EMPLOYMENT AGREEMENT

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

WHEREAS, Executive has been appointed to serve as the Senior Vice President of Human Resources of Sun;

WHEREAS, Sun Health Specialty Services, Inc., a wholly owned subsidiary of Sun, and Executive entered into an Employment Agreement dated February 11, 2002 (the “Existing Agreement”); and

WHEREAS, Sun and Executive desire to terminate the Existing Agreement and enter into a new employment agreement, which shall set forth the terms and conditions (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) of Executive’s employment as Senior Vice President of Human Resources of Sun and Executive is willing to perform such services for Sun under the terms and conditions set forth below.

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 October 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 her employment is terminated.

Section 2:     Duties and Responsibilities. Executive shall devote her full employment time, efforts, skills and attention exclusively to her duties as Senior Vice President of Human Resources; provided, however, that to the extent the following activities do not materially interfere or conflict with her 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 $239,875.17 ("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.

(c) Equity Incentive. During the Employment Term, Executive shall be eligible to be granted equity incentive awards during her 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 her in connection with the discharge of her 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 Sun, as such policies may change from time to time.

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 Senior Vice President of Human Resources and from all other positions with Sun and its direct and indirect subsidiaries. Upon termination, Executive (or her 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 her 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 her position as Senior Vice President of Human Resources of Sun (other than any such failure resulting from her incapacity due to her physical or mental condition) after a written demand for substantial performance is delivered to her 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 her 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.

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 her 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 her responsibilities or a meaningful and detrimental change in her 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(h) (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 change in Executive’s principal work location to a place other than Orange County, California.

.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.

(d)    Voluntary Resignation Without Good Reason. Executive may, at any time at her 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 her 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 her Disability. "Disability" shall mean any physical or mental condition or illness that prevents Executive from performing the essential duties of her 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 her termination by reason of her 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 her employment pursuant to Sections 5(a) or 5(d), Executive, or her 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 her vested benefits in accordance with the terms of Sun’s compensation and benefit plans, and her 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 her execution of a release in favor of Sun, which shall not be inconsistent with the te