Document:

Exhibit 10.1

    EXHIBIT
      10.1

     

    EMPLOYMENT
      AGREEMENT

     

                     THIS
      EMPLOYMENT AGREEMENT ("Agreement") is entered into this 12th day of October,
      2006, by and between Richard
      Matros
      ("Mr.
      Matros") and Sun
      Healthcare Group, Inc., a
      Delaware corporation ("Sun"
      or
      "Company").

     

                    WHEREAS,
      Mr. Matros has served as the Chairman of the Board of Directors and Chief
      Executive Officer ("CEO") of Sun since November 2001;

     

           
      WHEREAS, Sun and Mr. Matros entered into an Employment Agreement dated February
      28, 2002 (the “Existing Agreement”), which was scheduled to terminate on
      November 6, 2005, but which was extended pursuant to the terms thereof until
      November 6, 2006; and

     

                    WHEREAS,
      Sun and Mr. Matros desire to enter into a new employment agreement, which shall
      set forth the terms and conditions (including the terms and conditions of his
      bonus eligibility, as approved by the Compensation Committee of the Board of
      Directors of Sun on March 28, 2006) of Mr. Matros’ employment as
      CEO.

     

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

     

    Section
      1:     Term of Employment.
      Sun
      agrees to employ Mr. Matros and Mr. Matros agrees to accept employment with
      Sun,
      subject to the terms and conditions of this Agreement. Unless earlier terminated
      pursuant to the provisions of Sections 5 and 6 hereof, the initial term of
      employment of Mr. Matros under this Agreement is for a period of three (3)
      years
      (the "Initial Term”), commencing as of March 28, 2006 (the "Effective Date"),
      and terminating March 27, 2009. Thereafter, this Agreement shall be renewed
      for
      successive one (1) year periods (each such period a “Renewal Term”) (the Initial
      Term and all full or partial Renewal Terms occurring prior to termination or
      non-renewal of this Agreement being collectively referred to as the “Term”)
      unless earlier terminated pursuant to the provisions of Sections 5 and 6 hereof,
      or by written notice of non-renewal given by either party to the other not
      less
      than ninety (90) days prior to the expiration of the Initial Term or then
      current Renewal Term, as the case may be.

     

    Section
      2.     Duties and
      Responsibilities.
      Mr.
      Matros is employed as CEO and is engaged as Chairman of the Board of Directors
      of Sun. During the Term, Mr. Matros shall devote his full employment time,
      efforts, skills and attention exclusively to advancing and rendering profitable
      the business interests of Sun, its direct and indirect subsidiaries and their
      lines of business; provided,
      however, that to the extent the following activities do not materially interfere
      or conflict with his duties and responsibilities hereunder and as imposed by
      applicable laws, rules and regulations, Mr. Matros may (i) continue to serve
      as
      a member of the boards of directors of the companies previously disclosed in
      writing to the Board of Directors of Sun ("Board of Directors"), (ii) engage
      in
      charitable, civic and religious affairs and (iii) with the prior written consent
      of the Board of Directors, serve as a member of the board of directors of other
      companies. Mr. Matros agrees to report to and render such services,
      commensurate with his positions as Chairman or CEO, as the Board of Directors
      may from time to time reasonably direct. In addition, at the reasonable request
      of the Board of Directors, Mr. Matros shall serve as director or senior
      executive officer of one or more direct or indirect subsidiaries of Sun without
      additional compensation. 

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    Section
      3:     Compensation, Benefits and Related Matters.

     

    
      	 	
              a.

            	
              Annual
                Base Salary.
                Sun shall pay during the Term to Mr. Matros a base salary at an annual
                rate of $700,000 ("Base Salary"), such salary to be payable in accordance
                with Sun's customary payroll practices (but not less frequently than
                monthly). If Sun’s EBITDA for fiscal year 2006 equals or exceeds the
                amount of EBITDA set forth in Sun’s budget for 2006 as approved by the
                Board of Directors, Mr. Matros’ base salary will be increased to an annual
                rate of $750,000 retroactive to November 5, 2005. On or about each
                anniversary of the Effective Date during the Term, the Board of Directors
                or the Compensation Committee of the Board of Directors shall review
                Mr.
                Matros’ annual base salary for possible merit increases in its sole
                discretion, and any increase in Mr. Matros’ annual base salary rate shall
                thereafter constitute “Base Salary” for purposes of this Agreement. The
                parties intend that such retroactive increase not be treated as or
                deemed
                to be deferred compensation for purposes of Section 409A of the Internal
                Revenue Code of 1986, as amended (the “Code”) and the rules and
                regulations promulgated thereunder.

            

    

     

    
      	 	
              b.

            	
              Cash
                Bonus/Incentive Compensation.
                In
                addition to the Base Salary provided for in Section 3(a) above, Mr.
                Matros
                shall be entitled to receive an annual bonus (“Bonus”) in accordance with
                Schedule A hereto, as it may be amended from time to time by the
                Compensation Committee of the Board of Directors. Such Bonus shall
                be
                payable at the same time as other annual bonuses are paid to senior
                management personnel. Subject to the provisions of Section 6, in
                order to
                have earned and to be paid any such Bonus, Mr. Matros 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 the
                Company’s ability to deduct such bonus.

            

    

     

    
      	 	
              c.

            	
              Restricted
                Stock and Options.
                Mr. Matros shall participate in such restricted stock and option
                plans of
                the Company as are made available generally to senior executive officers
                of the Company. Any grants under such plans shall be made by the
                Board of
                Directors (or appropriate committee thereof) in its sole discretion
                and
                such plans are subject to change during the Term at the sole discretion
                of
                the Company.

            

    

     

    
      	 	
              d.

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

            

    

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    
      	 	
              e.

            	
              Paid
                Time Off.
                During the Term, Mr. Matros shall be entitled to paid time off in
                accordance with Sun's policy for senior executive
                officers.

            

    

     

    
      	 	
              f.

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

            

    

     

    
      	 	
              g.

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

            

    

     

    
      	 	
              h.

            	
              Expenses.
                Mr. Matros shall be entitled to reimbursement for expenses incurred
                by him
                in connection with the discharge of his duties hereunder. All such
                expense
                reimbursement shall be subject to and shall be submitted, documented
                and
                paid in accordance with the expense reimbursement policies of the
                Company,
                as such policies may change from time to
                time.

            

    

     

    Section
      4:     [Reserved] 

     

    Section
      5.     Termination.
      Sun may,
      at any time, in its sole discretion, terminate Mr. Matros as Chairman and
      CEO and from all other positions with Sun and its direct and indirect
      subsidiaries; provided, however, that Sun shall provide Mr. Matros with at
      least
      five (5) business days prior written notice of such termination and shall make
      the payments associated with such termination in accordance with Section 6.
      Notwithstanding any provision in Section 1 hereof, the Term shall end on the
      date of Mr. Matros' termination of employment in accordance with this Agreement.
      

     

    
      	 	
              a.

            	
              Termination
                by Sun for "Good Cause."
                Sun may at any time, by written notice to Mr. Matros at least five
                (5)
                business days prior to the date of termination specified in such
                notice
                and specifying the acts or omissions believed to constitute Good
                Cause (as
                defined below), terminate Mr. Matros as Chairman and CEO and from all
                other positions with Sun and its direct and indirect subsidiaries
                for Good
                Cause. Sun may relieve Mr. Matros of his duties and responsibilities
                pending a final determination of whether Good Cause exists, and such
                action shall not constitute Good Reason (as defined below) for purposes
                of
                this Agreement. Payment to Mr. Matros 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
                felony criminal conviction (including conviction pursuant to 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
                Board
                of Directors, renders Mr. Matros unsuitable for the position of either
                Chairman or CEO; 

            

    

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    
      	 	
              2.

            	
              Any
                act of financial malfeasance or financial impropriety, as determined
                by
                the Board of Directors in good
                faith;

            

    

     

    
      	 	
              3.

            	
              Mr.
                Matros' continued willful failure to perform the duties reasonably
                requested by the Board of Directors and commensurate with his positions
                as
                Chairman and CEO (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 Board of Directors,
                which demand specifically identifies the manner in which the Board
                of
                Directors believes that he has not substantially performed his duties,
                and
                which performance is not substantially corrected by him within ten
                (10)
                days of receipt of such demand; 

            

    

     

    
      	 	
              4.

            	
              Any
                material workplace misconduct or willful failure to comply with Sun's
                general policies and procedures as they may exist from time to time
                by Mr.
                Matros which, in the good faith determination of the Board of Directors,
                renders Mr. Matros unsuitable for the position of either Chairman
                or CEO;
                

            

    

     

    
      	 	
              5.

            	
              Any
                material breach by Mr. Matros of the provisions of this Agreement
                which
                has not been cured by Mr. Matros thirty (30) days following delivery
                of
                notice to Mr. Matros specifying such material breach, or the repetition
                of
                any such material breach after it has been cured;
                or

            

    

     

    
      	 	
              6.

            	
              Any
                act of moral turpitude, as determined by the Board of Directors in
                good
                faith.

            

    

     

    
      	 	
              b.

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

            

    

     

    
      	 	
              c.

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

            

    

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    
      	 	
              1.

            	
              “Good
                Reason" shall mean the occurrence of any one of the following events
                or
                conditions (but only if Mr. Matros provides a notice of resignation
                to Sun
                within sixty (60) days following such event or
                condition):

            

    

     

    
      	 	
              (a)

            	
              A
                meaningful and detrimental reduction, without Mr. Matros' written
                consent, in the nature of his responsibilities at Sun, or a meaningful
                and
                detrimental change in his reporting responsibilities or
                titles;

            

    

     

    
      	 	
              (b)

            	
              A
                reduction of compensation as set forth in Sections 3(a) and 3(b)
                (collectively the "Compensation"), a reduction of the benefits set
                forth
                in Sections 3(d) - 3(f) (collectively, the "Benefits") (other than
                a
                reduction of Benefits uniformly applicable to other members of senior
                management), or failure by Sun to pay to Mr. Matros any portion of
                the
                Compensation or Benefits within seven (7) business days of the date
                such
                compensation or other payments and benefits are due;
                or

            

    

     

    
      	 	
              (c)

            	
              A
                change in Mr. Matros' principal work location to a place other than
                Orange
                County, California.

            

    

     

    
      	 	
              d.

            	
              Voluntary
                Resignation.
                Mr. Matros may, at any time at his option with thirty (30) calendar
                days
                written notice to Sun, voluntarily resign without Good Reason as
                Chairman
                and CEO and from all other positions with Sun and its direct and
                indirect
                subsidiaries. Payment to Mr. Matros upon his voluntary resignation
                without
                Good Reason is set forth in Section 6(a). Resignation from Sun shall
                automatically constitute resignation from all positions of any
                subsidiary.

            

    

     

    
      	 	
              e.

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

            

    

     

    Section
      6:     Payments Upon
      Termination.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    
      	 	
              a.

            	
              Payment
                Upon Termination for Good Cause, Resignation without Good Reason,
                Death or
                Disability.
                In
                the event of termination of employment during the Term pursuant to
                Sections 5(a), 5(d) or 5(e), Mr. Matros, or his estate where
                applicable, shall be paid any earned but unpaid Base Salary through
                the
                date of termination and any accrued and unused paid time off through
                the
                date of termination. In addition, in the case of a termination of
                employment pursuant to Sections 5(e), but not Sections 5(a) or 5(d),
                Mr.
                Matros or his estate shall be paid any accrued and unpaid Bonus for
                any
                prior fiscal year and a pro rata portion (based on the number of
                days of
                employment in the fiscal year of termination divided by 365) of the
                Bonus,
                if any, for the fiscal year in which the termination occurs.
                Mr. Matros' shall also receive his vested benefits in accordance with
                the terms of Sun's compensation and benefit plans, and his participation
                in such plans and all other perquisites (including, but not limited
                to,
                his car allowance) shall cease as of the date of termination, except
                to
                the extent Mr. Matros may elect to continue coverage as under any
                welfare
                benefit plans as required by Part 6, Title I of the Employee Retirement
                Income Security Act of 1974, as amended. Upon a termination under
                Section
                5(a), 5(d) or 5(e), Mr. Matros 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 following expiration
                of the
                Term, or by Mr. Matros for Good Reason.
                In
                the event of termination of employment during the Term pursuant to
                Sections 5(b) or 5(c) or at the expiration of the Term following
                Sun's
                provision to Mr. Matros of a notice of non-extension, as provided
                in
                Section 1, Mr. Matros shall be entitled to a lump sum severance
                payment in an amount equal to the greater of: (i) the unpaid and
                unearned
                portion of his Base Salary for the remainder of the Initial Term
                or then
                current Renewal Term, as the case may be, or (ii) two (2) year's
                Base
                Salary or, in the event such termination occurs on or within two
                years
                following the date of a Change in Control, three (3) year's Base
                Salary.
                Notwithstanding the foregoing, Mr. Matros' right to receive the severance
                payment hereunder shall be conditioned upon his execution and delivery
                of
                a general release in favor of Sun, which shall not be inconsistent
                with
                the terms of this Agreement, and such other documents and instruments
                as
                are reasonably required by Sun. Mr. Matros shall also be entitled
                to any
                accrued and unpaid Bonus for any prior fiscal year and a pro rata
                portion
                (based on the number of days of employment in the fiscal year of
                termination divided by 365) of the Bonus, if any, for the fiscal
                year in
                which the termination occurs and payment of any accrued paid time
                off
                pursuant to Section 3(e) in accordance with Company policy. Mr. Matros'
                participation in any other retirement and benefit plans and perquisites
                (including, but not limited to, his car allowance) shall cease as
                of the
                date of termination, except Mr. Matros and his eligible dependents
                (as
                determined under Sun's health plan) shall be entitled to continuing
                coverage under Sun's health plans on the same basis as active employees
                until the earlier of (i) the second anniversary of the date of termination
                or (ii) the date of Mr. Matros or his eligible dependents become
                eligible to participate in a plan of a successor employer. A termination
                of Mr. Matros' employment during the Term without Good Cause (other
                than
                by reason of his death or Disability) within six (6) months preceding
                a
                Change in Control shall be treated as if such termination occurred
                on the
                date of such Change in Control if it is reasonably demonstrated that
                the
                termination was at the request of the third party who has taken steps
                reasonably calculated to effect such Change in Control or otherwise
                arose
                in connection with or in anticipation of such Change in
                Control.

            

    

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    
      	 	
              c.

            	
              "Change
                in Control."
                For purposes of this Section 6, 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 the Company (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 the Company;

            

    

     

    
      	 	
              2.

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

            

    

     

    
      	 	
              3.

            	
              A
                sale or other disposition by the Company of all or substantially
                all of
                the Company's assets;

            

    

     

    
      	 	
              4.

            	
              During
                any period of two (2) consecutive years (beginning on or after the
                Effective Date), 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
                the
                Company'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 the
      Company ("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 the Company continues
      as
      a holding company of an entity or entities that conduct the business or
      businesses formerly conducted by the Company, or any transaction undertaken
      for
      the purpose of reincorporating the Company under the laws of another
      jurisdiction, if such transaction does not materially affect the beneficial
      ownership of the Company's capital stock. Mr. Matros' 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. A Change in Control shall not, by itself, constitute
      Good
      Reason hereunder.

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    
      	 	
              d.

            	
              Cooperation.
                Following the expiration or a termination of this Agreement for any
                reason, Mr. Matros shall provide such cooperation as is reasonably
                required by the Company, including, without limitation, consulting
                with
                the Company with respect to litigation and/or matters that relate
                to facts
                and circumstances that occurred during the Term of his employment
                by the
                Company, and executing such documents and instruments relating to
                such
                Term of employment as are reasonably requested by
                Sun.

            

    

     

    Section
      7:     Additional Payments. 

     

    
      	 	
              a.

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

            

    

     

    
      	
            	
              b.

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

            

    

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    
      	
            	
              c.

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

            

    

     

    
      	 	
              d.

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

            

    

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    
      	 	
              e.

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

            

    

     

    Section
      8:     Protection of Sun's
      Interests.

     

    
      	 	
              a.

            	
              Ownership
                of Property.
                Mr. Matros acknowledges and agrees that any and all property developed,
                discovered or created by him during the pendency of his employment
                by the
                Company, including, without limitation, any and all copyrights,
                trademarks, trade secrets or other intellectual property is and shall
                remain the sole and exclusive property of the Company and Mr. Matros
                hereby sells, assigns and otherwise transfers all of his right, title
                and
                interest in and to such property, if any, to the
                Company.

            

    

     

    
      	 	
              b.

            	
              Confidentiality.
                Mr. Matros 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 Board of Directors,
                directly or indirectly disclose to any person or organization any
                secret
                or "Confidential Information" that Mr. Matros may learn or has learned
                by
                reason of his association with Sun and its direct and indirect
                subsidiaries. For purposes of all of this Section 8 only, "Sun" shall
                also
                include Sun's direct and indirect subsidiaries. The term "Confidential
                Information" means any information not previously disclosed to the
                public
                or to the trade by Sun's management may need rewording with respect
                to
                Sun's products, services, business practices, facilities and methods,
                salary and benefit information, trade secrets and other intellectual
                property, systems, procedures, manuals, confidential reports, product
                price lists, pricing information, customer lists, financial information
                (including revenues, costs or profits associated with any of Sun's
                products or lines of business), business plans, prospects or
                opportunities.

            

    

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    
      	 	
              c.

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

            

    

     

    
      	 	
              d.

            	
              Nonsolicitation.
                Mr. Matros 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.

            

    

     

    
      	 	
              e.

            	
              Relief.
                Without intending to limit the remedies available to Sun, Mr. Matros
                acknowledges that a breach of any of the covenants in Section 8 may
                result
                in material irreparable injury to Sun for which there is no adequate
                remedy at law, that it will not be possible to measure damages for
                such
                injuries precisely and that, in the event of such a breach or threat
                thereof, Sun shall be entitled to obtain a temporary restraining
                order
                and/or a preliminary or permanent injunction restraining Mr. Matros
                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.

            

    

     

    
      	 	
              f.

            	
              Non-Disparagement.
                Mr. Matros shall not during his employment under this Agreement and
                for
                two (2) years following termination of the Agreement, for whatever
                reason,
                make any statements that are intended to or that would reasonably
                be
                expected to harm Sun or any of its subsidiaries or affiliates, their
                respective predecessors, successors, assigns and employees and their
                respective past, present or future officers, directors, shareholders,
                employees, trustees, fiduciaries, administrators, agents or
                representatives. Sun and its officers and directors will not make
                any
                statements that are intended to or that would reasonably be expected
                to
                harm Mr. Matros or his reputation or that reflect negatively on Matros’
                performance, skills or ability. 

            

    

     

    Section
      9:     Miscellaneous
      Provisions.

     

    
      	 	
              a.

            	
              Amendments,
                Waivers, Etc.
                No
                provision of this Agreement may be modified, waived or discharged
                unless
                such waiver, modification or discharge is agreed to in writing signed
                by
                both parties. No waiver by either party hereto at any time of any
                breach
                by the other party hereto of, or compliance with, any condition or
                provision of this Agreement to be performed by such other party shall
                be
                deemed a waiver of similar or dissimilar provisions or conditions
                at the
                same or at any prior or subsequent time.

            

    

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    
      	 	
              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. 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, including the Existing Agreement, negotiations,
                correspondence, undertakings and communications of the parties, oral
                or
                written, with respect to the subject matter hereof.
                

            

    

     

    
      	 	
              d.

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

            

    

     

    
      	 	
              e. 

            	
              Attorneys'
                Fees.
                Sun shall pay or reimburse Mr. Matros on an after-tax basis for all
                costs
                and expenses (including, without limitation, court costs, costs of
                arbitration and reasonable legal fees and expenses which reflect
                common
                practice with respect to the matters involved) incurred by Mr. Matros
                if
                Mr. Matros prevails on the merits of any claim, action or proceeding
                (i)
                contesting or otherwise relating to the existence of Good Cause in
                the
                event of Mr. Matros' termination of employment during the Term for
                Good
                Cause; (ii) enforcing any right, benefit or obligation under this
                Agreement, or otherwise enforcing the terms of this Agreement or
                any
                provision thereof; or (iii) asserting or otherwise relating to the
                existence of Good Reason in the event of Mr. Matros' termination of
                employment during the Term for Good
                Reason.

            

    

     

    
      	 	
              f.

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

            

    

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    
      	 	
              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:

     

    Sun
      Healthcare Group, Inc.

    Attention:
      General Counsel

    18831
      Von
      Karman, Suite 400

    Irvine,
      California 92612-1537

     

    To
      Mr.
      Matros:

     

    Mr.
      Richard Matros

    14
      Scenic
      Bluff

    Newport
      Coast, California 92657

     

                        The
      parties hereto have executed this Agreement as of the date first above
      written.

     

     

    
      	 /s/
              Richard
              Matros                               
              	 October
              12, 2006
	 RICHARD
              MATROS	 Date
	 	 
	 	 
	 SUN
              HEALTHCARE GROUP, INC.    	 
	 	 
	 By
              /s/ Michael
              Newman                      
              	 October
              12, 2006
	 Its
              Executive Vice President	 Date

    

     

     

    

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    
      
        Schedule
          A

         

        Mr.
          Matros shall be eligible to receive a Bonus for any fiscal year based on
          the
          criteria set forth below. There are two components to his Bonus: EBITDA
          and EVC,
          which are defined and outlined below. In the event performance thresholds
          are
          met as outlined below, his minimum bonus shall be no less than 10% of his
          Base
          Salary, and his maximum Bonus shall not exceed 120% of his Base
          Salary.

         

        1.     Mr.
          Matros shall be eligible for a payment of up to 60% of his Base Salary
          based on
          earnings before interest, taxes, depreciation and amortization of Sun
          (“EBITDA”), as published by Sun in its press release announcing financial
          results for the year in which the Base Salary was earned, but excluding
          the
          effect of actuarial adjustments for self-insurance for general and professional
          liability. The Compensation Committee reserves the right to make adjustments
          to
          the calculation, including the inclusion or exclusion of discontinued
          operations. The Compensation Committee shall establish the EBITDA target
          each
          year. The
          EBITDA component of the Bonus shall be paid based upon actual EBITDA attained
          as
          a percentage of the target EBITDA as follows: if actual EBITDA is less
          than 95%
          of target EBITDA, the amount of this component will be zero; if actual
          EBITDA is
          95% of target EBITDA, the amount will be 5% of Base Salary; if actual EBITDA
          is
          100% of target EBITDA, the amount will be 25% of Base Salary (if actual
          EBITDA
          is greater than 95% but less than 100% of target EBITDA, the amount will
          be pro
          rated between 5% and 25% of Base Salary); and if actual EBITDA is 120%
          (or
          greater) of target EBITDA, the amount will be 60% of Base Salary (if actual
          EBITDA is greater than 100% but less than 120% of target EBITDA, the amount
          will
          be pro rated between 25% and 60% of Base Salary).

         

        2.     Mr.
          Matros shall be eligible for a payment of up to 60% of his Base Salary
          based on
          equity value creation (“EVC”). EVC shall be calculated as follows (such
          calculations to be based on the audited consolidated financial statements
          of SHG
          for the year in which the Base Salary was earned): (i) 9.0 x EBITDA (as
          calculated above), (ii) less long-term debt, including the current portion,
          (iii) plus unrestricted cash, (iv) less 25% of accrued self-insurance
          obligations, including the current portion and net of restricted cash;
          provided,
          however, that the Compensation Committee reserves the right to exclude
          discontinued operations and to require pro forma calculations of EVC to
          take
          into account acquisitions, divestitures and material restructurings. The
          Compensation Committee shall establish the EVC targets each year. The EVC
          component of the Bonus shall be paid based upon the actual EVC attained
          as a
          percentage of the target EVC, as follows: if
          actual
          EVC is less than 90% of target EVC, the amount of this component will be
          zero;
          if actual EVC is 90% of target EVC, the amount will be 5% of Base Salary;
          if
          actual EVC is 100% of target EVC, the amount will be 25% of Base Salary
          (if
          actual EVC is greater than 90% but less than 100% of target EVC, the amount
          will
          be pro rated between 5% and 25% of Base Salary); and if actual EVC is 140%
          (or
          greater) of target EVC , the amount will be 60% of Base Salary (if actual
          EVC is
          greater than 100% but less than 140% of target EVC, the amount will be
          pro rated
          between 25% and 60% of Base Salary).

         

         

        
          
            
            

          

          
            14Exhibit 10.2

    EXHIBIT
      10.2

    EMPLOYMENT
      AGREEMENT

     

    THIS
      EMPLOYMENT AGREEMENT ("Agreement")
      is made and entered into effective as of the 12th
      day of
      October, 2006, by and between Chauncey
      J. Hunker
      ("Executive") and SUN
      HEALTHCARE GROUP, INC., a
      Delaware corporation ("Sun"
      or
“Company”).

     

    WHEREAS,
      Executive has been appointed to serve as the Chief Compliance and Risk Officer
      of Sun; 

     

    WHEREAS,
      Sun and Executive desire to set forth the terms and conditions of Executive’s
      employment as Chief Compliance and Risk Officer of Sun in an employment
      agreement, and Executive is willing to perform such services for Sun under
      the
      terms and conditions set forth below, including the terms and conditions of
      Executive’s bonus eligibility, as approved by the Compensation Committee of the
      Board of Directors of Sun on March 28, 2006.

     

    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 shall begin as of
      September 1, 2006 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 date of this Agreement 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 Chief Compliance and Risk Officer; 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 companies 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 $300,000 ("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 eligible to receive an annual bonus (“Bonus”) in accordance with
      Schedule A hereto, 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 potential amount of the Bonus, when compared
      to
      the prior year, unless such amendment has been agreed to in writing by
      Executive. Such Bonus shall be payable at the same time as annual bonuses are
      paid to senior executives of Sun. 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 the Company’s ability to
      deduct such bonus. 

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    (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.

     

    (h) Expenses.
      Executive shall be entitled to reimbursement for expenses incurred by him in
      connection with the discharge of his duties hereunder, including reasonable
      costs of traveling from Executive’s residence in Madison, Wisconsin to
      Albuquerque, New Mexico or such other place of business as may be designated
      by
      the Chief Executive Officer, and reasonable housing expense at such times as
      Executive is temporarily located in Albuquerque, New Mexico or such other place
      of business. All such expense reimbursement shall be subject to and shall be
      submitted, documented and paid in accordance with the expense reimbursement
      policies of Sun, as such policies may change from time to time.

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    Section
      4:    Cooperation.
      Following the expiration or a termination of this Agreement for any reason,
      Executive shall provide such cooperation as is reasonably required by the
      Company, including, without limitation, consulting with the Company with respect
      to litigation and/or matters that relate to facts and circumstances that
      occurred during the Employment Term, and executing such documents and
      instruments relating to such employment as are reasonably requested by
      Sun.

     

    Section
      5:     Termination of
      Employment.
      Sun, at
      any time in its sole discretion, may terminate Executive as Chief Compliance
      and
      Risk Officer 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 Chief
      Compliance and Risk Officer of Sun (other than any such failure resulting from
      his incapacity due to his physical or mental condition) after a written demand
      for substantial performance is delivered to him by the Chief Executive Officer
      of Sun, which demand specifically identifies the manner in which the Chief
      Executive Officer of Sun believes that 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

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    (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
      (but
      only if Executive provides a notice of resignation to Sun within sixty (60)
      calendar days following the first occurrence of such event or condition and
      Sun
      thereafter fails to cure such circumstance within sixty (60) calendar days
      after
      its receipt of that notice):

     

    a.   A
      meaningful and detrimental reduction, without Executive’s written consent, in
      the nature of his responsibilities or a meaningful and detrimental change in
      his
      reporting responsibilities or titles; or

     

    b.   A
      reduction of compensation as set forth in Sections 3(a) - 3(c) (collectively
      the
      "Compensation") (other than a reduction of compensation uniformly applicable
      to
      other members of Senior Management or as a result of disciplinary action against
      Executive), a reduction of the benefits set forth in Sections 3(d) - 3(g)
      (collectively, the "Benefits") (other than a reduction of Benefits uniformly
      applicable to other senior executives), or failure by Sun to pay to Executive
      any portion of the Compensation or Benefits within seven (7) business days
      of
      the date such compensation or other payments and benefits are due;
      or

     

    c.
      A
      breach by Sun of Section 3(h)..

     

    Notwithstanding
      any provision of this Section 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.

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    (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. 

     

    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.
      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, (ii) a pro rata portion of the Bonus for the
      fiscal year of termination, based on the number of days of employment during
      the
      fiscal year of termination (including holidays, vacation and sick days and
      weekends during the period of employment) divided by 365 and (iii)
      payment of any accrued but unused vacation pursuant to Section 3(e) in
      accordance with Company policy. 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 such documents and instruments as are reasonably
      requested by Sun. 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.
      

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    (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. 

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    (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 earned but unpaid Base Salary
      through the date of termination and any accrued but unused vacation through
      the
      date of termination. 

     

    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. 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) of the Bonus, if any, for the fiscal year in which the
      termination pursuant to Section 5(e) occurs.

     

    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.

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    (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 this 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 but not later than
      ten business days 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 sole 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 to
      the
      applicable taxing authorities 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.

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    (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).

     

    Section
      8:     Protection of Sun’s
      Interests.

     

    (a)   Ownership
      of Property.
      Executive acknowledges and agrees that any and all property developed,
      discovered or created by him during the pendency of his employment by the
      Company, including, without limitation, any and all copyrights, trademarks,
      trade secrets or other intellectual property is and shall remain the sole and
      exclusive property of the Company and Executive hereby sells, assigns and
      otherwise transfers all of his right, title and interest in and to such
      property, if any, to the Company.

     

    (b)
      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. 

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    (c)   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.

     

    (d)   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.

     

    (e)   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. 

     

    (f)   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:     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. 

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    (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, including the Severance Agreement between Executive and
      Sun dated March 22, 2002 (which is hereby terminated), 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:

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    To
      Sun:

     

    Attention:
      Chief Executive Officer

                           
      18831 Von Karman Avenue; Suite 400.

    Irvine,
      California 92612

     

    To
      Executive:

     

    Chauncey
      J. Hunker

    3030
      Waunona Way

    Madison,
      Wisconsin 53713

     

    (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.

     

    [Signatures
      Commence on Immediately Following Page]

     

     

    

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

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

     

     

     

     

     

     /s/
      Chauncey J.
      Hunker                             October
      12, 2006
           Chauncey
      J. Hunker   Date

     

     

    SUN
      HEALTHCARE GROUP, INC. 

     

    

    By: /s/
      Richard K.
      Matros                            October
      12, 2006

    Richard
      K. Matros   Date

    Chairman
      and CEO

    

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    Schedule
      A

    

    Executive’s
      Bonus for any fiscal year shall be based on the criteria set forth below. There
      are two components to his Bonus: EBITDA and individual goals, which are
      described below. The EBITDA component of the Bonus shall equal 70% of the
      Maximum Amount (as defined below) and the individual goals component of the
      Bonus shall equal up
      to
      30% of
      the Maximum Amount. In no event shall his Bonus exceed 100% of his Base Salary
      for such fiscal year.

    

    1.     Maximum
      Amount.
      The
      maximum amount of the Bonus shall be determined solely by reference to earnings
      before interest, taxes, depreciation and amortization of Sun (“EBITDA”), as
      published by Sun in its press release announcing financial results for the
      fiscal year in which the Base Salary was earned, but excluding the effect of
      actuarial adjustments for self-insurance for general and professional liability.
      The Compensation Committee reserves the right to make adjustments to the
      calculation, including the inclusion or exclusion of discontinued operations.
      The Compensation Committee shall establish the EBITDA target each year.

    

    The
      potential amount of the Bonus shall be based upon actual EBITDA attained as
      a
      percentage of the target EBITDA as follows: if actual EBITDA is less than 95%
      of
      target EBITDA, the Bonus will be zero; if actual EBITDA is 95% of target EBITDA,
      the maximum amount of the Bonus (the “Maximum Amount”) shall equal 10% of Base
      Salary; if actual EBITDA is 100% of target EBITDA, the Maximum Amount shall
      equal 50% of Base Salary (if actual EBITDA is greater than 95% but less than
      100% of target EBITDA, the Maximum Amount will be pro rated between 10% and
      50%
      of Base Salary); and if actual EBITDA is 120% (or greater) of target EBITDA,
      the
      Maximum Amount shall equal 100% of Base Salary (if actual EBITDA is greater
      than
      100% but less than 120% of target EBITDA, the Maximum Amount will be pro rated
      between 50% and 100% of Base Salary).

    

    2,     EBITDA
      Component.
      The
      EBITDA component of the Bonus shall equal 70% of the Maximum Amount.

    

    3.     Individual
      Goals Component.
      The
      Chief Executive Officer of Sun (the “CEO”) shall establish the individual goals
      each year after consulting with Executive, the Compensation Committee, and
      such
      others as the CEO deems appropriate. The amount of the individual goals
      component of the Bonus shall be an amount up
      to
      30% of
      the Maximum Amount, with the final amount to be determined as follows: after
      the
      fiscal year end, the CEO shall make a recommendation to the Compensation
      Committee as to what extent the goals have been met. The Compensation Committee
      shall determine the amount of this component of the Bonus to be paid to
      Executive based upon the level of attainment of the goals. 

    

    4.      Timing
      of Payment.
      Both
      components of the Bonus shall be paid to Executive at the time specified in
      Section 3(b).

    

    

    
      
        
        

      

      
        14

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00111-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00111-of-00352.parquet"}]]