that such Holder willassist in meeting any future financial requirements of the Company, or (ii) in theevent that such reference to such Holder by name or otherwise is not required by theSecurities Act or any similar federal statute then in force, the deletion of the referenceto such Holder.

     2.4     Underwritten Offerings.

             (a)     RequestedUnderwritten Offerings. If requested by the underwriters for any underwritten offeringby any Holder pursuant to a registration requested under Section 2.1, the Company willenter into an underwriting agreement with such underwriters for such offering, suchagreement to be satisfactory in substance and form to the Company, Participating Holdersholding a majority of the Registrable Securities included in such offering and theunderwriters, and to contain such representations and warranties by the Company and suchother terms as are generally prevailing in agreements of this type, including, withoutlimitation, indemnities to the effect and to the extent provided in Section 2.6. TheParticipating Holder will cooperate with the Company in the negotiation of theunderwriting agreement and will give consideration to the reasonable suggestions of theCompany regarding the form thereof, provided that nothing herein contained shalldiminish the foregoing obligations of the Company. Each Participating Holder shall beparty to such underwriting agreement. A Participating Holder shall not be required to makeany representations or warranties to or agreements with the Company or the underwritersother than representations and warranties contained in a writing furnished by such holderexpressly for use in such registration statement or agreements regarding suchParticipating Holder, the Participating Holder's Registrable Securities and theParticipating Holder's intended method of distribution and any other representationrequired by law.

             (b)     IncidentalUnderwritten Offerings. If the Company at any time proposes to register any of itssecurities under the Securities Act as contemplated by Section 2.2 and such securities areto be distributed by or through one or more underwriters, the Company will, if requestedby a Holder as provided in Section 2.2 and subject to the provisions of Section 2.2(b),use its best efforts to arrange for such underwriters to include all the RegistrableSecurities to be offered and sold by any Participating Holder among the securities to bedistributed by such underwriters. Each Participating Holder 

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shall be party to the underwriting agreement between the Company and such underwriters.A Participating Holder shall not be required to make any representations or warranties toor agreements with the Company or the underwriters other than representations, warrantiesor agreements regarding such Participating Holder, such Participating Holder's RegistrableSecurities and such Participating Holder's intended method of distribution and any otherrepresentation required by law.

             (c)     HoldbackAgreements. The Company agrees if so required by the Managing Underwriter not to sell,make any short sale of, loan, grant any option for the purchase of, effect any public saleor distribution of or otherwise dispose of its equity securities or securities convertibleinto or exchangeable or exercisable for any of such securities during the seven days priorto and the 90 days after any underwritten registration pursuant to Section 2.1 or 2.2 hasbecome effective, except as part of such underwritten registration and except pursuant toregistrations on Form S-4, S-8, or any successor or similar forms thereto.

             (d)     Participationin Underwritten Offerings. No Person may participate in any underwritten offeringhereunder unless such Person (i) agrees to sell such Person's securities on thebasis provided in any underwriting arrangements approved, subject to the terms andconditions hereof, by Participating Holders holding a majority of the RegistrableSecurities to be included in such offering and (ii) completes and executes allquestionnaires, indemnities, underwriting agreements and other documents (other thanpowers of attorney) required under the terms of such underwriting arrangements.Notwithstanding the foregoing, no underwriting agreement (or other agreement in connectionwith such offering) shall require a Participating Holder to make any representations orwarranties to or agreements with the Company or the underwriters other thanrepresentations and warranties contained in a writing furnished by such holder expresslyfor use in the related registration statement or agreements regarding such ParticipatingHolder, such Participating Holder's Registrable Securities and such Participating Holder'sintended method of distribution and any other representation required by law.

     2.5     Preparation;Reasonable Investigation. In connection with the preparation and filing of eachregistration statement under the Securities Act pursuant to this Agreement, the Companywill give any Participating Holder, its underwriters, if any, and their respective counseland accountants, the opportunity to participate in the preparation of such registrationstatement, each prospectus included therein or filed with the Commission, and eachamendment thereof or supplement thereto, and will give each of them such access to itsbooks and records and such opportunities to discuss the business of the Company with itsofficers and the independent public accountants who have certified its financialstatements as shall be necessary, in the opinion of underwriters' counsel, to conduct areasonable investigation within the meaning of the Securities Act.

     2.6     Indemnification.
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             (a)     Indemnificationby the Company. In the event of any registration of any securities of the Companyunder the Securities Act, the Company will, and hereby does agree to, indemnify and holdharmless (i) in the case of any registration statement filed pursuant to Section2.1 or 2.2, a Participating Holder, its directors and officers, and each other Person, ifany, who controls such Participating Holder within the meaning of the Securities Act, and(ii) in the case of any registration statement of the Company, a ParticipatingHolder, its directors and officers and each other Person, if any, who controls suchParticipating Holder within the meaning of the Securities Act, against any losses, claims,damages or liabilities, joint or several, to which such Participating Holder or any suchdirector or officer or controlling person may become subject under the Securities Act orotherwise, insofar as such losses, claims, damages or liabilities (or actions orproceedings, whether commenced or threatened, in respect thereof) arise out of or arebased upon any untrue statement or alleged untrue statement of any material fact containedin any registration statement under which such securities were registered under theSecurities Act, any preliminary prospectus, final prospectus or summary prospectuscontained therein, or any amendment or supplement thereto, or any omission or allegedomission to state therein a material fact required to be stated therein or necessary tomake the statements therein not misleading, and the Company will reimburse each suchParticipating Holder and each such director, officer, and controlling person for any legaland/or any other expenses reasonably incurred by them in connection with investigating ordefending any such loss, claim, liability, action or proceeding, provided that theCompany shall not be liable in any such case to the extent that any such loss, claim,damage, liability (or action or proceeding in respect thereof) or expense arises out of oris based upon an untrue statement or alleged untrue statement or omission or allegedomission made in such registration statement, any such preliminary prospectus, finalprospectus, summary prospectus, amendment or supplement in reliance upon and in conformitywith written information furnished to the Company through an instrument duly executed by aParticipating Holder for use in the preparation thereof. Such indemnity shall remain infull force and effect regardless of any investigation made by or on behalf of aParticipating Holder or any such director, officer, underwriter or controlling person andshall survive the transfer of such securities by any Participating Holder.

             (b)     Indemnificationby Participating Holder. Each Participating Holder, severally and not jointly, willindemnify and hold harmless the Company (in the same manner and to the same extent as setforth in subdivision (a) of this Section 2.6) the Company, each director of the Company,each officer of the Company and each other person, if any, who controls the Company withinthe meaning of the Securities Act, with respect to any statement or alleged statement inor omission or alleged omission from such registration statement, any preliminaryprospectus, final prospectus or summary prospectus contained therein, or any amendment orsupplement thereto, if such statement or alleged statement or omission or alleged omissionwas made in reliance upon and in conformity with written information furnished to theCompany through an instrument duly executed by such Participating Holder for use in thepreparation of such registration statement, preliminary prospectus, final prospectus,summary prospectus, amendment or 

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supplement; and, subject to the limitation set forth immediately preceding this clause,shall reimburse, as incurred, the Company for any legal or other expenses reasonablyincurred by the Company or any such controlling person in connection with investigating ordefending any loss, claim, damage, liability or action in respect thereof. Any suchindemnity shall remain in full force and effect, regardless of any investigation made byor on behalf of the Company or any such director, officer or controlling person and shallsurvive the transfer of such securities by such Participating Holder. The liability of anyHolder under this paragraph shall in no event exceed the amount by which the proceedsreceived by such Holder from sales of Registrable Securities giving rise to suchobligation. This indemnity agreement will be in addition to any liability which suchParticipating Holder may otherwise have to the Company or any of its controlling persons.

             (c)     Noticesof Claims, etc. Promptly after receipt by an indemnified party of notice of thecommencement of any action or proceeding involving a claim referred to in the precedingsubdivisions of this Section 2.6, such indemnified party will, if a claim in respectthereof is to be made against an indemnifying party, give written notice to the latter ofthe commencement of such action, provided that the failure of any indemnified partyto give notice as provided herein shall not relieve the indemnifying party of itsobligations under the preceding subdivisions of this Section 2.6, except to the extentthat the indemnifying party is actually prejudiced by such failure to give notice. In caseany such action is brought against an indemnified party, unless in such indemnifiedparty's reasonable judgment a conflict of interest between such indemnified andindemnifying parties may exist in respect of such claim, the indemnifying party shall beentitled to participate in and to assume the defense thereof, jointly with any otherindemnifying party similarly notified, to the extent that the indemnifying party may wish,with counsel reasonably satisfactory to such indemnified party, and after notice from theindemnifying party to such indemnified party of its election so to assume the defensethereof, the indemnifying party shall not be liable to such indemnified party for anylegal or other expenses subsequently incurred by the latter in connection with the defensethereof other than reasonable costs of investigation. No indemnifying party shall, withoutthe consent of the indemnified party, consent to entry of any judgment or enter into anysettlement of any such action which does not include as an unconditional term thereof thegiving by the claimant or plaintiff to such indemnified party of a release from allliability, or a covenant not to sue, in respect to such claim or litigation. Noindemnified party shall consent to entry of any judgment or enter into any settlement ofany such action the defense of which has been assumed by an indemnifying party without theconsent of such indemnifying party.

             (d)     OtherIndemnification. Indemnification similar to that specified in the precedingsubdivisions of this Section 2.6 (with appropriate modifications) shall be given by theCompany and any Participating Holder with respect to any required registration or otherqualification of securities under any Federal or state law or regulation of anygovernmental authority, other than the Securities Act.

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             (e)     IndemnificationPayments. The indemnification required by this Section 2.6 shall be made by periodicpayments of the amount thereof during the course of the investigation or defense, as andwhen bills are received or expense, loss, damage or liability is incurred.

             (f)     Contribution.If the indemnification provided for in the preceding subdivisions of this Section 2.6 isunavailable to an indemnified party in respect of any expense, loss, claim, damage orliability referred to therein, then each indemnifying party, in lieu of indemnifying suchindemnified party, shall contribute to the amount paid or payable by such indemnifiedparty as a result of such expense, loss, claim, damage or liability. In determining theamount of contribution to which the indemnified party is entitled, there shall beconsidered with respect to any Persons involved the relative knowledge and access toinformation concerning the matter with respect to which the claim was asserted, theopportunity to correct and prevent any statement or omission, and other equitableconsiderations appropriate under the circumstances. It is hereby agreed that it would notnecessarily be equitable if the amount of such contribution were determined by pro rata orper capita allocation, provided that the foregoing contribution agreement shall notinure to the benefit of any indemnified party if indemnification would be unavailable tosuch indemnified party by reason of the provisions contained in the first sentence ofsubdivision (a) of this Section 2.6, and in no event shall the obligation of anyindemnifying party to contribute under this subdivision (f) exceed the amount that suchindemnifying party would have been obligated to pay by way of indemnification if theindemnification provided for under subdivisions (a) or (b) of this Section 2.6 had beenavailable under the circumstances.

                         TheCompany and the Holders agree that it would not be just and equitable if contributionpursuant to this subdivision (f) were determined by prorata allocation(even if a Participating Holder and any underwriters were treated as one entity for suchpurpose) or by any other method of allocation that does not take account of the equitableconsiderations referred to in the immediately preceding paragraph. The amount paid orpayable by an indemnified party as a result of the losses, claims, damages and liabilitiesreferred to in the immediately preceding paragraph shall be deemed to include, subject tothe limitations set forth in the preceding sentence and subdivision (c) of this Section2.6, any legal or other expenses reasonably incurred by such indemnified party inconnection with investigating or defending any such action or claim.

                         Notwithstandingthe provisions of this subdivision (f), neither a Participating Holder nor underwritershall be required to contribute any amount in excess of the amount by which (i) inthe case of a Participating Holder, the net proceeds received from the sale of RegistrableSecurities or (ii) in the case of an underwriter, the total price at which theRegistrable Securities purchased by it and distributed to the public were offered to thepublic exceeds, in any such case, the amount of any damages that a Participating Holder orsuch underwriter has otherwise been required to pay by reason of such untrue or allegeduntrue statement or omission. No Person guilty of fraudulent misrepresentation (within themeaning of Section 11(f) of the Securities Act) shall be 

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entitled to contribution from any person who was not guilty of such fraudulentmisrepresentation.

     2.7     Adjustments AffectingRegistrable Securities. The Company will not effect or permit to occur any combinationor subdivision of shares which would adversely affect the ability of the holders ofRegistrable Securities to include such Registrable Securities in any registration of itssecurities contemplated by this Section 2 or the marketability of such RegistrableSecurities under any such registration.

ARTICLE III -

RULES 144 AND 144A

                         TheCompany shall use its best efforts to file in a timely manner the reports required to befiled by it under the Securities Act and the Exchange Act (including but not limited tothe reports under sections 13 and 15(d) of the Exchange Act referred to in subparagraph(c) of Rule 144 adopted by the Commission under the Securities Act) and the rules andregulations adopted by the Commission thereunder to the extent required from time to timeto enable Holders to sell Registrable Securities without registration under the SecuritiesAct within the limitation of the exemptions provided by (a) Rule 144 under theSecurities Act, as such Rule may be amended from time to time, or (b) any similarrule or regulation hereafter adopted by the Commission. Upon the request of any Holder,the Company will deliver to such Holder a written statement as to whether it has compliedwith the requirements of this Article III.

ARTICLE IV

AMENDMENTS AND WAIVERS.

                    ThisAgreement may be amended and the Company may take any action herein prohibited, or omit toperform any act herein required to be performed by it, only if the Company shall haveobtained the written consent to such amendment, action or omission to act, of the Holdersof a majority of the Registrable Securities. Holders shall be bound by any consentauthorized by this Article IV, whether or not such Holders have given their consent.

ARTICLE V

MISCELLANEOUS

     5.1     Nominees forBeneficial Owners. In the event that any Registrable Securities are held by a nomineefor the beneficial owner thereof, the beneficial owner thereof may, at its election, betreated as the holder of such Registrable Securities for purposes of any request or otheraction by any holder or holders of Registrable Securities pursuant to this Agreement orany determination of any number or percentage of shares of Registrable Securities held byany holder or holders of Registrable Securities contemplated by this 

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Agreement. If the beneficial owner of any Registrable Securities so elects, the Companymay require assurances reasonably satisfactory to it of such owner's beneficial ownershipof such Registrable Securities.

     5.2     Notices. Exceptas otherwise provided in this Agreement, all notices, requests and other communications toany Person provided for hereunder shall be in writing and shall be given to such Person (a)in the case of the Company, addressed in the manner set forth below, or (b) in thecase of any other Person, at the address that such Person shall have furnished to theCompany in writing.
If to the Company:Robert F. Murphy, Esq.Sun Healthcare Group, New Mexico 97109Telephone: (505) 821-3355Fascimile: (505) 822-4747with a copy to:Weil, Gotshal & Manges, LLP767 Fifth AvenueNew York, New York 10153Attention: Michael WalshIf to the Initial Holders at their addresses specified on Schedule I:
Each such notice, request or other communication shall be effective (i) if givenby mail, 72 hours after such communication is deposited in the mails with first classpostage prepaid, addressed as aforesaid or (ii) if given by any other means(including, without limitation, by air courier), when delivered at the address specifiedabove, provided that any such notice, request or communication to a Holder shallnot be effective until receipt is acknowledged in a writing reasonably satisfactory toboth parties.

     5.3     Assignment. ThisAgreement shall be binding upon and inure to the benefit of and be enforceable by theparties hereto and their respective successors and assigns. The registration rights of anyHolder under this Agreement with respect to any Registrable Securities may be transferredand assigned provided, however, that (a) such assignee (together with its affiliates) ownsat least 150,000 shares of Registrable Securities or (b) such assignee is an affiliate ofsuch Holder and provided further that no such transfer or assignment of any registrationrights under this Agreement shall be binding upon or 

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obligate the Company under this Agreement to any such transferee or assignee unless anduntil the Company shall have received notice of such transfer or assignment and a writtenagreement of the transferee or assignee to by bound by the terms of this Agreement.

     5.4     Descriptive Headings.The descriptive headings of the several sections and paragraphs of this Agreement areinserted for reference only and shall not limit or otherwise affect the meaning hereof.

     5.5     GOVERNING LAW.THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THEPARTIES SHALL BE GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO THEPRINCIPLES OF CONFLICTS OF LAWS. THE PARTIES HERETO WAIVE THEIR RIGHT TO A JURY TRIAL WITHRESPECT TO DISPUTES HEREUNDER.

     5.6     Counterparts.This Agreement may be executed simultaneously in any number of counterparts, each of whichshall be deemed an original, but all such counterparts shall together constitute one andthe same instrument.

     5.7     Entire Agreement.This Agreement embodies the entire agreement and understanding between the Company andInitial Holder relating to the subject matter hereof and supersedes all prior agreementsand understandings relating to such subject matter.

     5.8     SUBMISSION TOJURISDICTION. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY BEBROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF AMERICA FOR THESOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THECOMPANY HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY ANDUNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS AND APPELLATE COURTS FROM ANYTHEREOF. THE COMPANY HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OFTHE AFOREMENTIONED COURTS IN ANY ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF TOTHE COMPANY BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, RETURN RECEIPT REQUESTED, TOTHE COMPANY AT ITS ADDRESS SPECIFIED IN SECTION 5.2. THE COMPANY HEREBY IRREVOCABLY WAIVESANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE ORBASED ON THE GROUNDS OF FORUMNONCONVENIENS, WHICH IT MAY NOW ORHEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVEJURISDICTIONS.

     5.9     Severability. Ifany provision of this Agreement, or the application of such provisions to any Person orcircumstance, shall be held invalid, illegal or unenforceable 

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the remainder of this Agreement, or the application of such provision to Persons orcircumstances other than those to which it is held invalid, illegal or unenforceable,shall not be affected thereby.

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                    INWITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered bytheir respective officers thereunto duly authorized as of the date first above written.
SUN HEALTHCARE GROUP, INC.By    /s/ Robert K.    Schneider                              Title:  Treasurer
 

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BANK OF AMERICA, N.A.By    /s/ M. Duncan    McDuffie                      Title:  Managing Director  M. Duncan    McDuffie                                 Name:
 

 
BANC OF AMERICA SECURITIES, LLCBy  /s/ Peter T.    Santry                                  Title:                                                                   Name:
 

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FOOTHILL INCOME TRUST, L.P.by FIT GP, LLC, its General PartnerBy   /s/ M. E.    Stearns                                   Title:  Managing Member  M. E.    Stearns                                             Name:
 

 
FOOTHILL PARTNERS III, L.P.By   /s/ M. E.    Stearns                                   Title:  Managing General Partner   M. E.    Stearns                                            Name:
 

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GOLDMAN SACHS & CO.By  /s/                                                          Title:                                                                   Name:
 

 
GSC RECOVERY II, L.P.By   /s/  Sanjay H.    Patel                               Title:   Sanjay H.    Patel                                         Name:
 

 
GSCP RECOVERY, INC.By   /s/  Sanjay H.    Patel                               Title:   Sanjay H.    Patel                                         Name:
 

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HIGHLAND CRUSADER OFFSHORE    PARTNERS, L.P.By   /s/                                                         Title:  Portfolio Manager                                                                   Name:
 

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THE JPMORGAN CHASE BANKBy   /s/ Eric    Rosen                                      Title:  Authorized Signatory    Eric    Rosen                                              Name:
 

 

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WOODSTEAD ASSOCIATES, L.P.By    /s/ John W.    Adams                              Title:  Limited Partner  John W.    Adams                                         Name:
 

 

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SCHEDULE I

INITIAL HOLDERS

1. Bank of America, N.A.; Banc of America Securities, LLC
Bank of America, N.A. Attn: M. Duncan McDuffie    555 South Flower Street    Mail Code CA9-706-11-21    Los Angeles, CA 90071-2385Banc of America    Securities, LLC100 North Tryon Street    Mail Code NC1-007-12-08    Charlotte, NC 28255
2. Foothill Income Trust, L.P.; Foothill Partners III, L.P.
Foothill Income Trust,    L. P.Attn: Nik Aggarwal    2450 Colorado Avenue, Suite 3000W    Santa Monica, CA 90404Foothill Partners III,    L. P.Attn: Nik Aggarwal    2450 Colorado Avenue, Suite 3000W    Santa Monica, CA 90404
3. Goldman Sachs & Co.; GSC Recovery II, L.P.; GSCP Recovery, Inc.
Goldman Sachs & Co.Attn: Erin Smith    85 Broad Street, 6th Floor    New York, NY 10004Goldman Sachs & Co.1Attn: Robin Harris    1 New York Plaza, 44th Floor    New York, NY 10004GSC Recovery II, L.P.500 Campus Drive, Suite 220    Florham Park, NJ 07932GSCP Recovery, Inc.500 Campus Drive, Suite 220    Florham Park, NJ 07932
4. Highland Crusader Offshore Partners, L.P.

                                 1 Varde Partners, Inc.
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Highland Crusader    Offshore Partners, L.P. 
5. The JPMorgan Chase Bank
The JPMorgan Chase BankAttn: Andrew Faherty    1 Chase Manhattan Plaza, 8th Floor    New York, NY 10081
6. Woodstead Associates, L.P.
Woodstead Associates,    L.P.885 Third Avenue, 34th Floor    New York, NY 10022
 

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