AMENDED AND RESTATED EMPLOYMENT AGREEMENT

a.  

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

b.  

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

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

c.  

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

1.  

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

2.  

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

3.  

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

d.  

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

e.  

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

f.  

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

g.  

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

a.  

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

1.  

Any criminal conviction under the laws of the United States or any state or other political subdivision thereof which, in the good faith determination of the Chief Executive Officer of Sun, renders Mr. Shaul unsuitable as an officer or employee of Sun.

2.  

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

3.  

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

b.  

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

c.  

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

d.  

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

e.  

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

a.  

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

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