AMENDED AND RESTATED EMPLOYMENT AGREEMENT

a.  

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

b.  

Term of Employment .   The period of Executive’s employment under this Agreement commenced as of 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 October 12, 2006 (the date of the Existing Agreement) until the date his employment is terminated.

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

b.  

Cash Bonus/Incentive Compensation.   In addition to the Base Salary provided for in Section 3(a) above, Executive shall be entitled to receive an annual incentive bonus (“Bonus”) in accordance with the Sun Healthcare Group, Inc. Executive Bonus Plan, as it may be amended from time to time by the Compensation Committee of the Board of Directors; provided, however, that no amendment shall be effective if it reduces the percentage of Base Salary that would constitute the minimum or maximum potential amount of the Bonus as compared to the prior year, unless such amendment has been agreed to in writing by Executive.  The Bonus shall be payable at the same time as other annual bonuses are paid to senior management personnel with respect to that fiscal year.  Subject to the provisions of Section 6, in order to have earned and to be paid any such Bonus, Executive must be employed by Sun on the date of such payment. It is intended that the Bonus described in this Section 3(b) qualify as “performance based compensation” under Section 162(m) of the Code to the extent necessary to preserve Sun’s ability to deduct such Bonus.

c.  

Equity Incentive.   During the Employment Term, Executive shall be eligible to be granted equity incentive awards during his employment on the same basis as other senior executive officers of Sun. Such equity incentive awards may include stock options and restricted units. Executive’s eligibility, rights and entitlement to such equity incentive awards shall be governed by the applicable equity incentive plan, award agreement, award and/or grant.

d.  

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

e.  

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

f.  

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

g.  

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

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.  Executive agrees that he will provide such documentation to the Company promptly after expenses are incurred.

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

4.  

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

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).

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).

a.  

Payment Upon Termination for Good Cause, or Resignation without Good Reason.   In the event of termination of his employment pursuant to Sections 5(a) or 5(d), Executive, or his estate where applicable, shall be paid any earned but unpaid Base Salary through the date of termination and any accrued but unused vacation through the date of termination in accordance with Company policy, which shall be paid to Executive in a lump sum in cash upon or promptly following (and in all events within 30 days after) the date of termination of employment (collectively, the “Accrued Obligations”).

b.  

Payment Upon Termination by Sun without Good Cause or by Executive for Good Reason .   In the event of termination of employment pursuant to Sections 5(b) or 5(c), Executive shall be entitled to a lump sum severance payment in an amount equal to one (1) year Base Salary or, in the event such termination occurs on or within two (2) years following the change of a “Change in Control,” two (2) years Base Salary, with such amount to be paid to Executive in the month immediately following the month in which Executive’s termination of employment occurs. Executive also shall be entitled to (i) any earned Bonus pursuant to Section 3(b) for the fiscal year prior to the fiscal year of termination in the event Executive was employed the entire prior fiscal year but is not employed by Sun on the date said Bonus is paid, payable to Executive in a lump sum in cash at the time that annual bonuses are paid to senior management personnel with respect to that fiscal year, but in any event within seventy-five (75) days after the conclusion of the fiscal year to which such Bonus relates; (ii) a pro rata portion of the Bonus for the fiscal year of termination (determined by multiplying the amount Executive would have received based upon actual performance had his employment continued through the end of the fiscal year by a fraction, the numerator of which is the number of days during the performance year of termination that Executive is employed by the Company and the denominator of which is 365 or 3