Exhibit
10.3.1





Stock
Option Grant




Sun
Healthcare Group, Inc.


2004
Equity Incentive Plan








Name
      of Optionee:
                                      [______]Shares
      Subject to Option:
                                      [______] shares of common stock, par value
      $.01(“Common Stock”),
      of Sun Healthcare Group, Inc. (the “Company”).Type
      of Option:
                                      Nonqualified
      Stock OptionExercise
      Price Per Share:
                                      [______]Date
      of Grant:
                                      [______]Date
      Exercisable/Vesting:
                                      This
      option may be exercised to the extent the shares of Common Stock subject
      to this option have vested at any time after the Date of
      Grant.  The option vests as followsif you are employed by the Company orits subsidiaries on the applicable
      vesting date: (1) 25% of the shares
      subject to this option vest on each of the first four anniversaries of the
      Date of Grant; (2) the unvested portion of this option will vest in
      full upon your termination of Service by the Company or its
      subsidiaries without Good Cause or your resignation from Service for Good
      Reason, or your death or Disability;
      and (3) this option vestsin full upon the date of a Change in
      Control.  The terms “Service,”
      “Good Cause,” “Good Reason,” “Disability” and “Change in Control” are used
      as defined in the Plan.Expiration
      Date:
                                      [______],
      subject to earlier termination in accordance with the
      Terms.





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





Optionee:
                    Sun
      Healthcare Group, Inc.Signature
                    By:  Richard
      MatrosTitle:  Chief
      Executive
Officer








Stock
Option Agreement








Sun
Healthcare Group, Inc.


2004
Equity Incentive Plan





1.           GRANT
OF OPTION.




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




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




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




2.           RIGHT
TO EXERCISE.




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




3.           TRANSFER
OR ASSIGNMENT OF OPTION.




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




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




4.           EXERCISE
PROCEDURES.




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


2




Section 5
for the full amount of the Purchase Price.




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




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




5.           PAYMENT
FOR SHARES OF COMMON STOCK.




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




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




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




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




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




6.           TERM
AND EXPIRATION.




(a)           Basic Term.  Subject
to earlier termination in accordance with subsection (b) below, the exercise
period of this option shall expire on the expiration date set forth in the
Notice, or in the


3




event of
the Optionee's death, the date that is one (1) year after the Optionee's Service
terminates because of his or her death, if later.




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




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




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




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




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




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




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




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




7.           ADJUSTMENT
OF SHARES OF COMMON STOCK.




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





(b)           Modification of
Option.  In the event of any change or distribution described
in subsection (a) above, in order to prevent dilution or enlargement of the
Optionee's rights hereunder, the Committee may adjust, in an equitable manner,
the number and kind of shares of Common Stock that may be issued under this
Agreement, the Exercise Price applicable to this option, and the Fair Market
Value of the Common Stock and other value determinations applicable to this
option.  Appropriate adjustments may also be made by the Committee in
the


4




terms of
this option to reflect such changes or distributions and to modify any other
terms of this option then outstanding, on an equitable basis, including
modifications of performance targets and changes in the length of performance
periods.





8.           MISCELLANEOUS
PROVISIONS.




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




(b)           Tenure.  Nothing in
the Notice, Agreement or Plan shall confer upon the Optionee any right to
continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Company (or any Parent or
Subsidiary employing or retaining the Optionee) or of the Optionee, which rights
are hereby expressly reserved by each, to terminate his or her Service at any
time and for any reason, with or withoutGood Cause.




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




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




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




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




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


5




EXHIBIT
A





Sample
Notice of Exercise








Sun
Healthcare Group, Inc.


18831 Von
Karman


Suite
400


Irvine,
CA 92612-1537


Attn:  Corporate
Secretary











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





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





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





No.
      shares of
                                                                Common
      Stock
                                                                to
      be Acquired
                                                              Type
      of Option
                                                              Exercise
      Price
                                                              TotalNonqualified
                                                                Stock
      OptionEstimated
                                                                WithholdingAmount
      Paid





Very
      truly yours,______________________Signature
      of OptioneeOptionee’s
      Name and Mailing Address__________________________________________________________________Optionee’s
      Social Security Number_____________________