<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 25, 1998
REGISTRATION NO. 333-37721
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SUN HEALTHCARE GROUP, INC.
and the Guarantors listed on Schedule A
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
SEE SCHEDULE A 8051 SEE SCHEDULE A
(State or other (Primary standard (I.R.S. employer
jurisdiction of industrial classification identification
incorporation or code number) number)
organization)
</TABLE>
------------------------
101 SUN AVENUE, N.E.
ALBUQUERQUE, NEW MEXICO 87109
(505) 821-3355
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------
ROBERT F. MURPHY, ESQ.
SENIOR VICE PRESIDENT, GENERAL COUNSEL
SUN HEALTHCARE, INC.
101 SUN AVENUE, N.E.
ALBUQUERQUE, NEW MEXICO 87109
(505) 821-3355
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
COPIES OF CORRESPONDENCE TO:
WILLIAM H. HINMAN, JR.
SHEARMAN & STERLING
555 CALIFORNIA STREET, SUITE 2000
SAN FRANCISCO, CALIFORNIA 94104
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
I.R.S. EMPLOYER
STATE OF IDENTIFICATION
COMPANY INCORPORATION NUMBER
- ----------------------------------------------------------------------- ------------------ --------------------
<S> <C> <C>
Accelerated Care Plus, LLC............................................. Delaware 48-1167102
Americare Homecare, Inc................................................ Ohio 31-1221902
Americare of West Virginia, Inc........................................ West Virginia 55-0591320
Bay Colony Health Service, Inc......................................... Massachusetts 04-2761614
Beckley Health Care Corp............................................... West Virginia 31-1042548
Bergen Eldercare, Inc.................................................. New Jersey 04-2916682
Braswell Enterprises, Inc.............................................. California 95-2506400
Brittany Rehabilitation Center, Inc.................................... California 68-0258445
Cal-Med, Inc........................................................... California 33-0579128
Care Enterprises, Inc.................................................. Delaware 95-3311961
Care Enterprises West.................................................. Utah 87-0309021
Care Home Health Services.............................................. California 95-3701776
Carmichael Rehabilitation Center....................................... California 33-0273967
Circleville Health Care Corp........................................... Ohio 31-0921482
Clipper Home of North Conway, Inc...................................... New Hampshire 02-0417606
Clipper Home of Portsmouth, Inc........................................ New Hampshire 02-0350094
Clipper Home of Rochester, Inc......................................... New Hampshire 02-0402767
Clipper Home of Wolfeboro, Inc......................................... New Hampshire 02-0382521
Coalinga Rehabilitation Center......................................... California 33-0276607
Community Re-Entry Services of Cortland, Inc........................... Delaware 04-3200915
Covina Rehabilitation Center........................................... California 95-4143257
Dunbar Health Care Corp................................................ West Virginia 55-1593257
Evergreen Rehabilitation Center........................................ California 33-0275077
Executive Pharmacy Services, Inc....................................... North Carolina 56-1742124
Fairfield Rehabilitation Center........................................ California 68-0147623
First Class Pharmacy, Inc.............................................. California 33-0482814
Fullerton Rehabilitation Center........................................ California 33-0275051
G-WZ of Stamford, Inc.................................................. Connecticut 04-3148131
Glendora Rehabilitation Center......................................... California 95-4254586
Glenville Health Care Corp............................................. West Virginia 55-0618169
Golan Healthcare Group, Inc............................................ Massachusetts 04-3327918
Goodwin Nursing Home, Inc.............................................. New Hampshire 02-0303002
Grand Terrace Rehabilitation Center.................................... California 33-0275058
Hallmark Health Services, Inc.......................................... Delaware 33-0238351
Harbor View Rehabilitation Center...................................... California 33-0282137
Hawthorne Rehabilitation Center........................................ California 33-0273795
HC, Inc................................................................ Kansas 48-1070267
Heritage Rehabilitation Center......................................... California 33-0275060
Heritage - Torrance Rehabilitation Center.............................. California 33-0275060
HTA of New Jersey, Inc................................................. New Jersey 22-3227978
Huntington Beach Convalescent Hospital................................. California 33-0188584
Jackson Rehabilitation Center, Inc..................................... California 33-0590471
Linda-Mar Rehabilitation Center........................................ California 33-0275064
Living Services, Inc................................................... Washington 91-0921669
LTC Staffinders, Inc................................................... Connecticut 04-3201528
Manatee Springs Nursing Center, Inc.................................... Florida 58-1534760
Marion Health Care Corp................................................ Ohio 31-1037975
Masthead Corporation................................................... New Mexico 74-2839804
Meadowbrook Rehabilitation Center...................................... California 33-0275079
Mediplex Atlanta Rehabilitation Institute, Inc......................... Massachusetts 58-2081719
Mediplex Management, Inc............................................... Massachusetts 04-2802626
Mediplex Management of Palm Beach County, Inc.......................... Florida 04-2983837
Mediplex Management of Texas, Inc...................................... Texas 04-3154661
Mediplex of Concord, Inc............................................... Massachusetts 04-2587669
Mediplex of Connecticut, Inc........................................... Connecticut 04-2587669
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
I.R.S. EMPLOYER
STATE OF IDENTIFICATION
COMPANY INCORPORATION NUMBER
- ----------------------------------------------------------------------- ------------------ --------------------
<S> <C> <C>
Mediplex of Kentucky, Inc.............................................. Kentucky 06-12255960
Mediplex of Maryland, Inc.............................................. Maryland 04-2983832
Mediplex of Massachusetts, Inc......................................... Massachusetts 04-2667612
Mediplex of New Hampshire, Inc......................................... New Hampshire 04-2773669
Mediplex of New Jersey, Inc............................................ New Jersey 04-2916680
Mediplex of New York, Inc.............................................. New York 04-2818624
Mediplex of Ohio, Inc.................................................. Ohio 04-3156001
Mediplex of Tennessee, Inc............................................. Tennessee 04-3203009
Mediplex of Virginia, Inc.............................................. Virginia 04-2916681
Mediplex Rehabilitation of Massachusetts, Inc.......................... Massachusetts 04-3135281
New Bedford Nursing Center, Inc........................................ Massachusetts 04-3170900
New Lexington Health Care Corp......................................... Ohio 31-1005156
Newport Beach Rehabilitation Center.................................... California 33-275085
Nursing Home, Inc...................................................... Washington 91-1572371
Oakview Treatment Centers of Kansas, Inc............................... Kansas 04-2935538
Oasis Mental Health Treatment Center, Inc.............................. California 33-0674542
Orange Rehabilitation Hospital, Inc.................................... Delaware 25-1577331
Pacific Beach Physical Therapy, Inc.................................... California 33-0753831
Paradise Rehabilitation Center, Inc.................................... California 68-0296046
Paso Robles Rehabilitation Center...................................... California 33-0275086
Peachwood Physical Therapy Corporation................................. California 33-0753831
Pharmacy Factors of California, Inc.................................... California 95-4488888
Pharmacy Factors of Florida, Inc....................................... Florida 59-3086319
Pharmacy Factors of Texas, Inc......................................... Texas 59-3421095
P.M.N.F. Management, Inc............................................... New Jersey 22-2470101
Putnam Health Care Corp................................................ West Virginia 31-0996773
Quality Care Holding Corporation....................................... Massachusetts 04-2981931
Quality Nursing Care of Massachusetts, Inc............................. Massachusetts 04-2981932
Regency Health Services, Inc........................................... Delaware 33-0210226
Regency High School, Inc............................................... California 33-0595313
Regency - North Carolina, Inc.......................................... North Carolina 56-1954175
Regency Outpatient Services, Inc....................................... California 33-0753831
Regency Rehab Hospitals, Inc........................................... California 330674540
Regency Rehabilitation Management & Consulting Services, Inc........... California 33-0737014
Regency Rehab Properties, Inc.......................................... California 95-4576646
Regency - Tennessee, Inc............................................... Tennessee 33-0690226
RHS Management Corporation............................................. California 33-0267103
Rosewood Rehabilitation Center, Inc.................................... California 68-0296043
Salem Health Care Corp................................................. West Virginia 31-0996769
San Bernardino Rehabilitation Hospital, Inc............................ Delaware 33-0674540
Savannas Hospital Limited Partnership.................................. Florida 04-2959538
Shandin Hills Rehabilitation Center.................................... California 33-0274086
SHG International Holdings, Inc........................................ Delaware 85-0447503
Special Medical Services, Inc.......................................... Texas 75-2269050
Spofford Land, Inc..................................................... New Hampshire 04-2817522
Stockton Rehabilitation Center, Inc.................................... California 68-0296045
SunAlliance Healthcare Services, Inc................................... Delaware 74-2843588
SunBridge, Inc......................................................... New Mexico 85-0436352
Sun Care Corp.......................................................... Delaware 04-3097714
SunCare Respiratory Services, Inc...................................... Indiana 35-1812159
SunChoice Medical Supply, Inc.......................................... New Mexico 85-0444598
SunDance Rehabilitation Corporation.................................... Connecticut 06-1310410
SunFactors, Inc........................................................ Flordia 59-3199708
Sun Healthcare (Europe) LLC New Mexico [applied for]
Sun Healthcare Group, Inc.............................................. Delaware 85-0410612
Sun Healthcare, Inc.................................................... Colorado 93-0962981
Sun Lane Purchase Corporation.......................................... New Mexico 85-0447504
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
I.R.S. EMPLOYER
STATE OF IDENTIFICATION
COMPANY INCORPORATION NUMBER
- ----------------------------------------------------------------------- ------------------ --------------------
<S> <C> <C>
Sunmark of New Mexico.................................................. New Mexico 85-0431051
SunPlus Home Health Services, Inc...................................... California 68-0295781
SunQuest Consulting, Inc............................................... New Mexico 85-0416094
SunRise Healthcare Corporation......................................... New Mexico 85-0370802
Sunrise Healthcare of Colorado, Inc.................................... Colorado 84-1270639
Sunrise Healthcare of Florida, Inc..................................... Florida 74-2782684
Sunrise Rehab of Colorado, Inc......................................... Colorado 84-1270638
SunScript Pharmacy Corporation......................................... New Mexico 85-0406441
SunSolution, Inc....................................................... Delaware 85-0447505
SunSpectrum Outpatient Rehabilitation-Concord, Inc..................... Massachusetts 04-3175073
The Mediplex Group, Inc................................................ Massachusetts 04-2803133
Vista Knoll Rehabilitation Center, Inc................................. California 33-0569625
West Jersey/Mediplex Rehabilitation L.P................................ New Jersey 74-2734050
Willowview Rehabilitation Center....................................... California 33-0273968
Worcester Nursing Center, Inc.......................................... Massachusetts 04-3335449
</TABLE>
<PAGE>
SUN HEALTHCARE GROUP, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(b) OF REGULATION S-K SHOWING LOCATION IN THE
PROSPECTUS OF INFORMATION REQUIRED BY ITEMS IN FORM S-4
<TABLE>
<CAPTION>
ITEM LOCATION IN PROSPECTUS
- -------------------------------------------------------- ------------------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus..... Facing Page of the Registration Statement; Cross Reference
Sheet; Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus................................. Available Information; Incorporation of Certain Documents by
References; Outside Back Cover Page of Prospectus
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information.............. Prospectus Summary; Risk Factors; Ratio of Earnings to Fixed
Changes Selected Consolidated Financial Data
4. Terms of the Transaction..................... Prospectus Summary; Risk Factors; The Exchange Offer;
Description of New Notes; Plan of Distribution; Certain
Federal Income Tax Considerations
5. Pro Forma Financial Information.............. Not Applicable
6. Material Contracts With the Company Being
Accepted................................... Not Applicable
7. Additional Information Required for
Reoffering by Persons and Parties Deemed to
be Underwriters............................ Not Applicable
8. Interests of Named Experts and Counsel....... Not Applicable
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ Not Applicable
10. Information with Respect to S-3
Registrants................................ Prospectus Summary
11. Incorporation of Certain Information by
Reference.................................. Available Information; Incorporation of Certain Documents by
Reference
12. Information with Respect to S-2 or S-3
Registrants................................ Not Applicable
13. Incorporation of Certain Information by
Reference.................................. Not Applicable
14. Information with Respect to Registrants Other
Than S-3 or S-2 Registrants................ Not Applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM LOCATION IN PROSPECTUS
- -------------------------------------------------------- ------------------------------------------------------------
<C> <S> <C>
15. Information with Respect to S-3 Companies.... Not Applicable
16. Information with Respect to S-2 or S-3
Companies.................................. Not Applicable
17. Pro Forma Financial Information.............. Not Applicable
18. Information if Proxies, Consents or
Authorization Are To Be Solicited.......... Not Applicable
19. Information if Proxies, Consents or
Authorizations Are Not To Be Solicited or
in an Exchange Offer....................... Prospectus Summary; The Exchange Offer; Description of the
New Notes
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION--DATED JUNE 25, 1998
PROSPECTUS
SUN HEALTHCARE GROUP, INC.
---------------
Offer to Exchange 9 1/2% Series B Senior Subordinated Notes due 2007, which
have been registered under the Securities Act of 1933, as amended, for any and
all outstanding 9 1/2% Series A Senior Subordinated Notes due 2007.
The Exchange Offer will expire at 5:00 p.m., New York City time, on July ,
1998, unless extended.
The 9 1/2% Series B Senior Subordinated Notes due 2007 (the "New Notes") of
Sun Healthcare Group, Inc. ("Sun" or the "Company"), which have been registered
under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to
a Registration Statement of which this Prospectus is a part, are hereby offered,
upon the terms and subject to the conditions set forth in this Prospectus and
the accompanying letter of transmittal (the "Letter of Transmittal" and,
together with this Prospectus, the "Exchange Offer"), in exchange for an equal
principal amount of outstanding 9 1/2% Series A Senior Subordinated Notes due
2007 (the "Old Notes"), of which $250,000,000 aggregate principal amount is
outstanding as of the date hereof. The New Notes and the Old Notes are
collectively referred to herein as the "Notes."
Any and all Old Notes that are validly tendered and not withdrawn on or
prior to 5:00 p.m., New York City time, on the date the Exchange Offer expires,
which will be July , 1998 (20 business days following the commencement of the
Exchange Offer) unless the Exchange Offer is extended (such date, including as
extended, the "Expiration Date") will be accepted for exchange. Tenders of Old
Notes may be withdrawn at any time prior to 5:00 p.m., New York City time on the
Expiration Date. The Exchange Offer is not conditioned upon any minimum
principal amount of Old Notes being tendered for exchange. However, the Exchange
Offer is subject to certain customary conditions, which may be waived by the
Company, and to the terms of the Registration Rights Agreement (the
"Registration Rights Agreement"), dated as of July 8, 1997, among the Company,
the Guarantors named therein (the "Guarantors") and Donaldson, Lufkin & Jenrette
Securities Corporation, Credit Suisse First Boston Corporation, J.P. Morgan
Securities, Inc. and NationsBanc Capital Markets, Inc. (the "Initial
Purchasers"). Old Notes may be tendered only in integral multiples of $1,000.
See "The Exchange Offer."
The New Notes will be entitled to the benefits of the same Indenture (as
defined herein) that governs the Old Notes and will govern the New Notes. The
form and terms of the New Notes are the same in all material respects as the
form and terms of the Old Notes, except that the New Notes do not contain terms
with respect to the liquidated damages provisions and the New Notes have been
registered under the Securities Act and therefore will not bear legends
restricting the transfer thereof. See "The Exchange Offer" and "Description of
New Notes."
(CONTINUED ON FOLLOWING PAGE)
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PARTICIPANTS IN THE EXCHANGE OFFER, SEE "RISK FACTORS" BEGINNING ON PAGE 15 OF
THIS PROSPECTUS.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE COMPANY WILL ACCEPT FOR EXCHANGE ANY AND ALL VALIDLY TENDERED PRIVATE
NOTES NOT WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON JULY , 1998,
UNLESS THE EXCHANGE OFFER IS EXTENDED BY THE COMPANY IN ITS SOLE DISCRETION (THE
"EXPIRATION DATE"). TENDERS OF PRIVATE NOTES MAY BE WITHDRAWN AT ANY TIME PRIOR
TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. THE EXCHANGE OFFER IS
NOT CONDITIONED UPON ANY MINIMUM PRINCIPAL AMOUNT OF PRIVATE NOTES BEING
TENDERED FOR EXCHANGE. PRIVATE NOTES MAY BE TENDERED ONLY IN INTEGRAL MULTIPLES
OF $1,000. IN THE EVENT THE COMPANY TERMINATES THE EXCHANGE OFFER AND DOES NOT
<PAGE>
ACCEPT FOR EXCHANGE ANY PRIVATE NOTES, THE COMPANY WILL PROMPTLY RETURN ALL
PREVIOUSLY TENDERED PRIVATE NOTES TO THE HOLDERS THEREOF.
--------------------------
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
The New Notes will initially be represented by global notes in fully
registered form and will be deposited with the Trustee as custodian for and
registered in the name of a nominee of The Depository Trust Company (the "DTC").
Beneficial interests in the global notes will be shown on, and transfers thereof
will be effected through, records maintained by the DTC and its participants.
Interest is payable in cash semi-annually in arrears on January 1 and July 1
of each year commencing January 1, 1998. The New Notes will mature on July 1,
2007. On or after July 1, 2002, the Company may redeem the New Notes, in whole
or in part, at the redemption prices set forth herein, plus accrued and unpaid
interest and Liquidated Damages (as defined herein), if any, to the date of
redemption. In addition, upon a Change of Control (as defined herein), each
holder of Notes will have the right to require the Company to repurchase all or
any part of such holder's Notes at 101% of the principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages, if any, to the date of
repurchase.
The New Notes will be senior subordinated, unsecured, general obligations of
the Company, and, as such, subordinated in right of payment to all existing and
future Senior Debt (as defined herein) of the Company. The New Notes will rank
PARI PASSU with all existing and future senior subordinated indebtedness of the
Company and will rank senior to all other existing and future subordinated
indebtedness of the Company. The New Notes will be fully and unconditionally
guaranteed on an unsecured, senior subordinated and joint and several basis (the
"Guarantees") by all existing and future material Subsidiaries (as defined) of
Sun other than the CareerStaff Companies (as defined herein) and the Foreign
Companies (as defined herein) (collectively, the "Guarantors"), each of which is
listed on Schedule A hereto. The New Notes will also be effectively subordinated
to (i) all existing and future liabilities of the Company's subsidiaries which
are not Guarantors and (ii) all existing and future Senior Debt of the
Guarantors. As of March 31, 1998, after giving effect to the offering of 9 3/8%
Senior Subordinated Notes due 2008 (the "2008 Notes Offerings" and the offering
of Convertible Trust Issued Preferred Securities in May 1998 (the "Convertible
Preferred Securities Offering" and together with the 2008 Notes Offering, the
"May Offerings") the aggregate amount of indebtedness (excluding intercompany
indebtedness) that effectively ranked senior to the New Notes and the Guarantees
was approximately $855.5 million. As of March 31, 1998 after giving effect to
the May 2008 Offerings approximately $155.7 million of indebtedness ranking PARI
PASSU in right of payment with the New Notes and/or the Guarantees and $104.0
million of indebtedness ranking subordinate in right of payment to the New Notes
and/or the Guarantees was outstanding. If the RCA and Contour Mergers (as
defined) had been consummated, Sun's consolidated long-term debt would have
increased by $177.3 million as of March 31, 1998, $177.3 million of which would
have effectively ranked senior to the New Notes and/or the Guarantees (based on
Retirement Care's March 31, 1998 balance sheet and assuming Sun acquires the
remaining 35% of Contour for Common Stock). All of the Guarantors have
guaranteed the Company's obligations under the Company's Senior Credit Facility
as have the CareerStaff Companies (which entities are not Guarantors).
Based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission"), as set forth in no-action letters issued to third
parties, including Exxon Capital Holdings Corporation, SEC No-Action Letter
(available April 13, 1988), Morgan Stanley & Co. Incorporated, SEC No-Action
Letter (available June 5, 1991) and Shearman & Sterling, SEC No-Action Letter
(available July 2, 1993) (collectively, the "Exchange Offer No-Action Letters"),
the Company believes that the New Notes issued pursuant to the Exchange Offer
may be offered for resale, resold or otherwise transferred by holders thereof
(other than a broker-dealer who acquires such New Notes directly from the
Trustee for resale pursuant to Rule 144A under the Securities Act or any other
available exemption under the Securities Act or any holder that is an
"affiliate" of the Company as defined in Rule 405 under the Securities Act),
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that such New Notes are acquired in the ordinary
course of such holders' business and such holders are not engaged in, and do not
intend to engage in, a distribution of such New Notes and have no arrangement or
understanding with any person to participate in a distribution of such New
Notes. By tendering the Old Notes in exchange for New Notes, each holder, other
than a broker-dealer, will represent to the Company that: (i) it is not an
affiliate of the Company (as defined in Rule 405 under the Securities Act) or a
broker-dealer tendering Old Notes acquired directly from the Company for its own
account; (ii) any New Notes to be received by it will be acquired in the
ordinary course of its business; and (iii) it is not engaged in, and does not
intend to engage in, a distribution of such New Notes and has no arrangement or
understanding to participate in a distribution of the New Notes. If a holder of
Old Notes is
2
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
engaged in or intends to engage in a distribution of the New Notes or has any
arrangement or understanding with respect to the distribution of the New Notes
to be acquired pursuant to the Exchange Offer, such holder may not rely on the
applicable interpretations of the staff of the Commission and must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction. Each broker-dealer that
receives New Notes for its own account pursuant to the Exchange Offer (a
"Participating Broker-Dealer") must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
Participating Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a Participating
Broker-Dealer in connection with resales of New Notes received in exchange for
Old Notes where such Old Notes were acquired by such Participating Broker-Dealer
as a result of market-making activities or other trading activities. Pursuant to
the Registration Rights Agreement, the Company has agreed that starting on the
Expiration Date it will make this Prospectus available to any Participating
Broker-Dealer for use in connection with any such resale. See "Plan of
Distribution."
The Company will not receive any proceeds from this offering. The Company
has agreed to pay the expenses of the Exchange Offer. No underwriter is being
utilized in connection with the Exchange Offer.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES AND BLUE SKY LAWS OF SUCH JURISDICTION.
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE EXCHANGE OFFER TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF
TRANSMITTAL, NOR ANY EXCHANGE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF.
UNTIL SEPTEMBER , 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS OFFERING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS IN
CONNECTION THEREWITH. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
The Old Notes have been designated as eligible for trading in the Private
Offerings, Resale and Trading through Automated Linkages market. Prior to this
Exchange Offer, there has been no public market for the New Notes. If such a
market were to develop, the New Notes could trade at prices that may be higher
or lower than their principal amount. Sun does not intend to apply for listing
of the New Notes on any securities exchange or for quotation of the New Notes
through The Nasdaq Stock Market's National Market or otherwise. The Initial
Purchasers have previously made a market in the Old Notes and Sun has been
advised that the Initial Purchasers currently intend to make a market in the New
Notes, as permitted by applicable laws and regulations, after consummation of
the Exchange Offer. The Initial Purchasers are not obligated, however, to make a
market in the Old Notes or the New Notes and any such market making activity may
be discontinued at any time without notice at the sole discretion of the Initial
Purchasers. There can be no assurance as to the liquidity of the public market
for the New Notes or that any active public market for the New Notes will
develop or continue. If an active public market does not develop or continue,
the market price and liquidity of the New Notes may be adversely affected. See
"Risk Factors--Absence of a Public Market for the New Notes."
3
<PAGE>
SCHEDULE A
Accelerated Care Plus, LLC
Americare of West Virginia, Inc.
Americare Homecare, Inc.
Bay Colony Health Service, Inc.
Beckley Health Care Corp.
Bergen Eldercare, Inc.
Braswell Enterprises, Inc.
Brittany Rehabilitation Center, Inc.
Cal-Med, Inc.
Care Enterprises, Inc.
Care Enterprises West
Care Home Health Services
Care Enterprises West
Carmichael Rehabilitation Center
Circleville Health Care Corp.
Clipper Home of North Conway, Inc.
Clipper Home of Portsmouth, Inc.
Clipper Home of Rochester, Inc.
Clipper Home of Wolfeboro, Inc.
Coalinga Rehabilitation Center
Community Re-Entry Services of Cortland, Inc.
Covina Rehabilitation Center
Dunbar Health Care Corp.
Evergreen Rehabilitation Center
Fairfield Rehabilitation Center
First Class Pharmacy, Inc.
Fullerton Rehabilitation Center
Glendora Rehabilitation Center
Glenville Health Care Corp.
G-WZ of Stamford, Inc.
Golan Healthcare Group, Inc.
Goodwin Nursing Home, Inc.
Grand Terrace Rehabilitation Center
Hallmark Health Services, Inc.
Harbor View Rehabilitation Center
Hawthorne Rehabilitation Center
HC, Inc.
Heritage Rehabilitation Center
Heritage - Torrance Rehabilitation Center
HTA of New Jersey, Inc.
Huntington Beach Convalescent Hospital
Jackson Rehabilitation Center, Inc.
Linda-Mar Rehabilitation Center
Living Services, Inc.
LTC Staffinders, Inc.
Manatee Springs Nursing Center, Inc.
Marion Health Care Corp.
Masthead Corporation
Meadowbrook Rehabilitation Center
4
<PAGE>
SCHEDULE A CONTINUED
Mediplex Atlanta Rehabilitation Institute, Inc.
Mediplex Management, Inc.
Mediplex Management of Palm Beach County, Inc.
Mediplex Management of Texas, Inc.
Mediplex of Concord, Inc.
Mediplex of Connecticut, Inc.
Mediplex of Kentucky, Inc.
Mediplex of Maryland, Inc.
Mediplex of Massachusetts, Inc.
Mediplex of New Hampshire, Inc.
Mediplex of New York, Inc.
Mediplex of New Jersey, Inc.
Mediplex of Ohio, Inc.
Mediplex of Tennessee, Inc.
Mediplex of Virginia, Inc.
Mediplex Rehabilitation of Massachusetts, Inc.
New Bedford Nursing Center, Inc.
New Lexington Health Care Corp.
Newport Beach Rehabilitation Center
Nursing Home, Inc.
Oakview Treatment Centers of Kansas, Inc.
Oasis Mental Health Treatment Center, Inc.
Orange Rehabilitation Hospital, Inc.
Pacific Beach Physical Therapy, Inc.
Paradise Rehabilitation Center, Inc.
Paso Robles Rehabilitation Center
Peachwood Physical Therapy Corporation
Pharmacy Factors of California, Inc.
Pharmacy Factors of Florida, Inc.
Pharmacy Factors of Texas, Inc.
P.M.N.F. Management, Inc.
Putnam Health Care Corp.
Quality Care Holding Corporation
Quality Nursing Care of Massachusetts, Inc.
Regency High School, Inc.
Regency - North Carolina, Inc.
Regency Health Services, Inc.
Regency Rehab Hospitals, Inc.
Regency Outpatient Services, Inc.
Regency Rehab Properties, Inc.
Regency Rehabilitation Management & Consulting Services, Inc.
Regency - Tennessee, Inc.
RHS Management Corporation
Rosewood Rehabilitation Center, Inc.
Salem Health Care Corp.
San Bernadino Rehabilitation Hospital, Inc.
SCRS & Communicology Inc. of Ohio
Shandin Hills Rehabilitation Center
SHG International Holding, Inc.
Special Medical Services, Inc.
5
<PAGE>
SCHEDULE A CONTINUED
Spofford Land, Inc.
Stockton Rehabilitation Center, Inc.
SunAlliance Healthcare Services, Inc.
SunBridge, Inc.
Sun Care Corp.
SunCare Respiratory Services, Inc.
SunChoice Medical Supply, Inc.
SunDance Rehabilitation Corporation
SunFactors, Inc.
Sun Healthcare Group, Inc.
Sun Healthcare, Inc.
Sun Lane Purchase Corporation
Sunmark of New Mexico
SunPlus Home Health Services, Inc.
SunQuest Consulting, Inc.
Sunrise Healthcare Corporation
Sunrise Healthcare of Colorado, Inc.
Sunrise Healthcare of Florida, Inc.
Sunrise Rehab of Colorado, Inc.
SunScript Pharmacy Corporation
SunSolution, Inc.
SunSpectrum Outpatient Rehabilitation-Concord, Inc.
The Mediplex Group, Inc.
Vista Knoll Rehabilitation Center, Inc.
Willowview Rehabilitation Center
Worcester Nursing Center, Inc.
6
<PAGE>
AVAILABLE INFORMATION
Sun is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files
reports, proxy statements and other information with the Commission. Such
reports, proxy statements and other information may be inspected and copied at
the following public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549; Seven
World Trade Center, 13th Floor, New York, New York 10048; and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material may also be obtained from the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, upon payment of prescribed rates. The Commission maintains a Web
site at http://www.sec.gov containing reports, proxy statements and other
information regarding registrants that file electronically with the Commission,
including Sun. In addition, reports, proxy statements and other information
concerning Sun may be inspected and copied at the offices of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005.
This Prospectus constitutes a part of a registration statement on Form S-4
(together with all amendments and exhibits, the "Registration Statement") filed
by Sun with the Commission, through the Electronic Data Gathering, Analysis and
Retrieval System ("EDGAR"), under the Securities Act, with respect to the New
Notes offered hereby. This Prospectus omits certain of the information contained
in the Registration Statement, and reference is hereby made to the Registration
Statement for further information with respect to Sun and the securities offered
hereby. Although statements concerning and summaries of certain documents are
included herein, reference is made to the copy of such document filed as an
exhibit to the Registration Statement or otherwise filed with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission (File No. 1-1204) are
incorporated herein by reference:
1. Sun Healthcare Group, Inc.'s Amendment No. 2 to the Annual Report on
Form 10-K/A for the fiscal year ended December 31, 1997 filed May 22,
1998.
2. Sun Healthcare Group, Inc.'s Amendment No. 1 to the Annual Report on
Form 10-K/A for the fiscal year ended December 31, 1997 filed April 30,
1998;
3. Sun Healthcare Group, Inc.'s Annual Report on Form 10-K for the fiscal
year ended December 31, 1997;
4. Sun Healthcare Group, Inc. Amendment No. 2 to the Quarterly Report Form
10-Q/A for the fiscal months ended March 31, 1998;
5. Sun Healthcare Group, Inc.'s Amendment No. 1 to the Quarterly Report on
Form 10-Q/A for the three months ended March 31, 1998 filed April 30,
1998;
6. Sun Healthcare Group, Inc.'s Quarterly Report on Form 10-Q for the three
months ended March 31, 1998;
7. Sun Healthcare Group, Inc.'s Current Reports on Form 8-K filed March 20,
1998, April 10, 1998, April 16, 1998, April 30, 1998 and June 25, 1998
and .
8. Sun Healthcare Group, Inc.'s Amendment to its Current Report on Form
8-K/A filed April 16, 1998, May 15, 1998 and May 15, 1998.
All reports and any definitive proxy or information statements filed by Sun
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to
the date of this Registration Statement and prior to the termination of the
offering of the New Notes offered hereby shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the date of filing
of such documents. Any
7
<PAGE>
statement contained in a document incorporated or deemed to be incorporated
herein by reference, or contained in this Prospectus, shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. These documents are available without charge to
any person to whom a Prospectus is delivered, upon request from Sun Healthcare
Group, Inc., 101 Sun Avenue, N.E., Albuquerque, New Mexico 87109, Attention:
Secretary, telephone (505) 821-3355. In order to ensure timely delivery of the
documents, any request should be made by July , 1998.
8
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY INFORMATION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES
THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. PROSPECTIVE PURCHASERS SHOULD
CAREFULLY CONSIDER THE INFORMATION SET FORTH OR REFERRED TO UNDER THE HEADING
"RISK FACTORS." OTHER THAN STATEMENTS OF HISTORICAL FACT, STATEMENTS CONTAINED
IN THIS PROSPECTUS, INCLUDING STATEMENTS AS TO FUTURE FINANCIAL PERFORMANCE,
CONSTITUTE FORWARD-LOOKING STATEMENTS. WHEN USED IN THIS PROSPECTUS, THE WORDS
"BELIEVES," "ANTICIPATES," "INTENDS," "EXPECTS," AND SIMILAR EXPRESSIONS ARE
INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. SUN'S ACTUAL RESULTS MAY
DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING
STATEMENTS CONTAINED IN THIS PROSPECTUS. FACTORS THAT MIGHT CAUSE SUCH A
DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED OR REFERRED TO IN
THE SECTION SET FORTH UNDER THE HEADING "RISK FACTORS." PROSPECTIVE PURCHASERS
ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THE FORWARD-LOOKING STATEMENTS
CONTAINED IN THIS PROSPECTUS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE
COMPANY DOES NOT UNDERTAKE ANY OBLIGATION TO PUBLICLY RELEASE THE RESULTS OF ANY
REVISIONS TO SUCH FORWARD-LOOKING STATEMENTS WHICH MAY BE MADE TO REFLECT EVENTS
OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF
UNANTICIPATED EVENTS. UNLESS OTHERWISE INDICATED OR THE CONTEXT OTHERWISE
REQUIRES, ALL REFERENCES TO "SUN" OR THE "COMPANY" INCLUDE SUN HEALTHCARE GROUP,
INC. AND ITS DIRECT AND INDIRECT SUBSIDIARIES.
Sun is a leading provider of high quality and cost efficient long-term,
subacute and related specialty healthcare services in the United States and the
United Kingdom and also has operations in Spain, Germany and Australia. At March
31, 1998, Sun operated 318 long-term and subacute care facilities (which
includes assisted living and managed facilities) with 36,488 licensed beds in
the United States and 177 long-term and acute care facilities with 11,132
licensed beds internationally. Sun is one of the largest providers of ancillary
services to long-term care providers in the United States, including the
provision of rehabilitation therapy (the provision of physical, occupational and
speech therapy), respiratory therapy (the provision of respiratory therapy and
the distribution of related equipment and supplies), temporary therapy staffing
services and pharmaceutical products and services. Sun provides these services
to over 1,600 affiliated and nonaffiliated long-term and subacute care
facilities in the United States.
Sun's inpatient care facilities provide a broad range of healthcare
services, including nursing care, subacute care, therapy and other specialized
services such as care to patients with Alzheimer's disease. Sun's long-term and
subacute care operations have experienced significant growth since Sun's
inception in 1989, primarily from acquisitions of additional facilities. See
"Business--Acquisitions" in Sun's Annual Report on Form 10-K for the year ended
December 31, 1997 . Sun believes its inpatient care operations provide it with a
platform to expand its therapy and pharmaceutical businesses (which include
dispensing pharmaceuticals for such purposes as infusion therapy, pain
management, antibiotic therapy and parenteral nutrition) to affiliated and
nonaffiliated long-term and subacute care facilities. Sun believes that its
expertise in operating long-term and subacute care facilities enables it to
provide its therapy and pharmaceutical services more effectively and efficiently
than providers without such operating expertise.
The Company's principal executive offices are located at 101 Sun Avenue,
N.E., Albuquerque, New Mexico 87109, and its telephone number at such address is
(505) 821-3355. The Company maintains a Web site at http://www.sunh.com.
9
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<CAPTION>
<S> <C>
Registration Rights
Agreement................... The Old Notes were issued on July 8, 1997 to the
Initial Purchasers. The Initial Purchasers placed
the Old Notes with institutional investors. In
connection therewith, the Company and the Initial
Purchasers entered into the Registration Rights
Agreement, providing, among other things, for the
Exchange Offer. See "The Exchange Offer."
The Exchange Offer............ New Notes are being offered in exchange for an
equal principal amount of Old Notes. As of the
date hereof, $250,000,000 aggregate principal
amount of Old Notes are outstanding. Old Notes may
be tendered only in integral multiples of $1,000.
Resale of New Notes........... Based on interpretations by the staff of the
Commission, as set forth in no-action letters
issued to third parties, including the Exchange
Offer No-Action Letters, the Company believes that
the New Notes issued pursuant to the Exchange
Offer may be offered for resale, resold or
otherwise transferred by holders thereof (other
than a broker-dealer who acquires such New Notes
directly from the Company for resale pursuant to
Rule 144A under the Securities Act or any other
available exemption under the Securities Act or
any holder that is an "affiliate" of the Company
as defined in Rule 405 under the Securities Act),
without compliance with the registration and
prospectus delivery provisions of the Securities
Act, provided that such New Notes are acquired in
the ordinary course of such holders' business and
such holders are not engaged in, and do not intend
to engage in, a distribution of such New Notes and
have no arrangement or understanding with any
person to participate in a distribution of such
New Notes. By tendering the Old Notes in exchange
for New Notes, each holder, other than a
broker-dealer, will represent to the Company that:
(i) it is not an affiliate of the Company (as
defined under Rule 405 of the Securities Act) or a
broker-dealer tendering Old Notes acquired
directly from the Company for its own account;
(ii) any New Notes to be received by it were
acquired in the ordinary course of its business;
and (iii) it is not engaged in, and does not
intend to engage in, a distribution of such New
Notes and has no arrangement or understanding to
participate in a distribution of the New Notes. If
a holder of Old Notes is engaged in or intends to
engage in a distribution of the New Notes or has
any arrangement or understanding with respect to
the distribution of the New Notes to be acquired
pursuant to the Exchange Offer, such holder may
not rely on the applicable interpretations of the
staff of the Commission and must comply with the
registration and prospectus delivery requirements
of the Securities Act in connection with any
secondary resale transaction. Each Participating
Broker-Dealer that receives New Notes for its own
account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in
connection with any resale of such
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
New Notes. The Letter of Transmittal states that
by so acknowledging and by delivering a
prospectus, a Participating Broker-Dealer will not
be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented
from time to time, may be used by a Participating
Broker-Dealer in connection with resales of New
Notes received in exchange for Old Notes where
such Old Notes were acquired by such Participating
Broker-Dealer as a result of market-making
activities or other trading activities. The
Company has agreed that, starting on the
Expiration Date and ending on the close of
business 180 days after the Expiration Date, it
will make this Prospectus available to any
Participating Broker-Dealer for use in connection
with any such resale. See "Plan of Distribution."
To comply with the securities laws of certain
jurisdictions, it may be necessary to qualify for
sale or register the New Notes prior to offering
or selling such New Notes. The Company has agreed,
pursuant to the Registration Rights Agreement and
subject to certain specified limitations therein,
to register or qualify the New Notes for offer or
sale under the securities or "blue sky" laws of
such jurisdictions as may be necessary to permit
the holders of New Notes to trade the New Notes
without any restrictions or limitations under the
securities laws of the several states of the
United States.
Consequences of Failure to
Exchange Old Notes.......... Upon consummation of the Exchange Offer, subject
to certain exceptions, holders of Old Notes who do
not exchange their Old Notes for New Notes in the
Exchange Offer will no longer be entitled to
registration rights and will not be able to offer
or sell their Old Notes, unless such Old Notes are
subsequently registered under the Securities Act
(which, subject to certain limited exceptions, the
Company will have no obligation to do), except
pursuant to an exemption from, or in a transaction
not subject to, the Securities Act and applicable
state securities laws. See "Risk
Factors--Consequences of Failure to Exchange" and
"The Exchange Offer--Terms of the Exchange Offer."
Expiration Date............... 5:00 p.m., New York City time, on July , 1998
(20 business days following the commencement of
the Exchange Offer), unless the Exchange Offer is
extended, in which case the term "Expiration Date"
means the latest date and time to which the
Exchange Offer is extended.
Interest on the New Notes..... The New Notes will accrue interest at the
applicable per annum rate set forth on the cover
page of this Prospectus, from the last date on
which interest was paid on the Old Notes
surrendered in exchange therefor or, if no
interest has been paid, from the Issue Date of
such Old Notes Interest on the New Notes is
payable on January 1 and July 1 of each year.
Conditions to the Exchange
Offer....................... The Exchange Offer is not conditioned upon any
minimum principal amount of Old Notes being
tendered for exchange.
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
However the Exchange Offer is subject to customary
conditions, which may be waived by the Company.
See "The Exchange Offer--Conditions." Except for
the requirements of applicable federal and state
securities laws, there are no federal or state
regulatory requirements to be complied with or
obtained by the Company in connection with the
Exchange Offer.
Procedures for Tendering Old
Notes....................... Each holder of Old Notes (other than certain
members of the Automated Tendering Offering
Program ("ATOP") at the Depository Trust Company
who choose to use ATOP) wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, together
with the Old Notes to be exchanged and any other
required documentation to the Exchange Agent (as
defined herein) at the address set forth herein or
effect a tender of Old Notes pursuant to the
procedures for book-entry transfer as provided for
herein. See "The Exchange Offer--Procedures for
Tendering" and "--Book Entry Transfer."
Guaranteed Delivery
Procedures.................. Holders of Old Notes who wish to tender their Old
Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes
and a properly completed Letter of Transmittal or
any other documents required by the Letter of
Transmittal to the Exchange Agent prior to the
Expiration Date may tender their Old Notes
according to the guaranteed delivery procedures
set forth in "The Exchange Offer--Guaranteed
Delivery Procedures."
Withdrawal Rights............. Tenders of Old Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the
Expiration Date. To withdraw a tender of Old
Notes, a written or facsimile transmission notice
of withdrawal must be received by the Exchange
Agent at its address set forth herein under "The
Exchange Offer--Exchange Agent" prior to 5:00
p.m., New York City time, on the Expiration Date.
Acceptance of Old Notes and
Delivery of New Notes....... Subject to certain conditions, any and all Old
Notes that are properly tendered in the Exchange
Offer prior to 5:00 p.m., New York City time, on
the Expiration Date will be accepted for exchange.
The New Notes issued pursuant to the Exchange
Offer will be delivered promptly following the
Expiration Date. See "The Exchange Offer--Terms of
the Exchange Offer."
Certain Tax Considerations.... The exchange of New Notes for Old Notes should not
be a sale or exchange or otherwise a taxable event
for Federal income tax purposes. See "Certain U.S.
Federal Income Tax Consequences."
Exchange Agent................ First Trust National Association is serving as
exchange agent (the "Exchange Agent") in
connection with the Exchange Offer.
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
Fees and Expenses............. All expenses incident to the Company's
consummation of the Exchange Offer and compliance
with the Registration Rights Agreement will be
borne by the Company. See "The Exchange
Offer--Fees and Expenses."
Use of Proceeds............... There will be no cash proceeds payable to Sun from
the issuance of the New Notes pursuant to the
Exchange Offer. The proceeds from the sale of the
Old Notes were used to repay amounts outstanding
under the Old Credit Facility (as defined), which
may be subsequently reborrowed. See "Use of
Proceeds."
</TABLE>
13
<PAGE>
SUMMARY OF TERMS OF NEW NOTES
The Exchange Offer relates to the exchange of up to $250,000,000 aggregate
principal amount of Old Notes for up to an equal aggregate principal amount of
New Notes. The New Notes will be entitled to the benefits of the same Indenture
that governs the Old Notes and will govern the New Notes. The form and terms of
the New Notes are the same in all material respects as the form and terms of the
Old Notes, except that the New Notes do not contain terms with respect to
liquidated damages provisions and the New Notes have been registered under the
Securities Act and therefore will not bear legends restricting the transfer
thereof. See "Description of New Notes."
<TABLE>
<S> <C>
Maturity Date..................... July 1, 2007.
Interest Payment Dates............ January 1 and July 1, commencing on January 1, 1998.
Mandatory Redemption.............. None.
Optional Redemption............... The New Notes may not be redeemed prior to July 1, 2002.
At any time on or after July 1, 2002, the New Notes may
be redeemed for cash at the option of Sun, in whole or
in part, at the redemption prices set forth herein, plus
accrued and unpaid interest and Liquidated Damages, if
any, to the date of redemption, in a manner set forth in
"Description of New Notes--Optional Redemption."
Change of Control................. Upon a Change of Control, each holder of New Notes will
have the right to require Sun to repurchase all or any
part of such holder's New Notes for cash at 101% of the
principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, to the date of
repurchase. The terms of certain of Sun's indebtedness
require that Sun repay or refinance such indebtedness in
the event of a "change of control," as defined therein.
Such change of control provisions may be triggered under
such indebtedness prior to the occurrence of a Change of
Control with respect to the New Notes, thereby requiring
that such indebtedness be repaid or refinanced prior to
Sun repurchasing any New Notes upon the occurrence of a
Change of Control. There can be no assurance that Sun
will have the financial resources to repurchase the New
Notes in the event of a Change of Control. See
"Description of New Notes-- Repurchases at the Option of
Holders--Change of Control."
Ranking........................... The New Notes will be senior subordinated, unsecured,
general obligations of Sun, and, as such, subordinated
in right of payment to all existing and future Senior
Debt of Sun. The New Notes will rank PARI PASSU with all
existing and future senior subordinated indebtedness of
Sun and will rank senior to all other existing and
future subordinated indebtedness of Sun. The Guarantees
will be senior subordinated, unsecured, general
obligations of the Guarantors. The New Notes will also
be effectively subordinated to (i) all existing and
future liabilities of Sun's subsidiaries which are not
Guarantors and (ii) all existing and future Senior Debt
of the Guarantors. As of March 31, 1998, after giving
effect to the offering of 9 3/8% Senior Subordinated
Notes due 2008 (the "2008 Notes Offering" and the
offering of Convertible Trust Issued Preferred
Securities in
</TABLE>
14
<PAGE>
<TABLE>
<S> <C>
May 1998 (the "Convertible Preferred Securities
Offering" and together with the 2008 Notes Offering, the
"May Offerings") the aggregate amount of indebtedness
(excluding intercompany indebtedness) that effectively
ranked senior to the New Notes and the Guarantees was
approximately $855.5 million. As of March 31, 1998 after
giving effect to the May 2008 Offerings approximately
$155.7 million of indebtedness ranking PARI PASSU in
right of payment with the New Notes and/or the
Guarantees and $104.0 million of indebtedness ranking
subordinate in right of payment to the New Notes and/or
the Guarantees was outstanding. If the RCA and Contour
Mergers (as defined) had been consummated, Sun's
consolidated long-term debt would have increased by
$177.3 million as of March 31, 1998, $177.3 million of
which would have effectively ranked senior to the New
Notes and/or the Guarantees (based on Retirement Care's
March 31, 1998 balance sheet and assuming Sun acquires
the remaining 35% of Contour for Common Stock). All of
the Guarantors have guaranteed the Company's obligations
under the Company's Senior Credit Facility as have the
CareerStaff Companies (which entities are not
Guarantors).
Certain Covenants................. The indenture governing the New Notes (the "Indenture")
will contain certain covenants, including, but not
limited to, covenants limiting: (i) the incurrence by
Sun and its Subsidiaries of additional indebtedness and
the issuance of preferred stock; (ii) the payment of
dividends on and the redemption of capital stock by Sun;
(iii) the creation of liens securing indebtedness; (iv)
restrictions on the ability of Subsidiaries to pay
dividends or make other restricted payments; (v)
transactions with affiliates; (vi) certain sales of
assets; (vii) the ability of Sun to engage in certain
businesses; and (viii) Sun's ability to consolidate or
merge with or into, or to transfer all or substantially
all of its assets to, another person. See "Description
of New Notes-- Certain Covenants."
</TABLE>
15
<PAGE>
RISK FACTORS
Prospective purchasers of the New Notes should carefully review the
information contained and incorporated by reference in this Prospectus and
should particularly consider the following matters:
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT
Sun has substantial indebtedness. As of March 31, 1998, after giving pro
forma effect to the May Offerings, Sun would have had on a consolidated basis
approximately $1.4 billion of indebtedness and approximately $633.0 million of
stockholders' equity. Sun's ratio of earnings to fixed charges for each of the
years ended December 31, 1995, 1996, and 1997 was 1.2x, 1.6x, 1.7x and 1.5x and
for the three months ended March 31, 1998, respectively. After giving pro forma
effect to the May Offerings, Sun's ratio of earnings to fixed charges for each
of the year ended December 31, 1997 and for the three months ended March 31,
1998 would have been 1.4x and 1.6x, respectively. As of the June 11, 1998, Sun
would have the ability to borrow approximately $372.8 million under the Senior
Credit Facility. If the RCA Merger and Contour Merger (the "RCA and Contour
Mergers" and, together with the Regency Merger, the "Mergers") had been
consummated, Sun's consolidated long-term debt (including current maturities),
would have increased by approximately $177.3 million, based on Retirement Care's
March 31, 1998 balance sheet and assuming Sun acquires the remaining 35% of
Contour for Sun Common Stock.
In addition, as of December 31, 1997, Sun's existing lease agreements
required aggregate annual payments for the years ending December 31, 1998, 1999,
2000, 2001, and 2002 of $122.9 million, $122.5 million, $121.5 million, $115.7
million and $113.3 million, respectively. In addition, as part of its growth
strategy Sun intends to incur significant additional lease obligations and
therefore expects its annual lease obligations over the next five fiscal years
will be significantly greater than the amounts set forth in the preceding
sentence.
At March 31, 1998, Sun had outstanding commitments for construction and
development costs of approximately $22.7 million in the United States and
approximately L0.6 million (approximately $1.0 million as of March 31, 1998) in
the United Kingdom. Sun also expects to loan up to $47.0 million (of which
approximately $41.4 million had been funded as of March 31, 1998) for the
development, construction and operation of assisted living facilities. Any such
advances are expected to be funded by borrowings under the Credit Facility and
will be subject to certain conditions, including the approval of each project by
Sun. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources" included in Sun's Annual
Report on Form 10-K for the year ended December 31, 1997 and Sun's Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31, 1998, incorporated by
reference herein.
The degree to which Sun is leveraged could have important consequences to
holders of the New Notes, including, but not limited to, the following: (i) a
substantial portion of Sun's cash flow from operations will be required to be
dedicated to debt service and will not be available for other purposes,
including acquisitions; (ii) Sun's ability to obtain additional financing in the
future could be limited; (iii) certain of Sun's borrowings are at variable rates
of interest, which could result in higher interest expense in the event of
increases in interest rates; and (iv) the indenture with respect to the New
Notes, the Senior Credit Facility and the United Kingdom revolving credit
facilities generally contain financial and restrictive covenants that limit the
ability of Sun to, among other things, borrow additional funds, dispose of
assets or pay cash dividends. Failure by Sun to comply with such covenants could
result in an event of default which, if not cured or waived, would have a
material adverse effect on Sun. In addition, the Company's future capital
requirements will depend on many factors, including the Company's working
capital needs, the costs associated with the RCA and Contour Mergers, if
consummated, and in particular, the timing and extent to which the Company
implements its acquisition strategy. Accordingly, the Company expects that it
may raise additional equity or debt financing in the future. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital
16
<PAGE>
Resources" in Sun's Annual Report on Form 10-K for the year ended December 31,
1997 and Sun's Quarterly Report on Form 10-Q for three months ended March 31,
1998, incorporated by reference herein.
HOLDING COMPANY STRUCTURE; EFFECTS OF ASSET ENCUMBRANCES
Sun is a holding company and, accordingly, the New Notes will be effectively
subordinated to all existing and future liabilities of the non-Guarantor
subsidiaries. Sun's cash flow and, consequently, its ability to service debt,
including the New Notes, is dependent upon the earnings of its subsidiaries and
the payment of funds by those subsidiaries to Sun in the form of loans,
dividends or otherwise. The New Notes are guaranteed on a subordinated,
unsecured basis by the Guarantors, and as a result, should Sun fail to satisfy
any payment obligation under the New Notes, the holders would have a direct
claim therefor against the Guarantors. However, the Guarantors are obligors with
respect to substantial indebtedness, including in their capacity as guarantors
under the Senior Credit Facility on a senior basis, and the capital stock of the
Guarantors is pledged to secure amounts borrowed thereunder. Accordingly, there
may be insufficient assets remaining after payment of senior and/or secured
claims to pay amounts due on the New Notes. Sun's non-Guarantor subsidiaries are
separate and distinct legal entities and have no obligation, contingent or
otherwise, to pay any amounts due pursuant to the New Notes or to make funds
available therefor, whether in the form of loans, dividends or otherwise. The
Indenture will permit Sun and its subsidiaries (including non-Guarantor
subsidiaries) to incur additional indebtedness (subject to certain
restrictions). See "Description of New Notes." Any right of Sun to participate
in any distribution of the assets of any of the non-Guarantor subsidiaries upon
the liquidation, reorganization or insolvency of such subsidiary (and the
consequent right of the holders of the New Notes to participate in the
distribution of those assets) will be subject to the claims of creditors
(including trade creditors) and preferred stockholders, if any, of such
non-Guarantor subsidiary, except to the extent that Sun has a claim against such
non-Guarantor subsidiary as a creditor of such non-Guarantor subsidiary.
Moreover, the payment of dividends and the making of loan advances to Sun by its
subsidiaries are subject to restrictive covenants in agreements entered into by
certain of such subsidiaries and may be restricted upon an event of default
thereunder.
SUBORDINATION
The New Notes will be unsecured senior subordinated obligations of Sun and,
as such, will be subordinated to all existing and future Senior Debt of Sun and
its subsidiaries, including borrowings under the Senior Credit Facility. The New
Notes will also be effectively subordinated to all secured indebtedness of
either Sun or any of its subsidiaries to the extent of the assets secured by
such indebtedness. As of March 31, 1998, on a pro forma basis after giving
effect to the May Offerings, the aggregate amount of indebtedness (excluding
intercompany indebtedness) that would have effectively ranked senior to the New
Notes and the Guarantees was approximately $855.5 million. As of March 31, 1998,
on a pro forma basis after giving effect to the May Offerings, approximately
$155.7 million of indebtedness ranking PARI PASSU in right of payment with the
New Notes and/or the Guarantees and $104.0 million of indebtedness ranking
subordinate in right of payment to the Notes and/or the Guarantees was
outstanding. In addition, on a pro forma basis as of March 31, 1998 after giving
effect to the application of the net proceeds of the May Offerings, the Company
would have had approximately $269.5 million available under the Senior Credit
Facility. See "Business--Acquisitions" in Sun's Annual Report on Form 10-K for
the year ended December 31, 1997, incorporated by reference herein.
The Company may not pay principal of, premium, if any, or interest on or
other amounts owing in respect of the New Notes, make any deposit pursuant to
any defeasance provisions or repurchase, redeem or otherwise retire the New
Notes if certain Senior Debt is not paid when due or any other default on such
Indebtedness occurs and the maturity of such Indebtedness is accelerated in
accordance with its terms unless, in either case, the default has been cured or
waived, any such acceleration has been rescinded or such Indebtedness has been
paid in full. Moreover, under certain circumstances, if any non-payment
17
<PAGE>
default exists with respect to such Indebtedness, the Company may not make any
payments on the New Notes for a specified time, unless such default is cured or
waived, any acceleration of such indebtedness has been rescinded or such
indebtedness has been paid in full. See "Description of New Notes--
Subordination."
LIMITATIONS ON REPURCHASE OF NEW NOTES UPON CHANGE OF CONTROL
Upon a Change of Control, each holder of New Notes will have certain rights
to require Sun to repurchase all or a portion of such holder's New Notes. See
"Description of New Notes." If a Change of Control were to occur, there can be
no assurance that Sun would have sufficient funds to pay the repurchase price
for all New Notes tendered by the holders thereof. In addition, a change of
control would constitute a default under the Senior Credit Facility and is
otherwise restricted by the Senior Credit Facility and may be prohibited or
limited by, or create an event of default under, the terms of other agreements
relating to borrowings which the Company may enter into from time to time,
including other agreements relating to secured indebtedness. If Sun's
obligations under the Senior Credit Facility were accelerated due to a default
thereunder, the lenders thereunder would have a priority claim on the proceeds
from the sale of the collateral securing the Senior Credit Facility. See
"--Holding Company Structure; Effects of Asset Encumbrances" and
"--Subordination."
In addition, the Change of Control purchase feature of the New Notes may
make more difficult or discourage a takeover of Sun and, thus, the removal of
incumbent management. The Change of Control purchase feature resulted from
negotiations between Sun and the Initial Purchasers and is not the result of
management's knowledge of any specific effort to obtain control of Sun by means
of accumulating shares of common stock of Sun or by means of a merger, tender
offer, solicitation or otherwise or part of a plan by management to adopt a
series of anti-takeover provisions.
RISKS ASSOCIATED WITH THE DEVELOPMENT AND EXPANSION OF ANCILLARY SERVICES
A significant aspect of Sun's operating strategy is to expand its therapy,
temporary therapy staffing and pharmaceutical services and, in particular, to
offer these services to nonaffiliated facilities. Therapy, temporary therapy
staffing and pharmaceutical services provided to nonaffiliated facilities in the
United States, while representing 26%, 28%, 31% and 28% of Sun's revenues for
the three months ended March 31, 1998, and for the years ended December 31,
1995, 1996, and 1997, respectively, provided more than half of Sun's operating
profits for such periods. In addition, a substantial portion of Sun's
consolidated interest expense was attributable to Sun's long-term and subacute
care services and its foreign operations and not the ancillary services business
due to the capital intensive nature of these businesses and to related
acquisitions. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included in Sun's Annual Report on Form 10-K for the
year ended December 31, 1997 and Sun's Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 1998, incorporated by reference herein. As a
result of the Regency Acquisition and RCA Merger,the percentage of revenues from
services provided to nonaffiliated facilities is expected to decrease.
Regulatory changes, including a Prospective Payment System ("PPS"), are expected
to be made that affect reimbursement for these services, which could adversely
affect Sun's profitability. See "--Risks Related to Prospective Payment System,"
"--Potential Reduction of Reimbursement Rates From Third Party Payors and
Possible Adverse Impact on Future Operating Results" and "--Risk of Adverse
Effect of Future Healthcare Reform." From time to time the negative publicity
surrounding the government investigations of Sun has slowed Sun's success in
obtaining additional outside contracts in the rehabilitation therapy business,
which in the past has resulted in higher than required therapist staffing levels
and has affected the private pay enrollment in certain inpatient facilities. In
addition, if government investigations have a negative impact on the future
billing practices related to Sun's rehabilitation therapy subsidiary, the
profitability of the services provided by such subsidiary would be reduced from
current levels. See "--Investigations; Uncertain Impact on Future Operating
Results."
18
<PAGE>
RISK OF ADVERSE EFFECT OF FUTURE HEALTHCARE REFORM
In recent years, an increasing number of legislative proposals have been
introduced or proposed in Congress and in some state legislatures that would
effect major changes in the healthcare system, either nationally or at the state
level. Among the proposals under consideration are cost controls on hospitals,
changes in reimbursement by federal and state payors such as Medicare and
Medicaid, limitations on the ability of Sun to maintain or increase the level of
services it provides, insurance market reforms to increase the availability of
group health insurance to small businesses and the requirement that all
businesses offer health insurance coverage to their employees. Some of the
leading proposals would extend temporary reductions in Medicare reimbursement
imposed under current law, impose additional cuts in Medicare reimbursement and
substantially restructure Medicaid. In the Balanced Budget Act of 1997 (the
"BBA"), Congress amended the reimbursement provisions applicable to exempt
hospital services, skilled nursing, therapy and other ancillary services. See
"--Risks Related to Prospective Payment System." These changes include, but are
not limited to, reductions in capital reimbursement; reductions in certain
laboratory reimbursement; limitations on ancillary costs of skilled nursing
facilities; bundling of ancillary services into nursing home payments; and
imposition of a prospective payment system for skilled nursing facility services
and home health services. Additional changes may still be enacted, which may
include amendments similar to those imposed under the BBA as well as the
imposition of salary equivalency for occupational and speech therapy services.
It is not clear at this time when or whether any new proposals will be adopted,
or, if adopted, what effect, if any, such proposals would have on Sun's
business. There can be no assurance that future healthcare legislation or other
changes in the administration or interpretation of governmental healthcare
programs will not have a material adverse effect on Sun's financial condition or
results of operations. See "--Potential Reduction of Reimbursement Rates From
Third Party Payors and Possible Adverse Impact on Future Operating Results,"
"--Risks Associated with Reimbursement Process and Collectibility of Certain
Accounts Receivable," "--Potential Liability for Reimbursements Paid to Former
Operators of Acquired Facilities," and "--Risks Associated with Related Party
Transactions."
RISKS RELATED TO PROSPECTIVE PAYMENT SYSTEM
In BBA, Congress passed numerous changes to the reimbursement policies
applicable to exempt hospital services, skilled nursing, therapy and other
ancillary services. The BBA provides for a phase-in of a PPS for skilled nursing
facilities over a four-year period, effective for Sun's facilities on January 1,
1999. Under PPS, Medicare will pay skilled nursing facilities a fixed fee per
patient day based on the acuity level of the patient to cover all post-hospital
extended care routine service costs (I.E., Medicare Part A patients), including
ancillary and capital related costs for beneficiaries receiving skilled
services. The per diem rate will also cover substantially all items and services
furnished during a covered stay for which reimbursement was formerly made
separately under Medicare. During the phase-in, payments will be based on a
blend of the facility's historical costs and a federally established per diem
rate. Interim final regulations, including the federal per diem rates, were
published on May 12, 1998. It is unclear what the impact of PPS will be on Sun.
There can be no assurance that the imposition of PPS will not have a material
adverse effect on the results of operations and financial condition of Sun.
Sun's revenues from its inpatient facilities will be significantly affected
by the size of the federally established per diem rate. There can be no
assurance that the per diem rate will not be less than the amount Sun's
inpatient facilities currently receive for treating the patients currently in
its care. Moreover, since Sun treats a greater percentage of higher acuity
patient than many nursing homes, Sun may also be adversely impacted if the
federal per diem rates for higher acuity patients does not adequately compensate
Sun for the additional expenses and risks for caring for such patients. As a
result, there can be no assurance that Sun's financial condition and results of
operations will not be materially and adversely affected.
19
<PAGE>
Sun is responding to the implementation of PPS by establishing SunSolution.
SunSolution will offer to provide ancillary services for a fixed fee to
nonaffiliated facilities. There can be no assurance that there will be a market
for the SunSolution products and services or whether a change in the demand for
Sun's services following the imposition of PPS will not adversely affect Sun's
revenues. Even if SunSolution is successful, no assurance can be given that the
costs of providing the contracted for services will be less than the fixed fee
received by Sun for such services. Given the relative profitability of Sun's
ancillary services, there can be no assurance that Sun's margins and ultimately
Sun's results of operations and financial condition will not be materially and
adversely affected.
In addition, for all Medicare patients not receiving post-hospital extended
care services (i.e., Medicare Part B patients), effective July 1, 1998,
reimbursement for ancillary services, including rehabilitation therapy, medical
supplies, pharmacy, temporary staffing for rehabilitation therapy, and other
ancillary services, will be made pursuant to yet-to-be developed fee schedules.
In addition, effective January 1, 1999, there will be an annual per beneficiary
cap of $1,500 on reimbursement for outpatient physical therapy and speech
therapy and an annual per beneficiary cap of $1,500 on reimbursement for
occupational therapy. Facilities will be permitted to bill patients directly for
services rendered in excess of these caps; however, there can be no assurance
that Sun will receive any payments in excess of these caps. There can also be no
assurance that such yet-to-be developed fee schedules or caps will not have a
material adverse effect on Sun.
POTENTIAL REDUCTION OF REIMBURSEMENT RATES FROM THIRD PARTY PAYORS AND POSSIBLE
ADVERSE IMPACT ON FUTURE OPERATING RESULTS
Various cost containment measures adopted by governmental and private pay
sources have begun to restrict the scope and amount of reimbursable healthcare
expenses and limit increases in reimbursement rates for medical services. Any
reductions in reimbursement levels under Medicaid, Medicare or private payor
programs and any changes in applicable government regulations or interpretations
of existing regulations could significantly affect Sun's profitability.
Furthermore, government programs are subject to statutory and regulatory
changes, retroactive rate adjustments, administrative rulings and government
funding restrictions, all of which may materially affect the rate of payment to
Sun's facilities and its therapy and pharmaceutical businesses. There can be no
assurance that payments under governmental or private payor programs will remain
at levels comparable to present levels or will be adequate to cover the costs of
providing services to patients eligible for assistance under such programs.
Significant decreases in utilization and limits on reimbursement could have a
material adverse effect on Sun's financial condition and results of operations,
including the possible impairment of certain assets. Most recently, in the BBA
Congress amended the reimbursement provisions applicable to exempt hospitals
services, skilled nursing, therapy and other ancillary services. See "--Risks
Associated with the Development and Expansion of Ancillary Services." See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in Sun's Annual Report on Form 10-K for the year ended
December 31, 1997 and Sun's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31,1998, incorporated by reference herein, for a summary of sources
of revenues for Sun for the three most recent fiscal years.
Reimbursement for therapy services is currently evaluated under Medicare's
reasonable cost principles. Under current law, the reasonable costs for physical
therapy and respiratory therapy services may not exceed an amount equal to the
salary that would reasonably have been paid to a therapist for providing the
services (together with certain additional costs) within each geographical area.
Salary equivalency guidelines are the amounts published by the Health Care
Financing Administration ("HCFA"), which reflect the prevailing salary, fringe
benefit and expense factors as determined by HCFA. HCFA then uses the salary
equivalency guidelines to determine the reimbursement rates for physical therapy
and respiratory therapy costs. Although salary equivalency guidelines will no
longer be effective following the implementation of PPS and fee schedule
reimbursement, HCFA has published new equivalency guidelines.
20
<PAGE>
On January 30, 1998, HCFA revised salary equivalency guidelines for
respiratory therapy and physical therapy, and for the first time published new
salary equivalency guidelines for speech therapy and occupational therapy. HCFA
has applied the new salary equivalency guidelines to all services rendered on or
after April 10, 1998. Implementation of these guidelines has increased
reimbursement rates for respiratory therapy and physical therapy, but reduced
reimbursement rates for speech therapy and occupational therapy. The effect of
the changes could have a material adverse impact on Sun's results of operations.
The salary equivalency guidelines rates will have no continuing impact on
reimbursement for therapy services rendered to a Medicare patient receiving
post-hospital extended care services following the commencement of PPS, because
under PPS therapy services will be bundled into each facility's per diem
reimbursement from Medicare. In addition, the salary equivalency guidelines will
have no continuing impact on therapy services rendered to all other Medicare
patients after the institution of fee schedule reimbursement for therapy
services, which may be effective as early as July 1, 1998.
In 1995, and periodically since then, HCFA has provided information to
intermediaries for use in determining reasonable costs for occupational and
speech therapy. This information, although not intended to impose limits on such
costs, suggests that fiscal intermediaries should carefully review costs which
appear to be in excess of what a "prudent buyer" would pay for those services.
While the effect of these directives is still uncertain, they are a factor
considered by such intermediaries in evaluating the reasonableness of amounts
paid by providers for the services of Sun's rehabilitation therapy subsidiary.
When salary equivalency guidelines, PPS and fee schedules are implemented,
reimbursement for these services will no longer be on a "pass through" basis and
the HCFA directives and reasonable cost guidelines discussed in this paragraph
will become moot as to services rendered after their effectiveness. In addition,
some intermediaries require facilities to justify the cost of contract
therapists versus employed therapists as an aspect of the "prudent buyer"
analysis. With respect to rehabilitation therapy services provided to affiliated
facilities, a retroactive adjustment of Medicare reimbursement could be made for
some prior periods. With respect to nonaffiliated facilities, an adjustment of
reimbursement rates for therapy services could result in indemnity claims
against Sun, based on the terms of substantially all of the Sun's existing
contracts with such facilities, for payments previously made by such facilities
to Sun that are reduced by Medicare in the audit process. Any change in
reimbursement rates resulting from implementation of the HCFA directives or a
reduction in reimbursement as a result of a change in application of reasonable
cost guidelines could have a material adverse effect on the Sun's financial
condition and results of operations (depending on the rates adopted) and
customers' ability to pay for prior and continuing services. When PPS with
respect to Medicare Part A (effective for Sun's facilities on January 1, 1999)
and fee schedules with respect to Medicare Part B (which may be effective as
early as July 1, 1998) are implemented, Sun's facilities' reimbursement will no
longer be affected by salary equivalency guidelines and the cost reporting
settlement process for services rendered after their effectiveness. See "Risks
Related to Prospective Payment System," and"--Risks Associated with Development
and Expansion of Ancillary Services" and "--Risk of Adverse Effect of Future
Healthcare Reform" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in Sun's Quarterly Report for the three
months ended March 31, 1998.
RISKS ASSOCIATED WITH REIMBURSEMENT PROCESS AND COLLECTIBILITY OF CERTAIN
ACCOUNTS RECEIVABLE
Sun derives a substantial percentage of its total revenues from Medicare,
Medicaid and private insurance. Sun's financial condition and results of
operations may be affected by the revenue reimbursement process, which is
complex and can involve lengthy delays between the recognition of revenue and
the time reimbursement amounts are settled. Net revenues realizable under
third-party payor agreements are subject to change due to examination and
retroactive adjustment by payors during the settlement process. Payors may
disallow in whole or in part requests for reimbursement based on determinations
that certain costs are not reimbursable or reasonable or because additional
supporting documentation is necessary. Sun recognizes revenues from third-party
payors and accrues estimated settlement amounts in the period in which the
related services are provided. Sun estimates these settlement balances by making
determinations
21
<PAGE>
based on its prior settlement experience and its understanding of the applicable
reimbursement rules and regulations. The majority of third-party payor balances
are settled within two to three years following the provision of services. Sun
has experienced differences between the net amounts accrued and subsequent
settlements, which differences are recorded in operations at the time of
settlement. For example, in the fourth quarter of 1997, Sun recorded negative
revenue adjustments totalling approximately $15.0 million resulting from changes
in accounting estimates of amounts realizable from third-party payors. These
changes in accounting estimates primarily arose out of the settlement in late
1997 of certain facility cost reports for 1994 and 1995 and also include
estimated charges for projected settlements in 1996.
Accounts receivable for therapy services have also increased in part because
the ability of nonaffiliated facilities to provide timely payments has been
impacted by their receipt of payments from fiscal intermediaries which, in some
instances, have been delayed due to the fiscal intermediaries conducting reviews
of facilities' therapy claims. In addition, accounts receivable have increased
in part because of the growth in the Company's inpatient, therapy and
pharmaceutical services businesses since December 31, 1996. During 1996 and the
first two quarters of 1997, as a result of these factors, accounts receivable
for therapy services grew disproportionately to the growth in revenue of that
line of business. As a result, the Company increased its provision for losses on
accounts receivable in mid-1996. No assurance can be given that further
increases in the provision for losses on accounts receivable will not be
required.
Sun's financial condition and results of operations would be materially and
adversely affected if the amounts actually received from third-party payors in
any reporting period differ materially from the amounts accrued in prior
periods. Sun's financial condition and results of operations may also be
affected by the timing of reimbursement payments and rate adjustments from
third-party payors. Sun has from time to time experienced delays in receiving
final settlement and reimbursement from government agencies. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" included in Sun's Annual Report on
Form 10-K for the year ended December 31, 1997 and Sun's Quarterly Report on
Form 10-Q for the fiscal quarter ended March 31, 1998, incorporated by reference
herein.
POTENTIAL LIABILITY FOR REIMBURSEMENTS PAID TO FORMER OPERATORS OF ACQUIRED
FACILITIES
Sun's growth strategy relies heavily on the acquisition of long-term and
subacute care facilities. Regardless of the legal form of the acquisition, the
Medicare and Medicaid programs often require that Sun assume certain obligations
relating to the reimbursement paid to the former operators of facilities
acquired by Sun. From time to time, fiscal intermediaries and Medicaid agencies
examine cost reports filed by such predecessor operators. If, as a result of any
such examination, it is concluded that overpayments to a predecessor operator
were made, Sun, as the current operator of such facilities, may be held
financially responsible for such overpayments. At this time Sun is unable to
predict the outcome of any existing or future examinations. See "--Difficulty of
Integrating Acquired Operations" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in Sun's Quarterly Report for the
three months ended March 31, 1998.
RISKS ASSOCIATED WITH RELATED PARTY TRANSACTIONS
Current Medicare regulations that apply to transactions between related
parties, such as Sun's subsidiaries, are relevant to the amount of Medicare
reimbursement that Sun is entitled to receive for the rehabilitation and
respiratory therapy and pharmaceutical services that it provides to Sun-operated
facilities. These related party regulations require that, among other things, a
substantial part of the rehabilitation and respiratory therapy services or
pharmaceutical services, as the case may be, of the relevant subsidiary be
transacted with nonaffiliated entities in order for Sun to receive reimbursement
for services provided to Sun-operated facilities at the rates applicable to
services provided to nonaffiliated entities. The related party regulations do
not indicate a specific level of services that must be provided to nonaffiliated
entities in order to satisfy the "substantial part" requirement of such
regulations. In instances
22
<PAGE>
where this issue has been litigated by others, no consistent standard has
emerged as to the appropriate threshold necessary to satisfy the "substantial
part" requirement. See "--Risks Associated with the Development and Expansion of
Ancillary Services" and "Business--United States Revenue Sources-- Medicare" in
Sun's Annual Report on Form 10-K for the year ended December 31, 1997
incorporated, reference herein.
Sun believes that it satisfies the requirements of these regulations
regarding nonaffiliated businesses. Sun's net revenues from rehabilitation
therapy services, including net revenues for temporary therapy staffing
services, provided to nonaffiliated facilities represented 73%, 74%, 70% and 63%
of total rehabilitation and temporary therapy staffing services net revenues for
for the years ended December 31, 1995, 1996 and 1997, and for the three months
ended March 31, 1998, respectively. Respiratory therapy services provided to
nonaffiliated facilities represented 64%, 55%, 63% and 56% of total respiratory
therapy services net revenues for the for the period from the date of
acquisition of SunCare on May 5, 1995 to December 31, 1995, for the years ended
December 31, 1996 and 1997, and for the three months ended March 31, 1998,
respectively. Sun's respiratory therapy operations did not provide services to
affiliated facilities prior to the acquisition of SunCare on May 5, 1995. Net
revenues from pharmaceutical services billed to nonaffiliated facilities
represented 78%, 78%, 79%, and 78% of total pharmaceutical services revenues for
for the years ended December 31, 1995, 1996 and 1997, and for the three months
ended March 31, 1998, respectively. If upon audit by Federal or state
reimbursement agencies, such agencies find that these regulations have not been
satisfied for these periods, and if, after appeal, such findings are sustained,
Sun could be required to refund the difference between its cost of providing
these services to any entity found to be subject to the related party
regulations and the higher amount actually received. See "--Risks Associated
with the Development and Expansion of Ancillary Services."
If Sun fails to satisfy these regulations in the future, the reimbursement
that Sun receives for rehabilitation and respiratory therapy and pharmaceutical
services provided to its own facilities would be significantly reduced, as a
result of which Sun's financial condition and results of operations would be
materially and adversely affected for so long as Medicare and Medicaid continue
to reimburse on the basis of reasonable cost. While Sun believes that it has
satisfied and will continue to satisfy the requirements of these regulations
regarding non-affiliated businesses, there can be no assurance that its position
would prevail if contested by relevant reimbursement agencies. The foregoing
statements with respect to Sun's ability to satisfy these regulations are
forward looking and could be affected by a number of factors,
including the interpretation of Medicare regulations by Federal or state
reimbursement agencies and Sun's ability to provide services to nonaffiliated
facilities. When the salary equivalency guidelines, PPS and fee schedules are
implemented, the Medicare impact of the related party rule will be significantly
reduced. See "--Risks Related to Prospective Payment System" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in Sun's Annual Report on Form 10-K for the year ended December 31,
1997 and Sun's Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 1998, incorporated by reference herein.
POTENTIAL ADVERSE EFFECT OF CHANGE IN REVENUE SOURCES
Changes in the mix of patients among the Medicaid, Medicare and private pay
categories, and among different types of private pay sources, can significantly
affect the revenues and the profitability of Sun's operations. There can be no
assurance that Sun will continue to attract and retain private pay patients or
maintain its current payor or revenue mix.
In addition, there can be no assurance that the facilities operated by Sun,
or the provision of services and products by Sun, now or in the future, will
initially meet or continue to meet the requirements for participation in the
Medicare and Medicaid programs, or that Sun will continue to qualify for the
levels of
23
<PAGE>
reimbursement it has in the past with respect to reimbursement for
rehabilitation therapy, respiratory therapy and pharmaceutical services provided
by Sun-operated facilities. A loss of Medicare or Medicaid certification or a
change in Sun's reimbursement under Medicare or Medicaid could have an adverse
effect on its financial condition and results of operations. See "--Potential
Reduction of Reimbursement Rates From Third Party Payors and Possible Adverse
Impact on Future Operating Results," "--Risks Associated with Reimbursement
Process and Collectibility of Certain Accounts Receivables," "--Risks Associated
with Related Party Transactions," "--Risk of Adverse Effect of Future Healthcare
Reform" and "--Investigations; Uncertain Impact on Future Operating Results."
INVESTIGATIONS; UNCERTAIN IMPACT ON FUTURE OPERATING RESULTS
Sun's subsidiaries, including those that provide subacute and long-term
care, rehabilitation and respiratory therapy and pharmaceutical services, are
engaged in industries that are extensively regulated. See "--Potential Adverse
Impact from Extensive Regulation." As such, in the ordinary course of business,
the operations of these subsidiaries are continuously subject to state and
Federal regulatory scrutiny, supervision and control. Such regulatory scrutiny
often includes inquiries, investigations, examinations, audits, site visits and
surveys, some of which may be non-routine. If a provider is ever found to have
engaged in improper practices, it could be subjected to civil, administrative,
or criminal fines, penalties or restitutionary relief, and reimbursement
authorities could also seek the suspension or exclusion of the provider or
individuals from participation in their program.
In January 1995, Sun learned that it was the subject of a pending Federal
investigation. The investigating agencies are the United States Department of
Health and Human Services' Office of Inspector General ("OIG") and the United
States Department of Justice. At this time, Sun does not know the full scope of
the investigation. However, Sun currently believes that the investigation is
focused principally on whether Sun provided and billed for unnecessary or
unordered therapy services to residents of skilled nursing facilities and
whether Sun adequately documented the therapy services that it provided.
In July 1997, the Criminal Division of the U.S. Department of Justice
informed Sun that it had completed its investigation of Sun, and that it would
not initiate any actions against Sun or any individuals. The investigation by
the Civil Division of the Department of Justice and the OIG is still proceeding.
The government continues to collect information, and Sun continues to cooperate
with the investigators. Sun and the government have had preliminary discussions,
and Sun expects to have continuing discussions, regarding a possible settlement
of the investigation.
Sun is unable to determine at this time when the investigation will be
concluded, how large a monetary settlement the government may seek, the nature
of any other remedies that may be sought by the government, whether or when a
settlement will in fact occur or whether any such settlement or any other
outcome of the investigation will have a material adverse effect on Sun's
financial condition or results of operations. The foregoing statements with
respect to the outcome of the investigation are forward-looking and could be
affected by a number of factors, including the actual scope of the
investigation, the government's factual findings and the interpretation of
Federal statutes and regulations by the government and Federal courts and
whether any such factual findings could serve as a basis for proceedings by
other governmental authorities. From time to time the negative publicity
surrounding the investigation has in the past adversely affected the private pay
enrollment in certain inpatient facilities and slowed Sun's success in obtaining
additional outside contracts in the rehabilitation therapy business, which
resulted in higher than required therapist staffing levels. Negative publicity
in the future could have a similar effect. See "--Risks Associated with the
Development and Expansion of Ancillary Services."
In 1996, the Connecticut Attorney General's office and the Connecticut
Department of Social Services ("DSS") began an investigation and initiated a
hearing in order to determine whether Sun's long-term care subsidiary submitted
false and misleading fiscal information on its 1993 and 1994 Medicaid cost
reports. Since 1997, the investigation has also covered information for the 1995
cost year as well as cost
24
<PAGE>
reporting periods prior to 1993. The information under review includes
submissions and representations by the long-term care subsidiary and Sun's chief
executive officer. The evidentiary phase of the hearing has concluded. Sun
submitted a settlement offer to the DSS in February 1998 and the DSS responded
with a counter-offer in late May 1998. Based on Sun's current understanding of
the investigation and the terms of the counter-offer, Sun does not believe the
terms of a settlement, if any, would have a material adverse effect on Sun's
business, financial condition or results of operations. However, Sun is unable
to determine at this time when the proceedings will be concluded or, if no
settlement is reached, whether the DSS will seek further administrative action
or Medicaid reimbursement sanctions. No assurance may be given that a settlement
will in fact occur or whether any such settlement or other outcome of the
investigation will not have a material adverse effect on Sun's business,
financial condition or results of operations. The foregoing statement with
regard to the outcome of this investigation is forward looking and could be
affected by a number of factors, including factual findings and the
interpretation of applicable laws and regulations by the Attorney General and
the DSS and whether any such factual findings could serve as a basis for
proceedings by other governmental authorities in Connecticut or elsewhere.
In 1997, Sun was notified by a law firm representing several national
insurance companies that these companies believed that Sun had engaged in
improper billing and other practices in connection with Sun's delivery of
therapy and related services. In response, Sun began discussions directly with
these insurers and hopes to resolve these matters without litigation; however,
Sun is unable at this time to predict whether it will be able to do so, what the
eventual outcome may be or the extent of its liability, if any, to these
insurers.
Pursuant to the Health Insurance Portability and Accountability Act of 1996
(the "Act"), Congress has provided additional funding to Medicare and Medicaid
enforcement units to investigate potential cases of reimbursement abuse in the
health care services industry. The Act also sets guidelines to encourage
federal, state, and local law enforcement agencies to share general information
and to coordinate specific law enforcement activities including conducting
investigations, audits, evaluations, and inspections relating to the delivery of
and payment for health care. From time to time enforcement agencies conduct
audits, inspections and investigations with respect to the reimbursement
activities of the subsidiaries of Sun. Sun is currently the subject of several
such investigations. It is Sun's practice to cooperate fully in such matters.
POTENTIAL ADVERSE IMPACT FROM EXTENSIVE REGULATION
Sun is subject to extensive Federal, state and local government regulation
relating to licensure, conduct of operations, ownership of facilities, expansion
of facilities and services and reimbursement for services. As such, in the
ordinary course of business, Sun's operations are continuously subject to state
and Federal regulatory scrutiny, supervision and control. Such regulatory
scrutiny often includes inquiries, investigations, examinations, audits, site
visits and surveys, some of which may be non-routine. All of the facilities
operated or managed by Sun are required to be licensed in accordance with the
requirements of state and local agencies having jurisdiction over their
operations. Most of Sun's facilities are also certified as providers under the
Medicaid and Medicare programs. The long-term care facilities, as well as Sun's
rehabilitation therapy and pharmaceutical operations, are subject to periodic
inspection by governmental and other authorities to assure continued compliance
with regulatory procedures and licensing under state law and certification under
the Medicare and Medicaid programs. The failure to obtain or renew any required
regulatory approvals or licenses or to comply with applicable regulations in the
future could adversely affect Sun's financial condition and results of
operations. See "--Investigations; Uncertain Impact on Future Operating
Results." To the extent that Certificates of Need ("CONs") or other similar
approvals are required for expansion of Sun's operations, either through
acquisitions or additions to or provision of new services at such facilities,
such expansion could be adversely affected by the failure to obtain such CONs or
approvals. See "--Risks Related to Prospective Payment System."
Medicare and Medicaid antifraud and abuse laws prohibit certain business
practices and relationships that might affect the provision and cost of health
care services reimbursable under Medicare and
25
<PAGE>
Medicaid. Expressly prohibited are kickbacks, bribes and rebates related to
Medicare or Medicaid referrals. Federal laws also provide civil and criminal
penalties for any false or fraudulent statements, knowingly made, in any claim
for payment under a Federal or state health care program as well as any material
omissions in such claims. In addition, certain states have adopted fraud and
abuse and false claims laws that prohibit specified business practices.
Sanctions for violating these laws include criminal penalties and civil
sanctions, including fines and possible exclusion from the Medicare and Medicaid
programs.
In many states, the temporary therapy staffing industry is regulated and
CareerStaff must be registered or qualify for an exemption from registration.
While these regulations have had no material effect on the conduct of
CareerStaff's business to date, there can be no assurance that future
regulations will not have such an effect. In addition, the healthcare industry
to which CareerStaff provides therapists is subject to numerous Federal, state
and local regulations. The majority of states require therapists practicing in
such states to be licensed or certified. CareerStaff has occasionally
experienced difficulties in moving therapists from one state to another because
of state licensing requirements. Sun does not believe this has had a material
adverse effect on its financial condition or results of operations.
There can be no assurance that Sun's business in the future will not be
materially adversely affected by licensing requirements of state and Federal
authorities and by amendments to Federal law, which mandate that nursing homes
provide rehabilitation therapy services to their patients and authorize Medicare
reimbursement for such services, or by new reimbursement rates proposed by HCFA.
See "Business-- Government Regulation" included in Sun's Annual Report on Form
10-K for the year ended December 31, 1997 and Sun's Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 1998, incorporated by reference
herein.
DIFFICULTY OF INTEGRATING ACQUIRED OPERATIONS
Sun's growth strategy relies heavily on the acquisition of long-term and
subacute care facilities. In October 1997, the Company acquired Regency, its
largest acquisition to date. Acquisitions present problems of integrating the
acquired operations with existing operations, including the loss of key
personnel and institutional memory of the acquired business, difficulty in
integrating corporate, accounting, financial reporting and management
information systems and strain on existing levels of personnel to operate such
acquired businesses. In addition, certain assumptions regarding the financial
condition of an acquired business may later prove to be incorrect. For example,
in connection with Sun's acquisition of The Mediplex Group, Inc. ("Mediplex") in
June 1994, a significant percentage of Mediplex's receivables proved to be
uncollectible, which resulted in significant write-offs in Sun's 1994, 1995 and
1996 fiscal years. In addition, Sun's net earnings for its 1995 and 1996 fiscal
years were adversely affected by an impairment loss to certain goodwill
associated with the acquisition of Mediplex and negative revenue adjustments
resulting primarily from changes in accounting estimates based on events
occurring in 1996. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in Sun's Annual Report on Form
10-K for the year ended December 31, 1997 and Sun's Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 1998, incorporated by reference
herein. Sun's ability to manage its growth effectively will require it to
continue to improve its corporate accounting, financial reporting and management
information systems, and to attract, train, motivate and manage its employees
effectively. See "--Management of Growth."
The integration of the operations of Retirement Care and Contour, to the
extent consummated, will require the dedication of management resources which
will detract attention from Sun's day-to-day business. The difficulties of
integration may be increased by the necessity of coordinating geographically-
separated organizations, integrating personnel with disparate business
backgrounds and combining different corporate cultures. As part of the RCA and
Contour Mergers, Sun is expected to seek to reduce expenses by eliminating
duplicative or unnecessary personnel, corporate functions and other expenses.
There can be no assurance that Sun will be able to reduce expenses in this
fashion or that there will not be high costs associated with such activities or
that there will not be other material adverse effects of such
26
<PAGE>
activities. Such events could materially and adversely affect Sun's financial
condition and results of operations. There can be no assurance that Sun will be
able to successfully integrate acquired operations or to successfully manage any
growth; failure to do so effectively and on a timely basis could have a material
adverse effect upon Sun's financial condition and results of operations. See
"--Risks Related to RCA and Contour Mergers."
If Sun is unable to effectively integrate the operations of an acquired
entity with Sun's existing operations, Sun may elect to divest some or all of
the acquired operations. In the second quarter of 1996, Sun sold its ambulatory
surgery subsidiary. Sun's decision to sell its ambulatory surgery subsidiary was
influenced in part by the marketplace's resistance to the integration of
subacute care with ambulatory surgery. In addition, in February 1997 Sun
announced that it had recognized a $7 million loss in anticipation of the sale
and divestiture of its outpatient rehabilitation therapy clinics in Canada,
which were primarily acquired through the acquisition of Columbia Health Care
Inc. ("Columbia") in 1995. The Company currently anticipates also selling its
outpatient rehabilitation therapy clinics in the United States, which were
primarily acquired as part of Sun's acquisitions of Mediplex and Regency.
RISKS RELATED TO RCA AND CONTOUR MERGERS
In addition to the general acquisition risks described under "--Difficulty
of Integrating Acquired Operations" and "Business--Acquisitions" in Sun's Annual
Report on Form 10-K for the year ended December 31, 1997. Sun faces risks
specific to its pending mergers with Retirement Care and Contour, including
risks related to the following:
POSSIBLE ADVERSE EFFECTS ON SUN IF THE RCA AND CONTOUR MERGERS ARE NOT
CONSUMMATED. Since early 1997, Sun has been providing on an arms'-length basis
ancillary services and management, consulting and advisory services to certain
facilities owned, leased or managed by Retirement Care, its affiliates and
affiliates of certain principal shareholders of Retirement Care (the "RCA
Facilities"). Revenues from the provision of such services totaled $11.0 million
and $12.4 million, or 1.5% and 0.6% of Sun's net revenues, for the three months
ended March 31, 1998 and for the year ended December 31, 1997, respectively,
substantially all of which remained unpaid as of March 31, 1998. In the event
the RCA Merger is not consummated there can be no assurance that Retirement Care
would not seek other sources for the provision of such services, and Sun's
potential future revenues therefrom would terminate. In addition, RCA is
indebted to Sun in the principal amount of $14.8 million, plus accrued and
unpaid interest of $1.3 million as of March 31, 1998, pursuant to two loan
agreements entered into between Sun and Retirement Care (the "Loan Agreements").
Amounts outstanding under the Loan Agreements are secured by a second lien on
all of Retirement Care's accounts receivable and are subordinate to certain
other outstanding indebtedness of Retirement Care. In the event that the RCA
Merger is not consummated, Sun's ability to collect the amounts owed by
Retirement Care to Sun for the provision of services and under the Loan
Agreements, which together totaled approximately $39.0 million as of March 31,
1998, could be impaired, particularly in light of the recent deterioration of
Retirement Care's financial condition and results of operation subsequent to the
execution of the RCA Merger Agreement. In December 1997, the Company purchased
from a third party $5.0 million aggregate principal amount of 9% Contour
convertible debentures (the "Contour Debentures") which are convertible into one
million shares of Contour common stock, for an aggregate price of $8.4 million
in cash. In the event the Contour Merger is not consummated, the value of the
Contour Debentures could be impaired, particularly in light of the deterioration
of Contour's financial condition and results of operations. See "--Recent
Deterioration of Retirement Care's Financial Condition" and "--Recent
Deterioration of Contour's Financial Condition" below. Failure to collect such
amounts could require significant charges in the period in which the RCA and
Contour Mergers are terminated, and Sun's financial condition and results of
operations may be materially and adversely affected in the period in which such
charges are taken.
27
<PAGE>
The Merger Agreement with respect to the RCA Merger, as amended (the "RCA
Merger Agreement") provides that either party has the right to terminate the RCA
Merger if the RCA Merger is not consummated by June 30, 1998. There can be no
assurance that the RCA Merger will be consummated.
RESIGNATION OF RETIREMENT CARE'S AND CONTOUR'S INDEPENDENT ACCOUNTANTS;
RESTATEMENT OF FINANCIAL STATEMENTS. On August 14, 1997, Coopers & Lybrand
L.L.P. ("C&L") resigned as the independent accountants of Retirement Care and
Contour. C&L stated that it resigned as the independent accountants of
Retirement Care as a result of (i) concerns regarding Retirement Care
management's inability to provide adequate support for certain inventory
adjustments; (ii) concerns regarding other potential adjustments that may have
required Retirement Care to amend its quarterly financial statements as
previously filed for the first three quarters of fiscal 1997; (iii) concerns
with respect to the realizability of notes and advances due to Retirement Care
from affiliates; and (iv) C&L's view that Retirement Care should increase its
allowances for doubtful accounts and Medicaid/Medicare settlements and increase
its accruals for self-insured workers' compensation matters. Contour has
indicated that it is not aware of any reason for C&L's resignation as its
independent accountants other than Contour's affiliation with Retirement Care.
C&L stated that its audit report on Retirement Care's and Contour's financial
statements for the fiscal year ended June 30, 1996 should not be relied upon
because C&L concluded that it could no longer rely on Retirement Care and
Contour management's representations. Retirement Care and Contour announced
C&L's resignation on August 21, 1997. On September 5, 1997, upon the
recommendation of the independent members of the audit committees of Retirement
Care's and Contour's respective boards of directors, Retirement Care and Contour
each retained Cherry, Bekaert & Holland, L.L.P. to reaudit Retirement Care's and
Contour's financial statements for the fiscal year ended June 30, 1996 and to
audit Retirement Care's and Contour's financial statements for the fiscal year
ended June 30, 1997. On October 14, 1997, Retirement Care and Contour each filed
amended annual reports on Form 10-K/A restating their results for the fiscal
year ended June 30, 1996, and on October 23, 1997, Retirement Care and Contour
each filed amended quarterly reports on Form 10-Q/A restating their results for
the first three quarters of fiscal 1997. In light of C&L's resignation and the
subsequent restatement of RCA and Contour's financial statements, there is an
increased risk that assumptions made by Sun regarding the financial condition of
Retirement Care and Contour may later prove to be incorrect. See "--Difficulty
of Integrating Acquired Operations."
SHAREHOLDER LITIGATION. The RCA Merger Agreement does not provide for any
contractual indemnification of Sun by Retirement Care's shareholders, nor is Sun
retaining any of the merger consideration as protection against any liabilities,
known or unknown, of Retirement Care for which Sun would, as a consequence of
the RCA Merger, become responsible. As a result, Sun would bear the cost of any
such liabilities of Retirement Care, including any liabilities arising out of
the following litigation, if the RCA Merger is consummated.
Between August 25, 1997 and October 24, 1997, ten putative class action
lawsuits (the "Actions") were filed in the United States District Court for the
Northern District of Georgia on behalf of persons who purchased Retirement
Care's common stock, naming Retirement Care and certain of its officers and
directors as defendants. The complaints allege violations of Federal securities
laws by the defendants for disseminating allegedly false and misleading
financial statements for Retirement Care's fiscal year ended June 30, 1996 and
its first three quarters of fiscal year 1997, which the plaintiffs allege
materially overstated Retirement Care's profitability. Generally, each of the
Actions seeks unspecified compensatory damages, pre-judgment and post-judgment
interest, attorneys' fees and costs and other equitable and injunctive relief.
On November 25, 1997, Retirement Care, Sun and representatives of the
plaintiffs entered into a Memorandum of Understanding ("MOU"). Pursuant to the
MOU Sun agreed to pay $9 million into an interest bearing escrow account
maintained by Sun to settle the Actions (the "Settlement"). The Settlement is
contingent upon the closing of the RCA Merger and is subject to, among other
things, confirmatory discovery, the execution of definitive documentation and
court approval. Upon satisfaction of the
28
<PAGE>
conditions precedent to the Settlement, all claims by the class that were or
could have been asserted by the plaintiffs against Retirement Care or any of the
other defendants in the Actions will be settled and released and the Actions
will be dismissed in their entirety with prejudice in exchange for the release
of all funds from the escrow account to the plaintiffs. Court approval of the
Settlement will not be sought unless and until the RCA Merger closes, and
therefore, no assurance can be given that the Settlement will become final even
if the RCA Merger is consummated.
There can be no assurance that additional class actions will not be filed
against Retirement Care and its officers and directors or that the court will
approve the Settlement or that the Actions will be settled and dismissed on the
terms described herein or at all. In the event that the RCA Merger does close,
but the Settlement is terminated for any reason, the Actions may result in
protracted litigation which may result in a diversion of management and other
resources of Sun as the new owners of Retirement Care. The payment of
substantial legal costs or damages, or the diversion of management and other
resources could have a material and adverse effect on Sun's business, financial
condition and results of operations.
Retirement Care is a party to indemnification agreements with certain of the
other defendants in the actions described above, including Retirement Care's
officers and directors. Retirement Care has also purchased a directors' and
officers' liability insurance policy that provides Retirement Care's directors
and officers with liability coverage of up to $5 million per policy year. The
scope of coverage under the policy is limited, and Retirement Care is currently
engaged in litigation with the carrier regarding whether the policy provides
indemnification for losses arising from the Actions. Following the RCA Merger,
Sun has agreed to provide indemnification to Retirement Care's officers and
directors under certain circumstances.
RECENT DETERIORATION OF RETIREMENT CARE'S FINANCIAL CONDITION. Retirement
Care has experienced significant operating and net losses for the fiscal year
ended June 30, 1997. Sun has been informed by Retirement Care that Retirement
Care believes the operating losses of approximately $9.9 million* for the fiscal
year ended June 30, 1997 and $8.1 million* for the nine months ended March 31,
1998 were incurred in part due to a deterioration of Retirement Care's
operations as a result of the pendency of and delays associated with the RCA
Merger (including higher than normal turnover), costs associated with the
integration and operation of Retirement Care's recently-acquired Virginia and
North Carolina facilities (including significant survey deficiencies and costs
associated with temporary staffing and state-appointed management at certain of
the Virginia and North Carolina facilities), and declines in Medicaid rates and
occupancy rates during fiscal year 1997 without a corresponding reduction in
operating costs.
There can be no assurance that Retirement Care will not experience continued
operating and net losses in the future, and unforeseen expenses, difficulties
and complications could result in greater than anticipated operating losses or
otherwise materially adversely affect Retirement Care's business, financial
condition and results of operations before and after the RCA Merger. As a
result, Sun as the owner of Retirement Care after the RCA Merger, may be
materially and adversely affected by expenses it will incur after the RCA Merger
to resolve problems associated with Retirement Care's deteriorating financial
condition.
Based upon a review of Retirement Care's, Contour's and Sun's publicly
available historical financial statements, the RCA and Contour Mergers would
have had a dilutive impact on Sun's reported earnings per share for the year
ended December 31, 1997 and three months ended March 31, 1998. If the RCA Merger
and Contour Merger are consummated, there can be no assurance that the future
combined results will not continue to be dilutive to Sun.
RECENT DETERIORATION OF CONTOUR'S FINANCIAL CONDITION. Contour has
experienced significant operating and net losses for the fiscal year ended June
30, 1997. Contour has informed the Company that it believes
- ------------------------
* Each of the amounts described above is based solely on Retirement Care's
Annual Report on Form 10-K for the year ended June 30, 1997 and Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 1998. Sun makes
no representation as to the accuracy or adequacy of such amounts.
29
<PAGE>
that the operating loss of approximately $0.4 million** for the fiscal year
ended June 30, 1997 and approximately $0.8 million for the nine months ended
March 31, 1998 were primarily due to decreases in gross profit margin
historically earned by Contour's bulk medical supplies operations, increases in
operating expenses associated with the acquisition of AmeriDyne Corporation in
March 1996 and Atlantic Medical Supply Company, Inc. in July 1996 and increases
in direct labor expense, occupancy expense, interest expense and miscellaneous
expense.
There can be no assurance that Contour will not experience continued
increases in expenses and decreases in gross margins and gross profit in the
future, and other unforeseen expenses, difficulties and complications could
result in greater than anticipated operating losses or otherwise materially and
adversely affect Contour's business, financial condition and results of
operations. As a result, Sun as the owner of Contour after the Contour Merger,
may be materially and adversely affected by expenses it will incur after the
Contour Merger to resolve problem's associated with Contour's deteriorating
financial condition.
Based upon a review of Contour's and Sun's publicly available historical
financial statements, the Contour Merger would have had a dilutive impact on
Sun's reported earnings per share for the year ended December 31, 1997. If the
Contour Merger is consummated, there can be no assurance that the future
combined results will not continue to be dilutive to Sun.
OTHER COSTS TO BE INCURRED IN CONNECTION WITH RCA AND CONTOUR
MERGERS. Costs being incurred in connection with the mergers of Retirement Care
and Contour are expected to be significant and will be charged against earnings
of the combined company. The charge is currently estimated to be approximately
$30 million, and is expected to consist of transaction costs and integration
expenses, including elimination of redundant corporate functions, severance
costs related to headcount reductions and write-off of certain intangibles and
property and equipment and the settlement of certain class action lawsuits. See
"--Shareholder Litigation." Approximately $25 million of these estimated charges
are expected to be charged to operations in the fiscal quarter in which the RCA
Merger is consummated. Approximately $5 million of the estimated charges
relating to the integration expenses are expected to be expensed as incurred as
these costs are expected to benefit future combined operations. Pursuant to the
MOU, Sun has agreed to pay $9 million into an interest bearing account to settle
the Actions. The Settlement will be expensed in the period in which the
conditions to the MOU, including closing of the RCA Merger, are satisfied. These
amounts are preliminary estimates only and are, therefore, subject to change.
MANAGEMENT OF GROWTH
Sun's success will depend in part on its ability to manage the growth of its
operations. Any such growth is expected to place a significant strain on Sun's
managerial, operational and financial resources. Sun's ability to manage growth
effectively will require it to continue to improve its corporate accounting,
financial reporting, internal accounting systems and management information
systems, and to attract, train, motivate and manage its employees effectively.
These demands are expected to require further expenditures for the addition of
new management personnel and the development of additional expertise by existing
management personnel. There can be no assurance that Sun will be able to manage
effectively the expansion of its operations, that its systems, procedures or
controls will be adequate to support Sun's operations or that Sun's management
will be able to exploit opportunities for its services and products. An
inability to manage growth, if any, could have a material adverse effect on
Sun's business, results of operations, financial condition and cash flow.
- ------------------------
** Each of the amounts described above is based solely on Contour's Annual
Report Form 10-K for the year ended June 30, 1997 and Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 1998. Sun makes no
representation as to the accuracy or adequacy of such amounts.
30
<PAGE>
NO ASSURANCE OF CONTINUED RAPID GROWTH
Since its formation in 1989, Sun has implemented an aggressive program of
expansion of its business through the acquisition of additional long-term and
subacute care facilities and other operations. From January 1994 through
December 31, 1997, Sun acquired or assumed the net operations or management of
417 long-term and subacute care facilities with a total of 39,492 licensed beds
in the United States, the United Kingdom, Australia, Spain and Germany. During
this same period, Sun opened 23 facilities with a capacity of 1,876 licensed
beds. During such period, Sun has also acquired pharmacies, temporary therapy
staffing providers, outpatient rehabilitation clinics, home care agencies,
ambulatory surgery centers and a respiratory therapy company, and has
experienced significant internal growth, particularly in its therapy operations.
Sun's total net revenues increased from $135.7 million for the year ended
December 31, 1992 to $2.0 billion for the year ended December 31, 1997.
Similarly, net earnings before the extraordinary loss increased from $4.4
million for the year ended December 31, 1992 to $54.7 million for the year ended
December 31, 1997. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in Sun's Annual Report on Form
10-K for the year ended December 31, 1997 and Sun's Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 1998, incorporated by reference
herein. Sun intends to continue to pursue its acquisition strategy in the
future. In making such acquisitions, Sun competes with other providers, many of
which have greater financial resources than Sun. There can be no assurance that
suitable acquisitions will be identified or completed in the future.
Sun has used both Sun Common Stock and indebtedness to fund many of its
significant acquisitions. Although Sun did not utilize Sun Common Stock as
acquisition consideration from February 1996 through February 1997, Sun issued
or reserved for issuance approximately 23.3 million shares of Sun Common Stock
in acquisitions from January 1994 to January 1996. Sun has also undertaken
significant borrowing to finance the acquisitions of Regency, Mediplex and other
transactions and to support expanded operations (including the assumption or
guarantee by Sun of $338.6 million of Mediplex indebtedness as of the date of
the acquisition of Mediplex and the assumption or refinancing of $229.2 million
of indebtedness in connection with the Regency Acquisition), and would assume
$192.0 million of indebtedness (excluding $19.8 million which will be eliminated
in consolidation) if the Mergers are consummated (based on RCA's March 31, 1997
balance sheet and assuming Sun acquires the remaining 35% of Contour for Sun
Common Stock). Sun's Credit Facility and certain of Sun's indentures limit Sun's
ability to raise additional indebtedness which may inhibit Sun's ability to use
debt financing to consummate acquisitions. See "--Substantial Leverage; Ability
to Service Debt" and "Unaudited Pro Forma Combined Financial Statements." See
"Business--Acquisitions" included in Sun's Annual Report on Form 10-K for the
year ended December 31, 1997, incorporated by reference herein. The ability to
utilize Sun Common Stock for acquisition or financing purposes will depend on
the market price of the Sun Common Stock, which has from time to time been
subject to heightened volatility resulting primarily from uncertainties
regarding certain Medicare reimbursement policies and a government investigation
of Sun's rehabilitation therapy subsidiary. See "--Potential Reduction of
Reimbursement Rates from Third Party Payors and Possible Adverse Impact on
Future Operating Results," "--Risks Associated with Reimbursement Process and
Collectibility of Certain Accounts Receivable," "--Risks Associated with Related
Party Transactions" and "--Investigations; Uncertain Impact on Future Operating
Results."
Because of operating and financing constraints resulting from acquisitions
and internal growth, there can be no assurance that Sun will have adequate cash
or borrowing capacity and other resources to compete effectively for future
acquisitions or will be able in the future to continue to engage as actively in
acquisitions as it has in the past, and uncertainties regarding reimbursement
rates for therapy, the outcome of the government investigation of Sun's
rehabilitation therapy subsidiary or a material reduction in such rates could
limit internal growth of Sun's therapy business. Pursuant to the Senior Credit
Facility, Sun will be required to obtain the consent of its principal bank
lenders in connection with significant future acquisitions. In addition, to the
extent Sun's operational, administrative and financial resources are strained by
its acquisition program, Sun's ability to integrate acquired operations may
become more protracted. Although Sun is continuously engaged in discussions
regarding future acquisitions, there can be
31
<PAGE>
no assurance that any acquisitions will be completed, or that Sun's historic
rate of growth in assets, revenues or net revenues will be sustained. See
"--Management of Growth", "--Risks Related to the RCA and Contour Mergers",
"--Difficulty of Integrating Acquired Operations", "--Potential Liability for
Reimbursements Paid to Former Operators of Acquired Facilities" and
"--Substantial Leverage; Ability to Service Debt." See "Business--Acquisitions"
included in Sun's Annual Report on Form 10-K for the year ended December 31,
1997, incorporated by reference herein.
FINANCIAL RESULTS SUBJECT TO FLUCTUATION
Sun's financial results may fluctuate on a quarterly basis as a result of a
number of factors, including the timing of acquisitions, any associated charges
to earnings and the financial performance of acquired companies. A material
shortfall in revenue or increase in expenses in a given quarter, or a delayed or
unrealized ability to achieve synergies from acquisitions, could have a material
adverse effect on Sun's earnings. Sun believes that quarterly comparisons of
Sun's revenues and operating results should not be relied on as necessarily
being indicative of future performance. See "--Difficulty of Integrating
Acquired Operations."
RISK OF EXPANSION OF INTERNATIONAL OPERATIONS; FOREIGN EXCHANGE RISK
Sun currently conducts business outside the United States in the United
Kingdom, Spain, Germany, Australia and Canada. Foreign operations accounted for
approximately 9%, 10%, 4% and 2% of Sun's total net revenues during the three
months ended March 31, 1998, the years ended December 31, 1997, 1996 and 1995,
respectively, and 24% of Sun's consolidated total assets as of December 31,
1997. See "Business--Acquisitions" included in Sun's Annual Report on Form 10-K
for the year ended December 31, 1997, incorporated by reference herein. Sun
expects that its revenues and operations attributable to international
operations may increase and substantially contribute to Sun's growth and
earnings in the future. Accordingly, as Sun's international operations continue
to grow, adverse results from Sun's international operations could adversely
affect Sun's financial condition and results of operations. Sun intends to
expand its international operations through the acquisition of operational
facilities and the construction and development of new facilities. In the past,
Sun has constructed and developed new facilities to a more significant degree in
its international expansion than it has in the United States, where Sun's growth
has been primarily due to the acquisition of operational facilities. In addition
to the capital expenditures involved in the construction and development of new
facilities, Sun expects to incur substantial losses in the first year of
operation of a new facility. As a result, the financial condition and results of
operations of Sun's international operations could be adversely affected in any
period in which a significant number of facilities are being constructed or
developed or are in their first year of operation. The success of Sun's
operations in and expansion into international markets depends on numerous
factors, many of which are beyond its control. Such factors include, but are not
limited to, economic conditions and healthcare regulatory systems in the foreign
countries in which Sun operates. In addition, international operations and
expansion may increase Sun's exposure to certain risks inherent in doing
business outside the United States, including slower payment cycles, unexpected
changes in regulatory requirements, potentially adverse tax consequences,
currency fluctuations, restrictions on the repatriation of profits and assets,
compliance with foreign laws and standards and political risks.
Sun's financial condition and results of operations are subject to foreign
exchange risk. Because of Sun's foreign growth strategies, Sun does not expect
to repatriate funds invested overseas and, therefore, foreign currency
transaction exposure is not normally hedged. Exceptional planned foreign
currency cash flow requirements, such as acquisitions overseas, are hedged
selectively to prevent fluctuations in the anticipated foreign currency value.
Changes in the net worth of Sun's foreign subsidiaries arising from currency
fluctuations are accumulated in the translation adjustments component of
stockholders' equity.
32
<PAGE>
YEAR 2000 RISK
In common with users of computers around the world, Sun is investigating if
and to what extent the date change from 1999 to 2000 may affect its networks and
systems. Sun expects to incur internal staff costs, external consulting costs,
and other expenses related to infrastructure and facility enhancement necessary
to prepare the systems for the year 2000. Although the total cost to Sun of
achieving year 2000 compliant systems is not expected to be material to Sun's
operations or financial condition, there can be no assurance that the costs will
be as expected or that this program will be successful or that the date change
from 1999 to 2000 will not materially adversely affect Sun's business, financial
condition and results of operations. The ability of third parties with which Sun
transacts business to adequately address their year 2000 issues is outside Sun's
control. Although Sun will seek alternative vendors, where its current vendors
are unwilling or unable to become year 2000 compliant in a timely manner, there
can be no assurance that Sun's business, financial condition and results of
operations will not be materially adversely affected by the ability of third
parties dealing with Sun, including Medicare and Medicaid, to also manage the
effect of the year 2000 date change.
INCREASED LABOR COSTS AND AVAILABILITY OF PERSONNEL
In recent years Sun has experienced increases in its labor costs primarily
due to higher wages and greater benefits required to attract and retain
qualified personnel, increased staffing levels in its long-term and subacute
care facilities due to greater patient acuity and the hiring and retention of
staff therapists. Although Sun expects labor costs to continue to increase in
the future, it is anticipated that any increase in costs will generally result
in higher patient rates in subsequent periods, subject to the time lag in most
states between increases in reimbursable costs and the receipt of related
reimbursement rate increases. Since under the upcoming PPS and fee schedules
reimbursement, payment will no longer be on a "pass through" basis, increases in
costs may no longer result in corresponding increases in reimbursement. See
"--Potential Reduction of Reimbursement Rates from Third Party Payors and
Possible Adverse Impact on Future Operating Results," "--Risks Associated with
Reimbursement Process and Collectibility of Certain Accounts Receivable,"
"--Potential Liability for Reimbursements Paid to Former Operators of Acquired
Facilities," and "--Risks Associated with Related Party Transactions."
In the past, the healthcare industry, including Sun's long-term and subacute
care facilities, has experienced a shortage of nurses to staff healthcare
operations and, more recently, the healthcare industry has experienced a
shortage of therapists. Sun is not currently experiencing a nursing or therapist
shortage, but it competes with other healthcare providers for nursing and
therapist personnel and may compete with other service industries for persons
serving Sun in other capacities, such as certified nursing assistants. A
nursing, therapist or certified nursing assistant shortage could force Sun to
pay higher salaries and make greater use of higher cost temporary personnel. A
lack of qualified personnel might also require Sun to reduce its census or admit
patients requiring a lower level of care, both of which could adversely affect
operating results.
SUBSTANTIAL COMPETITION
Sun operates in a highly competitive industry. The nature of competition
varies by location. Sun's facilities generally operate in communities that are
also served by similar facilities operated by others. Some competing facilities
are located in buildings that are newer than those operated by Sun and provide
services not offered by Sun, and some are operated by entities having greater
financial and other resources and longer operating histories than Sun. In
addition, some facilities are operated by nonprofit organizations or government
agencies supported by endowments, charitable contributions, tax revenues and
other resources not available to Sun. Some hospitals that either currently
provide long-term and subacute care services or are converting their
under-utilized facilities into long-term and subacute care facilities are also a
potential source of competition to Sun. Sun also competes with other companies
in providing rehabilitation therapy services and pharmaceutical products and
services to the long-term care industry and in
33
<PAGE>
employing and retaining qualified therapists and other medical personnel. Many
of these competing companies have greater financial and other resources than
Sun. There can be no assurance that Sun will not encounter increased competition
in the future that would adversely affect its financial condition and results of
operations.
POTENTIAL CONFLICTS OF INTEREST FROM RELATED PARTY TRANSACTIONS
At March 31, 1998, 58 of Sun's 318 long-term and subacute care facilities in
the United States were leased or subleased from John E. Bingaman or Zev Karkomi,
two of Sun's directors, or from partnerships or corporations in which such
directors are general or limited partners, directors or stockholders or
otherwise have a significant equity holding. Sun believes the terms of all of
the foregoing leases and subleases to which it is a party are as favorable to
Sun as those that could have been obtained in arm's length transactions with
nonaffiliated parties at the time of such transactions. However, contractual
relationships with entities affiliated with members of Sun's board of directors
create the potential for conflicts of interest. Sun will likely continue to
enter into leases and subleases with members of its board of directors and their
affiliates. There can be no assurance that these contractual relationships with
members of Sun's board of directors and their affiliates will not create actual
conflicts of interest.
ADEQUACY OF CERTAIN INSURANCE
Healthcare companies are subject to medical professional liability, personal
injury and other liability claims that are customary risks inherent in the
operation of health facilities and are generally covered by insurance. Sun
maintains property, liability and professional liability insurance policies in
amounts and with such coverages and deductibles that are deemed appropriate by
Sun, based upon historical claims, industry standards and the nature and risks
of its business. Sun also requires that physicians practicing at its facilities
carry medical professional liability insurance to cover their respective
individual professional liabilities. There can be no assurance that such
insurance will continue to be available at acceptable costs or that claims in
excess of the current insurance coverage or claims not covered by insurance will
not be asserted against Sun.
HEALTH INSURANCE AND WORKERS' COMPENSATION INSURANCE
Sun self-insures the healthcare risks of its employees who select coverage
under certain Sun-sponsored plans. Sun has in the past effected workers'
compensation coverage through self-insurance or high deductible insurance
programs. Substantially all of the risk of workers' compensation claims under
the high deductible programs are assumed by Sun and such risks are comparable to
those of a self-insured plan. The costs of paying for self-insured healthcare
and self-insured and high deductible workers' compensation claims can fluctuate
depending on the type and number of claims in any given period. There can be no
assurance that the amounts Sun will be required to pay for these types of claims
will not increase.
CONCENTRATION OF OWNERSHIP
As of June 9, 1998, Mr. Andrew Turner, the Chairman of the Board of
Directors and Chief Executive Officer of Sun, beneficially owned approximately
13.8% of the outstanding Sun Common Stock. While Mr. Turner's percentage of
ownership is not sufficient to enable him to control the outcome on matters
submitted to stockholders, his stock ownership, along with his position as
Chairman of the Board of Directors and Chief Executive Officer of Sun, enables
him to exert significant influence on Sun's operations. Mr. Turner's level of
ownership may have the effect of hindering a change of control of Sun.
ABSENCE OF PUBLIC MARKET; RESTRICTIONS ON TRANSFER
The Notes will be new securities for which there is no established trading
market. The Company does not intend to apply for listing of the Notes on any
national securities exchange or in any automated
34
<PAGE>
quotation system. The Initial Purchasers have advised the Company that they
currently intend to make a market in the Notes, but that they are not obligated
to do so and, if commenced, may discontinue such market making at any time at
their sole discretion. Although the Notes are expected to be eligible for
trading in the PORTAL Market, there can be no assurance as to the development of
any market or the liquidity of any market that may develop for the Notes.
Because the Notes are being sold pursuant to an exemption from registration
under the Securities Act and applicable state securities laws, they may not be
publicly offered, sold or otherwise transferred in any jurisdiction where such
registration may be required unless the applicable Notes are registered or are
sold in a transaction exempt from registration in such jurisdiction. There can
be no assurance that an active trading market for any of the Notes will develop
or if one does develop, that it will be sustained. Accordingly, no assurance can
be made as to the development or liquidity of any market for the Notes. If an
active public market does not develop, the market, price and liquidity of any
market of the Notes may be adversely affected. If any of the Notes are traded
after their initial issuance, they may trade at a discount from their initial
offering price, depending on prevailing interest rates, the market for similar
securities and other factors, including general economic conditions and the
financial condition and performance of Sun. Prospective investors in the Notes
should be aware that they may be required to bear the financial risks of such
investment for an indefinite period of time. See "Description of Notes" and
"Notice to Investors."
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate that
it will register the Old Notes under the Securities Act. To the extent that Old
Notes are tendered and accepted in the Exchange Offer, the trading market for
untendered and tendered but unaccepted Old Notes could be adversely affected.
ABSENCE OF A PUBLIC MARKET FOR THE NEW NOTES
Prior to the Exchange Offer, there has been no public market for the New
Notes. If such a market were to develop, the New Notes could trade at prices
that may be higher or lower than their principal amount. Sun does not intend to
apply for listing of the New Notes on any securities exchange or for quotation
of the New Notes on The Nasdaq Stock Market's National Market or otherwise. Sun
has been advised by the Initial Purchasers that they currently intend to make a
market in the New Notes, as permitted by applicable laws and regulations, after
consummation of the New Notes Offering. The Initial Purchasers are not
obligated, however, to make a market in the Old Notes or the New Notes, and any
such market making activity may be discontinued at any time without notice at
the sole discretion of the Initial Purchasers. There can be no assurance as to
the liquidity of the public market for the New Notes or that any active public
market for the New Notes will develop or continue. If an active public market
does not develop or continue, the market price and liquidity of the New Notes
may be adversely affected.
USE OF PROCEEDS
There will be no cash proceeds payable to Sun from the issuance of the New
Notes pursuant to the Exchange Offer. The proceeds from the sale of the Old
Notes were used to repay borrowings under the Old Credit Facility.
35
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratios of earnings to fixed charges for
the Company and its consolidated subsidiaries for the periods indicated. The
Company to date has not issued Preferred Stock; therefore, the ratios of
earnings to combined fixed charges and preferred stock dividends are unchanged
from the ratios presented here.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges............................ 3.34 1.76 1.15 1.64 1.65
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
1998
-----------------
<S> <C>
Ratio of earnings to fixed charges............................ 1.52
</TABLE>
The computation of the ratio of earnings to fixed charges is based on
applicable amounts of Earnings of the Company and its consolidated subsidiaries
plus dividends received from less than fifty percent owned affiliates.
"Earnings" consist of income from continuing operations before income taxes and
fixed charges excluding capitalized interest. "Fixed charges" consist of
interest on indebtedness, including amounts capitalized, amortization of debt
discount and expense, an estimated amount of rental expense that it deemed to be
representative of the interest factor and other interest charges.
36
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents: (i) selected consolidated historical financial
data for the years ended December 31, 1993, 1994, 1995, 1996 and 1997 derived
from Sun's audited Consolidated Financial Statements and (ii) selected
consolidated historical financial data for the three months ended March 31, 1997
and 1998 derived from Sun's unaudited Consolidated Financial Statements. Results
for the three month periods may not be indicative of results for the full year.
The data for the periods presented are not necessarily comparable because of
acquisitions throughout those periods. The financial data set forth below should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Sun's Consolidated Financial Statements
and the notes thereto included in its Annual Report on Form 10-K for the year
ended December 31, 1997 (the "Form 10-K") and its Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998 (the "Form 10-Q"), each of which is
incorporated herein by reference.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------------- ---------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- ---------- ---------- ---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total net revenues...................... $230,815 $673,354 $1,135,508 $1,316,308(1) $2,010,820(10) $ 398,636 $741,490
Costs and expenses:
Operating............................. 178,712 509,036 855,766 1,016,155 1,518,918 300,256 553,435
Rent.................................. 15,578 43,626 73,727 91,666 143,900 27,647 55,150
Corporate general and
administrative...................... 10,675 31,633 51,468 62,085 98,169 18,447 39,301
Provision for losses on accounts
receivable.......................... 1,265 27,632(2) 14,623(2) 14,970(2) 15,839 3,194 6,013
Interest, net......................... 341 10,548 21,829 25,899 74,482 11,324 35,140
Special charges....................... -- 2,275(3) 18,567(4) 19,250(5) 7,000(11) -- --
Impairment loss....................... -- -- 59,000(6) -- -- -- --
Depreciation and amortization......... 1,534 11,797 27,734 33,817 56,630 11,641 20,474
-------- -------- ---------- ---------- ---------- ---------- --------
Total costs and expenses............ 208,105 636,547 1,122,714 1,263,842 1,914,938 372,509 709,513
-------- -------- ---------- ---------- ---------- ---------- --------
Earnings before income taxes and
extraordinary loss.................... 22,710 36,807 12,794 52,466 95,882 26,127 31,977
Income taxes(7)(9)...................... 9,247 17,246 33,362 30,930 41,153 10,190 13,590
-------- -------- ---------- ---------- ---------- ---------- --------
Earnings (loss) before extraordinary
loss(7)(9)............................ 13,463 19,561 (20,568) 21,536 54,729 15,937 18,587
Extraordinary loss...................... -- -- (3,413)(8) -- (19,928 (12) -- --
-------- -------- ---------- ---------- ---------- ---------- --------
Net earnings (loss)(7)(9)............... $ 13,463 $ 19,561 $ (23,981) $ 21,536 $ 34,801 $ 15,937 $ 18,387
-------- -------- ---------- ---------- ---------- ---------- --------
-------- -------- ---------- ---------- ---------- ---------- --------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------------------------------------------- ---------
1993 1994 1995 1996 1997 1998
--------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............... $ 45,451 $ 197,150 $ 237,147 $ 211,582 $ 307,025 $ 373,885
Total assets.................. 110,488 1,054,223 1,042,503 1,229,426 2,579,237 2,687,986
Long-term debt, net of current
portion..................... 11,967 398,534 348,460 483,453 1,567,971 1,638,365
Stockholders' equity.......... 70,361 550,449 569,042 572,137 617,053 639,550
</TABLE>
- ------------------------------
(1) In the fourth quarter of 1996, the Company recorded negative revenue
adjustments totaling approximately $23.0 million resulting from changes in
accounting estimates of amounts realizable from third party payors. These
changes in accounting estimates primarily arose out of the cost reporting
settlement process in that quarter, including the settlement of outstanding
Medicare cost reports and the results of Medicare and Medicaid cost report
audits. Approximately $19.4 million of the adjustments related to changes
in estimates of the settlement of prior years' cost reports (See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Sun's Quarterly Report on Form 10-Q for the three months
ending June 30, 1997, and Note 1(d) to Sun's Consolidated Financial
Statements included elsewhere herein).
37
<PAGE>
(2) In 1994, the provision for losses on accounts receivable reflects the
write-off of $23.4 million of receivables of Mediplex that existed at the
time of its June 1994 acquisition by Sun. These receivables were impaired
as of the fourth quarter of 1994 or earlier. In 1995, an additional $7.6
million of Mediplex accounts receivable were written off, of which $3.5
million represented accounts receivable existing at the date of
acquisition. In 1996, Sun recorded an additional provision for losses on
accounts receivable of $6.6 million related primarily to its Mediplex
facilities (see "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in Sun's Quarterly Report on Form 10-Q
for the three months ending June 30, 1997).
(3) Reflects a charge in connection with the payment of an inducement fee to
effect the conversion in August 1994 of $24.4 million of Sun's 6 1/2%
Convertible Subordinated Debentures.
(4) Includes (i) $5.8 million of transaction-related merger costs incurred in
connection with the mergers of Sun with CareerStaff and SunCare (see Note
(2) to Sun's Consolidated Financial Statements included elsewhere herein),
(ii) $4.0 million of costs related to averting a strike and negotiating new
contracts for certain unionized nursing homes in Connecticut, (iii) a
charge of $5.5 million related to monitoring and responding to the OIG
investigation and legal fees resulting from shareholder litigation related
to the announcement of the OIG investigation and (iv) a charge of $3.3
million in connection with the payment of an inducement fee to effect the
conversion in January 1995 of $39.4 million of Sun's 6 1/2% Convertible
Subordinated Debentures.
(5) Includes (i) a $24.0 million charge recognized by Sun to settle certain of
the lawsuits brought by shareholders, (ii) $9.0 million received from Sun's
director and officer insurance carrier in connection with such settlement
(see Note 14 to Sun's Consolidated Financial Statements included elsewhere
herein) and (iii) $4.3 million of additional expenses related to monitoring
and responding to the continuing OIG investigation and responding to the
remaining shareholder litigation related to the announcement of the OIG
investigation.
(6) The $59.0 million impairment loss recorded by Sun primarily relates to
goodwill associated with six of the forty facilities acquired in the
acquisition of Mediplex (see Note 1(g) to Sun's Consolidated Financial
Statements included elsewhere herein).
(7) There was no provision for Federal or state income taxes in Sun's
Consolidated Financial Statements for certain entities that subsequently
became subsidiaries of Sun that had elected S corporation status prior to
incorporation as C corporations. Net earnings (loss) for the years ended
December 31, 1993, 1994 and 1995 reflect pro forma Federal and state income
taxes that these entities would have been subject to and liable for as C
corporations prior to each of the entities' termination of their S
corporation status.
(8) Reflects an extraordinary charge of $3.4 million (net of related tax
benefit) in connection with the tender offer for Sun's 11 3/4% of Senior
Subordinated Notes (see Note 6 to Sun's Consolidated Financial Statements
included elsewhere herein).
(9) See Note 1(o) to Sun's Consolidated Financial Statements included elsewhere
herein for net earnings (loss) per share information. Also, PRO FORMA net
earnings per share data for the years ended December 31, 1992 and 1993 is
calculated based upon the number of shares of Sun Common Stock issued upon
the formation of Sun Healthcare Group, Inc. on April 13, 1993, which placed
under the control of a single corporation all of Sun's operations and the
appropriate weighted average number of shares of Sun Common Stock for
common stock transactions of Sun subsequent to Sun's preincorporation
agreement dated as of April 13, 1993, and also include the appropriate
weighted average number of shares of Sun Common Stock for common stock
transactions of CareerStaff and SunCare for the years ended December 31,
1992, 1993, 1994 and 1995.
(10) In the fourth quarter of 1997, the Company recorded negative revenue
adjustments totaling approximately $15.0 million resulting from changes in
accounting estimates primarily based on new information arising from the
settlement in late 1997 of substantially all of the Company's facility
cost reports for 1994 and 1995. This charge also includes an estimate for
projected settlements in 1996 based on prior years' settlements. In
addition, the extinguishment of certain Regency debt discussed in footnote
(10) below resulted in an increase in certain reimbursable costs from
Medicare. As a result, the Company recognized $4.0 million of additional
revenues from Medicare (see "Risk Factors--Risks Associated with
Reimbursement Process and Collectibility of Certain Accounts Receivable"
and "--Potential Liability for Reimbursements Paid to Former Operators of
Acquired Facilities," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 1(d) to Sun's Consolidated
Financial Statements included elsewhere herein).
(11) In 1997, the Company recorded a charge totaling $7.0 million in order to
reduce the carrying value of its Canadian operations to fair value based
on revised estimates of selling value and of costs to sell.
(12) In 1997, the Company recognized an extraordinary loss of $17.9 million,
net of related income tax benefit of $8.8 million, in connection with the
Company's purchase of Regency's 12.25% Junior Subordinated Notes due 2003
and of Regency's 9.875% Senior Subordinated Notes due 2002 and an
extraordinary loss of $2.1 million, net of related tax benefit of $1.0
million, related to the refinancing of the Company's credit facility.
38
<PAGE>
THE EXCHANGE OFFER
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and reference is made to the
provisions of the Registration Rights Agreement, which has been filed as an
exhibit to the Registration Statement and a copy of which is available as set
forth under the heading "Available Information."
TERMS OF THE EXCHANGE OFFER
GENERAL
In connection with the issuance of the Old Notes pursuant to a Purchase
Agreement dated as of July 1, 1997, between the Company and the Initial
Purchasers, the Initial Purchasers and its respective assignees became entitled
to the benefits of the Registration Rights Agreement.
Under the Registration Rights Agreement, the Company and the Guarantors
will, at Sun's cost (i) within 90 days after the date of the original issuance
of the Notes (the "Issue Date") file a registration statement of which this
Prospectus is a part under the Securities Act (the "Exchange Offer Registration
Statement") with the Commission with respect to a registered offer (the
"Exchange Offer") to exchange the Old Notes for New Notes, which will have terms
substantially identical in all material respects to the Notes (except that such
New Notes will not contain terms with respect to transfer restrictions and the
identity of the Guarantors may change in accordance with the terms of the
Indenture) and (ii) use reasonable best efforts to cause such Exchange Offer
Registration Statement to be declared effective under the Securities Act within
180 days after the Issue Date. Promptly after the Exchange Offer Registration
Statement is declared effective, Sun and the Guarantors will offer New Notes in
exchange for properly tendered Old Notes. Sun and the Guarantors will keep the
Exchange Offer open for not less than 20 business days (or longer if required by
applicable law) after the date notice of such Exchange Offer is mailed to the
Holders. The Exchange Offer being made hereby, if commenced and consummated
within the time periods described in this paragraph, will satisfy those
requirements under the Registration Rights Agreement.
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal (which together constitute the Exchange Offer),
all Old Notes validly tendered and not withdrawn prior to 5:00 p.m., New York
City time, on the Expiration Date will be accepted for exchange. New Notes of
the same class will be issued in exchange for an equal principal amount of
outstanding Old Notes accepted in the Exchange Offer. Old Notes may be tendered
only in integral multiples of $1,000. This Prospectus, together with the Letter
of Transmittal, is being sent to all registered holders as of June , 1998. The
Exchange Offer is not conditioned upon any minimum principal amount of Old Notes
being tendered for exchange. However, the obligation to accept Old Notes for
exchange pursuant to the Exchange Offer is subject to certain conditions as set
forth herein under "--Conditions."
Old Notes shall be deemed to have been accepted as validly tendered when, as
and if the Trustee has given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering holders of Old
Notes for the purposes of receiving the New Notes and delivering New Notes to
such holders.
Based on existing interpretations of the Securities Act by the staff of the
Commission set forth in several no-action letters to third parties, and subject
to the immediately following sentence, the Company believes that New Notes
issued pursuant to the Exchange Offer may be offered for resale, resold and
otherwise transferred by the holders thereof without further compliance with the
registration and prospectus delivery provisions of the Securities Act. However,
any purchaser of Notes who is an affiliate of the Company or who intends to
participate in the Exchange Offer for the purpose of distributing the New Notes,
or any broker-dealer who purchased the Notes from the Company to resell pursuant
to Rule 144A or any other available exemption under the Securities Act, (i) will
not be entitled to rely on the
39
<PAGE>
interpretations of the staff of the Commission set forth in the above-referenced
no-action letters, (ii) will not be entitled to tender its Notes in the Exchange
Offer and (iii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or transfer of
the Notes, unless such sale or transfer is made pursuant to any exemption from
such requirements.
Each Holder who wishes to exchange Old Notes for New Notes in the Exchange
Offer will be required to make certain representations, including that (i) any
New Notes to be received by it will be acquired in the ordinary course of its
business, (ii) it has no arrangement or understanding with any person to
participate in the distribution (within the meaning of the Securities Act) of
the New Notes and (iii) it is not an "affiliate," as defined in Rule 405 of the
Securities Act, of Sun, or if it is an affiliate of Sun, it will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable. In addition, if the Holder is not a broker-dealer, it will be
required to represent that it is not engaged in, and does not intend to engage
in, the distribution of the New Notes. If the Holder is a broker-dealer (a
"Participating Broker-Dealer") that will receive New Notes for its own account
in exchange for Old Notes that were acquired as a result of market-making
activities or other trading activities, it will be required to acknowledge that
it will deliver a prospectus in connection with any resale of such New Notes.
The Commission has taken the position that Participating Broker-Dealers may
fulfill their prospectus delivery requirements with respect to such New Notes
(other than a resale of an unsold allotment from the original sale of the Notes)
with the prospectus contained in the Exchange Offer Registration Statement.
Under the Registration Rights Agreement, the Company is required to allow
Participating Broker-Dealers and other persons, if any, subject to similar
prospectus delivery requirements to use the prospectus contained in the Exchange
Offer Registration Statement in connection with the resale of such New Notes.
In the event that any change in law or in the applicable interpretations of
the staff of the Commission do not permit Sun and the Guarantors to effect the
Exchange Offer, or if for any other reason the Exchange Offer is not consummated
within 225 days of the Issue Date, Sun and the Guarantors will, at Sun's
expense, (a) within 60 days after such filing obligation arises, file a shelf
registration statement covering resales of the Notes (the "Shelf Registration
Statement"), (b) use reasonable best efforts to cause the Shelf Registration
Statement to be declared effective under the Securities Act on or prior to 60
days after such filing occurs and (c) use reasonable best efforts to keep
effective the Shelf Registration Statement until the earlier of 24 months
following the Issue Date and such time as all of the Notes covered by the Shelf
Registration Statement have been sold thereunder, or otherwise cease to be
Transfer Restricted Securities (as defined in the Registration Rights
Agreement). Sun will, in the event a Shelf Registration Statement is required to
be filed, provide to each Holder copies of the prospectus which is a part of the
Shelf Registration Statement, notify each such Holder when the Shelf
Registration Statement for the Notes has become effective and take certain other
actions as are required to permit unrestricted resales of the Notes. A Holder
who sells Notes pursuant to the Shelf Registration Statement generally would be
required to be named as a selling security holder in the related prospectus and
to deliver a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with such sales and
will be bound by the provisions of the Registration Rights Agreement which are
applicable to such Holder (including certain indemnification and contribution
rights and obligations). In addition, each holder of the Notes will be required
to deliver information to be used in connection with the Shelf Registration
Statement and to provide comments on the Shelf Registration Statement within the
time periods set forth in the Registration Rights Agreement in order to have
their Notes included in the Shelf Registration Statement and to benefit from the
provisions regarding Liquidated Damages set forth in the following paragraph.
If (a) the Shelf Registration Statement that is required to be filed as
described above is not filed on or before the date specified for such filing,
(b) any registration statement filed in accordance with the above is not
declared effective by the Commission on or prior to the date specified for such
effectiveness (the "Effectiveness Target Date"), (c) an Exchange Offer
Registration Statement becomes effective, and Sun and the Guarantors fail to
consummate the Exchange Offer within 45 days of the Effectiveness Target Date
with respect to the Exchange Offer Registration Statement, or (d) the Shelf
Registration Statement is
40
<PAGE>
declared effective but thereafter ceases to be effective or usable in connection
with resales of Notes during the period specified in the Registration Rights
Agreement (each such event referred to in clauses (a) through (d) above a
"Registration Default"), then Sun will pay liquidated damages ("Liquidated
Damages") to each Holder, with respect to the first 90-day period immediately
following the occurrence of such Registration Default, in an amount equal to
$.05 per week per $1,000 principal amount of the Notes held by such Holder. Upon
a Registration Default, Liquidated Damages will accrue at the rate specified
above until such Registration Default is cured and the amount of Liquidated
Damages will increase by an additional $.05 per week per $1,000 principal amount
of Notes with respect to each subsequent 90-day period until all Registration
Defaults have been cured, up to a maximum amount of Liquidated Damages of $.25
per week per $1,000 principal amount of Notes (regardless of whether one or more
than one Registration Default is outstanding). All accrued Liquidated Damages
will be paid by Sun on each Interest Payment Date to the Holders by wire
transfer of immediately available funds or by mailing checks to their registered
addresses if such accounts have not been specified.
Upon consummation of the Exchange Offer, subject to certain exceptions,
holders of Old Notes who do not exchange their Old Notes for New Notes in the
Exchange Offer will no longer be entitled to registration rights and will not be
able to offer or sell their Old Notes, unless such Old Notes are subsequently
registered under the Securities Act (which, subject to certain limited
exceptions, the Company will have no obligation to do), except pursuant to an
exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. See "Risk Factors--Consequences of Failure to
Exchange."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS; TERMINATION
The term "Expiration Date" shall mean July , 1998 (20 business days
following the commencement of the Exchange Offer), unless the Company, in its
sole discretion, extends the Exchange Offer, in which case the term "Expiration
Date" shall mean the latest date to which the Exchange Offer is extended.
Notwithstanding any extension of the Exchange Offer, if the Exchange Offer is
not consummated by February 18, 1998, the Company may be obligated to pay
Liquidated Damages.
See "--General."
In order to extend the Expiration Date, the Company will notify the Exchange
Agent of any extension by oral or written notice and will notify the holders of
the Old Notes by means of a press release or other public announcement prior to
9:00 A.M., New York City time, on the next business day after the previously
scheduled Expiration Date. Such announcement may state that the Company is
extending the Exchange Offer for a specified period of time.
The Company reserves the right (i) to delay acceptance of any Old Notes, to
extend the Exchange Offer or to terminate the Exchange Offer and not permit
acceptance of Old Notes not previously accepted if any of the conditions set
forth herein under "--Conditions" shall have occurred and shall not have been
waived by the Company, by giving oral or written notice of such delay, extension
or termination to the Exchange Agent, or (ii) to amend the terms of the Exchange
Offer in any manner deemed by it to be advantageous to the holders of the Old
Notes. Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof to the
Exchange Agent. If the Exchange Offer is amended in a manner determined by the
Company to constitute a material change, the Company will promptly disclose such
amendment in a manner reasonably calculated to inform the holders of the Old
Notes of such amendment.
Without limiting the manner in which the Company may choose to make public
announcement of any delay, extension, amendment or termination of the Exchange
Offer, the Company shall have no obligation to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely release
to an appropriate news agency.
41
<PAGE>
INTEREST ON THE NEW NOTES
The New Notes will accrue interest at the applicable per annum rate from the
last date on which interest was paid on the Old Notes surrendered in exchange
therefor or, if no interest has been paid, from the Issue Date of such Old
Notes. Interest on the New Notes is payable on January 1 and July 1 of each year
commencing January 1, 1998.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal (or ATOP ticket if applicable), or a facsimile thereof,
have the signatures thereon guaranteed if required by the Letter of Transmittal,
and mail or otherwise deliver such Letter of Transmittal or such facsimile,
together with any other required documents, to the Exchange Agent prior to 5:00
p.m., New York City time, on the Expiration Date. In addition, either (i)
certificates for such Old Notes must be received by the Exchange Agent along
with the Letter of Transmittal, (ii) a timely confirmation of a book-entry
transfer (a "Book-Entry Confirmation") of such Old Notes, if such procedure is
available, into the Exchange Agent's account at The Depository Trust Company
(the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date or (iii) the holder must comply with the guaranteed delivery
procedures described below. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE
HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF
TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. Delivery of all
documents must be made to the Exchange Agent at its address set forth below.
Holders may also request their respective brokers, dealers, commercial banks,
trust companies or nominees to effect such tender for such holders.
The tender by a holder of Old Notes will constitute an agreement between
such holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
The term "holder" with respect to the Exchange Offer means any person in whose
name Old Notes are registered on the books of the Company or any other person
who has obtained a properly completed bond power from the registered holder.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
should contact such registered holder promptly and instruct such registered
holder to tender on his behalf. If such beneficial owner wishes to tender on his
own behalf, such beneficial owner must, prior to completing and executing the
Letter of Transmittal and delivering his Old Notes, either make appropriate
arrangements to register ownership of the Old Notes in such owner's name or
obtain a properly completed bond power from the registered holder. The transfer
of registered ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by any member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor" institution within the meaning of Rule
17Ad-15 under the Exchange Act (each an "Eligible Institution") unless the Old
Notes tendered pursuant thereto are tendered (i) by a registered holder who has
not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution.
42
<PAGE>
If the Letter of Transmittal is signed by a person other than the registered
holder of any Old Notes listed therein, such Old Notes must be endorsed or
accompanied by bond powers and a proxy which authorizes such person to tender
the Old Notes on behalf of the registered holder, in each case as the name of
the registered holder or holders appears on the Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt) and withdrawal of the tendered Old Notes will be determined by the
Company in its sole discretion, which determination will be final and binding.
The Company reserves the absolute right to reject any and all Old Notes not
properly tendered or any Old Notes which, if accepted, would, in the opinion of
counsel for the Company, be unlawful. The Company also reserves the absolute
right to waive any irregularities or conditions of tender as to particular Old
Notes. The Company's interpretation of the terms and conditions of the Exchange
Offer (including the instructions in the Letter of Transmittal) will be final
and binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as the
Company shall determine. Neither the Company, the Exchange Agent nor any other
person shall be under any duty to give notification of defects or irregularities
with respect to tenders of Old Notes, nor shall any of them incur any liability
for failure to give such notification. Tenders of Old Notes will not be deemed
to have been made until such irregularities have been cured or waived. Any Old
Notes received by the Exchange Agent that are not properly tendered and as to
which the defects or irregularities have not been cured or waived will be
returned without cost to such holder by the Exchange Agent to the tendering
holders of Old Notes, unless otherwise provided in the Letter of Transmittal, as
soon as practicable following the Expiration Date.
In addition, the Company reserves the right in its sole discretion, subject
to the provisions of the Indenture, to (i) purchase or make offers for any Old
Notes that remain outstanding subsequent to the Expiration Date or, as set forth
under "--Conditions," to terminate the Exchange Offer in accordance with the
terms of the Registration Rights Agreement and (ii) to the extent permitted by
applicable law, purchase Old Notes in the open market, in privately negotiated
transactions or otherwise. The terms of any such purchases or offers could
differ from the terms of the Exchange Offer.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
all Old Notes properly tendered will be accepted, promptly after the Expiration
Date, and the New Notes will be issued promptly after acceptance of the Old
Notes. See "--Conditions" below. For purposes of the Exchange Offer, Old Notes
shall be deemed to have been accepted as validly tendered for exchange when, as
and if the Company has given oral or written notice thereof to the Exchange
Agent.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal (or ATOP ticket, if applicable) and all other required documents. If
any tendered Old Notes are not accepted for any reason set forth in the terms
and conditions of the Exchange Offer or if Old Notes are submitted for a greater
principal amount than the holder desires to exchange, such unaccepted or
nonexchanged Old Notes will be returned without expense to the tendering holder
thereof (or, in the case of Old Notes tendered by book-entry transfer procedures
described below, such nonexchanged Old Notes will be credited to an account
maintained with such Book-Entry Transfer Facility) as promptly as practicable
after the expiration or termination of the Exchange Offer.
43
<PAGE>
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus. Any
financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal (if ATOP is not used) or
facsimile thereof with any required signature guarantees and any other required
documents must, in any case, be transmitted to and received by the Exchange
Agent at one of the addresses set forth below under "--Exchange Agent" on or
prior to the Expiration Date or the guaranteed delivery procedures described
below must be complied with. ATOP is only available to members thereof who are
not tendering pursuant to guaranteed delivery procedures set forth in
"--Guaranteed Delivery Procedures."
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes,
and the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedures for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange
Agent receives from such Eligible Institution a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by the Company (by facsimile
transmission, mail or hand delivery), setting forth the name and address of the
holder of Old Notes and the amount of Old Notes tendered, stating that the
tender is being made thereby and guaranteeing that within three New York Stock
Exchange ("NYSE") trading days after the date of execution of the Notice of
Guaranteed Delivery, the certificates for all physically tendered Old Notes, in
proper form for transfer, or a Book-Entry Confirmation, as the case may be, and
any other documents required by the Letter of Transmittal will be deposited by
the Eligible Institution with the Exchange Agent and (iii) the certificates for
all physically tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and all other documents required by the Letter
of Transmittal are received by the Exchange Agent within three NYSE trading days
after the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL OF TENDERS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent prior to 5:00 p.m., New York City time on the
Expiration Date at one of the addresses set forth below under "--Exchange
Agent." Any such notice of withdrawal must specify the name of the person having
tendered the Old Notes to be withdrawn, identify the Old Notes to be withdrawn
(including the principal amount of such Old Notes) and (where certificates for
Old Notes have been transmitted) specify the name in which such Old Notes are
registered, if different from that of the withdrawing holder. If certificates
for Old Notes have been delivered or otherwise identified to the Exchange Agent,
then, prior to the release of such certificates, the withdrawing holder must
also submit the serial numbers of the particular certificates to be withdrawn
and a signed notice of withdrawal with signatures guaranteed by an Eligible
Institution unless such holder is an Eligible Institution. If Old Notes have
been tendered pursuant to the procedure for book-entry transfer described above,
any notice of withdrawal must specify the name and number of the account at the
Book-Entry Transfer Facility to be credited with the withdrawn Old Notes and
otherwise comply with the procedures of such facility. All questions as to the
validity, form and
44
<PAGE>
eligibility (including time of receipt) of such notices will be determined by
the Company, whose determination shall be final and binding on all parties. Any
Old Notes so withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the Exchange Offer. Any Old Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder thereof without cost to such holder (or, in the case of
Old Notes tendered by book-entry transfer into the Exchange Agent's account at
the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described above, such Old Notes will be credited to an account maintained with
such Book-Entry Transfer Facility for the Old Notes) as soon as practicable
after withdrawal, rejection of tender or termination of the Exchange Offer.
Properly withdrawn Old Notes may be retendered by following one of the
procedures described under "--Procedures for Tendering" and "--Book-Entry
Transfer" above at any time on or prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, Old Notes will not be
required to be accepted for exchange, nor will New Notes be issued in exchange
for any Old Notes, and the Company may terminate or amend the Exchange Offer as
provided herein before the acceptance of such Old Notes, if because of any
change in law, or applicable interpretations thereof by the Commission, the
Company determines that it is not permitted to effect the Exchange Offer. The
Company has no obligation to, and will not knowingly, permit acceptance of
tenders of Old Notes from affiliates of the Company (within the meaning of Rule
405 under the Securities Act) or from any other holder or holders who are not
eligible to participate in the Exchange Offer under applicable law or
interpretations thereof by the Commission, or if the New Notes to be received by
such holder or holders of Old Notes in the Exchange Offer, upon receipt, will
not be tradable by such holder without restriction under the Securities Act and
the Exchange Act and without material restrictions under the "blue sky" or
securities laws of substantially all of the states of the United States.
EXCHANGE AGENT
U.S. Bank Trust National Association has been appointed as Exchange Agent
for the Exchange Offer. Questions and requests for assistance and requests for
additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent addressed as follows:
<TABLE>
<S> <C>
By Mail: By Hand:
U.S. Bank Trust National Association U.S. Bank Trust National Association
First Trust Center First Trust Center
180 East Fifth Street 180 East Fifth Street
St. Paul, Minnesota 55101 Bond-Drop Window
St. Paul, Minnesota 55101
Attention: Therese Linscheid
Telephone: (612) 244-1234
Facsimile: (612) 244-1537
</TABLE>
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail; however, additional solicitations may be
made by telegraph, telephone, telecopy or in person by officers and regular
employees of the Company.
The Company will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
the Exchange Agent for its reasonable out-of-pocket expenses in
45
<PAGE>
connection therewith. The Company may also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of the Prospectus and related documents to
the beneficial owners of the Old Notes, and in handling or forwarding tenders
for exchange.
The expenses to be incurred in connection with the Exchange Offer will be
paid by the Company, including fees and expenses of the Exchange Agent and
Trustee and accounting, legal, printing and related fees and expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be registered or issued
in the name of, any person other than the registered holder of the Old Notes
tendered, or if tendered Old Notes are registered in the name of any person
other than the person signing the Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the exchange of Old Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering holder.
46
<PAGE>
DESCRIPTION OF NEW NOTES
The Old New Notes were issued, and the New Notes offered hereby will be
issued under an indenture dated as of July 8, 1997 (the "Indenture") between the
Company, as issuer, the Guarantors and First Trust National Association, as
trustee (the "Trustee"), a copy of the form of which is available from the
Trustee. The following summary of the material provisions of the Indenture does
not purport to be complete and is subject to, and qualified in its entirety by
reference to, the provisions of the Indenture, including the definitions of
certain terms contained therein. For definitions of certain capitalized terms
used in the following summary, see "Certain Definitions." Capitalized terms used
herein and not otherwise defined shall have the meanings assigned to them in the
Indenture or the Registration Rights Agreement, as appropriate.
GENERAL
The Notes will be senior subordinated, unsecured, general obligations of
Sun, limited in aggregate principal amount to $250 million, and will mature on
July 1, 2007. The Notes will rank PARI PASSU with all existing and future senior
subordinated Indebtedness of Sun and will rank senior to all other existing and
future Subordinated Indebtedness of Sun, and subordinate in right of payment
with all other existing and future Senior Debt of Sun. The Notes will be
guaranteed on a senior subordinated, unsecured, general basis by all existing
and future material Subsidiaries of Sun other than Sun Systems, Inc., the
CareerStaff Companies and the Foreign Companies. For information about the
financial condition and results of operations of the Guarantors and of the
Subsidiaries of Sun that are not Guarantors, see Note 18 to Sun's Consolidated
Financial Statements included in Sun's Annual Report on Form 10-K for the year
ended December 31, 1997 and Sun's Current Report on Form 8-K dated June 25,
1998. The obligations of each Guarantor under its Guarantee, however, will be
limited in a manner intended to avoid it being deemed a fraudulent conveyance
under applicable law. See "--Certain Bankruptcy Limitations" below. As of March
31, 1998, after giving pro forma effect to the May Offerings, the aggregate
amount of Indebtedness (excluding intercompany Indebtedness) that would have
effectively ranked senior to the New Notes and the Guarantees was approximately
$855.5 million. As of March 31, 1998, after giving such pro forma effect,
approximately $155.7 million of Indebtedness ranking PARI PASSU in right of
payment with the New Notes and/or the Guarantees and $104.0 million of
Subordinated Indebtedness was outstanding.
Interest on the Notes will accrue at the rate per annum set forth on the
cover page of this Prospectus and will be payable in cash semi-annually in
arrears on January 1 and July 1 of each year, commencing on January 1, 1998, to
Holders of record on the immediately preceding December 15 and June 15,
respectively. Interest on the Notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from the date of
original issuance. Interest on the Notes will be computed on the basis of a
360-day year comprised of twelve 30-day months. Principal, premium, if any, and
interest on the Notes will be payable at the office or agency of Sun maintained
for such purpose within the Borough of Manhattan, The City of New York or, at
the option of Sun, payment of interest may be made by check mailed to the
Holders at their respective addresses set forth in the register of Holders;
PROVIDED that all payments with respect to Notes, the Holders of which have
given wire transfer instructions to the paying agent at least five business days
prior to the relevant record date, will be required to be made by wire transfer
of immediately available funds to the accounts specified by such Holders. No
service charge will be made for any registration of transfer or exchange of
Notes, but Sun may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith. Until otherwise designated
by Sun, Sun's office or agency in the Borough of Manhattan, The City of New York
will be the office of the Trustee maintained for such purpose. The Notes will be
issued in denominations of $1,000 and integral multiples thereof.
47
<PAGE>
SUBORDINATION
The Notes and the Guarantees will be general, unsecured obligations of Sun
and the Guarantors, respectively, subordinated in right of payment to all Senior
Debt of Sun and the Guarantors, as applicable.
The Indenture will provide that no payment (by set-off or otherwise) may be
made by or on behalf of Sun or a Guarantor, as applicable, on account of the
principal of, premium, if any, or interest on the Notes (including any
repurchases of Notes), or on account of the redemption provisions of the Notes,
for cash or property (other than Junior Securities), (i) upon the maturity of
any Senior Debt of Sun or such Guarantor by lapse of time, acceleration (unless
waived) or otherwise, unless and until all principal of, premium, if any, and
the interest on such Senior Debt are first paid in full in cash or Cash
Equivalents (or such payment is duly provided for) or otherwise to the extent
holders accept satisfaction of amounts due by settlement in other than cash or
Cash Equivalents, or (ii) in the event of default in the payment of any
principal of, premium, if any, or interest on Senior Debt of Sun or such
Guarantor when it becomes due and payable, whether at maturity or at a date
fixed for prepayment or by declaration or otherwise (a "Payment Default"),
unless and until such Payment Default has been cured or waived or otherwise has
ceased to exist.
Upon (i) the happening of an event of default (other than a Payment Default)
that permits the holders of Senior Debt to declare such Senior Debt to be due
and payable and (ii) written notice of such event of default given to Sun and
the Trustee by the Representative under the Credit Agreement or the holders of
an aggregate of at least $50 million principal amount outstanding of any other
Senior Debt or their representative (a "Payment Notice"), then, unless and until
such event of default has been cured or waived or otherwise has ceased to exist,
no payment (by set-off or otherwise) may be made by or on behalf of Sun or any
Guarantor which is an obligor under such Senior Debt on account of the principal
of, premium, if any, or interest on the Notes, (including any repurchases of any
of the Notes), or on account of the redemption provisions of the Notes, in any
such case, other than payments made with Junior Securities. Notwithstanding the
foregoing, unless the Senior Debt in respect of which such event of default
exists has been declared due and payable in its entirety within 179 days after
the Payment Notice is delivered as set forth above (the "Payment Blockage
Period") (and such declaration has not been rescinded or waived), at the end of
the Payment Blockage Period, Sun and the Guarantors shall be required to pay all
sums not paid to the Holders of the Notes during the Payment Blockage Period due
to the foregoing prohibitions and to resume all other payments as and when due
on the Notes. Any number of Payment Notices may be given; PROVIDED that (i) not
more than one Payment Notice shall be given within a period of any 360
consecutive days, and (ii) no default that existed upon the date of such Payment
Notice or the commencement of such Payment Blockage Period (whether or not such
event of default is on the same issue of Senior Debt) shall be made the basis
for the commencement of any other Payment Blockage Period unless such other
Payment Blockage Period is commenced by a Payment Notice from the Representative
under the Credit Agreement and such event of default shall have been cured or
waived for a period of at least 90 consecutive days.
Upon any distribution of assets of Sun or any Guarantor upon any
dissolution, winding up, total or partial liquidation or reorganization of Sun
or a Guarantor, whether voluntary or involuntary, in bankruptcy, insolvency,
receivership or a similar proceeding or upon assignment for the benefit of
creditors or any marshalling of assets or liabilities, (i) the holders of all
Senior Debt of Sun or such Guarantor, as applicable, will first be entitled to
receive payment in full in cash or Cash Equivalents (or have such payment duly
provided for to the satisfaction of such holders) or otherwise to the extent
holders accept satisfaction of amounts due by settlement in other than cash or
Cash Equivalents before the Holders are entitled to receive any payment on
account of principal of, premium, if any, and interest on the Notes (other than
Junior Securities) and (ii) any payment or distribution of assets of Sun or such
Guarantor of any kind or character from any source, whether in cash, property or
securities (other than Junior Securities) to which the Holders or the Trustee on
behalf of the Holders would be entitled (by set-off or otherwise), except for
the subordination provisions contained in the Indenture, will be paid by the
48
<PAGE>
liquidating trustee or agent or other person making such a payment or
distribution directly to the holders of such Senior Debt or their representative
to the extent necessary to make payment in full (or have such payment duly
provided for) on all such Senior Debt remaining unpaid, after giving effect to
any concurrent payment or distribution to the holders of such Senior Debt.
In the event that, notwithstanding the foregoing, any payment or
distribution of assets of Sun or any Guarantor (other than Junior Securities)
shall be received by the Trustee or the Holders at a time when such payment or
distribution is prohibited by the foregoing provisions, such payment or
distribution shall be held in trust for the benefit of the holders of such
Senior Debt, and shall be paid or delivered by the Trustee or such Holders, as
the case may be, to the holders of such Senior Debt remaining unpaid or
unprovided for or to their representative or representatives, or to the trustee
or trustees under any indenture pursuant to which any instruments evidencing any
of such Senior Debt may have been issued, ratably according to the aggregate
principal amounts remaining unpaid on account of such Senior Debt held or
represented by each, for application to the payment of all such Senior Debt
remaining unpaid, to the extent necessary to pay or to provide for the payment
of all such Senior Debt in full in cash or Cash Equivalents or otherwise to the
extent holders accept satisfaction of amounts due by settlement in other than
cash or Cash Equivalents after giving effect to any concurrent payment or
distribution to the holders of such Senior Debt.
The subordination provisions hereof shall continue to be effective or be
reinstated, as the case may be, if at any time any payment of any of the Senior
Debt is rescinded or must otherwise be returned by any holder of such Senior
Debt upon the insolvency, bankruptcy or reorganization of Sun, any Guarantor or
otherwise, all as though such payment has not been made.
No provision contained in the Indenture or the Notes will affect the
obligation of Sun and the Guarantors, which is absolute and unconditional, to
pay, when due, principal of, premium, if any, and interest on the Notes. The
subordination provisions of the Indenture and the Notes will not prevent the
occurrence of any Default or Event of Default under the Indenture or limit the
rights of the Trustee or any Holder to pursue any other rights or remedies with
respect to the Notes.
As a result of these subordination provisions, in the event of the
liquidation, bankruptcy, reorganization, insolvency, receivership or similar
proceeding or an assignment for the benefit of the creditors of Sun or a
marshalling of assets or liabilities of Sun, the Holders may receive ratably
less than other creditors.
Sun conducts substantially all of its operations through its subsidiaries.
See "Risk Factors--Holding Company Structure; Effects of Asset Encumbrances."
Accordingly, Sun's ability to meet its cash obligations is dependent upon the
ability of its subsidiaries to make cash distributions to Sun. Furthermore, any
right of Sun to receive the assets of any such subsidiary which is not a
Guarantor upon such subsidiary's liquidation or reorganization (and the
consequent right of the Holders of the Notes to participate in the distribution
of the proceeds of those assets) effectively will be subordinated by operation
of law to the claims of such subsidiary's creditors (including trade creditors)
and holders of its preferred stock, except to the extent that Sun is itself
recognized as a creditor or preferred stockholder of such subsidiary, in which
case the claims of Sun would still be subordinate to any indebtedness or
preferred stock of such subsidiary senior in right of payment to that held by
Sun.
CERTAIN BANKRUPTCY LIMITATIONS
Sun is a holding company, conducting substantially all of its business
through subsidiaries, not all of which have guaranteed Sun's obligations with
respect to the Notes. See "Risk Factors--Holding Company Structure; Effects of
Asset Encumbrances." Holders of the Notes will be direct creditors of each
Guarantor by virtue of its Guarantee. Nonetheless, in the event of the
bankruptcy or financial difficulty of a Guarantor, such Guarantor's obligations
under its Guarantee may be subject to review and avoidance under state and
federal fraudulent transfer laws. Among other things, such obligations may be
avoided if a court concludes that such obligations were incurred for less than
reasonably equivalent value or fair
49
<PAGE>
consideration at a time when the Guarantor was insolvent, was rendered
insolvent, or was left with inadequate capital to conduct its business. A court
would likely conclude that a Guarantor did not receive reasonably equivalent
value or fair consideration to the extent that the aggregate amount of its
liability on its Guarantee exceeds the economic benefits it receives in the New
Notes Offering. The obligations of each Guarantor under its Guarantee will be
limited in a manner intended to cause it not to be a fraudulent conveyance under
applicable law, although no assurance can be given that a court would give the
holder the benefit of such provision. See "Risk Factors--Fraudulent Transfer
Risks."
If the obligations of a Guarantor under its Guarantee were avoided, Holders
would have to look to the assets of any remaining Guarantors for payment. There
can be no assurance in that event that such assets would suffice to pay the
outstanding principal and interest on the Notes.
OPTIONAL REDEMPTION
Sun will not have the right to redeem any Notes prior to July 1, 2002. The
Notes will be redeemable for cash, at the option of Sun, in whole or in part, at
any time on or after July 1, 2002 upon not less than 30 days' nor more than 60
days' notice to each Holder, at the following redemption prices (expressed as
percentages of the principal amount) if redeemed during the 12-month period
commencing July 1 of the years indicated below, in each case (subject to the
right of Holders of record on a Record Date to receive interest due on an
Interest Payment Date that is on or prior to such Redemption Date) together with
accrued and unpaid interest and Liquidated Damages, if any, thereon to the
Redemption Date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---------------------------------------------------------------------------------- -----------
<S> <C>
2002.............................................................................. 104.7500%
2003.............................................................................. 103.1667
2004.............................................................................. 101.5833
2005 and thereafter............................................................... 100.0000
</TABLE>
In the case of a partial redemption, the Trustee shall select the Notes or
portions thereof for redemption on a PRO RATA basis, by lot or in such other
manner it deems appropriate and fair. The Notes may be redeemed in part in
multiples of $1,000 only.
Notice of any redemption will be sent, by first class mail, at least 30 days
and not more than 60 days prior to the Redemption Date to the Holder of each
Note to be redeemed to such Holder's last address as then shown upon the
registry books of the Registrar. Any notice which relates to a Note to be
redeemed in part only must state the portion of the principal amount equal to
the unredeemed portion thereof and must state that upon surrender of such Note,
a new Note or Notes in a principal amount equal to the unredeemed portion
thereof will be issued. On and after the Redemption Date, interest will cease to
accrue on the Notes or portions thereof called for redemption unless Sun
defaults in its redemption obligation with respect thereto.
Sun will not be required to make any mandatory redemption or sinking fund
payments with respect to the Notes.
REPURCHASES AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
The Indenture will provide that upon the occurrence of a Change of Control,
each Holder will have the right to require Sun to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of such Holder's Notes
pursuant to an irrevocable and unconditional offer, as described below (the
"Change of Control Offer"), at an offer price in cash equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date of purchase (the "Change of
Control Payment") on a date (the "Change of Control Payment Date") that is not
more than
50
<PAGE>
90 days after the occurrence of such Change of Control. Within 45 days following
any Change of Control, Sun will mail, or at Sun's request the Trustee will mail,
a notice to each Holder offering to repurchase the Notes held by such Holder
pursuant to the procedures specified in such notice. Sun will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes as a result of a
Change of Control.
On or before the Change of Control Payment Date, Sun will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
and not withdrawn pursuant to the Change of Control Offer, (2) deposit with the
paying agent an amount in cash equal to the Change of Control Payment in respect
of all Notes or portions thereof so tendered and (3) deliver or cause to be
delivered to the Trustee the Notes so accepted together with an Officers'
Certificate listing the Notes or portions thereof being purchased by Sun. The
paying agent will promptly mail to each Holder so tendered the Change of Control
Payment for such Notes, and the Trustee will promptly authenticate and mail (or
cause to be transferred by book entry) to each Holder a new Note equal in
principal amount to any unpurchased portion of the Notes surrendered, if any,
PROVIDED that each such new Note will be in a principal amount of $1,000 or an
integral multiple thereof. Any Notes improperly tendered or withdrawn will be
delivered promptly by Sun to the Holder thereof. Sun will publicly announce the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Payment Date.
A failure by Sun to comply with the provisions of the two preceding
paragraphs will constitute an Event of Default. Except as described above with
respect to a Change of Control, the Indenture will not contain provisions that
permit the Holders of the Notes to require that Sun repurchase or redeem the
Notes in the event of a takeover, recapitalization or similar transaction. See
"--Events of Defaults and Remedies."
The terms of certain of Sun's Indebtedness require that Sun repay or
refinance such Indebtedness in the event of a "change of control," as defined in
such Indebtedness. Such change of control provisions may be triggered under such
Indebtedness prior to the occurrence of a Change of Control, thereby requiring
that the indebtedness under such Indebtedness be repaid or refinanced prior to
Sun repurchasing any Notes upon the occurrence of a Change of Control. As such,
Sun may not be able to satisfy its obligations to repurchase the Notes unless
Sun is able to refinance or obtain waivers with respect to such Indebtedness.
There can be no assurance that Sun will have the financial resources to
repurchase the Notes in the event of a Change of Control.
ASSET SALES
The Indenture will provide that Sun will not, and will not permit any of its
Subsidiaries to, in one or a series of related transactions, consummate an Asset
Sale unless (i) Sun (or the Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value (as reasonably determined and evidenced by a resolution of the Board of
Directors set forth in an Officers' Certificate delivered to the Trustee) of the
assets or Equity Interests issued or sold or otherwise disposed of and (ii) at
least 80% of the consideration therefor received by Sun or such Subsidiary is in
the form of cash or Cash Equivalents, PROVIDED that for purposes of this
provision, (x) the amount of (A) any liabilities (as shown on the most recent
balance sheet of Sun or such Subsidiary or in the notes thereto) of Sun or such
Subsidiary that are assumed by the transferee of any such assets (other than
liabilities that are by their terms PARI PASSU with or subordinated to the Notes
or the guarantee of the Guarantors, as applicable) and (B) any securities or
other obligations received by Sun or any such Subsidiary from such transferee
that are immediately converted by Sun or such Subsidiary into cash or Cash
Equivalents (or as to which Sun or such Subsidiary has received at or prior to
the consummation of the Asset Sale a commitment (which may be subject to
customary conditions) from a nationally recognized investment, merchant or
commercial bank to convert into cash or Cash Equivalents within 90 days of the
consummation of such Asset Sale and which are thereafter actually converted into
cash or Cash Equivalents within such 90-day period) will be deemed
51
<PAGE>
to be cash or Cash Equivalents (and shall be deemed to be Net Proceeds for
purposes of the following provisions as and when reduced to cash or Cash
Equivalents) to the extent of the net cash or Cash Equivalents realized thereon
and (y) the fair market value of any Non-Cash Consideration received by Sun or a
Subsidiary in any Non-Qualified Asset Sale shall be deemed to be cash to the
extent that the aggregate fair market value (as reasonably determined and
evidenced by a resolution of the Board of Directors set forth in an Officers'
Certificate delivered to the Trustee) of all Non-Cash Consideration (measured at
the time received and without giving effect to any subsequent changes in value)
received by Sun or any of its Subsidiaries since the date of the Indenture in
all Non-Qualified Asset Sales does not exceed 5% of Stockholders' Equity as of
the date of such consummation. Notwithstanding the foregoing, to the extent Sun
or any of its Subsidiaries receives Non-Cash Consideration as proceeds of an
Asset Sale, such Non-Cash Consideration shall be deemed to be Net Proceeds for
purposes of (and shall be applied in accordance with) the following provisions
when Sun or such Subsidiary receives cash or Cash Equivalents from a sale,
repayment, exchange, redemption or retirement of or extraordinary dividend or
return of capital on such Non-Cash Consideration.
Pursuant to the Indenture, within 365 days after the receipt of any Net
Proceeds from an Asset Sale, Sun or such Subsidiary may apply such Net Proceeds
(i) to purchase one or more Nursing Facilities or Related Businesses and/or a
controlling interest in the Capital Stock of a Person owning one or more Nursing
Facilities and/or one or more Related Businesses (and no other material assets),
(ii) to make a capital expenditure or to acquire other tangible assets, in each
case, that are used or useful in any business in which Sun is permitted to be
engaged pursuant to the covenant described below under the caption "--Certain
Covenants--Line of Business," or (iii) to permanently reduce Senior Debt
(including, in the case of Senior Revolving Debt, to correspondingly reduce
commitments with respect thereto). Pending the final application of any such Net
Proceeds, Sun or such Subsidiary may temporarily reduce Senior Revolving Debt.
Any Net Proceeds from Asset Sales that are not applied or invested as provided
in the first sentence of this paragraph will be deemed to constitute "Excess
Proceeds." When the aggregate amount of Excess Proceeds exceeds $25 million, Sun
will be required to make an offer to all Holders and holders of any other
Indebtedness of Sun ranking senior to or on a parity with the Notes from time to
time outstanding with similar provisions requiring Sun to make an offer to
purchase or to redeem such Indebtedness with the proceeds from any Asset Sales,
pro rata in proportion to the respective principal amounts of Notes and such
other Indebtedness then outstanding (collectively, an "Asset Sale Offer") to
purchase the maximum principal amount of the Notes and such other Indebtedness
that may be purchased out of the Excess Proceeds, at an offer price in cash
equal to 100% of the principal amount thereof plus accrued and unpaid interest
thereon and Liquidated Damages, if any, to the date of purchase (the "Asset Sale
Payment"), in accordance with the procedures set forth in the Indenture. To the
extent that the aggregate amount of Notes and such other Indebtedness tendered
pursuant to an Asset Sale Offer is less than the Excess Proceeds, Sun may use
any remaining Excess Proceeds for general corporate purposes not prohibited at
the time under the Indenture. If the aggregate principal amount of Notes and
such other Indebtedness surrendered by holders thereof exceeds the amount of
Excess Proceeds, the Notes and such other Indebtedness will be purchased on a
pro rata basis. Upon completion of an Asset Sale Offer, the amount of Excess
Proceeds shall be reset at zero.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Indenture will provide that Sun will not, and will not permit any of its
Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make
any distribution on account of the Equity Interests of Sun or any of its
Subsidiaries (other than (x) dividends or distributions to the extent payable in
Qualified Equity Interests of Sun, (y) dividends or distributions to the extent
payable to Sun or any Subsidiary of Sun, and (z) dividends or distributions by
any Wholly Owned Subsidiary of Sun); (ii) purchase, redeem or otherwise acquire
or retire for value any Equity Interests of Sun, or any of its Subsidiaries;
(iii) make any
52
<PAGE>
principal payment on, or purchase, redeem, defease or otherwise acquire or
retire for value any Subordinated Indebtedness, except at the original final
stated maturity date thereof; or (iv) make any Restricted Investment (all such
payments and other actions set forth in clauses (i) through (iv) above being
collectively referred to as "Restricted Payments"), unless, at the time of and
after giving effect to such Restricted Payment (the amount of any such
Restricted Payment, if other than cash or Cash Equivalents, shall be the fair
market value (as reasonably determined and evidenced by a resolution of the
Board of Directors set forth in an Officers' Certificate delivered to the
Trustee prior to the making of such Restricted Payment) of the asset(s) proposed
to be transferred by Sun or such Subsidiary, as the case may be, pursuant to
such Restricted Payment):
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and
(b) Sun would, at the time of such Restricted Payment and after giving
pro forma effect thereto as if such Restricted Payment had been made at the
beginning of the Reference Period immediately preceding the date of such
Restricted Payment, have been permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of the covenant described below under the
caption "Incurrence of Indebtedness and Issuance of Preferred Stock;" and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by Sun and its Subsidiaries after March 31, 1997
(excluding Restricted Payments permitted by clauses (w), (x), (y) and (z) of
the next succeeding paragraph), is less than the sum (without duplication)
of (i) 50% of the Consolidated Net Income of Sun for the period (taken as
one accounting period) from the beginning of the first fiscal quarter
commencing after March 31, 1997 to the end of Sun's most recently ended
fiscal quarter for which internal financial statements are available at the
time of such Restricted Payment (or, if such Consolidated Net Income for
such period is a deficit, less 100% of such deficit), plus (ii) 100% of the
aggregate net cash proceeds received by Sun from the issue or sale (other
than to a Subsidiary of Sun) since March 31, 1997 of (A) Qualified Equity
Interests of Sun or (B) debt securities of Sun or any of its Subsidiaries
that were issued after March 31, 1997 and have been converted into or
exchanged for Qualified Equity Interests of Sun, plus (iii) to the extent
that any Restricted Investment that was made after the Issue Date is sold
for cash or otherwise liquidated or repaid for cash, the lesser of (A) the
cash return to Sun and its Subsidiaries of capital with respect to such
Restricted Investment (net of taxes and the cost of disposition, if any) or
(B) the initial amount of such Restricted Investment.
The immediately preceding paragraph will not prohibit the following
Restricted Payments: (u) dividends or distributions paid by any Subsidiary of
Sun to stockholders of such Subsidiary other than Sun or another Subsidiary of
Sun, PROVIDED that such dividends and distributions are paid (1) on a PRO RATA
basis to each stockholder of such Subsidiary or (2) in the case of payment by a
CareerStaff Company, in accordance with the partnership agreement thereof; (v)
the payment of any dividend within 60 days after the date of declaration
thereof, if at said date of declaration such payment would have otherwise
complied with the provisions of the Indenture; (w) the payment of up to an
aggregate of $8.0 million to the extent required in connection with tenders for
the outstanding 6 1/2% Convertible Subordinated Debentures due 2003 pursuant to
their terms as in effect on the date of the Indenture; (x) the redemption,
repurchase, retirement or other acquisition of any Equity Interests of Sun
issued after the date of the Indenture in exchange for, or out of the net cash
proceeds of, the substantially concurrent sale (other than to a Subsidiary of
Sun) of Qualified Equity Interests of Sun, PROVIDED that the amount of any such
net cash proceeds that are utilized for any such redemption, repurchase,
retirement or other acquisition shall be excluded from clause (c)(ii) of the
preceding paragraph; (y) the defeasance, redemption or repurchase of
Subordinated Indebtedness issued after the date of the Indenture with the net
cash proceeds from an incurrence of Permitted Refinancing Indebtedness or in
exchange for or out of the net cash proceeds from the substantially concurrent
sale (other than to a Subsidiary of Sun) of Qualified Equity Interests of Sun,
53
<PAGE>
PROVIDED that the amount of any such net cash proceeds that are utilized for any
such redemption, repurchase, retirement or other acquisition shall be excluded
from clause (c)(ii) of the preceding paragraph; and (z) any purchase or
defeasance of Subordinated Indebtedness to the extent required upon a change of
control (as defined therein) by the indenture or other agreement or instrument
pursuant to which such Subordinated Indebtedness was issued, but only if Sun has
complied with its obligations under the provisions described under the covenant
described above under the caption "Repurchases at the Option of the
Holders--Change of Control," PROVIDED that in the case of each of clauses (u),
(v), (w), (x), (y) and (z) of this paragraph no Default or Event of Default
shall have occurred or be continuing at the time of such Restricted Payment or
would occur as a consequence thereof.
Not later than the date of making any Restricted Payment, Sun shall deliver
to the Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
the covenant "Restricted Payments" were computed.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Indenture will provide that except as set forth below in this covenant,
Sun will not, and will not permit any of its Subsidiaries to, directly or
indirectly, create, incur, issue, assume, guarantee or otherwise become directly
or indirectly liable, contingently or otherwise, with respect to (individually
and collectively, "incur") after the date of the Indenture any Indebtedness
(including Acquired Debt), and Sun will not permit any of its Subsidiaries to
issue any shares of Preferred Stock; PROVIDED that Sun and its Subsidiaries may
incur Indebtedness (including Acquired Debt) if (a) no Default or Event of
Default shall have occurred and be continuing at the time of, or would occur
after giving effect on a pro forma basis to, such incurrence of Indebtedness and
(b) the Fixed Charge Coverage Ratio for the Reference Period immediately
preceding the date on which such additional Indebtedness is incurred would have
been at least 2.0 to 1 for incurrences on or prior to June 30, 1998, 2.25 to 1
for incurrences after June 30, 1998 and on or prior to June 30, 1999 and 2.5 to
1 thereafter, in each case determined on a pro forma basis (including a pro
forma application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred at the beginning of such Reference Period.
Indebtedness consisting of reimbursement obligations in respect of a letter of
credit will be deemed to be incurred when the letter of credit is first issued.
The foregoing paragraph will not prevent:
(i) the incurrence by Sun or any of its Subsidiaries (other than the
Foreign Companies) of Senior Revolving Debt pursuant to the Credit Agreement
in an aggregate principal amount at any time outstanding (with letters of
credit being deemed to have a principal amount equal to the maximum
potential reimbursement obligation of Sun or any such Subsidiary with
respect thereto) not to exceed an amount equal to $550 million, less the
aggregate amount of all Net Proceeds of Asset Sales applied to permanently
reduce the commitments with respect to such Indebtedness pursuant to the
covenant described above under the caption "--Repurchases at the Option of
Holders--Asset Sales" after the Issue Date;
(ii) the incurrence by the Foreign Companies of Senior Revolving Debt
pursuant to the U.K. Credit Agreements in an aggregate principal amount at
any time outstanding (with letters of credit being deemed to have a
principal amount equal to the maximum potential reimbursement obligation of
the Foreign Companies with respect thereto) not to exceed an amount equal to
L75 million (or the equivalent amount thereof, at the time of incurrence, in
other foreign currencies), less the aggregate amount of all Net Proceeds of
Assets Sales applied to permanently reduce the commitments with respect to
such Indebtedness pursuant to the covenant described above under the caption
"--Repurchases at the Option of Holders--Asset Sales" after the Issue Date;
(iii) the incurrence by Sun and the Guarantors of Indebtedness
represented by the Notes;
54
<PAGE>
(iv) the incurrence by Sun or any of its Subsidiaries of Permitted
Refinancing Indebtedness in exchange for, or the net proceeds of which are
used to extend, refinance, renew, replace, defease or refund, Indebtedness
that was permitted by the Indenture to be incurred (including, without
limitation, Existing Indebtedness);
(v) the incurrence by Sun or any of its Subsidiaries of intercompany
Indebtedness between or among Sun and/or any Subsidiaries; PROVIDED that in
the case of such Indebtedness of Sun or the Guarantors, such obligations
shall be unsecured and subordinated in all respects to Sun's and the
Guarantors' obligations pursuant to the Notes and the Guarantees;
(vi) the incurrence by Sun or any of its Subsidiaries of Hedging
Obligations that are incurred for the purpose of fixing or hedging interest
rate or currency risk with respect to any fixed or floating rate
Indebtedness that is permitted by the Indenture to be outstanding or any
receivable or liability the payment of which is determined by reference to a
foreign currency; PROVIDED that the notional principal amount of any such
Hedging Obligation does not exceed the principal amount of the Indebtedness
or the amount of such receivable or liability to which such Hedging
Obligation relates;
(vii) the incurrence by Sun or any of its Subsidiaries of Indebtedness
represented by performance bonds, warranty or contractual service
obligations, standby letters of credit or appeal bonds, in each case to the
extent incurred in the ordinary course of business of Sun or such Subsidiary
in accordance with customary industry practices, in amounts and for the
purposes customary in Sun's industry; and
(viii) the incurrence by Sun or any of the Guarantors or the Foreign
Companies of Indebtedness (in addition to Indebtedness permitted by any
other clause of this paragraph) in an aggregate principal amount at any time
outstanding (including any Indebtedness issued to refinance, replace or
refund such Indebtedness) not to exceed $50 million (or the equivalent
amount thereof, at the time of incurrence, in other foreign currencies).
For purposes of determining any particular amount of Indebtedness under this
covenant and so as to avoid duplication, guarantees, Liens or obligations with
respect to letters of credit supporting Indebtedness otherwise included in the
determination of such particular amount shall not be included. For purposes of
determining compliance with this covenant, (i) in the event that an item of
Indebtedness meets the criteria of more than one of the types of Indebtedness
permitted by the second paragraph of this covenant, Sun, such Guarantor or such
Subsidiary shall classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of the categories of
permitted Indebtedness described above and (ii) the outstanding principal amount
on any date of any Indebtedness issued with original issue discount is the face
amount of such Indebtedness less the remaining unamortized portion of the
original issue discount of such Indebtedness on such date.
LAYERING INDEBTEDNESS; REDEEMABLE STOCK; LIENS SECURING INDEBTEDNESS
The Indenture will provide that Sun will not, and will not permit any of its
Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist (a) any (i) Redeemable Stock, or (ii) Indebtedness that is subordinate in
right of payment to any other Indebtedness of Sun or a Guarantor (other than
Existing Indebtedness and Indebtedness incurred in compliance with clause (v) of
the covenant described above under the caption "Incurrence of Indebtedness and
Issuance of Preferred Stock") unless, by its terms, such Redeemable Stock or
Indebtedness (A) has an original final stated maturity subsequent to the final
stated maturity of the Notes and a Weighted Average Life to Maturity longer than
that of the Notes and (B) is subordinate in right of payment to, or ranks PARI
PASSU with, the Notes or the Guarantee, as applicable, or (b) any Lien (except
Permitted Liens) on any asset now owned or hereafter acquired, or on any income
or profits therefrom or assign or convey any right to receive income therefrom
securing any Indebtedness of Sun or any of its Subsidiaries unless all payments
due under the Indenture, the Notes and the Guarantees (as applicable) are
secured on an equal and ratable basis with the Obligations so secured (or, if
the
55
<PAGE>
Obligations so secured constitute Subordinated Indebtedness, on a senior basis)
until such time as such Obligations are no longer secured by a Lien.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture will provide that Sun will not, and will not permit any of its
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction on the
ability of any Subsidiary to (i)(a) pay dividends or make any other
distributions to Sun or any of its Subsidiaries (1) on its Capital Stock or (2)
with respect to any other interest or participation in, or measured by, its
profits, or (b) pay any Indebtedness owed to Sun or any of its Subsidiaries,
(ii) make loans or advances to or on behalf of Sun or any of its Subsidiaries or
(iii) transfer any of its properties or assets to or on behalf of Sun or any of
its Subsidiaries, except for such encumbrances or restrictions existing under or
by reason of (a) Existing Indebtedness as in effect on the date of the
Indenture, (b) the Indenture, (c) applicable law, (d) any instrument governing
Indebtedness or Capital Stock of a Person acquired by Sun or any of its
Subsidiaries as in effect at the time of such acquisition (except to the extent
incurred in connection with or in contemplation of such acquisition or in
violation of the covenant described above under the caption "Incurrence of
Indebtedness and Issuance of Preferred Stock"), which encumbrance or restriction
is not applicable to any Person, or the properties or assets of any Person,
other than the Person, or the property or assets of the Person, so acquired, (e)
customary non-assignment provisions in leases entered into in the ordinary
course of business, (f) purchase money obligations for property acquired in the
ordinary course of business that impose restrictions of the nature described in
clause (iii) above solely on the property so acquired, (g) Permitted Refinancing
Indebtedness, PROVIDED that the restrictions contained in the agreements
governing such Permitted Refinancing Indebtedness are no more restrictive than
those contained in and do not apply to any other assets or person than was
covered by the agreements governing the Indebtedness being refinanced, or (h)
the Credit Agreement, the U.K. Credit Agreements and future Foreign Company
credit agreements, including related documentation as the same is in effect on
the date of the Indenture and as amended or replaced from time to time, PROVIDED
that no such future Foreign Company credit agreement and no such amendment or
replacement is more restrictive as to the matters enumerated above than the
Credit Agreement, the U.K. Credit Agreements (in the case of amendments or
replacements thereof) and related documentation as in effect on the date of the
Indenture. Nothing contained in this "Dividend and Other Payment Restrictions
Affecting Subsidiaries" covenant shall prevent Sun or any Subsidiary of Sun from
creating, incurring, assuming or suffering to exist any Permitted Liens or
entering into agreements in connection therewith that impose restrictions on the
transfer or disposition of the property or assets subject to such Permitted
Liens.
LINE OF BUSINESS
The Indenture will provide that Sun will not, and will not permit any of its
Subsidiaries to, engage to any material extent in any business other than the
ownership, operation and management of Nursing Facilities and Related
Businesses.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indenture will provide that Sun may not consolidate or merge with or
into (whether or not Sun is the surviving corporation), or, directly or
indirectly, sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its properties or assets in one or more related
transactions, to another Person or group of affiliated Persons or adopt a Plan
of Liquidation unless (i) Sun is the surviving corporation or the entity or the
Person formed by or surviving any such consolidation or merger (if other than
Sun) or to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made or (in the case of a Plan of Liquidation) the
Person which receives the greatest value from the Plan of Liquidation is a
corporation organized or existing under the laws of the United States, any state
thereof or the District of Columbia; (ii) the entity or Person formed by or
surviving any such consolidation or merger
56
<PAGE>
(if other than Sun) or the entity or Person to which such sale, assignment,
transfer, conveyance or other disposition shall have been made or (in the case
of a Plan of Liquidation) the Person which receives the greatest value from the
Plan of Liquidation assumes all the obligations of Sun under the Notes and the
Indenture pursuant to a supplemental Indenture in form reasonably satisfactory
to the Trustee; (iii) immediately after giving effect to such transaction on a
pro forma basis, no Default or Event of Default exists; and (iv) Sun or the
entity or Person formed by or surviving any such consolidation or merger (if
other than Sun), or to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made or (in the case of a Plan of
Liquidation) the Person which receives the greatest value from the Plan of
Liquidation (A) will have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of Sun
immediately preceding the transaction and (B) will, at the time of such
transaction and after giving pro forma effect thereto as if such transaction had
occurred at the beginning of the Reference Period, be permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of the covenant described above
under the caption "Incurrence of Indebtedness and Issuance of Preferred Stock."
Upon any consolidation or merger or any such sale, assignment, transfer,
conveyance or other disposition (but not lease) or consummation of a Plan of
Liquidation in accordance with the foregoing, the successor corporation formed
by such consolidation or into which Sun is merged or to which such transfer is
made or, in the case or a Plan of Liquidation, the entity which receives the
greatest value from such Plan of Liquidation shall succeed to, and be
substituted for, and may exercise every right and power of, Sun under the
Indenture with the same effect as if such successor corporation had been named
therein as Sun, and Sun shall be released from the obligations under the Notes
and the Indenture except with respect to any obligations that arise from, or are
related to, such transaction.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise) of all or substantially all of the properties and assets of one or
more Subsidiaries, Sun's interest in which constitutes all or substantially all
of the properties and assets of Sun shall be deemed to be the transfer of all or
substantially all of the properties and assets of Sun.
TRANSACTIONS WITH AFFILIATES
The Indenture will provide that neither Sun nor any of its Subsidiaries will
be permitted on or after the date of the Indenture to sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make any contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each of the foregoing, an "Affiliate Transaction"), or any series of
related Affiliate Transactions, unless (i) such Affiliate Transaction is on
terms that are no less favorable to Sun or the relevant Subsidiary than those
that could have been obtained in a comparable transaction by Sun or such
Subsidiary with an unrelated Person and (ii) Sun delivers to the Trustee (a)
with respect to an Affiliate Transaction, or any series of related Affiliate
Transactions, involving aggregate consideration in excess of $2.5 million, a
resolution of the Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (i) above and
that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors and (b) with respect to an
Affiliate Transaction, or any series of related Affiliate Transactions,
involving aggregate consideration in excess of $5 million, an opinion as to the
fairness to Sun or such Subsidiary of such Affiliate Transaction from a
financial point of view issued by an investment banking firm of national
standing; PROVIDED that the following shall not be deemed to be Affiliate
Transactions: (w) transactions or payments pursuant to any employment
arrangements, director or officer indemnification agreements or employee or
director benefit plans entered into by Sun or any of its Subsidiaries in the
ordinary course of business of Sun or such Subsidiary, (x) transactions between
or among Sun and/or any of its Subsidiaries, (y) any transaction or series of
related transactions pursuant to terms entered into prior to the date of the
Indenture and (z) Restricted Payments by Sun which are permitted by the covenant
57
<PAGE>
described above under the caption "Restricted Payments" and are made on a PRO
RATA basis to each stockholder of Sun.
SUBSIDIARY GUARANTORS
The Indenture will provide that all existing and future Subsidiaries of Sun,
except as provided below, jointly and severally will guarantee irrevocably and
unconditionally all principal, premium, if any, and interest on the Notes on a
senior subordinated, unsecured, general basis. Sun will covenant pursuant to the
Indenture to cause (a) each of its Subsidiaries (other than Sun Systems, Inc.)
which is neither a CareerStaff Company nor a Foreign Company and which is not a
Guarantor on the date of the Indenture (other than Subsidiaries having total
assets with a book value of less than $500,000 and that do not guarantee any
Senior Debt) (b) any Subsidiary of the Company or any Guarantor, which is not
then a Guarantor, if, prior to it becoming a Guarantor hereunder and a guarantor
under the Credit Agreement, (i) such Subsidiary is not required by the terms of
the Credit Agreement to become a guarantor under the Credit Agreement and (ii)
the conditions for releasing a Guarantor from its obligations as a guarantor of
the Notes specified in clause (ii) of the second paragraph of "--Release of
Guarantors" are then satisfied and (c) Sun Systems, Inc. and each CareerStaff
Company or Foreign Company, if such person (i) guarantees or otherwise becomes
liable for Indebtedness of Sun or any Guarantor (other than, in the case of
CareerStaff Companies, Indebtedness under the Credit Agreement), or (ii) causes
more than two-thirds of its Equity Interests to be pledged to secure
Indebtedness of Sun or any Guarantor (other than, in the case of CareerStaff
Companies, Indebtedness under the Credit Agreement), to execute and deliver to
the Trustee, promptly upon the execution by such Subsidiary of a guarantee of
Sun's obligations under any Indebtedness, a Guarantee pursuant to which such
Subsidiary will guarantee payment of the Notes and the performance of Sun's
other obligations under the Indenture to the extent set forth in the provisions
of the Indenture relating to Guarantors.
RELEASE OF GUARANTORS
The Indenture will provide that no Guarantor shall consolidate or merge with
or into (whether or not such Guarantor is the surviving person) another person
unless (i) subject to the provisions of the following paragraph and certain
other provisions of the Indenture, the person formed by or surviving any such
consolidation or merger (if other than such Guarantor) assumes all the
obligations of such Guarantor pursuant to a supplemental indenture in form
reasonably satisfactory to the Trustee, pursuant to which such person shall
unconditionally guarantee, on a senior subordinated basis, all of such
Guarantor's obligations under such Guarantor's Guarantee and, the Indenture on
the terms set forth in the Indenture; and (ii) immediately before and
immediately after giving effect to such transaction on a pro forma basis, no
Default or Event of Default shall have occurred or be continuing.
The Indenture will provide that upon (i) the sale or disposition (whether by
merger, stock purchase, asset sale or otherwise) of a Guarantor (or all of its
assets) to an entity which is not a Subsidiary of Sun, or upon the dissolution
of any Guarantors which sale, disposition or dissolution is otherwise in
compliance with the Indenture, or (ii) the release of any Guarantor from its
obligations as a guarantor under the Credit Agreement, so long as (a) no Default
or Event of Default shall have occurred and be continuing at the time of, or
would occur after giving effect on a pro forma basis to, such release, (b) Sun
is permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first paragraph of the
covenant described above under the caption "Incurrence of Indebtedness and
Issuance of Preferred Stock" on the date on which such release occurs, and (c)
the amount of Indebtedness outstanding under the Credit Agreement for at least
30 days prior to the time of such release is at least $250 million, such
Guarantor shall be deemed released from its obligations under its Guarantee of
the Notes; PROVIDED that any such termination shall occur only to the extent
that all obligations of such Guarantor under all of its guarantees of, and under
all of its pledges of assets or other security interests which secure any
Indebtedness of Sun shall also terminate upon such sale, disposition or
dissolution.
58
<PAGE>
REPORTS
The Indenture will provide that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, Sun will
furnish to the Trustee and all Holders, within 15 days after it is or would have
been required to file such with the Commission, all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if Sun were required to file such Forms,
including a "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and, with respect to the annual information only, a
report thereon by Sun's certified independent accountants. In addition, whether
or not required by the rules and regulations of the Commission but only to the
extent permitted thereby, Sun will file a copy of all such information and
reports with the Commission for public availability and make such information
available to securities analysts and prospective investors upon request.
EVENTS OF DEFAULT AND REMEDIES
The Indenture will provide that each of the following constitutes an Event
of Default: (i) default for 30 days in the payment, when due, of any installment
of interest on the Notes; (ii) default in payment when due (at maturity,
redemption, by acceleration or otherwise, including without limitation payment
of the Change of Control Payment or the Asset Sale Payment) of the principal of
or premium, if any, on the Notes; (iii) failure by Sun or any Guarantor for 30
days after notice to comply with the provisions described above under the
caption "Restricted Payments" or "Incurrence of Indebtedness and Issuance of
Preferred Stock"; (iv) failure by Sun or any Guarantor for 60 days after notice
to comply with any of its other agreements in the Indenture, the Notes or a
Guarantee; (v) any default occurs under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by Sun or any of its Subsidiaries (or the
payment of which is guaranteed by Sun or any of its Subsidiaries), whether such
Indebtedness or guarantee exists on the date of the Indenture or is thereafter
created, which default (a) constitutes a Payment Default or (b) results in the
acceleration of such Indebtedness prior to its final stated maturity and, in
each case, the principal amount of any Indebtedness, together with the principal
amount of any other such Indebtedness under which there has been a Payment
Default or that has been so accelerated, aggregates in excess of $20 million;
(vi) final unsatisfied judgments not covered by insurance aggregating in excess
of $20 million, at any one time rendered against Sun or any of its Subsidiaries
and not stayed, bonded or discharged within 60 days; (vii) any Guarantee by a
Guarantor which is a Significant Subsidiary shall cease for any reason not
permitted by the Indenture to be in full force and effect or any such Guarantor,
or any person acting on behalf of any such Guarantor, shall deny or disaffirm
its obligations under its Guarantee; and (viii) certain events of bankruptcy or
insolvency with respect to Sun or any of its Significant Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in aggregate principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately; PROVIDED that so long
as at least $15 million of Senior Debt is outstanding under the Credit
Agreement, no acceleration of the maturity of the Notes shall be effective until
the earlier of (i) five days after notice of acceleration is received by the
Representative under the Credit Agreement (unless such Event of Default is cured
or waived prior thereto) and (ii) the date on which any Senior Debt under the
Credit Agreement is accelerated. Notwithstanding the foregoing, in the case of
an Event of Default arising from certain events of bankruptcy or insolvency with
respect to Sun or any of its Significant Subsidiaries, all outstanding Notes
will become due and payable without further action or notice. Holders of the
Notes may not enforce the Indenture, the Notes or the Guarantees except as
provided in the Indenture. Subject to certain limitations, Holders of a majority
in aggregate principal amount of the then outstanding Notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of the Notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in their interest.
59
<PAGE>
Prior to the declaration of acceleration of the maturity of the Notes, the
Holders of the applicable percentage (specified in the first paragraph of this
covenant) in aggregate principal amount of the Notes then outstanding, by notice
to the Trustee on behalf of the Holders of all of the Notes, may waive any
existing Default or Event of Default and its consequences under the Indenture
except a continuing Default or Event of Default in the payment of the principal
of, premium, if any, or interest on the Notes.
Sun is required to deliver to the Trustee annually a statement regarding
compliance with the Indenture, and Sun is required upon becoming aware of any
Default or Event of Default, to deliver to the Trustee a statement specifying
such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
The Indenture will provide that no director, officer, employee, incorporator
or stockholder of Sun, as such, shall have any liability for any obligations of
Sun under the Notes, the Indenture or for any claim based on, in respect of, or
by reason of, such obligations or their creation. Each Holder by accepting a
Note waives and releases all such liability. The waiver and release are part of
the consideration for issuance of the Notes. Such waiver may not be effective to
waive liabilities under the Federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Sun may, at its option and at any time within one year of the final stated
maturity of the Notes, elect to have all of its obligations and the obligations
of the Guarantors discharged with respect to the outstanding Notes ("Legal
Defeasance"). Such Legal Defeasance means that Sun shall be deemed to have paid
and discharged the entire indebtedness represented, and the Indenture shall
cease to be of further effect as to all outstanding Notes and Guarantees, except
as to (i) the rights of Holders of outstanding Notes to receive payments in
respect of the principal of, premium, if any, and interest on such Notes when
such payments are due from the trust referred to below, (ii) Sun's obligations
with respect to the Notes concerning issuing temporary Notes, registration of
Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an
office or agency for payment and money for security payments held in trust,
(iii) the rights, powers, trusts, duties and immunities of the Trustee, and
Sun's obligations in connection therewith and (iv) the Legal Defeasance
provisions of the Indenture. In addition, Sun may, at its option and at any
time, elect to have its obligations and the obligations of the Guarantors
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the Notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, rehabilitation and insolvency
events) described under "Events of Default" will no longer constitute an Event
of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) Sun
must irrevocably deposit with the Trustee, in trust, for the benefit of the
Holders of the Notes, cash, U.S. Government Obligations, or a combination
thereof, in such amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants, to pay the principal of,
premium, if any, and interest on such outstanding Notes on their redemption or
final stated maturity; (ii) in the case of Legal Defeasance, Sun shall have
delivered to the Trustee an opinion of counsel in the United States confirming
that (A) Sun has received from, or there has been published by, the Internal
Revenue Service a ruling or (B) since the date of the Indenture, there has been
a change in the applicable Federal income tax law, in either case to the effect
that, and based thereon such opinion of counsel shall confirm that, the Holders
of such outstanding Notes will not recognize income, gain or loss for Federal
income tax purposes as a result of such Legal Defeasance and will be subject to
Federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such Legal Defeasance had not occurred; (iii) in
the case of Covenant Defeasance, Sun shall have delivered to the Trustee an
opinion of counsel in the United States confirming that the Holders of such
outstanding Notes will not recognize income, gain or
60
<PAGE>
loss for Federal income tax purposes as a result of such Covenant Defeasance and
will be subject to Federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Covenant Defeasance
had not occurred; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit) or insofar
as Events of Default from bankruptcy or insolvency events are concerned, at any
time in the period ending on the 91st day after the date of deposit; (v) such
Legal Defeasance or Covenant Defeasance will not result in a breach or violation
of, or constitute a default under any material agreement or instrument (other
than the Indenture) to which Sun or any of its Subsidiaries is a party or by
which Sun or any of its Subsidiaries is bound (other than a breach, violation or
default resulting from the borrowing of funds to be applied to such deposit);
(vi) Sun must have delivered to the Trustee an opinion of counsel to the effect
that after the 91st day following the deposit, the trust funds will not be
subject to the effect of any applicable bankruptcy, insolvency, reorganization
or similar laws affecting creditors' rights generally; (vii) Sun must deliver to
the Trustee an Officers' Certificate stating that the deposit was not made by
Sun with the intent of preferring the Holders of such Notes over the other
creditors of Sun with the intent of defeating, hindering, delaying or defrauding
other creditors of Sun; and (viii) Sun must deliver to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that the conditions
precedent provided for in, in the case of the Officers' Certificate, (i) through
(vi) and, in the case of the opinion of counsel, clauses (i), (with respect to
the validity and perfection of the security interest) (ii), (iii) and (v) of
this paragraph, have been complied with.
If the funds deposited with the Trustee to effect Legal Defeasance or
Covenant Defeasance are insufficient to pay the principal of premium, if any,
and interest on the Notes when due, then the obligations of Sun and the
Guarantors under the Indenture, the Notes and the Guarantees will be revived and
no such defeasance will be deemed to have occurred.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding (including
consents obtained in connection with a tender offer or exchange offer for such
Notes), and any existing default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for such Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment, supplement
or waiver, (ii) reduce the principal of or change the fixed maturity of any
Note, (iii) reduce the rate of or extend the time for payment of interest on any
Note, (iv) waive a Default or Event of Default in the payment of principal of or
premium, if any, or interest on the Notes (except a rescission of acceleration
of the Notes by the Holders of at least a majority in aggregate principal amount
thereof and a waiver of the Payment Default that resulted from such
acceleration), (v) make any Note payable in money other than that stated in the
Notes, (vi) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of Holders to receive payments of
principal of or premium, if any, or interest on the Notes, (vii) cause the Notes
or any Guarantee to become subordinate in right of payment to any Indebtedness
other than Senior Debt, or (viii) make any change in the foregoing amendment and
waiver provisions adverse to the Holders. Notwithstanding the foregoing, so long
as any Senior Debt is outstanding under the Credit Agreement, no modification,
supplement or waiver of any of the subordination and related provisions and
definitions of the Notes or the Indenture shall be effective unless expressly
agreed to in writing by the Representative under the Credit Agreement. So long
as any Senior Debt is outstanding under the Credit Agreement, the Trustee shall
deliver written notice of any modification or supplement to the Notes or the
Indenture to the Representative under the Credit
61
<PAGE>
Agreement no less than five business days before the effective date of any such
modification or supplement.
Without the consent of any Holder, Sun, the Guarantors and the Trustee may
amend or supplement the Indenture or the Notes to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Notes in addition to or in place of
certificated Notes, to provide for additional Guarantors of the Notes or the
release, in accordance with the Indenture, of any Guarantor, to provide for the
assumption of Sun's or any Guarantor's obligations to Holders in the case of a
merger, consolidation or sale of assets, to make any change that would provide
any additional rights or benefits to the Holders or that does not adversely
affect the legal rights under the Indenture of any such Holder, to comply with
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act, to evidence and provide for the
acceptance of the appointment of a successor Trustee with respect to the
Securities, or in any other case, pursuant to the provisions of the Indenture,
where a supplemental indenture is required or permitted to be entered into
without the consent of any Holder.
CONCERNING THE TRUSTEE
The Indenture will contain certain limitations on the rights of the Trustee,
should the Trustee become a creditor of Sun, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if the Trustee acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will not be under
any obligation to exercise any of its rights or powers under the Indenture at
the request of any Holder, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"ACQUIRED DEBT" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; PROVIDED that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"APPROVED JURISDICTION" means the United States of America, Canada, the
United Kingdom and any other member nation of the Organization for Economic
Development and Cooperation.
62
<PAGE>
"ASSET SALE" means (i) the sale, lease, conveyance or other disposition of
any assets, including, without limitation, by way of a sale and leaseback or by
merger or consolidation (PROVIDED that the sale, lease, conveyance or other
disposition of all or substantially all of the assets of Sun and its
Subsidiaries taken as a whole will be governed by the provisions of the
Indenture described above under the caption "Repurchases at the Option of
Holders--Change of Control" and/or the provisions described above under the
caption "Certain Covenants--Merger, Consolidation or Sale of Assets" and not by
the provisions of the covenant described above under the caption "Repurchases at
the Option of Holders--Asset Sales"), and (ii) the issuance or sale by Sun or
any of its Subsidiaries of Equity Interests of any of Sun's Subsidiaries, in the
case of either clause (i) or (ii), whether in a single transaction or a series
of related transactions (a) that have a fair market value in excess of $5
million or (b) for Net Proceeds in excess of $5 million. Notwithstanding the
foregoing: (a) a transfer of assets by Sun to a Subsidiary or by a Subsidiary to
Sun or to another Subsidiary, (b) an issuance of Equity Interests by a
Subsidiary to Sun or to another Subsidiary, and (c) a Nursing Facility Swap will
not be deemed to be an Asset Sale.
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"CAREERSTAFF COMPANY" means (i) CareerStaff Unlimited, Inc., a Delaware
corporation and a Wholly Owned Subsidiary of Sun, and its direct and indirect
Wholly Owned Subsidiaries (collectively, "CareerStaff Unlimited") so long as
such persons conduct no material business except acquiring, holding or selling
equity or other interests in other CareerStaff Companies or (ii) any Subsidiary
of Sun (a) in which CareerStaff Unlimited is the general partner, (b) which is
no less than 5% and no more than 10% owned by persons that are not Affiliates of
Sun and (c) substantially of all of whose business consists of temporary therapy
staffing.
"CASH EQUIVALENTS" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the government of an Approved
Jurisdiction or any agency or instrumentality thereof having maturities of not
more than one year from the date of acquisition, (iii) certificates of deposit
with maturities of one year or less from the date of acquisition, bankers'
acceptances (or, with respect to foreign banks, similar instruments) with
maturities not exceeding one year and overnight bank deposits, in each case with
any domestic commercial bank organized under the laws of the United States of
America or any state thereof or the District of Columbia, or any United States
branch of a foreign bank having at the date of acquisition thereof combined
capital and surplus of not less than $500 million, (iv) repurchase obligations
with a term of not more than seven days for underlying securities of the types
described in clauses (ii) and (iii) above entered into with any financial
institution meeting the qualifications specified in clause (iii) above, (v)
commercial paper having the highest rating obtainable from Moody's or S&P and in
each case maturing within one year after the date of acquisition, and (vi)
investments in money market funds which invest substantially all their assets in
securities of the types described in the foregoing clauses (i) through (v).
"CHANGE OF CONTROL" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition, in one or a series of
related transactions, of all or substantially all of the assets of Sun and its
Subsidiaries taken as a whole to any Person or group (as such term is used in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act) other than to a Person or
group who, prior to such transaction, held a majority of the voting power of the
voting stock of Sun, (ii) the acquisition by any Person or group (as defined
above) of a direct or indirect interest in more than 50% of the voting power of
the voting stock
63
<PAGE>
of Sun, by way of merger or consolidation or otherwise, or (iii) the first day
on which a majority of the members of the Board of Directors of Sun are not
Continuing Directors.
The phrase "all or substantially all" of the assets of Sun will likely be
interpreted under applicable state law and will be dependent upon particular
facts and circumstances. As a result, there may be a degree of uncertainty in
ascertaining whether a sale or transfer of "all or substantially all" of the
assets of Sun has occurred, in which case a Holder's ability to obtain the
benefit of a Change of Control Offer may be impaired. In addition, no assurances
can be given that Sun will be able to acquire Notes tendered upon the occurrence
of a Change of Control.
"CONSOLIDATED CASH FLOW" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus, without
duplication, the sum of (i) provision for taxes based on income or profits of
such Person and its Subsidiaries for such period, to the extent such provision
for taxes was included in computing such Consolidated Net Income, (ii) the Fixed
Charges of such Person and its Subsidiaries for such period, to the extent that
such Fixed Charges were deducted in computing such Consolidated Net Income,
(iii) depreciation and amortization (including amortization of goodwill and
other intangibles) of such Person and its Subsidiaries for such period to the
extent that such depreciation and amortization were deducted in computing such
Consolidated Net Income, and (iv) other non-cash items of such Person and its
Subsidiaries for such period to the extent such non-cash items were deducted in
computing such Consolidated Net Income, less the amount of all cash payments
made by such person or any of its Subsidiaries during such period to the extent
such payments relate to non-cash charges that were added back in determining
Consolidated Cash Flow for such period or any prior period, in each case on a
consolidated basis and determined in accordance with GAAP. Notwithstanding the
foregoing, the provision for taxes on the income or profits of, the depreciation
and amortization of, and the other non-cash items of, a Subsidiary of the
referent Person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent (and in the same proportion) that the
Net Income of such Subsidiary was included in calculating the Consolidated Net
Income of such Person and only if a corresponding amount would be permitted at
the date of determination to be dividended to Sun by such Subsidiary without
prior approval (that has not been obtained), pursuant to the terms of its
charter and all agreements, instruments, judgments, decrees, orders, statutes,
rules and governmental regulations applicable to that Subsidiary or its
stockholders.
"CONSOLIDATED NET INCOME" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis; PROVIDED that (i) the Net Income, if positive,
of any Person that is not a Subsidiary or that is accounted for by the equity
method of accounting shall be included only to the extent of the amount of
dividends or distributions paid in cash to the referent Person or a Wholly Owned
Subsidiary thereof, but in any case not in excess of such Person's pro rata
share of such Person's Net Income for such period, (ii) the Net Income, if
positive, of any Subsidiary shall be excluded to the extent that the declaration
or payment of dividends or similar distributions by that Subsidiary of that Net
Income is not at the date of determination permitted without any prior
governmental approval (that has not been obtained) or, directly or indirectly,
by operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition shall be excluded, (iv) the cumulative effect of a change in
accounting principles shall be excluded and (v) 1996 non-recurring charges in
the pre-tax amount of up to $26 million shall be excluded.
"CONSOLIDATED NET WORTH" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Subsidiaries as of such date plus (ii) the respective
amounts reported on such Person's balance sheet as of such date with respect to
any series of Preferred Stock (other than Redeemable Stock), less all write-ups
(other than write-ups resulting from foreign currency translations and write-ups
of tangible assets of a going concern business made in accordance with GAAP as a
result of the acquisition of such business) subsequent to the
64
<PAGE>
date of the Indenture in the book value of any asset owned by such Person or a
consolidated Subsidiary of such Person, and excluding the cumulative effect of a
change in accounting principles, all as determined in accordance with GAAP.
"CONTINUING DIRECTORS" means, as of any date of determination, any member of
the Board of Directors of Sun who (i) was a member of such Board of Directors on
the date of the Indenture or (ii) was nominated for election or elected to such
Board of Directors with the approval of a majority of the Continuing Directors
who were members of such Board at the time of such nomination or election.
"CREDIT AGREEMENT" means that certain Fourth Amended and Restated Credit
Agreement, dated as of October 29, 1996, by and among Sun, Mediplex and
NationsBank of Texas, N.A. and the other banks that are parties thereto,
providing for $490 million in aggregate principal amount of Senior Revolving
Debt, including any related notes, collateral documents, instruments and
agreements executed in connection therewith, and in each case as amended,
increased, modified, extended, renewed, refunded, replaced or refinanced, in
whole or in part, from time to time.
"DEFAULT" means any event or condition that is or with the passage of time
or the giving of notice or both would be an Event of Default.
"EQUITY INTERESTS" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"EXISTING INDEBTEDNESS" means Indebtedness of Sun and its Subsidiaries in
existence on the date of the Indenture, until such amounts are repaid.
"FIXED CHARGE COVERAGE RATIO" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that such
Person or any of its Subsidiaries incurs, assumes, guarantees, redeems or repays
any Indebtedness (other than revolving credit borrowings) or issues or redeems
Preferred Stock subsequent to the commencement of the period for which the Fixed
Charge Coverage Ratio is being calculated but prior to the date on which the
event for which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, guarantee, redemption or
repayment of Indebtedness, or such issuance or redemption of Preferred Stock, as
if the same had occurred at the beginning of the applicable Reference Period. In
addition, for purposes of making the computation referred to above, (i)
acquisitions that have been made by Sun or any of its Subsidiaries, including
through mergers or consolidations and including any related financing
transactions, during the Reference Period or subsequent to such Reference Period
and on or prior to the Calculation Date shall be deemed to have occurred on the
first day of the Reference Period, and (ii) the Consolidated Cash Flow and Fixed
Charges attributable to operations or businesses disposed of prior to the
Calculation Date shall be excluded (but in the case of Fixed Charges, only to
the extent that the obligations giving rise to such Fixed Charges would no
longer be obligations contributing to such Person's Fixed Charges subsequent to
the Calculation Date).
"FIXED CHARGES" means, with respect to any Person for any period, the sum
(without duplication and determined in each case in accordance with GAAP) of (i)
the consolidated interest expense of such Person and its Subsidiaries for such
period, whether paid or accrued (including, without limitation, amortization of
original issue discount, non-cash interest payments, the interest component of
any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, commissions, discounts and other fees
and charges incurred in respect of letters of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging Obligations), (ii) the
consolidated interest expense of such Person and its Subsidiaries that was
capitalized during such period, (iii) interest under any guarantee by such
Person or any of its Subsidiaries of Indebtedness of any other Person in the
amount of interest attributable to the Indebtedness guaranteed and (iv) the
product of (a) all cash dividend payments (and non-cash dividend payments in the
case of a Person that is a Subsidiary) on any series of Preferred Stock of such
Person, times (b) a fraction, the numerator of which is one and the denominator
of which is
65
<PAGE>
one minus the then current combined federal, state and local statutory tax rate
of such Person, expressed as a decimal, in each case, on a consolidated basis
and in accordance with GAAP; PROVIDED that in the event any cash dividend
payment is deductible for federal, state and/or local tax purposes, the amount
of the tax deduction relating to such cash dividend payment for such period
shall be subtracted from the Fixed Charges for such Person for such period.
"FOREIGN COMPANIES" means any Subsidiary of Sun which (i) is not organized
under the laws of the United States, any state thereof or the District of
Columbia and (ii) conducts substantially all of its business operations in a
country other than the United States of America.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, applied on a consistent basis and as in effect from time to time.
"GUARANTEE" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements, (ii) foreign exchange contracts
or currency swap agreements and (iii) other agreements or arrangements designed
to protect such Person against fluctuations in interest rates or currency
values.
"INDEBTEDNESS" means, with respect to any Person, without duplication, (i)
any Redeemable Stock of such Person, (ii) any liabilities and obligations of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or bankers' acceptances
or representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable, if
and to the extent any of the foregoing indebtedness (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance sheet
of such Person prepared in accordance with GAAP, (iii) all liabilities and
obligations of any other Person secured by a Lien on any asset of such Person,
whether or not such indebtedness is assumed by such Person (the amount thereof
being deemed to equal such asset's fair market value), and (iv) to the extent
not otherwise included, the guarantee by such Person of any liabilities or
obligations of any other Person of the kind described in the preceding clauses
(i)-(iii).
"INVESTMENT" by any Person in any other Person means (without duplication)
(i) the acquisition (whether by purchase, merger, consolidation or otherwise) by
such Person (whether for cash, property, services, securities or otherwise) of
capital stock, bonds, notes, debentures, partnership or other ownership
interests or other securities, including any options or warrants, of such other
Person or any agreement to make any such acquisition; (ii) the making by such
Person of any deposit with, or advance, loan or other extension of credit to,
such other Person (including the purchase of property from another Person
subject to an understanding or agreement, contingent or otherwise, to resell
such property to such other Person) or any commitment to make any such advance,
loan or extension (but excluding accounts receivable or deposits arising in the
ordinary course of business); and (iii) other than guarantees of Indebtedness of
Sun or any Subsidiary to the extent permitted by the covenant described above
under the caption "Incurrence of Indebtedness and Issuance of Preferred Stock,"
the entering into by such Person of any guarantee of, or other credit support or
contingent obligation with respect to, Indebtedness or other liability of such
other Person; PROVIDED that Investments shall not be deemed to include
extensions of trade credit by such Person or any of its Subsidiaries on
commercially reasonable terms in accordance with normal trade practices of such
Person or such Subsidiary, as the case may be.
66
<PAGE>
"ISSUE DATE" means the date of the first issuance of the Notes under the
Indenture.
"JUNIOR SECURITY" means any Qualified Equity Interests and any Indebtedness
of Sun or a Guarantor, as applicable, that is subordinated in right of payment
to Senior Debt at least to the same extent as the Notes or the Guarantee, as
applicable, and has no scheduled installment of principal due, by redemption,
sinking fund payment or otherwise, on or prior to the final stated maturity of
the Notes.
"LIEN" means, with respect to any asset, mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset given to
secure Indebtedness, whether or not filed, recorded or otherwise perfected under
applicable law (including any conditional sale or other title retention
agreement, any lease in the nature thereof, any option or other agreement to
sell or give a security interest in and any filing of or agreement to give any
financing statement under the Uniform Commercial Code (or equivalent statutes)
of any jurisdiction with respect to any such lien, pledge, charge or security
interest).
"NET INCOME" means, with respect to any Person, the consolidated net income
(loss) of such Person, determined in accordance with GAAP, excluding, however,
the effect of any extraordinary or other material non-recurring gain or loss
outside the ordinary course of business (including without limitation any gain
from the sale or other disposition of assets outside of the ordinary course of
business or from the issuance or sale of any Equity Interests), together with
any related provision for taxes on such extraordinary or other material
nonrecurring gain or loss.
"NET PROCEEDS" means the aggregate cash or Cash Equivalent proceeds received
by Sun or any of its Subsidiaries in respect of any Asset Sale, net of the
direct costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees, and sales commissions) and any other
expenses incurred or to be incurred by Sun or a Subsidiary as a direct result of
the sale of such assets (including, without limitation, severance, relocation,
lease termination and other similar expenses), taxes actually paid or due and
payable as a result thereof in the year of sale or the immediately following
year (after taking into account the application of deductions, net operating
losses and other tax attributes), amounts required to be applied to the
repayment of Indebtedness (other than Subordinated Indebtedness) secured by a
Lien on the asset or assets that were the subject of such Asset Sale, any
reserve for adjustment in respect of the sale price of such asset or assets
established in accordance with GAAP and all distributions and other payments
required to be made and actually made to minority interests holders in
Subsidiaries as a result of such Asset Sale; PROVIDED that if the instrument or
agreement governing such Asset Sale requires the transferor to maintain a
portion of the purchase price in escrow (whether as a reserve for adjustment of
the purchase price or otherwise) or to provide for indemnification of the
transferee for specified liabilities in maximum specified amount, the portion of
the cash or Cash Equivalents that is actually placed in escrow or segregated and
set aside by the transferor for such indemnification obligations shall not be
deemed to be Net Proceeds until the escrow terminates or the transferor ceases
to segregated and set aside such funds, in whole or in part, and then only to
the extent of the proceeds released from escrow to the transferor or that are no
longer segregated and set aside by the transferor.
"NON-CASH CONSIDERATION" means any non-cash or non-Cash Equivalent
consideration received by Sun or a Subsidiary of Sun in connection with an Asset
Sale and any non-cash or non-Cash Equivalent consideration received by Sun or
any of its Subsidiaries upon disposition thereof.
"NON-QUALIFIED ASSET SALE" means an Asset Sale in which the Non-Cash
Consideration received by Sun and its Subsidiaries exceeds 20% of the total
consideration received in connection with such Asset Sale calculated in
accordance with clause (x), but not clause (y), of the proviso to the first
sentence under the covenant described above under the caption "--Repurchase at
the Option of Holders--Asset Sales."
"NURSING FACILITY" means a nursing facility, hospital, outpatient clinic,
assisted living center, hospice, long-term care facility, subacute care facility
or other facility that is used or useful in the provision of healthcare
services.
67
<PAGE>
"NURSING FACILITY SWAP" means an exchange of assets by Sun or one or more
Subsidiaries of Sun or of the Equity Interests of a Subsidiary for one or more
Nursing Facilities and/or one or more Related Businesses or of the Equity
Interests of any Person owning one or more Nursing Facilities and/or one or more
Related Businesses.
"OBLIGATIONS" means any principal, premium, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"PAYMENT DEFAULT" means any failure to pay any scheduled installment of
principal on any Indebtedness within the grace period provided for such payment
in the documentation governing such Indebtedness.
"PERMITTED LIENS" means (i) Liens in favor of Sun; (ii) Liens on property of
a Person existing at the time such Person is merged into or consolidated with
Sun or any Subsidiary of Sun or becomes a Subsidiary of Sun, PROVIDED that such
Liens were in existence prior to the contemplation of such merger, consolidation
or acquisition and do not extend to any assets other than those of the Person
merged into or consolidated with Sun or that becomes a Subsidiary of Sun; (iii)
Liens on property existing at the time of acquisition thereof by Sun or any
Subsidiary of Sun, PROVIDED that such Liens were in existence prior to the
contemplation of such acquisition and do not extend to any property other than
that acquired; (iv) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business; (v) Liens securing Senior Debt
outstanding under the Credit Agreement, Liens securing Existing Indebtedness,
and Liens on the Equity Interests in or assets of Foreign Companies securing
Indebtedness outstanding under Foreign Company credit agreements; (vi) Liens for
taxes, assessments or governmental charges or claims that are not yet delinquent
or that are being contested in good faith by appropriate proceedings promptly
instituted and diligently concluded, PROVIDED that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall have
been made therefor; (vii) Liens to secure Permitted Refinancing Indebtedness
incurred to refinance Indebtedness that was secured by a Lien permitted under
the Indenture and that was incurred in accordance with the provisions of the
Indenture, PROVIDED that such Liens do not extend to or cover any property or
assets of Sun or any of its Subsidiaries other than assets or property securing
the Indebtedness so refinanced; (viii) Purchase Money Liens; (ix) any interest
or title of a lessor under any Capital Lease Obligation otherwise permitted by
the Indenture; (x) Liens upon specific items of inventory or equipment and
proceeds of Sun or any Subsidiary securing its obligations in respect of
bankers' acceptances issued or created for its account (whether or not under the
Credit Agreement) to facilitate the purchase, shipment, or storage of such
inventory and equipment; (xi) Liens securing reimbursement obligations with
respect to letters of credit (whether or not issued under the Credit Agreement)
otherwise permitted under the Indenture and issued in connection with the
purchase of inventory or equipment by Sun or any Subsidiary in the ordinary
course of business; (xii) Liens to secure (or encumbering deposits securing)
obligations arising from warranty or contractual service obligations of Sun or
any Subsidiary, including rights of offset and setoff; (xiii) Liens securing
Acquired Debt otherwise permitted by the Indenture, PROVIDED that (A) the
Indebtedness secured shall not exceed the fair market value of the assets so
acquired (such fair market value to be determined in good faith by the Board of
Directors of Sun at the time of such acquisition) and (B) such Indebtedness
shall be incurred, and the Lien securing such Indebtedness shall be created,
within 12 months after such acquisition; (xiv) Liens securing Hedging
Obligations agreements relating to Indebtedness otherwise permitted under the
Indenture; (xv) other Liens on assets of Sun or any of its Subsidiaries securing
Indebtedness that is permitted by the terms of the Indenture to be outstanding
having an aggregate principal amount at any one time outstanding not to exceed
$5 million; (xvi) Liens on Medicare, Medicaid or other patient accounts
receivable of Sun or its Subsidiaries; (xvii) Liens on real estate and related
personal property (including, but not limited to, sale and leasebacks of and
mortgages on real estate and related personal property) not to exceed an
aggregate amount equal to $60 million per year; (xviii) Liens of carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens
imposed by law incurred in the ordinary
68
<PAGE>
course of business; (xix) easements, rights-of-way, zoning restrictions,
reservations, encroachments and other similar encumbrances in respect of real
property; and (xx) Liens securing stay and appeal bonds or judgment Liens in
connection with any judgment not giving rise to a Default under the Indenture.
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of Sun or any of
its Subsidiaries (a) issued in exchange for, or the net proceeds of which are
used solely to extend, refinance, renew, replace, defease or refund, in whole or
in part, or (b) constituting an amendment, modification or supplement to, or a
deferral or renewal of ((a) and (b) above are, collectively, a "Refinancing"),
other Indebtedness of Sun or any of its Subsidiaries; PROVIDED that: (i) the
principal amount of such Permitted Refinancing Indebtedness does not exceed the
lesser of (A) the principal amount of the Indebtedness so Refinanced and (B) if
such Indebtedness being Refinanced was issued with original issue discount, the
accreted value thereof (determined in accordance with GAAP) (plus, in each case,
the amount of any reasonable expenses incurred in connection therewith); (ii)
such Permitted Refinancing Indebtedness has a final stated maturity later than
the final stated maturity of, and has a Weighted Average Life to Maturity equal
to or greater than the Weighted Average Life to Maturity of, the Indebtedness
being Refinanced; (iii) if the Indebtedness being Refinanced is Subordinated
Indebtedness, such Permitted Refinancing Indebtedness has a final stated
maturity later than the final stated maturity of, and is subordinated in right
of payment to, the Notes on terms at least as favorable to the Holders as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, deceased or refunded; and (iv) if the obligor on
the Indebtedness being Refinanced, is a Subsidiary that is not a Guarantor, such
Permitted Refinancing Indebtedness shall only be incurred by such Subsidiary.
"PLAN OF LIQUIDATION" means a plan that provides for, contemplates or the
effectuation of which is preceded or accompanied by (whether or not
substantially contemporaneously) (i) the sale, lease, conveyance or other
disposition of all or substantially all of the assets of Sun otherwise than as
an entirety or substantially as an entirety and (ii) the distribution of all or
substantially all of the proceeds of such sale, lease, conveyance or other
disposition and all or substantially all of the remaining assets of Sun to
holders of Capital Stock of Sun.
"PREFERRED STOCK" means an Equity Interest of any class or classes of a
Person (however designated) which is preferred as to payments of dividends, or
as to distributions upon any liquidation or dissolution, over Equity Interests
of any other class of such Person.
"PURCHASE MONEY INDEBTEDNESS" means any Indebtedness of a Person to any
seller or other Person incurred to finance the acquisition or construction
(including in the case of a Capital Lease Obligation, the lease) of any asset or
property which is incurred within 180 days of such acquisition or completion of
construction and is secured only by the assets so financed.
"PURCHASE MONEY LIEN" means a Lien granted on an asset or property to secure
Purchase Money Indebtedness permitted to be incurred under the Indenture and
incurred solely to finance the acquisition of construction of such asset or
property; provided that such Lien encumbers only such asset or property and is
granted within 180 days of such acquisition or completion of construction.
"QUALIFIED EQUITY INTERESTS" shall mean all Equity Interests of Sun other
than Redeemable Stock of Sun.
"REDEEMABLE STOCK" means any Equity Interest that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable at the option of the holder), or upon the happening of any event,
matures or is mandatorily redeemable (other than redeemable only for Qualified
Equity Interests of the issuer), pursuant to a sinking fund obligation or
otherwise, or redeemable at the option of the holder thereof, in whole or in
part, on or prior to the date on which the Notes mature.
"REFERENCE PERIOD" with regard to any Person means the four full fiscal
quarters (or such lesser period during which such Person has been in existence)
for which internal financial statements are available ended immediately
preceding any date upon which any determination is to be made pursuant to the
terms of the Notes or the Indenture.
69
<PAGE>
"RELATED BUSINESS" means the business conducted by Sun and its Subsidiaries
as of the date of the Indenture and any and all healthcare service businesses
that in good faith judgment of the Board of Directors of Sun are materially
related businesses. Without limiting the generality of the foregoing, Related
Business shall include the operation of Nursing Facilities, long-term and
specialty healthcare services, skilled nursing care, subacute care,
rehabilitation programs, pharmaceutical services, health maintenance
organizations, insurance companies, preferred provider organizations or any
other form of managed care business, health care information services business,
distribution of medical supplies, geriatric care and home healthcare or other
businesses which provide ancillary services to long-term and specialty
healthcare facilities.
"RESTRICTED INVESTMENT" means, in one or a series of related transactions,
any Investment, other than (i) Investments in Cash Equivalents, (ii) Investments
in a Subsidiary of Sun, (iii) Investments in any Person that as a consequence of
such Investment becomes a Subsidiary of Sun, (iv) Investments existing on the
date of the Indenture, (v) accounts receivable, advances, loans, extensions of
credit created or acquired in the ordinary course of business, (vi) Investments
made as a result of the receipt of Non-Cash Consideration from an Asset Sale
that was made pursuant to and in compliance with the covenant described above
under the caption "Repurchases at the Option of the Holders--Asset Sales," (vii)
Investments made as the result of the guarantee by Sun or any of its
Subsidiaries of Indebtedness of a Person or Persons other than Sun or any
Subsidiary of Sun that is secured by Liens on assets sold or otherwise disposed
of by Sun or such Subsidiary to such Person or Persons, PROVIDED that such
Indebtedness was in existence prior to the contemplation of such sale or other
disposition and that the terms of such guarantee permit Sun or such Subsidiary
to foreclose on the pledged or mortgaged assets if Sun or such Subsidiary is
required to perform under such guarantee, and (viii) Investments in any Related
Business.
"SENIOR DEBT" of Sun or any Guarantor means Indebtedness (including any
monetary obligation in respect of the Credit Agreement, and interest, whether or
not allowable, accruing on Indebtedness incurred pursuant to the Credit
Agreement after the filing of a petition initiating any proceeding under any
bankruptcy, insolvency or similar law) of Sun or such Guarantor unless, by the
terms of the instrument creating or evidencing such indebtedness, it is
expressly designated not to be senior in right of payment to the Notes or the
applicable Guarantee; PROVIDED that in no event shall Senior Debt include (i)
Indebtedness to any Subsidiary of Sun or any officer, director or employee of
Sun or any Subsidiary of Sun, (ii) Indebtedness incurred in violation of the
terms of the Indenture, (iii) Indebtedness to trade creditors, (iv) Redeemable
Stock and (v) any liability for taxes owed or owing by Sun or such Guarantor.
"SENIOR REVOLVING DEBT" means revolving credit loans and letters of credit
outstanding from time to time under the Credit Agreement.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 or Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date of the
Indenture.
"STOCKHOLDERS' EQUITY" means, with respect to any Person as of any date, the
stockholders' equity of such Person determined in accordance with GAAP as of the
date of the most recent available internal financial statements of such Person,
and calculated on a pro forma basis to give effect to any acquisition or
disposition by such person consummated or to be consummated since the date of
such financial statements and on or prior to the date of such calculation.
"SUBORDINATED INDEBTEDNESS" means Indebtedness of Sun or a Guarantor that is
subordinated in right of payment to the Notes or such Subsidiary's Guarantee of
the Notes, as applicable.
"SUBSIDIARY" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other
70
<PAGE>
Subsidiaries of such Person (or a combination thereof) and (ii) any partnership
(a) the sole general partner or the managing general partner of which is such
Person or a Subsidiary of such Person or (b) the only general partners of which
are such Person or of one or more Subsidiaries of such Person (or any
combination thereof).
"SUN SYSTEMS, INC." means Sun Systems, Inc., a Delaware corporation, in
which Sun expects to have the right to acquire a majority of the outstanding
Equity Interests.
"U.K. CREDIT AGREEMENTS" means (i) that certain Facility Agreement, dated as
of August 30, 1996, between Ashbourne plc, Ashbourne Homes (Developments)
Limited, Ashbourne Homes plc, Larstrike Limited, Sedbury Park Limited
(collectively, the "Ashbourne Group"), The Governor and Company of the Bank of
Scotland, and the other banks and financial institutions that are parties
thereto, providing for L25,000,000 in aggregate principal amount of revolving
credit; (ii) that certain Facility Agreement, dated as of August 30, 1996,
between the Ashbourne Group, Midland Bank plc, and the other banks and financial
institutions that are parties thereto, providing for L25,000,000 in aggregate
principal amount of revolving credit and (iii) that certain Credit Facility
Agreement with Lloyds Bank plc in the aggregate principal amount of up to L14.0
million, including in (i), (ii) and (iii) above, any related notes, collateral
documents, instruments and agreements executed in connection therewith, and in
each case as amended, increased, modified, extended, renewed, refunded, replaced
or refinanced, in whole or in part, from time to time.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity, or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"WHOLLY OWNED SUBSIDIARY" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person or by such
Person and one or more Wholly Owned Subsidiaries of such Person.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
EXCHANGE OF OLD NOTES FOR NEW NOTES
The following summary describes the principal U.S. federal income tax
consequences to Noteholders of the exchange of the Old Notes for New Notes. This
summary is intended to address the beneficial owners of Notes that are citizens
or residents of the United States, corporations, partnerships or other entities
created or organized in or under the laws of the United States or any State, or
estates or trusts the income of which is subject to U.S. federal income taxation
regardless of its source that will hold the New Notes as capital assets.
The exchange of Old Notes for New Notes (the "Exchange") pursuant to the
Exchange Offer will not be a taxable event for U.S. federal income tax purposes.
As a result, a holder of an Old Note whose Old Note is accepted in an Exchange
Offer will not recognize gain on the Exchange. A tendering holder's tax basis in
the New Notes will be the same as such holder's tax basis in its Old Notes. A
tendering holder's holding period for the New Notes received pursuant to the
Exchange Offer will include its holding period for the Old Notes surrendered
therefor.
ALL HOLDERS OF OLD NOTES ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE UNITED STATES FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF THE
EXCHANGE OF OLD NOTES FOR NEW NOTES AND OF THE OWNERSHIP AND DISPOSITION OF NEW
NOTES RECEIVED IN THE EXCHANGE OFFER IN LIGHT OF THEIR OWN PARTICULAR
CIRCUMSTANCES.
71
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Company has agreed that, starting on the Expiration Date
and ending on the close of business 180 days after the Expiration Date, it will
make this Prospectus, as amended or supplemented, available to any broker-dealer
for use in connection with any such resale. In addition, until such date, all
broker-dealers effecting transactions in the New Notes may be required to
deliver a prospectus.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
Starting on the Expiration Date, the Company will promptly send additional
copies of this Prospectus and any amendment or supplement to this Prospectus to
any broker-dealer that requests such documents in the Letter of Transmittal. The
Company has agreed to pay all expenses incident to the Exchange Offer (including
the expenses of one counsel for the Holders of the Notes) other than commissions
or concessions of any brokers or dealers and will indemnify the Holders of the
New Notes (including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters as to the validity of the New Notes and certain United
States Federal income taxation matters will be passed upon by Shearman &
Sterling, San Francisco, California.
EXPERTS
The audited consolidated financial statements and schedules of Sun
Healthcare Group, Inc. and subsidiaries incorporated by reference in this
prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
72
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS AND THE ACCOMPANYING LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE UNDER THE RELIED UPON AS HAVING
BEEN AS AUTHORIZED BY THE COMPANY OR THE EXCHANGE AGENT. NEITHER THIS PROSPECTUS
NOR THE ACCOMPANYING LETTER OF TRANSMITTAL, OR BOTH TOGETHER, CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SECURITIES IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS, NOR THE ACCOMPANYING
LETTER OF TRANSMITTAL, OR BOTH TOGETHER, NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AT ANY TIME SUBSEQUENT TO THE DATE
HEREOF OR THEREOF.
------------------------
TABLE OF CONTENTS
------------------------
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Available Information.......................... 7
Incorporation of Certain Documents by
Reference..................................... 7
Prospectus Summary............................. 9
Risk Factors................................... 16
Use of Proceeds................................ 35
Ratio of Earnings to Fixed Charges............. 36
Selected Consolidated Financial Data........... 37
The Exchange Offer............................. 39
Description of New Notes....................... 47
Certain U.S. Federal Income Tax Consequences... 71
Plan of Distribution........................... 72
Legal Matters.................................. 72
Experts........................................ 72
</TABLE>
[LOGO]
OFFER TO EXCHANGE
9 1/2% SERIES B SENIOR SUBORDINATED
NOTES DUE 2007
WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933,
AS AMENDED
FOR ANY AND ALL OUTSTANDING
9 1/2% SERIES A SENIOR SUBORDINATED
NOTES DUE 2007
---------------------
PROSPECTUS
---------------------
, 1998
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") authorizes
a court to award or a corporation's Board of Directors to grant indemnification
to directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Act").
As authorized by Section 102(b)(7) of the DGCL, Sun's Certificate of
Incorporation limits the personal liability of each Sun director to Sun or its
stockholders for monetary damages for breach of his fiduciary duty as a director
except to the extent such limitation of liability is not permitted under the
DGCL. The DGCL provides that the liability of a director may not be limited (i)
for any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) for liability for
payment of dividends or stock purchases or redemptions in violation of the DGCL
or (iv) for any transaction from which the director derived an improper personal
benefit.
In addition, Sun's Bylaws provide that Sun shall indemnify any and all of
its directors, or former directors, to the fullest extent permitted by law
against claims and liabilities to which such persons may become subject. The
DGCL provides that indemnification is permissible only when the director acted
in good faith and in a manner reasonably believed to be in or not opposed to the
best interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the conduct was unlawful. The
DGCL also permits indemnification in respect of any claim, issue, or matter as
to which such person shall have been adjudicated to be liable to the corporation
to the extent that the Delaware Court of Chancery or the court in which such
action or suit was brought has determined upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity. Sun has also entered into
indemnification agreements with certain of its officers and with its directors
and also provides insurance coverage to such parties.
Sun has entered into a Registration Rights Agreements with certain of the
Holders. Such Registration Rights Agreement provides for indemnification by such
Holders and its officers and directors, and by the Company of such Holders, for
certain liabilities arising under the Act or otherwise.
ITEM 21. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT DESCRIPTION
- ----------------- -----------------------------------------------------------------------------------------------
<S> <C>
Exhibit 1.1** Purchase Agreement, dated as of July 1, 1997, among Sun Healthcare Group, Inc. and Donaldson,
Lufkin & Jenrette Securities Corporation, Credit Suisse First Boston Corporation, J.P. Morgan
Securities Inc. and NationsBanc Capital Markets, Inc., as Initial Purchasers
Exhibit 4.1* Form of 9 1/2% Senior Subordinated Notes due 2007 (included in Exhibit 4.2)
Exhibit 4.2* Indenture, dated as of July 8, 1997, among Sun Healthcare Group, Inc., the Guarantors named
therein and First Trust National Association, as Trustee, relating to 9 1/2% Senior
Subordinated Notes due 2007 (included as an exhibit to Sun's Form 10-Q for the quarterly
period ended June 30, 1997)
Exhibit 4.3** Registration Rights Agreement, dated as of July 8, 1997, between Sun Healthcare Group, Inc.,
the Guarantors named therein and Donaldson, Lufkin & Jenrette Securities Corporation, Credit
Suisse First Boston Corporation, J.P. Morgan Securities Inc. and NationsBanc Capital Markets,
Inc., as Initial Purchasers
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT DESCRIPTION
- ----------------- -----------------------------------------------------------------------------------------------
<S> <C>
Exhibit 5.1** Opinion of Shearman & Sterling relating to the New Notes
Exhibit 8.1** Opinion of Shearman & Sterling (Tax)
Exhibit 12** Computation of Ratio of Earnings to Fixed Charges
Exhibit 23.1** Consent of Arthur Andersen LLP
Exhibit 23.2** Consent of Shearman & Sterling (included in Exhibit 5.1)
Exhibit 23.3** Consent of Shearman & Sterling (included in Exhibit 8.1)
Exhibit 24.1* Powers of Attorney (included on page II-4 of this Registration Statement)
Exhibit 25.1** Statement of Eligibility of First Trust National Association, as Trustee, relating to the
Senior Subordinated Notes due 2007, on Form T-1
Exhibit 99.1* Form of Letter of Transmittal
Exhibit 99.2* Form of Notice of Guaranteed Delivery
Exhibit 99.3* Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees
Exhibit 99.4* Form of Letter to Clients
</TABLE>
- ------------------------
* Previously filed.
** Filed herewith.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement;
(2) That for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
II-2
<PAGE>
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial BONA FIDE offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses is incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial BONA FIDE offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in Albuquerque, New Mexico on the 24th day of June
1998.
<TABLE>
<S> <C> <C>
SUN HEALTHCARE GROUP, INC. ("SUN")
By: /s/ MARK G. WIMER
------------------------------------------
Mark G. Wimer
PRESIDENT AND CHIEF OPERATING OFFICER
</TABLE>
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following person in the
capacities and on the dates indicated. Each person whose signature appears below
hereby appoints each of Robert Murphy and Robert D. Woltil, as his attorney-in-
fact to sign this Registration Statement on his behalf individually and in the
capacity stated below and to file all supplements, amendments and post-effective
amendments to this Registration Statement, and any and all instruments or
documents filed as a part of or in connection with this Registration Statement
or any amendment or supplement thereto, and any such attorney-in-fact may make
such changes and additions to this Registration Statement as such
attorney-in-fact may deem necessary or appropriate.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
* Chairman of the Board and June 24, 1998
---------------------------- Chief Executive Officer
Andrew L. Turner of Sun Healthcare Group,
Inc.
/s/ MARK G. WIMER President, Chief Operating June 24, 1998
---------------------------- Officer and Director of
Mark G. Wimer Sun Healthcare Group,
Inc.; Director of
Worcester Nursing
Center, Inc., SunBridge,
Inc. and each subsidiary
listed on Annex B
/s/ ROBERT D. WOLTIL Chief Financial Officer June 24, 1998
---------------------------- and Director of Sun
Robert D. Woltil Healthcare Group, Inc.;
President, Chief
Financial Officer and
Director of Regency
Health Services, Inc.,
Sun Lane Purchase
Corporation, Masthead
Corporation, Sunmark of
New Mexico, Inc and SHG
International Holdings,
Inc.; Chief Financial
Officer and Director of
SunQuest Consulting,
Inc. and Worcester
Nursing Center, Inc.;
Chief Financial Officer
of Cal Med, Inc. (both
on behalf of Cal-Med,
Inc. and as a member of
Accelerated Care Plus,
LLC), HC, Inc. (both on
behalf of HC Inc. and as
a member of Accelerated
Care Plus, LLC) and each
subsidiary listed on
Annex A; President,
Chairman of the Board,
and Director of
SunBridge, Inc.,
SunSolution, Inc. and
each subsidiary listed
on Annexes B, C, D, and
E; Chief Financial
Officer of Mediplex
Management of Port St.
Lucie, Inc., as General
Partner of Savannas
Hospital Limited
Parnership; Chief
Financial Officer of
Mediplex of New Jersey,
Inc., as General Partner
of West Jersey/Mediplex
Rehabilitation L.P.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ ANDREW P. MASETTI Vice President--Finance June 24, 1998
---------------------------- (Principal Accounting
Andrew P. Masetti Officer)
Director of Sun Healthcare June 24, 1998
---------------------------- Group, Inc.
William R. Anixter
/s/ WILLIAM C. WARRICK Vice President and June 24, 1998
---------------------------- Controller of Regency
William C. Warrick Health Services, Inc.,
each subsidiary listed
in Annex A and of Sun
Healthcare Group, Inc.
(as the sole member of
Sun Healthcare (Europe)
L.L.C.)
/s/ ROBERT A. LEVIN President and Director of June 24, 1998
---------------------------- HTA of New Jersey, Inc.;
Robert A. Levin Director of SunSolution,
Inc., Sun Quest
Consulting, Inc. and
each subsidiary listed
on Annex D;
/s/ WARREN C. SCHELLING President and Director of June 24, 1998
---------------------------- each subsidiary listed
Warren C. Schelling on Annex C
/s/ ZEV KARKOMI Director of Sun Healthcare June 24, 1998
---------------------------- Group, Inc.
Zev Karkomi
/s/ JOHN E. BINGAMAN Director of Sun Healthcare June 24, 1998
---------------------------- Group, Inc.
John E. Bingaman
* Director of Sun Healthcare June 24, 1998
---------------------------- Group, Inc.
James R. Tolbert, III
* Director of Sun Healthcare June 24, 1998
---------------------------- Group, Inc.
Lois E. Silverman
* Director of Sun Healthcare June 24, 1998
---------------------------- Group, Inc.
R. James Woolsey
* Director of Sun Healthcare June 24, 1998
---------------------------- Group, Inc.
Martin G. Mand
/s/ DALE ZULAUF President of Worcester June 24, 1998
---------------------------- Nursing Center, Inc. and
Dale Zulauf each subsidiary listed
on Annex B
* President of Pharmacy June 24, 1998
---------------------------- Factors of California,
Michael Slice Inc., Pharmacy Factors
of Florida, Inc.,
Pharmacy Factors of
Texas, Inc. and
SunFactors, Inc.
/s/ DAVID KNIESS President of each June 24, 1998
---------------------------- Subsidiary listed on
David Kniess Annex F.
* President and Chief June 24, 1998
---------------------------- Executive Officer of
Jerry Meyer SunBridge, Inc.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
* President and Chief June 24, 1998
---------------------------- Executive Officer of Sun
Tom R. Futch Care Respiratory
Services, Inc.
* President of SunQuest June 24, 1998
---------------------------- Consulting, Inc.
Michael S. Westmiller
/s/ JOHN W. DRISCOLL President of First Class June 24, 1998
---------------------------- Pharmacy, Inc. and
John W. Driscoll Sunscript Pharmacy
Corporation
/s/ ROBERT F. MURPHY Director of Regency Health June 24, 1998
---------------------------- Services, Inc., SHG
Robert F. Murphy International Holdings,
Inc. and Sunmark of New
Mexico, Inc.
/s/ PETER STEENBLOCK President and Chief June 24, 1998
---------------------------- Executive Officer of
Peter Steenblock SunAlliance Health
Services, Inc. and
Director of Golan
Healthcare Group, Inc.
* Director of Masthead June 24, 1998
---------------------------- Corporation and Sun Lane
Julie Collins Purchase Corporation
* President, Chief Executive June 24, 1998
---------------------------- Officer and Director of
Timothy J. Coburn Golan Healthcare Group,
Inc.
* President of Sun Choice June 24, 1998
---------------------------- Medical Supply, Inc.
Ray Fitchette
* President and Director of June 24, 1998
---------------------------- Sun Solution, Inc.
Kenneth Noonan
/s/ JENNIFER CLARKE President of SunPlus Home June 24, 1998
---------------------------- Health Services, Inc.,
Jennifer Clarke Americare Homecare, Inc.
and Care Home Health
Services.
/s/ LARRY STEUDLE President of each June 24, 1998
---------------------------- subsidiary listed on
Larry Steudle Annex E.
/s/ M. SCOTT ATHANS Senior Vice President, June 24, 1998
---------------------------- Chairman of the Board
M. Scott Athans and Director of each
subsidiary listed on
Annex E.
</TABLE>
*By: /s/ ROBERT D. WOLTIL
-----------------------
Robert D. Woltil
Attorney-in-fact
II-6
<PAGE>
ANNEX A
Americare Homecare
Americare of West Virginia, Inc.
Bay Colony Health Service, Inc.
Beckley Health Care Corp.
Bergen Eldercare, Inc.
Braswell Enterprises, Inc.
Brittany Rehabilitation Center, Inc.
Care Enterprises, Inc.
Care Enterprises West
Care Home Health Services
Carmichael Rehabilitation Center
Circleville Health Care Corp.
Clipper Home of North Conway, Inc.
Clipper Home of Portsmouth, Inc.
Clipper Home of Rochester, Inc.
Clipper Home of Wolfeboro, Inc.
Coalinga Rehabilitation Center
Community Re-Entry Services of Cortland, Inc.
Covina Rehabilitation Center
Dunbar Health Care Corp.
Evergreen Rehabilitation Center
Fairfield Rehabilitation Center
First Class Pharmacy, Inc.
Fullerton Rehabilitation Center
G-WZ of Stamford, Inc.
Glendora Rehabilitation Center
Glenville Health Care Corp.
Golan Healthcare Group, Inc.
Goodwin Nursing Home, Inc.
Grand Terrace Rehabilitation Center
Hallmark Health Services, Inc.
Harbor View Rehabilitation Center
Hawthorne Rehabilitation Center
Heritage Rehabilitation Center
Heritage-Torrance Rehabilitation Center
HTA of New Jersey, Inc.
Huntington Beach Convalescent Hospital
Jackson Rehabilitation Center, Inc.
Linda-Mar Rehabilitation Center
Living Services, Inc.
LTC Staffinders, Inc.
Manatee Springs Nursing Center, Inc.
Marion Health Care Corp.
Meadowbrook Rehabilitation Center
Mediplex Atlanta Rehabilitation Institute, Inc.
Mediplex Management, Inc.
Mediplex Management of Palm Beach County, Inc.
Mediplex Management of Texas, Inc.
Mediplex of Concord, Inc.
Mediplex of Connecticut, Inc.
II-7
<PAGE>
ANNEX A CONTINUED
Mediplex of Kentucky, Inc.
Mediplex of Maryland, Inc.
Mediplex of Massachusetts, Inc.
Mediplex of New Hampshire, Inc.
Mediplex of New Jersey, Inc.
Mediplex of New York, Inc.
Mediplex of Ohio, Inc.
Mediplex of Tennessee, Inc.
Mediplex of Virginia, Inc.
Mediplex Rehabilitation of Massachusetts, Inc.
New Bedford Nursing Center, Inc.
New Lexington Health Care Corp.
Newport Beach Rehabilitation Center
Nursing Home, Inc.
Oakview Treatment Centers of Kansas, Inc.
Oasis Mental Health Treatment Center, Inc.
Orange Rehabilitation Hospital, Inc.
Pacific Beach Physical Therapy, Inc.
Paradise Rehabilitation Center, Inc.
Paso Robles Rehabilitation Center
Peachwood Physical Therapy Corporation
Pharmacy Factors of California, Inc.
Pharmacy Factors of Florida, Inc.
Pharmacy Factors of Texas, Inc.
P.M.N.F. Management, Inc.
Putnam Health Care Corp.
Quality Care Holding Corporation
Quality Nursing Care of Massachusetts, Inc.
Regency High School, Inc.
Regency-North Carolina, Inc.
Regency Outpatient Services, Inc.
Regency Rehab Hospitals, Inc.
Regency Rehabilitation Management & Consulting Services, Inc.
Regency Rehab Properties, Inc.
Regency-Tennessee, Inc.
RHS Management Corporation
Rosewood Rehabilitation Center, Inc.
Salem Health Care Corp.
San Bernadino Rehabilitation Hospital, Inc.
SCRS & Communicology, Inc. of Ohio
Shandin Hills Rehabilitation Center
SHG International Holdings, Inc.
Special Medical Services, Inc.
Spofford Land, Inc.
Stockton Rehabilitation Center, Inc.
SunAlliance Healthcare Services, Inc.
SunBridge, Inc.
Sun Care Corp
SunCare Respiratory Services, Inc.
II-8
<PAGE>
ANNEX A CONTINUED
SunChoice Medical Supply, Inc.
SunDance Rehabilitation Corporation
SunFactors, Inc.
Sun Healthcare, Inc.
Sunmark of New Mexico
SunPlus Home Health Services, Inc.
SunQuest Consulting, Inc.
SunRise Healthcare Corporation
Sunrise Healthcare of Colorado, Inc.
Sunrise Healthcare of Florida, Inc.
Sunrise Rehab of Colorado, Inc.
SunScript Pharmacy Corporation
SunSolution, Inc.
SunSpectrum Outpatient Rehabilitation-Concord, Inc.
The Mediplex Group, Inc.
Vista Knoll Rehabilitation Center, Inc.
Willowview Rehabilitation Center
II-9
<PAGE>
ANNEX B
Americare of West Virginia, Inc.
Bay Colony Health Service, Inc.
Beckley Health Care Corp.
Bergen Eldercare, Inc.
Braswell Enterprises, Inc.
Brittany Rehabilitation Center, Inc.
Care Enterprises, Inc.
Care Enterprises West
Carmichael Rehabilitation Center
Circleville Health Care Corp.
Clipper Home of North Conway, Inc.
Clipper Home of Portsmouth, Inc.
Clipper Home of Rochester, Inc.
Clipper Home of Wolfeboro, Inc.
Coalinga Rehabilitation Center
Community Re-Entry Services of Cortland, Inc.
Covina Rehabilitation Center
Dunbar Health Care Corp.
Evergreen Rehabilitation Center
Fairfield Rehabilitation Center
Fullerton Rehabilitation Center
G-WZ of Stamford, Inc.
Glendora Rehabilitation Center
Glenville Health Care Corp.
Goodwin Nursing Home, Inc.
Grand Terrace Rehabilitation Center
Hallmark Health Services, Inc.
Harbor View Rehabilitation Center
Hawthorne Rehabilitation Center
Heritage Rehabilitation Center
Heritage-Torrance Rehabilitation Center
Huntington Beach Convalescent Hospital
Jackson Rehabilitation Center, Inc.
Linda-Mar Rehabilitation Center
Living Services, Inc.
LTC Staffinders, Inc.
Manatee Springs Nursing Center, Inc.
Marion Health Care Corp.
Meadowbrook Rehabilitation Center
Mediplex Atlanta Rehabilitation Institute, Inc.
Mediplex Management, Inc.
Mediplex Management of Palm Beach County, Inc.
Mediplex Management of Texas, Inc.
Mediplex of Concord, Inc.
Mediplex of Connecticut, Inc.
Mediplex of Maryland, Inc.
Mediplex of Massachusetts, Inc.
Mediplex of New Hampshire, Inc.
Mediplex of New York, Inc.
Mediplex of Ohio, Inc.
II-10
<PAGE>
ANNEX B CONTINUED
Mediplex of Tennessee, Inc.
Mediplex of Virginia, Inc.
Mediplex Rehabilitation of Massachusetts, Inc.
New Bedford Nursing Center, Inc.
New Lexington Health Care Corp.
Newport Beach Rehabilitation Center
Nursing Home, Inc.
Oakview Treatment Centers of Kansas, Inc.
Oasis Mental Health Treatment Center, Inc.
Paradise Rehabilitation Center, Inc.
Paso Robles Rehabilitation Center
P.M.N.F. Managment, Inc.
Putnam Health Care Corp.
Quality Care Holding Corporation
Quality Nursing Care of Massachusetts, Inc.
Regency High School, Inc.
Regency-North Carolina, Inc.
Regency-Tennessee, Inc.
RHS Management Corporation
Rosewood Rehabilitation Center, Inc.
Salem Health Care Corp.
Shandin Hills Rehabilitation Center
Spofford Land, Inc.
Stockton Rehabilitation Center, Inc.
Sun Care Corp
Sun Healthcare, Inc.
SunRise Healthcare Corporation
Sunrise Healthcare of Florida, Inc.
Sunrise Rehab of Colorado, Inc.
The Mediplex Group, Inc.
Vista Knoll Rehabilitation Center, Inc.
Willowview Rehabilitation Center
II-11
<PAGE>
ANNEX C
Americare Homecare, Inc.
Care Home Health Services
First Class Pharmacy, Inc.
Pharmacy Factors of California, Inc.
Pharmacy Factors of Florida, Inc.
Pharmacy Factors of Texas, Inc.
SunChoice Medical Supply, Inc.
Sun Factors, Inc.
SunPlus Home Health Services, Inc.
Sunscript Pharmacy Corporation
II-12
<PAGE>
ANNEX D
Cal-Med, Inc.
Golan Healthcare Group, Inc.
HC, Inc.
HTA of New Jersey, Inc.
Pacific Beach Physical Therapy, Inc.
Peachwood Physical Therapy Corporation
Regency Outpatient Services, Inc.
Regency Rehabilitation Management & Consulting Services, Inc.
Regency Rehab Properties, Inc.
Special Medical Services, Inc.
SunAlliance Healthcare Services, Inc.
Sun Care Respiratory Services, Inc.
SunDance Rehabilitation Corporation
SunSpectrum Outpatient Rehabilitation-Concord, Inc.
II-13
<PAGE>
ANNEX E
Mediplex of Kentucky, Inc.
Orange Rehabilitation Hospital, Inc.
Regency Rehab Hospitals, Inc.
San Bernadino Rehabilitation Hospital, Inc.
Sunrise Healthcare of Colorado, Inc.
II-14
<PAGE>
ANNEX F
Cal-Med, Inc.
HC, Inc.
Pacific Beach Physical Therapy, Inc.
Peachwood Physical Therapy Corporation
Regency Outpatient Services, Inc.
Regency Rehabilitation Management & Consulting Services, Inc.
Regency Rehab Properties, Inc.
SCRS & Communicology, Inc. of Ohio
Special Medical Services, Inc.
SunDance Rehabilitation Corporation
SunSpectrum Outpatient Rehabilitation-Concord, Inc.
II-15
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT DESCRIPTION
- ----------------- -----------------------------------------------------------------------------------------------
<S> <C>
Exhibit 1.1** Purchase Agreement, dated as of July 1, 1997, among Sun Healthcare Group, Inc. and Donaldson,
Lufkin & Jenrette Securities Corporation, Credit Suisse First Boston Corporation, J.P. Morgan
Securities Inc. and NationsBanc Capital Markets, Inc., as Initial Purchasers
Exhibit 4.1* Form of 9 1/2% Senior Subordinated Notes due 2007 (included in Exhibit 4.2)
Exhibit 4.2* Indenture, dated as of July 8, 1997, among Sun Healthcare Group, Inc., the Guarantors named
therein and First Trust National Association, as Trustee, relating to 9 1/2% Senior
Subordinated Notes due 2007 (included in exhibit to Sun's Form 10-Q for the quarterly period
ended June 30, 1997)
Exhibit 4.3** Registration Rights Agreement, dated as of July 8, 1997, between Sun Healthcare Group, Inc.,
the Guarantors named therein and Donaldson, Lufkin & Jenrette Securities Corporation, Credit
Suisse First Boston Corporation, J.P. Morgan Securities Inc. and NationsBanc Capital Markets,
Inc., as Initial Purchasers
Exhibit 5.1** Opinion of Shearman & Sterling relating to the New Notes
Exhibit 8.1** Opinion of Shearman & Sterling (tax)
Exhibit 12** Computation of Ratio of Earnings to Fixed Charges
Exhibit 23.1** Consent of Arthur Andersen LLP
Exhibit 23.2** Consent of Shearman & Sterling (included in exhibit 5.1)
Exhibit 23.3** Consent of Shearman & Sterling (included in exhibit 8.1)
Exhibit 24.1* Powers of Attorney (included on page II-4 of this Registration Statement)
Exhibit 25.1** Statement of Eligibility of First Trust National Association, as Trustee, relating to the
Senior Subordinated Notes due 2007, on Form T-1
Exhibit 99.1* Form of Letter of Transmittal
Exhibit 99.2* Form of Notice of Guaranteed Delivery
Exhibit 99.3* Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees
Exhibit 99.4* Form of Letter to Clients
</TABLE>
- ------------------------
* Previously filed.
** Filed herewith.
<PAGE>
SUN HEALTHCARE GROUP, INC.
(Payment of Principal and Interest Guaranteed
by the Guarantors referred to within)
$250,000,000
9 1/2% Series A Senior Subordinated Notes due 2007
PURCHASE AGREEMENT
July 1, 1997
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CREDIT SUISSE FIRST BOSTON CORPORATION
J.P. MORGAN SECURITIES INC.
NATIONSBANC CAPITAL MARKETS, INC.
<PAGE>
$250,000,000
9 1/2% Series A Senior Subordinated Notes due 2007
of SUN HEALTHCARE GROUP, INC.
(Payment of Principal and Interest Guaranteed by
the Guarantors listed on Schedule A hereto)
PURCHASE AGREEMENT
July 1, 1997
Donaldson, Lufkin & Jenrette Securities Corporation
Credit Suisse First Boston Corporation
J.P. Morgan Securities, Inc.
NationsBanc Capital Markets, Inc.
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
Ladies and Gentlemen:
Sun Healthcare Group, Inc., a Delaware corporation (the "COMPANY"),
proposes to issue and sell to Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ"), Credit Suisse First Boston Corporation, J.P. Morgan
Securities, Inc. and NationsBanc Capital Markets, Inc. (each an "INITIAL
PURCHASER" and, collectively, the "INITIAL PURCHASERS") an aggregate of
$250,000,000 in principal amount of its 9 1/2% Series A Senior Subordinated
Notes due 2007 (the "SERIES A NOTES"), subject to the terms and conditions
set forth herein. The Series A Notes are to be issued pursuant to the
provisions of an indenture (the "INDENTURE"), to be dated as of the Closing
Date (as defined below), among the Company, the Guarantors (as defined below)
and First Trust National Association, as trustee (the "TRUSTEE"). The Series
A Notes and the Series B Notes (as defined below) issuable in exchange
therefor are collectively referred to herein as the "Notes." The Notes will
be guaranteed (the "SUBSIDIARY GUARANTEES") by each of the entities listed on
Schedule A hereto (each, a "GUARANTOR"
2
<PAGE>
and, collectively, the "GUARANTORS"). Capitalized terms used but not defined
herein shall have the meanings given to such terms in the Indenture.
1. OFFERING MEMORANDUM. The Series A Notes will be offered and sold to
the Initial Purchasers pursuant to one or more exemptions from the
registration requirements under the Securities Act of 1933, as amended (the
"ACT"). The Company has prepared a preliminary offering memorandum, dated
June 17, 1997 (the "PRELIMINARY OFFERING MEMORANDUM") and a final offering
memorandum, dated July 1, 1997 (the "OFFERING MEMORANDUM"), relating to the
Series A Notes and the Subsidiary Guarantees.
Upon original issuance thereof, and until such time as the same is no
longer required pursuant to the Indenture, the Series A Notes (and all
securities (other than the Series B Notes) issued in exchange therefor or in
substitution thereof) shall bear the following legend:
"THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS, EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS
ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1)
REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT)(A "QIB"), OR (B) IT IS NOT A U.S.
PERSON, IS NOT ACQUIRING THIS NOTE FOR THE ACCOUNT OR BENEFIT OF A U.S.
PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT
WILL NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k) (TAKING
INTO ACCOUNT THE PROVISIONS OF RULE 144(d) UNDER THE SECURITIES ACT, IF
APPLICABLE) UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF THE
TRANSFER OF THIS NOTE, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A)
TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A PERSON WHOM THE HOLDER
REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QIB IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES
3
<PAGE>
ACT, (C) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE
WITH RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM
REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE),
(E) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OR (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY) AND, IN EACH CASE, IN ACCORDANCE WITH THE
APPLICABLE STATE SECURITIES LAWS AND (3) AGREES THAT IT WILL DELIVER TO EACH
PERSON TO WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS
"OFFSHORE TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS
GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE
INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER
ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS."
2. AGREEMENTS TO SELL AND PURCHASE. On the basis of the representations,
warranties and covenants contained in this Agreement, and subject to the
terms and conditions contained herein, the Company agrees to issue and sell
to the Initial Purchasers, and the Initial Purchasers agree, severally and
not jointly, to purchase from the Company, the principal amount of Series A
Notes set forth opposite the name of such Initial Purchaser on Schedule B
hereto at a purchase price equal to 97.25% of the principal amount thereof
(the "PURCHASE PRICE").
3. TERMS OF OFFERING. The Initial Purchasers have advised the Company
that the Initial Purchasers will make offers (the "EXEMPT RESALES") of the
Series A Notes purchased hereunder on the terms set forth in the Offering
Memorandum, as amended or supplemented, solely to (i) persons whom the
Initial Purchasers reasonably believe to be "qualified institutional buyers"
as defined in Rule 144A under the Act ("QIBs") and (ii) to persons permitted
to purchase the Series A Notes in offshore transactions in reliance upon
Regulation S under the Act (each, a "REGULATION S PURCHASER") (such persons
specified in clauses (i) and (ii) being referred to herein as the "ELIGIBLE
PURCHASERS"). The Initial Purchasers will offer the Series A Notes to
Eligible Purchasers initially at a price equal to 100.00% of the principal
amount thereof. Such price may be changed at any time without notice.
4
<PAGE>
Holders (including subsequent transferees) of the Series A Note will have
registration rights set forth in the registration rights agreement (the
"REGISTRATION RIGHTS AGREEMENT"), to be dated the Closing Date, in
substantially the form of Exhibit A hereto, for so long as such Series A
Notes constitute "Transfer Restricted Securities" (as defined in the
Registration Rights Agreement). Pursuant to the Registration Rights
Agreement, the Company and the Guarantors will agree to file with the
Securities and Exchange Commission (the "COMMISSION"), under the
circumstances set forth therein, (i) a registration statement under the Act
(the "EXCHANGE OFFER REGISTRATION STATEMENT") relating to the Company's 9 1/2%
Series B Senior Subordinated Notes (the "SERIES B NOTES"), to be offered in
exchange for the Series A Notes (such offer to exchange being referred to as
the "EXCHANGE OFFER") and the Subsidiary Guarantees thereof and/or (ii) a
shelf registration statement pursuant to Rule 415 under the Act (the "SHELF
REGISTRATION STATEMENT" and, together with the Exchange Offer Registration
Statement, the "REGISTRATION STATEMENTS") relating to the resale by certain
holders of the Series A Notes and use its best efforts to cause such
Registration Statements to be declared and remain effective and usable for
the periods specified in the Registration Rights Agreement and to consummate
the Exchange Offer. This Agreement, the Indenture, the Notes, the Subsidiary
Guarantees and the Registration Rights Agreement are hereinafter sometimes
referred to collectively as the "OPERATIVE DOCUMENTS."
4. DELIVERY AND PAYMENT.
(a) Delivery of, and payment of the Purchase Price for, the Series A
Notes shall be made at the office of Skadden, Arps, Slate, Meagher & Flom LLP
at 919 Third Avenue, New York, New York, 10022-3897, or such other location
as may be mutually acceptable. Such delivery and payment shall be made at
9:00 a.m., New York City time, on the fourth business day following the date
of this Agreement, or at such other time as shall be agreed upon by Initial
Purchasers and the Company. The time and date of such delivery and the
payment are herein called the "CLOSING DATE."
(b) One or more of the Series A Notes in the definitive global form,
registered in the name of Cede & Co., as nominee of the Depository Trust
Company ("DTC"), having an aggregate principal amount corresponding to the
aggregate principal amount of the Series A Notes (collectively, the "GLOBAL
NOTE"), shall be delivered by the Company to the Initial Purchasers (or as
the Initial Purchasers direct), in each case with any transfer taxes thereon
duly paid by the Company against payment by the Initial Purchasers of the
Purchase Price thereof by
5
<PAGE>
wire transfer in same day funds to the order of the Company. The Global Note
shall be made available to the Initial Purchasers for inspection not later
than 9:30 a.m., New York City time, on the business day immediately preceding
the Closing Date.
5. AGREEMENTS OF THE COMPANY AND THE GUARANTORS. Each of the Company and
the Guarantors hereby agrees with each Initial Purchaser as follows:
(a) To advise the Initial Purchasers promptly and, if requested by an
Initial Purchaser, confirm such advice in writing, (i) of the issuance by any
state securities commission of any stop order suspending the qualification or
exemption from qualification of any Series A Notes for offering or sale in
any jurisdiction designated by an Initial Purchaser pursuant to Section 5(e)
hereof, or the initiation of any proceeding by any state securities
commission or any other federal or state regulatory authority for such
purpose and (ii) of the happening of any event during the period referred to
in Section 5(d) below that makes any statement of a material fact made in the
Offering Memorandum untrue or that requires any additions to or changes in
the Offering Memorandum in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. The Company
shall cooperate to prevent the issuance of any stop order or order suspending
the qualification or exemption of any Series A Notes under any state
securities or Blue Sky laws and, if at any time any state securities
commission or other federal or state regulatory authority shall issue an
order suspending the qualification or exemption of any Series A Notes under
any state securities or Blue Sky laws, the Company shall cooperate to obtain
the withdrawal or lifting of such order at the earliest possible time.
(b) To furnish the Initial Purchasers and those persons identified by
the Initial Purchasers to the Company, without charge, as many copies of the
Offering Memorandum, and any amendments or supplements thereto, as the
Initial Purchasers may reasonably request within 90 days following the date
of the Offering Memorandum. Subject to the Initial Purchasers' compliance
with their representations and warranties and agreements set forth in Section
7 hereof, the Company consents to the use of the Preliminary Offering
Memorandum and the Offering Memorandum, and any amendments and supplements
thereto required pursuant hereto, by the Initial Purchasers in connection
with Exempt Resales.
(c) During the period referred to in Section 5(d) below, not to make
any amendment or supplement to the Offering Memorandum of which the
6
<PAGE>
Initial Purchasers shall not previously have been advised or to which the
Initial Purchasers shall reasonably object after being so advised.
(d) If, after the date hereof during such period as in the opinion of
outside counsel for the Initial Purchasers an Offering Memorandum is
required by law to be delivered in connection with Exempt Resales by the
Initial Purchasers, any event shall occur as a result of which, in the
opinion of outside counsel to the Initial Purchasers, it becomes necessary to
amend or supplement the Offering Memorandum in order to make the statements
therein, in the light of the circumstances when such Offering Memorandum is
delivered to an Eligible Purchaser, not misleading, or if, in the reasonable
judgment of counsel to the Initial Purchasers, it is necessary to amend or
supplement the Offering Memorandum to comply with any applicable law,
forthwith to prepare an appropriate amendment or supplement to such Offering
Memorandum so that the statements therein, as so amended or supplemented,
will not, in the light of the circumstances when it is so delivered, be
misleading, or so that such Offering Memorandum, as so amended or
supplemented, will comply with applicable law, and to furnish to the Initial
Purchasers and such other persons as the Initial Purchasers may designate
such number of copies thereof as the Initial Purchasers may reasonably
request.
(e) Prior to the sale of the all Series A Notes pursuant to Exempt
Resales as contemplated hereby, to cooperate with the Initial Purchasers and
counsel to the Initial Purchasers in connection with the registration or
qualification of the Series A Notes for offer and sale to the Initial
Purchasers and pursuant to Exempt Resales under the securities or Blue Sky
laws of such jurisdictions as the Initial Purchasers may reasonably request
and to continue such qualification in effect so long as required for Exempt
Resales and to file such consents to service of process or other documents as
may be necessary in order to effect such registration or qualification;
PROVIDED, HOWEVER, that neither the Company nor any Guarantor shall be
required in connection therewith to register or qualify as a foreign
corporation in any jurisdiction in which it is not now so qualified or to
take any action that would subject it to service or process or taxation other
than as to matters and transactions relating to Exempt Resales, in any
jurisdiction in which it is not now so subject.
(f) So long as the Notes are outstanding (and for no longer than one
year unless requested in writing), to furnish to the Initial Purchasers as
soon as available copies of all definitive reports under the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT") furnished to or filed
with the Commission or any national securities exchange on which any class of
securities of the Company or any
7
<PAGE>
of the Guarantors is listed or other communications to its security holders
and such other publicly available information concerning the Company and/or
its subsidiaries as the Initial Purchasers may reasonably request.
(g) For so long as any of the Series A Notes remain outstanding and
during any period in which the Company is not subject to Section 13 or 15(d)
of the Exchange Act to make available to any holder of Series A Notes in
connection with any sale thereof and any prospective purchaser of such Series
A Notes from such holder, upon request, the information ("RULE 144A
INFORMATION") required by Rule 144A(d)(4) under the Act.
(h) Whether or not the transactions contemplated in this Agreement
are consummated or this Agreement is terminated, to pay or cause to be paid
all expenses incident to performance of the obligations of the Company and
the Guarantors under this Agreement including: (i) the fees, disbursements
and expenses of counsel to the Company and the Guarantors and accountants of
the Company and the Guarantors in connection with the sale and delivery of
the Series A Notes to the Initial Purchasers and pursuant to Exempt Resales,
and all other fees or expenses in connection with the preparation, printing
and distribution of the Preliminary Offering Memorandum, the Offering
Memorandum and all amendments and supplements to any of the foregoing
(including financial statements) prior to or during the period specified in
Section 5(d), including the mailing and delivering of copies thereof to the
Initial Purchasers and persons designated by it as specified herein, (ii) all
costs and expenses related to the issuance and delivery of the Series A Notes
to the Initial Purchasers, (iii) all costs of printing or reproduction of any
agreements or documents in connection with the offering, purchase, sale or
delivery of the Series A Notes, (iv) all expenses in connection with the
registration or qualification of the Series A Notes and the Subsidiary
Guarantees for offer and sale under the securities or Blue Sky laws of the
several states and all costs of printing or producing any preliminary and
supplemental Blue Sky memoranda in connection therewith (including the filing
fees and reasonable fees and disbursements of counsel for the Initial
Purchasers in connection with such registration or qualification and
memoranda relating thereto), (v) the cost of printing certificates
representing the Series A Notes, (vi) all expenses and listing fees in
connection with the application for quotation of the Series A Notes in the
National Association of Securities Dealers, Inc. ("NASD") Automated Quotation
System - PORTAL ("PORTAL"), (vii) any fees and expense of the Trustee and
Trustee's counsel in connection with the Indenture, the Notes and the
Subsidiary Guarantees, (viii) any costs and charges of any transfer agent,
registrar and/or depositary (including DTC), (ix) any fees charged by rating
agencies for the rating of
8
<PAGE>
the Notes and (x) and all other costs and expenses incident to the
performance of the obligations of the Company and the Guarantors hereunder
for which provision is not otherwise made in this Section 5.
(i) To cooperate to effect the inclusion of the Series A Notes in
PORTAL and to maintain the listing of the Series A Notes on PORTAL for so
long as the Series A Notes are outstanding.
(j) To cooperate to obtain the approval of DTC for "book-entry"
transfer of the Notes, and to comply with all of its agreements set forth in
the representation letters of the Company and the Guarantors to DTC relating
to the approval of the Notes by DTC for "book entry" transfer.
(k) During the period beginning on the date hereof and continuing to
and including the Closing Date, not to offer, sell, contract to sell or
otherwise transfer or dispose of any debt securities of the Company or any
Guarantor or any warrants, rights or options to purchase or otherwise acquire
debt securities of the Company or any Guarantor substantially similar to the
Notes and the Subsidiary Guarantees (other than (i) the Notes and the
Subsidiary Guarantees and (ii) commercial paper issued in the ordinary course
of business), without the prior written consent of DLJ.
(l) Not to sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in the Act) that would be
integrated with the sale of the Series A Notes to the Initial Purchasers or
pursuant to Exempt Resales in a manner that would require the registration of
the Series A Notes under the Act.
(m) Not to voluntarily claim, and to actively resist any attempts to
claim, the benefit of any usury laws against the holders of any Notes.
(n) To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement by it prior to the
Closing Date and to satisfy all conditions precedent to the delivery of the
Series A Notes and the Subsidiary Guarantees.
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE GUARANTORS. As
of the date hereof, each of the Company and the Guarantors represents and
warrants to each Initial Purchaser that:
9
<PAGE>
(a) The Preliminary Offering Memorandum and the Offering Memorandum
do not, and any supplement or amendment to them will not, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, except that
the representations and warranties contained in this paragraph (a) shall not
apply to untrue statements made in or omissions from the Preliminary Offering
Memorandum (or any supplement or amendment thereto) that are corrected in the
Offering Memorandum (or any supplement or amendment thereto), or statements
in or omissions from the Preliminary Offering Memorandum or the Offering
Memorandum (or any supplement or amendment thereto) based upon information
relating to the Initial Purchasers furnished to the Company in writing by the
Initial Purchasers expressly for use therein. No stop order preventing the
use of the Preliminary Offering Memorandum or the Offering Memorandum, or any
amendment or supplement thereto, or any order asserting that any of the
transactions contemplated by this Agreement are subject to the registration
requirements of the Act, has been issued.
(b) Each of the Company and its subsidiaries has been duly organized,
is validly existing as a corporation or partnership or limited liability
company, as the case may be, in good standing under the laws of its
jurisdiction of organization and has the power and authority to carry on its
business and to own, lease and operate its properties as described in the
Preliminary Offering Memorandum and the Offering Memorandum, and each is duly
qualified and is in good standing as a foreign corporation or foreign
partnership, as the case may be, authorized to do business in each
jurisdiction in which the nature of its business or its ownership or leasing
or property requires such qualification, except where the failure to be so
qualified or in good standing would not (i) have a material adverse effect on
the business, prospects, financial condition or results of operations of the
Company and its subsidiaries, taken as a whole, (ii) materially interfere
with or materially adversely affect the issuance or marketability of the
Series A Notes pursuant hereto or (iii) in any manner draw into question the
validity of this Agreement or the other Operative Documents (the events
referred to in clauses (i) through (iii), a "MATERIAL ADVERSE EFFECT").
(c) All of the outstanding Equity Interests of each of the Guarantors
have been duly authorized and validly issued and are fully paid and
non-assessable, and, to the extent such Equity Interests are owned by the
Company, directly or indirectly through one or more subsidiaries, are owned
free and clear of any security interest, claim, lien encumbrances or adverse
interest of any nature (each,
<PAGE>
a "LIEN"), except for Liens permitted under the debt instruments (including
the Indenture) described in the Offering Memorandum.
(d) This Agreement has been duly authorized, executed and delivered
by the Company and each of the Guarantors.
(e) The Indenture has been duly authorized by the Company and each
of the Guarantors and, on the Closing Date, will have been validly executed
and delivered by the Company and each of the Guarantors. When the Indenture
has been duly executed and delivered by the Company and each of the
Guarantors, the Indenture will be a valid and binding agreement of the
Company and each Guarantor, enforceable against the Company and each
Guarantor in accordance with its terms (assuming the due execution and
delivery of the Indenture by the Trustee) except as (i) the enforceability
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting creditors' rights generally, (ii) for general
principles of equity (regardless of whether enforcement is brought in a
proceeding at law or in equity) and (iii) the waiver as to stay, extension or
usury laws may not be enforceable. On the Closing Date, the Indenture will
conform in all material respects to the requirements of the Trust Indenture
Act of 1939, as amended (the "TIA"), and the rules and regulations of the
Commission applicable to an indenture which is qualified thereunder.
(f) The Series A Notes have been duly authorized and, on the
Closing Date, will have been validly executed and delivered by the Company.
When the Series A Notes have been issued, executed and authenticated in
accordance with the provisions of the Indenture and delivered to and paid for
by the Initial Purchasers in accordance with the terms of this Agreement, the
Series A Notes will be entitled to the benefits of the Indenture and will be
valid and binding obligations of the Company, enforceable in accordance with
their terms except (i) as the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally (ii) for general principles of equity
(regardless of whether enforcement is brought in a proceeding at law or in
equity) and (iii) the waiver as to stay, extension or usury laws may not be
enforceable. On the Closing Date the Series A Notes will conform in all
material respects to the description thereof contained in the Offering
Memorandum.
(g) On the Closing Date, the Series B Notes will have been duly
authorized by the Company. When the Series B Notes are issued, executed and
authenticated in accordance with the terms of the Exchange Offer and the
Indenture,
11
<PAGE>
the Series B Notes will be entitled to the benefits of the Indenture and will
be the valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms, except (i) as the enforceability
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting creditors' rights generally, (ii) for general
principles of equity (regardless of whether enforcement is brought in a
proceeding at law or in equity) and (iii) the waiver as to stay, extension or
usury laws may not be enforceable.
(h) The Subsidiary Guarantee in respect of the Series A Notes by
each Guarantor has been duly authorized by such Guarantor and, on the Closing
Date, will have been duly executed and delivered by each such Guarantor.
When the Series A Notes have been issued, executed and authenticated in
accordance with the Indenture and delivered to and paid for by the Initial
Purchasers in accordance with the terms of this Agreement, the Subsidiary
Guarantee of each Guarantor endorsed thereon will be entitled to the benefits
of the Indenture and will be the valid and binding obligation of such
Guarantor, enforceable against such Guarantor in accordance with its terms,
except (i) as the enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally, (ii) for general principles of equity
(regardless of whether enforcement is brought in a proceeding at law or in
equity) and (iii) the waiver as to stay, extension or usury laws may not be
enforceable. On the Closing Date, the Subsidiary Guarantees to be endorsed
on the Series A Notes will conform in all material respects to the
description thereof contained in the Offering Memorandum.
(i) The Subsidiary Guarantee in respect of the Series B Notes by
each Guarantor has been duly authorized by such Guarantor and, when issued,
will have been duly executed and delivered by each such Guarantor. When the
Series B Notes have been issued, executed and authenticated in accordance
with the terms of the Exchange Offer and the Indenture, the Subsidiary
Guarantee of each Guarantor endorsed thereon will be entitled to the benefits
of the Indenture and will be the valid and binding obligation of such
Guarantor, enforceable against such Guarantor in accordance with its terms,
except (i) as the enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally, (ii) for general principles of equity
(regardless of whether enforcement is brought in a proceeding at law or in
equity) and (iii) the waiver as to stay, extension or usury laws may not be
enforceable.
12
<PAGE>
(j) The Registration Rights Agreement has been duly authorized by
the Company and each of the Guarantors and, on the Closing Date, will have
been duly executed and delivered by the Company and each of the Guarantors.
When the Registration Rights Agreement has been duly executed and delivered,
the Registration Rights Agreement will be a valid and binding agreement of
the Company and each of the Guarantors, enforceable against the Company and
each Guarantor in accordance with its terms except (i) as the enforceability
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting creditors' rights generally, (ii) for general
principles of equity (regardless of whether enforcement is brought in a
proceeding at law or in equity) (iii) the waiver as to stay, extension or
usury laws may not be enforceable and (iv) to the extent indemnification or
contribution provisions in the Registration Rights Agreement may be
unenforceable. On the Closing Date, the Registration Rights Agreement will
conform in all material respects to the description thereof in the Offering
Memorandum.
(k) Neither the Company nor any of the Guarantors is in violation
of its respective charter, by-laws or other organizational documents, as the
case may be, or in default in the performance of any obligation, agreement,
covenant or condition contained in any indenture, loan agreement, mortgage,
lease or other agreement or instrument that is material to the Company and
its subsidiaries, taken as a whole, to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries or
their respective property is bound except for such violations and defaults as
would not, singly or in the aggregate, have a Material Adverse Effect.
(l) The execution, delivery and performance of this Agreement, the
Indenture, the Series A Notes, the Series B Notes, the Subsidiary Guarantees
and the Registration Rights Agreement by the Company and each of the
Guarantors and compliance by the Company and each of the Guarantors with all
provisions hereof and thereof and the consummation of the transactions
contemplated hereby and thereby will not require any consent, approval,
authorization or other order of, or qualification with, any court or
governmental body or agency (except such as may be required under the
securities or Blue Sky laws of the various states) and will not violate the
charter, by-laws or partnership agreement of the Company or any of its
subsidiaries or conflict with or constitute a breach of any of the terms or
provisions of, or a default under, any indenture, loan agreement, mortgage,
lease or other agreement or instrument that is material to the Company and
its subsidiaries, taken as a whole, to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries or
their respective property is bound
13
<PAGE>
except for such conflicts, breaches or defaults as would not, singly or in
the aggregate, have a Material Adverse Effect, or violate or conflict with
any applicable law or any rule, regulation, judgment, order or decree of any
court or any governmental body or agency having jurisdiction over the
Company, any of its subsidiaries or their respective property except for such
violations as would not, singly or in the aggregate, have a Material Adverse
Effect or result in the imposition or creation of (or the obligation to
create or impose) a Lien under, any agreement or instrument to which the
Company or any of its subsidiaries is a party or by which it or any of them
is bound, or to which any properties of the Company or any of its
subsidiaries is or may be subject, or result in the termination or revocation
of any permit (as defined below) of the Company or any of its subsidiaries or
result in any other impairment of the rights of the holder of any such permit.
(m) The Company and its subsidiaries have good title in fee simple
to all real property and good title to all personal property owned by them
which is material to the business of the Company and its subsidiaries, in
each case free and clear of all Liens and defects, except such as are Liens
permitted under the debt instruments (including the Indenture) described in
the Offering Memorandum or such as do not materially affect the value of such
property and do not materially interfere with the use made and proposed to be
made of such property by the Company and its subsidiaries; and any real
property and buildings held under lease by the Company and its subsidiaries
are held by them under valid, subsisting and enforceable leases with such
exceptions as are not material and do not materially interfere with the use
made and proposed to be made of such property and buildings by the Company
and its subsidiaries, except as described in the Offering Memorandum.
(n) There is no legal or governmental proceeding pending or, to the
Company's knowledge, threatened to which the Company or any of its
subsidiaries is bound or would be a party or to which any if their respective
property is or would be subject, except for any such proceeding which the
Company has reasonably concluded is not likely to result in a Material
Adverse Effect.
(o) To the Company's knowledge, no action has been taken and no
law, statute, rule or regulation or order has been enacted, adopted or issued
by any governmental agency or body which prevents the execution, delivery and
performance of any of the Operative Documents, the issuance of the Series A
Notes or the Subsidiary Guarantees, or suspends the sale of the Series A
Notes or the Subsidiary Guarantees in any jurisdiction referred to in Section
5(e); and no injunction, restraining order or other or relief of any nature
by a federal or state court
14
<PAGE>
or other tribunal of competent jurisdiction has been issued with respect to
the Company or any of its subsidiaries which would prevent or suspend the
issuance or sale of the Series A Notes or the Subsidiary Guarantees in any
jurisdiction referred to in Section 5(e).
(p) Except as would not have a Material Adverse Effect, (i) the
Company and its subsidiaries are not in violation of any Federal, state or
local laws and regulations relating to pollution or protection of human
health or the environment ("ENVIRONMENTAL LAWS"), which violation includes,
but is not limited to, noncompliance with or lack of any permits (as defined
below) or other governmental authorizations; and (ii) (A) the Company and its
subsidiaries have not received any communication, whether from a governmental
authority or otherwise, alleging any such violation or noncompliance, and
there are no circumstances, either past, present or that are reasonably
foreseeable, that are reasonably likely to lead to such violation in the
future, (B) there is no pending or, to the Company's knowledge, threatened
claim, action, investigation or notice by any person or entity alleging
potential liability for investigatory, cleanup, or governmental responses
costs, or natural resources or property damages, or personal injuries,
attorney's fees or penalties relating to any actual, alleged or, to the
Company's knowledge, threatened pollution or contamination, or any
circumstances forming the basis of any violation, or alleged violation, of
any Environmental Law (collectively, "ENVIRONMENTAL CLAIMS"), and (C) there
are no past or present actions, activities, circumstances, conditions, events
or incidents, that could reasonably be expected to form the basis of any
Environmental Claim against the Company and its subsidiaries or against any
person or entity whose liability for any Environmental Claim the Company and
its subsidiaries have retained or assumed either contractually or by
operation of law. In the ordinary course of its business, each of the
Company and its subsidiaries, where required or appropriate, has conducted
environmental investigations of, and has reviewed information regarding, its
business properties and operations and those of other properties within the
vicinity of its business properties and operations; on the basis of such
review, the Company has reasonably concluded that such associated costs and
liabilities are not likely to have a Material Adverse Effect.
(q) Each of the Company and its subsidiaries has such permits,
licenses, consents, exemptions, franchises, authorizations and other
approvals ("permits") of, and has made all filings with and notice to, all
governmental or regulatory authorities and self-regulatory organizations and
all courts and other tribunals, including, without limitation, under any
applicable Environmental Laws, as are necessary to own, lease, license and
operate its respective properties and to
15
<PAGE>
conduct its business, except where the failure to have any such permit or to
make any such filing or notice would not, singly or in the aggregate, have a
Material Adverse Effect. Each such permit is valid and in full force and
effect and each of the Company and its subsidiaries is in compliance with all
the terms and conditions thereof and with the rules and regulations of the
authorities and governing bodies having jurisdiction with respect thereto; no
event has occurred (including the receipt of any notice from any authority or
governing body) which allows or, after notice or elapse of time or both,
would allow revocation, suspension or termination of any such permit or
results or, after notice or lapse of time or both, would result in any other
impairment of the rights of the holder of any such permit; and such permits
contain no restrictions that are unduly burdensome to the Company or any of
its subsidiaries except where such failure to be valid and in full force and
effect or to be in compliance, the occurrence of any such event or the
presence of any such restriction would not, singly or in the aggregate, have
a Material Adverse Effect.
(r) The accountants, Arthur Andersen LLP, that have certified the
financial statements and related notes included in the Preliminary Offering
Memorandum and the Offering Memorandum are independent public accountants
with respect to the Company and the Guarantors, as required by the Act and
the Exchange Act. The Company's historical financial statements, together
with related notes, set forth in the Offering Memorandum comply as to form in
all material respects with the requirements (including via incorporation by
reference) applicable to registration statements on Form S-3 under the Act,
except the financial statements of The Mediplex Group, Inc. for the period
from January 1, 1994 through June 23, 1994 as required by Rule 3-05(b)(4)(iii)
of Regulation S-X have been omitted.
(s) The Company's historical financial statements, together with
related notes forming part of the Offering Memorandum (and any amendment or
supplement thereto), present fairly the consolidated financial position,
results of operations and changes in financial position of the Company and
its subsidiaries on the basis stated in the Offering Memorandum at the
respective dates or for the respective periods to which they apply; and such
statements and related notes have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved, except as disclosed therein.
(t) The Company is not and, after giving effect to the offering and
sale of the Series A Notes and the application of the net proceeds thereof as
described in the Offering Memorandum, will not be, an "investment company,"
as such term is defined in the Investment Company Act of 1940, as amended.
16
<PAGE>
(u) Neither the Company nor any of its subsidiaries nor any agent
thereof acting on the behalf of them has taken, and none of them will take,
any action that might cause this Agreement or the issuance or sale of the
Series A Notes to violate Regulation G (12 C.F.R. Part 207), Regulation T (12
C.F.R. Part 220), Regulation U (12 C.F.R. Part 221) or Regulation X (12
C.F.R. Part 224) of the Board of Governors of the Federal Reserve System.
(v) Since the respective dates as of which the information is given
in the Offering Memorandum other than as set forth or contemplated in the
Offering Memorandum (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement), (i) there has not occurred any
material adverse change or any development that might reasonably be expected
to involve a prospective material adverse change in the condition, financial
or otherwise, or the earnings, business, management or operations of the
Company and its subsidiaries, taken as a whole, (ii) there has not been any
material adverse change or any development that might reasonably be expected
to involve a prospective material adverse change in the capital stock or in
the long-term debt of the Company or any of its subsidiaries and (iii)
neither the Company nor any of its subsidiaries has incurred any material
liability or obligation, direct or contingent, other than in the ordinary
course of business.
(w) When the Series A Notes and the Subsidiary Guarantees are
issued and delivered pursuant to this Agreement, neither the Series A Notes
nor the Subsidiary Guarantees will be of the same class (within the meaning
of Rule 144A under the Act) as any security of the Company or the Guarantors
that is listed on a national securities exchange registered under Section 6
of the Exchange Act or that is quoted in a United States automated
inter-dealer quotation system.
(x) No form of general solicitation or general advertising (as
defined in Regulation D under the Act) was used by the Company, the
Guarantors or any of their respective representatives (other than the Initial
Purchasers, as to whom the Company and the Guarantors make no representation)
in connection with the offer and sale of the Series A Notes contemplated
hereby. No securities of the same class as the Series A Notes have been
issued and sold by the Company within the six-month period immediately prior
to the date hereof.
(y) No registration under the Act of the Series A Notes or the
Subsidiary Guarantees is required for the sale of the Series A Notes and the
Subsidiary Guarantees to the Initial Purchaser as contemplated hereby or for
the
17
<PAGE>
Exempt Resales assuming the accuracy of the Initial Purchasers'
representations and warranties and agreements set forth in Section 7 hereof.
(z) The Company, the Guarantors and their respective affiliates and
all persons acting on their behalf (other than the Initial Purchasers, as to
whom the Company and the Guarantors make no representation) have complied
with and will comply with the offering restrictions requirements of
Regulation S in connection with the offering of the Series A Notes outside
the United States.
(aa) The Company and each of its subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurance that
(i) transactions are executed in accordance with management's general or
specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (iii)
access to assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(bb) To the extent described in the Offering Memorandum, all
facilities owned or operated as continuing operations by the Company or its
subsidiaries (the "Company Facilities") (i) are certified for participation
or enrollment in the Medicare and Medicaid programs, except where failure to
do so, singly or in the aggregate, would not have a Material Adverse Effect,
(ii) have a current and valid provider contract with the Medicare and
Medicaid programs, except where failure to have such contract, singly or in
the aggregate, would not have a Material Adverse Effect, and (iii) are in
substantial compliance with the terms and conditions of participation of such
programs and have received all approvals or qualifications necessary for
capital reimbursement of the Company's assets except, in each case, where the
failure to be so certified, to have such contracts, to be in such compliance
or to have such approvals or qualifications, singly or in the aggregate,
would not have a Material Adverse Effect. Except as set forth in the
Offering Memorandum, neither the Company nor any of its subsidiaries has
received notice from the regulatory authorities which enforce the statutory
or regulatory provisions in respect of the Medicare or Medicaid programs of
any pending or threatened investigations, surveys (other than routine
surveys) or decertification proceedings, and the Company has reasonably
concluded that no such investigations, surveys or other proceedings which are
pending, threatened or imminent are likely to have a Material Adverse Effect.
18
<PAGE>
(cc) All material Tax returns required to be filed by the Company
and each of its subsidiaries have been filed and all such returns are true,
complete, and correct in all material respects. All material Taxes that are
due or claimed to be due from the Company and each of its subsidiaries have
been paid other than those (i) currently payable without penalty or interest
or (ii) being contested in good faith and by appropriate proceedings and for
which adequate reserves have been established in accordance with GAAP. For
purposes of this Agreement, the term "Tax" and "Taxes" shall mean all
Federal, state, local and foreign taxes, and other assessments of a similar
nature (whether imposed directly or through withholding), including any
interest, additions to tax, or penalties applicable thereto.
(dd) All indebtedness of the Company and the Guarantors that will be
repaid with the proceeds of the issuance and sale of the Series A Notes was
incurred, and the indebtedness represented by the Series A Notes is being
incurred, for appropriate corporate purposes and in good faith and each of
the Company and the Guarantors was, at the time of the incurrence of such
indebtedness that will be repaid with the proceeds of the issuance and sale
of the Series A Notes, and will be on the Closing Date (after giving effect
to the application of the proceeds from the issuance of the Series A Notes)
solvent, and had at the time of the incurrence of such indebtedness that will
be repaid with the proceeds of the issuance and sale of the Series A Notes
and will have on the Closing Date (after giving effect to the application of
the proceeds from the issuance of the Series A Notes) sufficient capital for
carrying on their respective business and were, at the time of the incurrence
of such indebtedness that will be repaid with the proceeds of the issuance
and sale of the Series A Notes, and will be on the Closing Date (after giving
effect to the application of the proceeds from the issuance of the Series A
Notes) able to pay their respective debts as they mature.
(ee) Neither the Company nor any of its subsidiaries, nor any
director, officer, agent, employee or other person associated with or acting
on behalf of the Company or any of its subsidiaries, has used any corporate
funds for any unlawful contribution, gift, entertainment or other unlawful
expense relating to political activity; made any direct or indirect unlawful
payment to any foreign or domestic government official or employee from
corporate funds; violated or is in violation of any provision of the Foreign
Corrupt Practices Act of 1977; made any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment; or, to the best of the Company's
knowledge, is in violation of any Federal "fraud and abuse legislation" or
Federal "anti-kickback law."
19
<PAGE>
(ff) Each certificate signed by any officer of the Company or
any Guarantor and delivered to the Initial Purchasers or counsel for the
Initial Purchasers shall be deemed to be a representation and warranty of the
Company and the Guarantors to the Initial Purchasers as to the matters
covered thereby.
The Company acknowledges that the Initial Purchasers and, for
purposes of the opinions to be delivered to the Initial Purchasers pursuant
to Section 9 hereof, counsel to the Company and the Guarantors and counsel to
the Initial Purchasers, will rely upon the accuracy and truth of the
foregoing representations and hereby consent to such reliance.
7. INITIAL PURCHASER'S REPRESENTATIONS AND WARRANTIES. Each of the
Initial Purchasers, severally and not jointly, represents and warrants to the
Company and the Guarantors, and agrees that:
(a) Such Initial Purchaser is a QIB with such knowledge and
experience in financial and business matters as is necessary in order to
evaluate the merits and risks of an investment in the Series A Notes.
(b) Such Initial Purchaser (A) is not acquiring the Series A
Notes with a view to any distribution thereof or with any present intention
of offering or selling any of the Series A Notes in a transaction that would
violate the Act or the securities laws of any state of the United States or
any other applicable jurisdiction and (B) will be reoffering and reselling
the Series A Notes only to (x) QIBs in reliance on the exemption from the
registration requirements of the Act provided by Rule 144A and (y) in
offshore transactions in reliance upon Regulation S under the Act.
(c) Such Initial Purchaser agrees that no form of general
solicitation or general advertising (within the meaning of Regulation D under
the Act) has been or will be used by such Initial Purchaser or any of its
representatives in connection with the offer and sale of the Series A Notes
pursuant hereto.
(d) Such Initial Purchaser agrees that, in connection with
Exempt Resales, such Initial Purchaser will solicit offers to buy the Series
A Notes only from, and will offer to sell the Series A Notes only to,
Eligible Purchasers. Each Initial Purchaser further agrees that it will
offer to sell the Series A Notes only to, and will solicit offers to buy the
Series A Notes only from (1)(A) QIBs who, in purchasing the Series A Notes
will be deemed to have represented and agreed that (x) they are purchasing
the Series A Notes for their own accounts or accounts with
20
<PAGE>
respect to which they exercise sole investment discretion and that they or
such accounts are QIBs and (y) they acknowledge that the seller of such
Series A Notes may be relying on the exemption from the provisions of Section
5 of the Act provided by Rule 144A thereunder and that such Series A Notes
will not have been registered under the Act and (B) Regulation S Purchasers
who, in purchasing the Series A Notes will be deemed to have represented and
agreed that their purchase of Series A Notes pursuant to Regulation S is not
part of a plan or a scheme to evade the registration provisions of the Act
and (2) Eligible Purchasers that agree that (x) Series A Notes purchased by
them may be resold, pledged or otherwise transferred within the time period
referred to under Rule 144(k) (taking into account the provisions of Rule
144(d) under the Act, if applicable) under the Act, as in effect on the date
of the transfer of such Series A Notes, only (I) to the Company or any of its
subsidiaries, (II) to a person whom the seller reasonably believes is a QIB
purchasing for its own account or for the account of a QIB in a transaction
meeting the requirements of Rule 144A under the Act, (III) in an offshore
transaction (as defined in Rule 902 under the Act) meeting the requirements
of Rule 904 of the Act, (IV) in a transaction meeting the requirements of
Rule 144 under the Act, (V) in accordance with another exception from the
registration requirements of the Act (and based upon an opin-ion of counsel
acceptable to the Company) or (VI) pursuant to an effective registration
statement and, in each case, in accordance with the applicable securities
laws of any state of the United States or any other acceptable juris-diction
and (y) they will deliver to each person to whom such Series A Notes or an
interest therein is transferred a notice substantially to the effect of the
foregoing.
(e) None of the Initial Purchasers nor any of their affiliates
or any person acting on their behalf has engaged in any directed selling
efforts within the meaning of Regulation S with respect to the Series A Notes
or the Subsidiary Guarantees.
(f) The Series A Notes offered and sold by the Initial
Purchasers pursuant hereto in reliance on Regulation S have been and will be
offered and sold only in offshore transactions.
(g) The sale of the Series A Notes offered and sold by the
Initial Purchasers pursuant hereto in reliance on Regulation S is not part of
a plan or scheme to evade the registration provisions of the Act.
(h) Such Initial Purchaser agrees that it will not offer, sell
or deliver any of the Series A Notes in any jurisdiction outside the United
States
21
<PAGE>
except under circumstances that will result in compliance with the
applicable laws thereof, and that it will take at its owns expense whatever
action is required to permit its purchase and resale of the Series A Notes in
such jurisdictions. Such Initial Purchaser understands that no action has
been taken to permit a public offering in any jurisdiction outside the United
States where action would be required for such purpose.
(j) Such Initial Purchasers agree that they have offered the
Series A Notes and will offer and sell the Series A Notes (i) as part of its
distribution at any time and (ii) otherwise until 40 days after the later of
the commencement of the offering of the Series A Notes pursuant hereto and
the Closing Date, only in accordance with Rule 903 of Regulation S or another
exemption from the registration requirements of the Act. Such Initial
Purchasers agree not to cause any advertisement of the Series A Notes to be
published in any newspaper or periodical or posted in any public place and
not to issue any circular relating to the Series A Notes, except such
advertisements as include the statements required by Regulations S.
(k) Such Initial Purchasers agree that they have not offered
or sold and will not offer or sell the Series A Notes sold pursuant hereto in
reliance on Regulation S (i) as part of its distribution at any time and (ii)
otherwise until 40 days after the later of the commencement of the offering
of the Series A Notes pursuant hereto and the Closing Date, to a U.S. person
(as defined in Rule 902 of the Act) or for the account or benefit of a U.S.
person (other than a distributor (as defined in Rule 902 of the Act)).
(l) Such Initial Purchasers agree that, at or prior to
entering into any contractual arrangement with any distributor (as that term
is defined for the purposes of Regulation S) with respect to the distribution
of the Notes without the written consent of the Company, the Initial
Purchasers will cause such distributor to agree in writing to comply with the
provisions of Regulation S to at least the same extent as required of the
Initial Purchasers hereunder.
(m) Such Initial Purchasers agree that, at or prior to
confirmation of a sale of Series A Notes by them to any distributor, dealer
or person receiving a selling concession, fee or other remuneration during
the 40-day restricted period referred to in Rule 903(c)(3) under the Act,
they will have sent to such distributor, dealer or person receiving a selling
concession, fee or other remuneration a confirmation or notice to
substantially the following effect:
22
<PAGE>
"The Series A Notes covered hereby have not been registered
under the U.S. Securities Act of 1933, as amended (the "Securities Act"), and
may not be offered and sold within the United States or to, or for the
account or benefit of, U.S. persons (i) as part of your distribution at any
time or (ii) otherwise until 40 days after the later of the commencement of
the Offering and the Closing Date, except in either case in accordance with
Regulation S (or Rule 144A in transactions that are exempt from the
registration requirements of the Securities Act) under the Securities Act,
and in connection with any subsequent sale by you of the Series A Notes
covered hereby in reliance on Regulation S during the period referred to
above to any distributor, dealer or person receiving a selling concession,
fee or other remuneration, you must deliver a notice to substantially the
foregoing effect. Terms used above have the meanings assigned to them in
Regulation S."
The Initial Purchasers acknowledge that the Company and its
Subsidiaries and, for purposes of the opinions to be delivered to each
Initial Purchaser pursuant to Section 9 hereof, counsel to the Company and
the Guarantors and counsel to the Initial Purchasers will rely upon the
accuracy and truth of the foregoing representations and the Initial
Purchasers hereby consent to such reliance.
8. INDEMNIFICATION.
(a) The Company and each Guarantor agree, jointly and
severally, to indemnify and hold harmless the Initial Purchasers, their
directors, their officers and each person, if any, who controls an Initial
Purchaser within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, from and against any and all losses, claims, damages,
liabilities and judgments (including, without limitation, any legal or other
expenses incurred in connection with defending or investigating any matter,
including any action that could give rise to any such losses, claims,
damages, liabilities or judgments) caused by any untrue statement or alleged
untrue statement of a material fact contained in the Offering Memorandum (or
any amendment or supplement thereto), the Preliminary Offering Memorandum or
caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except untrue statements made in or omissions from the
Preliminary Offering Memorandum (or any supplement or amendment thereto) that
are corrected in the Offering Memorandum (or any supplement or amendment
thereto), or insofar as such losses, claims, damages, liabilities or
judgments are caused by any such untrue statement or omission or alleged
untrue statement or omission based upon information relating to an Initial
23
<PAGE>
Purchaser furnished in writing to the Company by such Initial Purchaser
expressly for use in the Preliminary Offering Memorandum or the Offering
Memorandum.
(b) Each Initial Purchaser agrees to indemnify and hold
harmless the Company and the Guarantors, and their respective directors and
officers and each person who controls (within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act) the Company or the Guarantors, to
the same extent as the foregoing indemnity from the Company and the
Guarantors but only with reference to information relating to such Initial
Purchaser furnished in writing to the Company by such Initial Purchaser
expressly for use in the Preliminary Offering Memorandum or the Offering
Memorandum.
(c) In case any action shall be connected involving any person
in respect of which indemnity may be sought pursuant to Section 8(a) or 8(b)
(the "INDEMNIFIED PARTY"), the indemnified party shall promptly notify the
person against whom such indemnity may be sought (the "INDEMNIFYING PARTY")
in writing (PROVIDED that the failure to give such notice shall not relieve
the indemnifying party of its obligations under this Section 8 unless the
indemnifying party is materially prejudiced by the failure to notify) and the
indemnifying party shall assume promptly the defense of such action,
including the employment of counsel reasonably satisfactory to the
indemnified party and the payment of all fees and expenses of such counsel,
as incurred (except that in the case of any action in respect of which
indemnity may be sought pursuant to both Sections 8(a) and 8(b), an Initial
Purchaser shall not be required to assume the defense of such action pursuant
to this Section 8(c), but may employ separate counsel and participate in the
defense thereof, but the fees and expenses of such counsel, except as
provided below, shall be at the expense of such Initial Purchaser. Any
indemnified party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of the indemnified party unless (i) the
employment of such counsel shall have been specifically authorized in writing
by the indemnifying party, (ii) the indemnifying party shall have failed to
assume the defense of such action or employ counsel reasonably satisfactory
to the indemnified party or (iii) the named parties to any such action
(including any impleaded parties) include both the indemnified party and the
indemnifying party, and the indemnified party shall have been advised by such
counsel that there may be one or more legal defenses available to it which
are different from or additional to those available to the indemnifying party
(in which case the indemnifying party shall not have the right to assume the
defense of such action on behalf of the indemnified party). In any such
case, the indemnifying party shall not, in connection with any one action or
separate
24
<PAGE>
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the fees
and expenses of more than one separate firm of attorneys (in addition to any
local counsel) for all indemnified parties and all such fees and expenses
shall be reimbursed as they are incurred. Such firm shall be designated in
writing by DLJ, in the case of the parties indemnified pursuant to Section
8(a) and by the Company, in the case of parties indemnified pursuant to
Section 8(b). The indemnifying party shall indemnify and hold harmless the
indemnified party from and against any and all losses, claims, damages,
liabilities and judgments by reason of any settlement of any action (i)
effected with its written consent or (ii) effected without its written
consent if (a) the settlement is entered into more than 45 business days
after such indemnifying party shall have received a request from the
indemnified party for reimbursement for the fees and expenses of counsel (in
any case where such fees and expenses are at the expense of the indemnifying
party) and, prior to the date of such settlement, (b) the indemnifying party
shall have failed to comply with such reimbursement request and (c) such
indemnifying party shall have received notice of the terms of the settlement
at least 30 days prior to such settlement being entered into; PROVIDED,
HOWEVER, an indemnifying party shall be entitled to hold any disputed portion
of a reimbursement in respect of a settlement effected without its written
consent, pending resolution of a dispute regarding the request if such
indemnifying party (i) reimburses such indemnified party in accordance with
such request to the extent it considers in good faith such request to be
reasonable and (ii) provides written notice detailing with reasonable
specificity to the indemnified party why the unpaid balance is unreasonable.
No indemnifying party shall, (a) without the prior written consent of the
indemnified party, which consent shall not be unreasonably withheld, effect
any settlement or compromise of, or consent to the entry of judgment with
respect to, any pending or threatened action in respect of which the
indemnified party is or could have been a party and indemnity or contribution
may be or could have been sought hereunder by the indemnified party, unless
such settlement, compromise or judgment (i) includes an unconditional release
of the indemnified party from all liability on claims that are or could have
been the subject matter of such action and (ii) does not include a statement
as to or an admission of fault, culpability or fault, culpability or failure
to act, by or on behalf of the indemnified party or (b) be liable for any
settlement of any such action effected without its written consent, except as
provided in the immediately preceding sentence.
(d) To the extent the indemnification provided for in this
Section 8 is finally determined by a court of competent jurisdiction to be
unavailable to an indemnified party, or is insufficient in respect of any
losses, claims, damages,
25
<PAGE>
liabilities or judgments referred to herein, then each indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages, liabilities and judgments (i) in such proportion as is appropriate
to reflect the relative benefits received by the Company and the Guarantors,
on the one hand, and the Initial Purchasers on the other hand from the
offering of the Series A Notes or (ii) if the allocation provided by clause
8(d)(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause
8(d)(i) above but also the relative fault of the Company and the Guarantors,
and each Initial Purchaser in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or judgments, as
well as any other relevant equitable considerations. The relative benefits
received by the Company and the Guarantors, and the Initial Purchasers shall
be deemed to be in the same proportion as the total net proceeds from the
offering of the Series A Notes (before deducting expenses but after deducting
discounts and commissions) received by the Company, and the total discounts
and commission received by the Initial Purchasers bear to the total price to
investors of the Series A Notes, in each case as set forth in the table on
the cover page of the Offering Memorandum. The relative fault of the Company
and Guarantors, and each Initial Purchaser shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company and the Guarantors, or an
Initial Purchaser and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Guarantors, and the Initial Purchasers agree that it
would not be just and equitable if contribution pursuant to this Section 8(d)
were determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to in
the immediately preceding sentence. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, liabilities or
judgments referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses incurred by such indemnified party in connection with investigating
or defending any matter that could have given rise to such losses, claims,
damages, liabilities or judgments. Notwithstanding the provisions of this
Section 8, no party indemnified pursuant to Section 8(a) shall be required to
contribute any amount in excess of the amount by which the total price of the
Series A Notes purchased by an Initial Purchaser were sold to investors in
Exempt Resales exceeds the amount of any damages which such party has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the
26
<PAGE>
meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Initial Purchasers' obligations to
contribute pursuant to this Section 8(d) are several in proportion to the
respective principal amount of Series A Notes purchased by each of the
Initial Purchasers hereunder, and not joint.
(e) The remedies provided for in this Section 8 are not
exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
9. CONDITIONS OF INITIAL PURCHASERS' OBLIGATIONS. The obligations
of the Initial Purchasers to purchase the Series A Notes under this Agreement
are subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company and
the Guarantors contained in this Agreement shall be true and correct on the
Closing Date with the same force and effect as if made on and as of the
Closing Date.
(b) On or after the date hereof there shall not have occurred
any downgrading, nor shall any notice have been given to the Company or a
public announcement made of any intended or potential downgrading or of any
review for a possible change (other than a change that indicates a possible
upgrade but no other possible change) that does not indicate the direction of
the possible change, in the rating of any securities of the Company or any
Guarantor (including, without limitation, the placing of any securities on
negative or developing watch or negative or developing outlook) by any
"nationally recognized statistical rating organization" as such term is
defined for purposes of Rule 426(g)(2) of the Act which in your judgment
makes it impracticable to market the Series A Notes on the terms and in the
manner contemplated in the Offering Memoradum.
(c) You shall have received on the Closing Date a certificate
dated the Closing Date, signed by the Chief Financial Officer and the
Secretary or Assistant Secretary of the Company, in substantially the form of
EXHIBIT A attached hereto.
(d) Since the respective dates as of which information is given
in the Offering Memorandum, other than as set forth or contemplated in the
Offering Memorandum (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement), (i) there shall not have occurred
any change or
27
<PAGE>
any development reasonably likely to involve a prospective change in the
condition, financial or otherwise, or the earnings, business, management or
operations of the Company and its subsidiaries, taken as a whole, (ii) there
shall not have been any change or any development reasonably likely to
involve a prospective change in the capital stock or in the long-term debt of
the Company or any of its subsidiaries and (iii) neither the Company nor any
of its subsidiaries shall have incurred any material liability or obligation,
direct or contingent, other than in the ordinary course of business the
effect of which, in any such case described in clause 9(d)(i), 9(d)(ii) or
9(d)(iii), in your reasonable judgment, may be material and adverse or, in
your reasonable judgment, makes it impracticable to market the Series A Notes
on the terms and in the manner contemplated in the Offering Memorandum.
(e) No action shall have been taken (including the issuance of
any stop order) and no statute, rule, regulation or order shall have been
enacted, adopted or issued by any governmental agency which would be
reasonably likely in your judgment, as of the Closing Date, to have a
Material Adverse Effect;
(f) On the Closing Date, you shall have received:
A. An opinion, dated the Closing Date, of Shearman &
Sterling, special counsel for the Company and the Guarantors, substantially
to the effect that:
i) the Company has been duly organized, is validly
existing as a corporation in good standing under the laws of
Delaware and has the power and authority to carry on its business
and to own, lease and operate its properties as described in the
Offering Memorandum;
ii) the Series A Notes have been duly authorized by the
Company and, when executed and authenticated in accordance with
the provisions of the Indenture and delivered to and paid for by
the Initial Purchasers in accordance with the terms of this
Agreement, will be valid and binding obligations of the Company,
entitled to the benefits of the Indenture and enforceable against
the Company in accordance with their terms except (x) as the
enforceability thereof may be limited by bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or similar
28
<PAGE>
laws affecting creditors' rights generally, (y) enforcement
thereof is subject to general principles of equity (regardless of
whether enforcement is brought in a proceeding at law or in
equity) and (z) the waiver as to stay, extension or usury laws
may not be enforceable;
iii) the Indenture has been duly authorized, executed and
delivered by the Company and, assuming the due authorization,
execution and delivery thereof by the Trustee, will be a valid
and binding agreement of the Company and each Guarantor,
enforceable against the Company and each Guarantor in accordance
with its terms except (x) as the enforceability thereof may be
limited by bankruptcy, insolvency (including, without limitation,
all laws relating to fraudulent transfers), reorganization,
moratorium or similar laws affecting creditors' rights generally,
(y) enforcement thereof is subject to general principles of
equity (regardless of whether enforcement is brought in a
proceeding at law or in equity) and (z) the waiver as to stay,
extension or usury laws may not be enforceable;
iv) this Agreement has been duly authorized, executed and
delivered by the Company;
v) The Registration Rights Agreement has been duly
authorized, executed and delivered by the Company and each
Guarantor and, assuming due authorization, execution and delivery
by the Initial Purchasers, will be a valid and binding
agreement of the Company and each Guarantor, enforceable against
the Company and each Guarantor in accordance with its terms,
except (w) as the enforceability thereof may be limited by
bankruptcy, insolvency (including, without limitation, all
laws relating to fraudulent transfers), reorganization,
moratorium or similar laws affecting creditors' rights generally,
(x) enforcement thereof is subject to general principles of equity
(regardless of whether enforcement is brought in a proceeding at
law or in equity), (y) the waiver as to stay, extension or usury
laws may not be enforceable and (z) to the extent
29
<PAGE>
indemnification or contribution provisions in the Registration
Rights Agreement may not be enforceable;
vi) the Series B Notes have been duly authorized by the
Company and, when executed and authenticated in accordance
with the provisions of the Indenture and delivered in exchange
for Series A Notes in accordance with the Indenture and the
Exchange Offer, will be valid and binding obligations of the
Company, entitled to the benefits of the Indenture and
enforceable against the Company in accordance with their terms
except (x) as the enforceability thereof may be limited by
bankruptcy, insolvency (including, without limitation, all
laws relating to fraudulent transfers), reorganization,
moratorium or similar laws affecting creditors' rights
generally, (y) enforcement thereof is subject to general
principles of equity (regardless of whether enforcement is
brought in a proceeding at law or in equity) and (z) the waiver
as to stay, extension or usury laws may not be enforceable;
vii) the Indenture, the Notes and the Guarantees in
respect of the Notes conform in all material respects to the
statements relating thereto under the caption "Description of
Notes;"
viii) the Company is not in violation of its charter or
by-laws;
ix) the execution, delivery and performance of this
Agreement and other Operative Documents and compliance by the
Company and the Guarantors with all the provisions hereof and
thereof and the consummation of the transactions contemplated
hereby and thereby will not require any consent, approval,
authorization or other order of, or qualification with, any
court or governmental body or agency (except such as may be
required under the securities or Blue Sky laws of the various
states);
x) the Company is not and, after giving effect to the
offering and sale of the Series A Notes and the application
30
<PAGE>
of the net proceeds thereof as described in the Offering
Memorandum, will not be, an "investment company" as such term
is defined in the Investment Company Act of 1940, as amended;
xi) the Indenture complies as to form in all material
respects with the requirements of the TIA, and the rules and
regulations of the Commission applicable to an indenture which
is qualified thereunder; and
xii) no registration under the Act of the Series A Notes
or qualification of the Indenture under the TIA is required for
the sale of the Series A Notes to the Initial Purchasers as
contemplated by this Agreement or for the Exempt Resales
assuming (i) the accuracy of, and compliance with, the Initial
Purchaser's representations and agreements contained in
Section 7 of this Agreement and (ii) the accuracy of the
representations and agreements of the Company and the
Guarantors set forth in Sections 5(l) and 6(w) to (z) of this
Agreement and (iii) that the offer, sale and delivery of the
Series A Notes have been made as contemplated by this
Agreement and the Offering Memorandum.
Such counsel (i) may state that such opinions are limited to matters
governed by the Federal laws of the United States of America, the laws of the
State of New York and the General Corporation Law of the State of Delaware,
(ii) may rely upon the opinion of Robert F. Murphy delivered pursuant to
Section 9(f)(B) hereof (including any assumptions or qualifications thereto)
as to matters of the laws of the state of organization of each of the
Guarantors addressed therein with regard to the authorization, execution and
delivery of documents by such Guarantors, (iii) may rely upon the opinion of
Murtha, Cullina, Richter and Pinney as to matters involving the laws of the
State of Connecticut and (iv) may rely upon the opinion of a New Mexico law
firm reasonably acceptable to the Initial Purchasers as to matters involving
the laws of the State of New Mexico.
In addition, Shearman & Sterling shall state that (a) it has acted
as counsel to the Company and the Guarantors in connection with the
preparation of the Preliminary Offering Memorandum and Offering Memorandum
and (b) it has generally reviewed and discussed such statements contained in
the Offering
31
<PAGE>
Memorandum with certain officers of the Company, the Guarantors and the
Company's auditors, and with your counsel and yourselves. Such counsel shall
further state that in the course of this review and discussion, no facts have
come to its attention that cause it to believe that the Offering Memorandum
(except for the financial statements and other financial and statistical data
included therein or omitted therefrom as to all of which it has not been
requested to comment) as of its date (as amended or supplemented, if
applicable) or on the Closing Date, contained or contains any untrue
statement of a material fact or omitted or omits to state any material fact
necessary in order to make the statements therein, in light of the
circumstances in which they were made, not misleading. Without limiting the
foregoing, such counsel may further state that (i) it has not verified and
is not passing upon and does not assume responsibility for the accuracy,
completeness or fairness of the statements in the Offering Memorandum other
than those mentioned in subparagraph (vii), (ii) the Company has retained
Sidley & Austin to advise it with respect to the government investigation by
the Office of the Inspector General described in the section of the Offering
Memorandum entitled "Risk Factors--Government Investigations; Uncertain
Impact on Future Operating Results" (hereinafter, "OIG Matters") and (iii)
the Company has retained Murtha, Cullina, Richter and Pinney to advise it
with respect to the government investigation in Connecticut described in the
section of the Offering Memorandum entitled "Risk Factors--Government
Investigations; Uncertain Impact on Future Operating Results" (hereinafter,
"Connecticut Matters").
B. An opinion, dated the Closing Date, from Robert
F. Murphy, in-house counsel for the Company and the Guarantors, substantially
to the effect that:
(i) each of the Guarantors has been duly organized, is
validly existing as a corporation or a limited liability
company in good standing under the laws of its jurisdiction of
organization and has the power and authority to carry on its
business and to own, lease and operate its properties as
described in the Offering Memorandum;
(ii) each of the Company and the Guarantors is duly
qualified and is in good standing as a foreign corporation or
limited liability company authorized to do business in each
jurisdiction in which the nature of its business or its
ownership or leasing of property requires such qualification,
except where
32
<PAGE>
the failure to be so qualified would not have been a Material
Adverse Effect;
(iii) each of the Indenture, this Agreement and the
Registration Rights Agreement has been duly authorized,
executed and delivered by each of the Guarantors;
(iv) to such counsel's knowledge, after due inquiry,
all of the outstanding Equity Interests of each of the
Guarantors have been duly authorized and validly issued and
are fully paid and non-assessable, and to the extent such
Equity Interests are owned by the Company, are owned free and
clear of any Lien, except for Liens permitted under debt
instruments (including the Indenture) described in the
Offering Memorandum or Liens which are not material;
(v) the statements relating to Connecticut Matters
and OIG Matters under the caption "Risk Factors--Government
Investigations; Uncertain Impact on Future Operating Results
insofar as such statements constitute a summary of the legal
matters or proceedings referred to therein, fairly present the
information called for with respect to such legal matters and
proceedings;
(vi) none of the Guarantors is in violation of its
respective charter, by-laws or other organizational documents,
as the case may be, except for such violations as would not,
singly or in the aggregate, have a Material Adverse Effect
and, to the best of such counsel's knowledge after due
inquiry, neither the Company nor any of its subsidiaries is in
default in the performance of any obligation, agreement,
covenant or condition contained in any indenture, loan
agreement, mortgage, lease or other agreement or instrument
that is material to the Company and its subsidiaries, taken as
a whole, to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries or
their respective property is bound except for such conflicts,
breaches or defaults as would not singly or in the aggregate,
have a Material Adverse Effect; and
33
<PAGE>
(vii) the execution, delivery and performance of this
Agreement and other Operative Documents and compliance by the
Company and the Guarantors with all the provisions hereof and
thereof and the consummation of the transactions contemplated
hereby and thereby will not conflict with or constitute a
breach of any of the terms or provisions of, or a default
under any indenture, loan agreement, mortgage, lease or other
agreement or instrument that is material to the Company and
the Guarantors, taken as a whole, to which the Company or any
of the Guarantors is a party or by which the Company or any of
the Guarantors or their respective property is bound except
for such defaults as would not, singly or in the aggregate,
have a Material Adverse Effect, or, to the best of such
counsel's knowledge, after due inquiry, violate or conflict
with any applicable law or any rule, regulation, judgment,
order or decree of any court or any governmental body or
agency having jurisdiction over the Company, any of the
Guarantors or their respective property.
Such counsel (i) may state that such opinions are limited to matters
governed by the Federal laws of the United States of America, the laws of the
State of California, and the General Corporation Law of the State of
Delaware, (ii) may state that such counsel is generally familiar with the
General Corporation Law of the State of Delaware, (iii) may make an
assumption that matters involving the laws of the states of organization of
each Guarantor, with regard to due authorization, execution and delivery are
substantially similar to the law of the State of California, (iv) may rely
upon the opinion of Murtha, Cullina, Richter and Pinney as to matters
involving the laws of the State of Connecticut and (v) may rely upon the
opinion of a New Mexico law firm reasonably acceptable to the Initial
Purchasers as to matters involving the laws of the State of New Mexico. In
addition, such counsel may state that certain matters relating to the
regulation of the health care industry have been passed upon by Gardner,
Carton & Douglas, United States regulatory counsel for the Company, and that
such matters have, accordingly, been excluded from the opinion.
C. An opinion, dated the Closing Date, from Sidley &
Austin, special health care counsel for the Company and the Guarantors, which
states that Sidley & Austin has acted as special counsel to the Company in
connection with OIG Matters; and such counsel shall advise you that, on the
basis of the forego-
34
<PAGE>
ing, no facts have come to its attention which caused it to believe that the
statements under the caption "Risk Factors--Government Investigations;
Uncertain Impact on Future Operating Results," as of the date of the Offering
Memorandum (as amended or supplemented, if applicable) and as of the Closing
Date, contained or contains an untrue statement of a material fact or omitted
or omits to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Without limiting the foregoing, Sidley & Austin may further
state that it assumes no responsibility for, and has not independently
verified, the accuracy, completeness or fairness of the financial statements,
notes and schedules and other financial or statistical data included in the
Offering Memorandum.
Such counsel may state that such opinion is limited to matters
governed by the Federal laws of the United States of America.
D. An opinion, dated the Closing Date, from Murtha,
Cullina, Richter and Pinney, special Connecticut counsel for the Company and
Sunrise Healthcare Corporation with respect to the Connecticut Matters and
special Connecticut counsel for Sundance Rehabilitation Corporation with
respect to due authorization, substantially to the effect that each of the
Indenture, the Registration Rights Agreement and this Agreement has been duly
authorized by Sundance Rehabilitation Corporation.
In addition, Murtha, Cullina, Richter and Pinney shall state that it
has acted as special Connecticut counsel to the Company in connection with
Connecticut Matters; and such counsel shall advise you that, on the basis of
the foregoing, no facts have come to its attention which caused it to believe
that the statements under the caption "Risk Factors--Government
Investigations; Uncertain Impact on Future Operating Results" as of the date
of the Offering Memorandum (as amended or supplemented, if applicable) and as
of the Closing Date, contained or contains an untrue statement of a material
fact or omitted or omits to state a material fact necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. Without limiting the foregoing, Murtha, Cullina,
Richter and Pinney may further state that it assumes no responsibility for,
and has not independently verified, the accuracy, completeness or fairness of
the financial statements, notes and schedules and other financial or
statistical data included in the Offering Memorandum.
35
<PAGE>
Such counsel may state that such opinions are limited to matters
governed by the Federal laws of the United States of America and the laws of
the State of Connecticut.
E. An opinion, dated the Closing Date, from Gardner,
Carton & Douglas, special regulatory counsel for the Company and the
Guarantors, substantially to the effect that the statements under the
captions "Risk Factors--Potential Reduction of Reimbursement Rates from Third
Party Payors and Impact on Future Operating Results," "Risk Factors--
Government Investigations; Uncertain Impact on Future Operating Results",
"Risk Factors--Potential Adverse Impact From Extensive Regulation,"
"Business--United States Revenue Sources," and "Business--Government
Regulation," insofar as such statements constitute a summary of certain
aspects of Title XVIII and XIX of the Social Security Act and the regulations
thereunder, fairly present the information called for with respect to such
statements.
Such counsel may state that such opinions are limited to matters
governed by Title XVIII and XIX of the Social Security Act, 42 U.S.C. Section
1395, et seq. and does not extend to any other Federal or state laws
governing the licensure of the Company or Company-related facilities,
suppliers or therapists.
F. An opinion, dated the Closing Date, from Warner
Cranston, special United Kingdom counsel for the Company and the Guarantors,
substantially to the effect that the statements under the caption
"Business--United Kingdom Revenue Sources," insofar as such statements
constitute a summary of the legal matters, documents or proceedings referred
to therein, fairly present the information called for with respect to such
legal matters, documents and proceedings.
Such counsel may state that such opinions are limited to matters
governed by the laws of the United Kingdom.
G. An opinion, dated the Closing Date, from New
Mexico counsel for Sunrise Healthcare Corporation and SunScript Pharmacy
Corporation reasonably acceptable to the Initial Purchasers, substantially to
the effect that each of the Indenture, the Registration Rights Agreement and
this Agreement has been duly authorized by each of Sunrise Healthcare
Corporation and SunScript Pharmacy Corporation.
36
<PAGE>
Such counsel may state that such opinions are limited to the matters
governed by the laws of the State of New Mexico.
(g) The Initial Purchasers shall have received on the
Closing Date an opinion, dated the Closing Date, of Skadden, Arps, Slate,
Meagher & Flom LLP, special counsel for the Initial Purchasers, in form and
substance reasonably satisfactory to the Initial Purchasers.
(h) The Initial Purchasers shall have received, at
the time this Agreement is executed and at the Closing Date, letters dated
the date hereof or the Closing Date, as the case may be, in form and
substance satisfactory to the Initial Purchasers from Arthur Andersen LLP,
independent public accountants, containing the information and statements of
the type ordinarily included in accountants' "comfort letters" to the Initial
Purchasers with respect to the financial statements and certain financial
information contained in the Offering Memorandum.
(i) The Series A Notes shall have been approved by
the NASD for trading and duly listed in PORTAL.
(j) The Company and the Guarantors shall have
executed the Registration Rights Agreement and the Initial Purchasers shall
have received an original copy thereof, duly executed by the Company and the
Guarantors.
(k) The Company shall not have failed at or prior to
the Closing Date to perform or comply in all material respects with any of
the agreements herein contained and required to be performed or complied with
by the Company at or prior to the Closing Date.
10. EFFECTIVENESS OF AGREEMENT AND TERMINATION. This
Agreement shall become effective upon the delivery of this Agreement by the
parties hereto.
This Agreement may be terminated at any time prior to the
Closing Date by the Initial Purchasers by written notice to the Company if
any of the following has occurred: (i) any outbreak or escalation of
hostilities or other national or international calamity or crisis or change
in economic conditions or in the financial markets of the United States or
elsewhere that, in the Initial Purchasers' judgment, is material and adverse
and would, in the Initial Purchasers' judgment, make it impracticable to
market the Series A Notes on the terms and in the manner contemplated in the
Offering Memorandum, (ii) the suspension or material limitation
37
<PAGE>
of trading in securities on the New York Stock Exchange, the American Stock
Exchange, the Chicago Board of Options Exchange, the Chicago Mercantile
Exchange, the Chicago Board of Trade or the Nasdaq National Market, (iii) the
suspension of trading of any securities of the Company or any Guarantor on
any exchange or in the over-the-counter market, (iv) the enactment,
publication, decree or other promulgation of any federal or state statute,
regulation, rule or order of any court or other governmental authority which
in your opinion materially and adversely affects, or will materially and
adversely affect, the business, prospects, financial condition or results of
operations of the Company and its subsidiaries, taken as a whole, (v) the
declaration of a banking moratorium by either federal or New York State
authorities or (vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs which in
your opinion has a material adverse affect on the financial markets in the
United States.
If on the Closing Date any one or more of the Initial Purchasers
shall fail or refuse to purchase the Series A Notes which it or they have
agreed to purchase hereunder on such date and the aggregate principal amount
of the Series A Notes which such defaulting Initial Purchaser or Initial
Purchasers, as the case may be, agreed but failed or refused to purchase is
not more than one-tenth of the aggregate principal amount of the Series A
Notes to be purchased on such date by all Initial Purchasers, each
non-defaulting Initial Purchaser shall be obligated severally, in the
proportion which the principal amount of the Series A Notes set forth
opposite its name in Schedule B bears to the aggregate principal amount of
the Series A Notes which all the non-defaulting Initial Purchasers, as the
case may be, have agreed to purchase, or in such other proportion as you may
specify, to purchase the Series A Notes which such defaulting Initial
Purchaser or Initial Purchasers, as the case may be, agreed but failed or
refused to purchase on such date; PROVIDED that in no event shall the
aggregate principal amount of the Series A Notes which any Initial Purchaser
has agreed to purchase pursuant to Section 2 hereof be increased pursuant to
this Section 10 by an amount in excess of one-ninth of such principal amount
of the Series A Notes without the written consent of such Initial Purchaser.
If on the Closing Date any Initial Purchaser or Initial Purchasers shall fail
or refuse to purchase the Series A Notes and the aggregate principal amount
of the Series A Notes with respect to which such default occurs is more than
one-tenth of the aggregate principal amount of the Series A Notes to be
purchased by all Initial Purchasers and arrangements satisfactory to the
Initial Purchasers and the Company for purchase of such the Series A Notes
are not made within 48 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Initial
Purchaser and the Company. In any such case which does to result in
termination of this Agreement,
38
<PAGE>
either you or the Company shall have the right to postpone the Closing Date,
but in no event for longer than seven days, in order that the required
changes, if any, if the Offering Memorandum or any other documents or
arrangements may be effected. Any action taken under this paragraph shall
not relieve any defaulting Initial Purchaser from liability in respect of any
default of any such Initial Purchaser under this Agreement.
11. MISCELLANEOUS. Notices given pursuant to any provision
of this Agreement shall be addressed as follows: (i) if to the Company or
any Guarantor, to Sun Healthcare Group, Inc. at 101 Sun Lane NE, Albuquerque,
New Mexico 87109, Attention: Chief Financial Officer, with a copy to
Shearman & Sterling, 555 California Street, Suite 2000, San Francisco,
California 94104, Attention: William H. Hinman, Esq., (ii) if to any Initial
Purchasers, c/o Donaldson, Lufkin & Jenrette Securities Corporation, 277 Park
Avenue, New York, New York 10172, Attention: Syndicate Department, with a
copy to Skadden, Arps, Slate, Meagher & Flom LLP at 300 South Grand Avenue,
Suite 3400, Los Angeles, California 90071, Attention: Nick P. Saggese, Esq.
or (iii) in any case to such other address as the person to be notified may
have requested in writing.
The respective indemnities, contribution agreements,
representations, warranties and other statements of the Company, the
Guarantors and the Initial Purchasers set forth in or made pursuant to this
Agreement shall remain operative and in full force and effect, and will
survive delivery of and payment for the Series A Notes, regardless of (i) any
investigation, or statement as to the results thereof, made by or on behalf
of an Initial Purchaser, the officers or directors of an Initial Purchaser,
any person controlling an Initial Purchaser, the Company, any Guarantor, the
officers or directors of the Company or any Guarantor, or any person
controlling the Company or any Guarantor, (ii) acceptance of the Series Notes
and payment for them hereunder and (iii) termination of this Agreement.
If for any reason the Series A Notes are not delivered by or on
behalf of the Company as provided herein (other than as a result of any
termination of this Agreement (i) pursuant to Section 10, (ii) as a result of
the material breach of this Agreement by the Initial Purchasers or (iii) as a
result of the failure of Skadden, Arps, Slate, Meagher & Flom LLP to deliver
an opinion as provided in Section 9(g) where all other law firms required to
deliver opinions pursuant to Section 9(f) have provided written confirmation
to the Initial Purchasers of their willingness to deliver such opinions as
required thereunder), the Company agrees to reimburse the Initial Purchaser
for all out-of-pocket expenses (including the fees and disbursements of
39
<PAGE>
counsel) reasonably incurred by them. Notwithstanding any termination of
this Agreement, the Company shall be liable for all expenses which it has
agreed to pay pursuant to Section 5(i) hereof. To the extent the Initial
Purchasers are entitled under this Agreement to be reimbursed for fees and
expenses other than pursuant to Section 8 hereof (as to which reimbursements,
the terms and conditions of such section shall govern), the Company and
Guarantors also agree, jointly and severally to reimburse the Initial
Purchasers their directors and officers and any person controlling the
Initial Purchaser for any and all fees and expenses (including, without
limitation the fees and disbursements of counsel) incurred by them in
connection with enforcing their rights hereunder.
Except as otherwise provided, this Agreement has been and is made
solely for the benefit of and shall be binding upon the Company, the
Guarantors, the Initial Purchasers, the Initial Purchasers' directors and
officers, any controlling persons referred to herein, the directors of the
Company and the Guarantors, and their respective successors and assigns, all
as and to the extent provided in this Agreement, and no other person shall
acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" shall not include a purchaser of any of the Series A
Notes from the Initial Purchaser merely because of such purchase.
This Agreement shall be governed and construed in accordance with
the laws of the State of New York.
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
40
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Guarantors and the several Initial Purchasers.
Very truly yours,
SUN HEALTHCARE GROUP, INC.
By: /s/ Robert D. Woltil
------------------------
Name: Robert D. Woltil
Title: Senior Vice President, Financial
Services and Chief Financial
Officer
ACCELERATED CARE PLUS, LLC; BAY COLONY HEALTH
SERVICE, INC.; BERGEN ELDERCARE, INC.;
CAL-MED, INC.; CLIPPER HOME AFFILIATES, INC.;
CLIPPER HOME OF NORTH CONWAY, INC.; CLIPPER
HOME OF PORTSMOUTH, INC.; CLIPPER HOME OF
ROCHESTER, INC.; CLIPPER HOME OF WOLFEBORO,
INC.; COMMUNITY RE-ENTRY SERVICES OF CORTLAND,
INC.; G-WZ OF STAMFORD, INC.; GOODWIN NURSING
HOME, INC.; HC, INC.; HTA OF NEW JERSEY, INC.;
LANGDON PLACE OF DOVER, INC.; LANGDON PLACE OF
EXETER, INC.; LANGDON PLACE OF NASHUA, INC.;
LIVING SERVICES, INC.; LTC STAFFINDERS, INC.;
MANATEE SPRINGS NURSING CENTER, INC.; MASTHEAD
CORPORATION; MEDIPLEX ATLANTA REHABILITATION
INSTITUTE, INC.; MEDIPLEX OF COLORADO, INC.;
MEDIPLEX OF CONCORD, INC.; MEDIPLEX OF
CONNECTICUT, INC.; MEDIPLEX OF KENTUCKY INC.;
MEDIPLEX OF MARYLAND, INC.; MEDIPLEX OF
MASSACHUSETTS, INC.; MEDIPLEX OF NEW
HAMPSHIRE, INC.; MEDIPLEX OF NEW JERSEY, INC.;
MEDIPLEX OF NEW YORK, INC.; MEDIPLEX OF OHIO,
INC.; MEDIPLEX OF TENNESSEE, INC.; MEDIPLEX OF
VIRGINIA, INC.;
<PAGE>
MEDIPLEX MANAGEMENT, INC.; MEDIPLEX MANAGEMENT
OF PALM BEACH COUNTY, INC.; MEDIPLEX
MANAGEMENT OF TEXAS, INC.; MEDIPLEX
REHABILITATION OF MASSACHUSETTS, INC.; NEW
BEDFORD ACQUISITION CORP.; NEW BEDFORD NURSING
CENTER, INC.; NURSING HOME, INC.; OAKVIEW
TREATMENT CENTERS OF KANSAS, INC.; P.M.N.F.
MANAGEMENT, INC.; PHARMACY FACTORS OF
CALIFORNIA, INC.; PHARMACY FACTORS OF FLORIDA,
INC.; PHARMACY FACTORS OF TEXAS, INC.; QUALITY
CARE HOLDING CORP.; QUALITY NURSING CARE OF
MASSACHUSETTS, INC.; SPECIAL MEDICAL SERVICES,
INC.; SPOFFORD LAND, INC.; SUN ALLIANCE, INC.;
SUNBRIDGE, INC.; SUN CARE CORP.; SUNCARE
RESPIRATORY SERVICES, INC.; SUNCHOICE MEDICAL
SUPPLY, INC.; SUNDANCE REHABILITATION
CORPORATION; SUNFACTORS, INC.; SUN LANE
PURCHASE CORPO-RATION; SUNMARK OF NEW MEXICO;
SUNQUEST CONSULTING, INC.; SUNRISE HEALTHCARE
OF COLORADO, INC.; SUNRISE HEALTHCARE OF
FLORIDA, INC.; SUNRISE HEALTHCARE
CORPORA-TION; SUNSCRIPT PHARMACY CORPORATION;
SUNRISE REHAB OF COLORADO, INC.; SUNSPECTRUM
OUTPATIENT REHABILITATION-CONCORD, INC.; THE
MEDIPLEX GROUP, INC.; VALLEY VIEW PSYCHIATRIC
SERVICES, INC.; and WORCESTER NURSING CENTER,
INC.
By: /s/ Robert D. Woltil
---------------------------------
Name: Robert D. Woltil
Title: Authorized Signatory
<PAGE>
The foregoing Purchase Agreement
is hereby confirmed and accepted
as of the date first above written.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CREDIT SUISSE FIRST BOSTON
CORPORATION
J.P. MORGAN SECURITIES INC.
NATIONSBANC CAPITAL MARKETS, INC.
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ Craig R. Callen
---------------------------------
Name: Craig R. Callen
Title: Managing Director
<PAGE>
SCHEDULE A
Guarantors
Accelerated Care Plus, LLC
Bay Colony Health Service, Inc.
Bergen Eldercare, Inc.
Cal-Med, Inc.
Clipper Home Affiliates, Inc.
Clipper Home of North Conway, Inc.
Clipper Home of Portsmouth, Inc.
Clipper Home of Rochester, Inc.
Clipper Home of Wolfeboro, Inc.
Community Re-Entry Services of Cortland, Inc.
G-WZ of Stamford, Inc.
Goodwin Nursing Home, Inc.
HC, Inc.
HTA of New Jersey, Inc.
Langdon Place of Dover, Inc.
Langdon Place of Exeter, Inc.
Langdon Place of Nashua, Inc.
Living Services, Inc.
LTC Staffinders, Inc.
Manatee Springs Nursing Center, Inc.
Masthead Corporation
Mediplex Atlanta Rehabilitation Institute, Inc.
Mediplex of Colorado, Inc.
Mediplex of Concord, Inc.
Mediplex of Connecticut, Inc.
Mediplex of Kentucky Inc.
Mediplex of Maryland, Inc.
Mediplex of Massachusetts, Inc.
Mediplex of New Hampshire, Inc.
Mediplex of New Jersey, Inc.
Mediplex of New York, Inc.
Mediplex of Ohio, Inc.
Mediplex of Tennessee, Inc.
Mediplex of Virginia, Inc.
Mediplex Management, Inc.
Mediplex Management of Palm Beach County, Inc.
Mediplex Management of Texas, Inc.
Mediplex Rehabilitation of Massachusetts, Inc.
A-1
<PAGE>
New Bedford Acquisition Corp.
New Bedford Nursing Center, Inc.
Nursing Home, Inc.
Oakview Treatment Centers of Kansas, Inc.
P.M.N.F. Management, Inc.
Pharmacy Factors of California, Inc.
Pharmacy Factors of Florida, Inc.
Pharmacy Factors of Texas, Inc.
Quality Care Holding Corp.
Quality Nursing Care of Massachusetts, Inc.
Special Medical Services, Inc.
Spofford Land, Inc.
Sun Alliance, Inc.
SunBridge, Inc.
Sun Care Corp.
SunCare Respiratory Services, Inc.
SunChoice Medical Supply, Inc.
Sundance Rehabilitation Corporation
SunFactors, Inc.
Sun Lane Purchase Corporation
Sunmark of New Mexico
SunQuest Consulting, Inc.
Sunrise Healthcare of Colorado, Inc.
Sunrise Healthcare of Florida, Inc
Sunrise Healthcare Corporation
SunScript Pharmacy Corporation
Sunrise Rehab of Colorado, Inc.
SunSpectrum Outpatient Rehabilitation-Concord, Inc.
The Mediplex Group, Inc.
Valley View Psychiatric Services, Inc.
Worcester Nursing Center, Inc.
A-2
<PAGE>
SCHEDULE B
Principal Amount
Initial Purchaser of Notes
----------------- ----------------
Donaldson, Lufkin & Jenrette
Securities Corporation......................... $125,000,000
Credit Suisse First Boston
Corporation.................................... $ 41,666,667
J.P. Morgan Securities Inc....................... $ 41,666,667
NationsBanc Capital Markets, Inc................. $ 41,666,666
------------
------------
Total $250,000,000
<PAGE>
EXHIBIT A
SUN HEALTHCARE GROUP, INC.
OFFICERS' CERTIFICATE
Each of the undersigned Robert D. Woltil, Senior Vice President,
Financial Services and Chief Financial Officer of Sun Healthcare Group, Inc.,
a Delaware corporation (the "Company") and Robert F. Murphy, Secretary of the
Company, pursuant to Section 9(c) of the Purchase Agreement, dated July 1,
1997, by and among the Company, the Guarantors named therein (the
"Guarantors"), and Donaldson, Lufkin & Jenrette Securities Corporation,
Credit Suisse First Boston Corporation, J.P. Morgan Securities Inc. and
NationsBanc Capital Markets, Inc., as initial purchasers (the "Purchase
Agreement"), hereby certify on behalf of the Company that:
(i) All of the representations and warranties of the
Company and the Guarantors contained in the Purchase Agreement are true
and correct with the same force and effect as if made on and as of the
date hereof.
(ii) The Company and the Guarantors have performed or
complied with all of its obligations and agreements and satisfied all
conditions on its part to be performed or satisfied or complied with
under the Purchase Agreement at or prior to the date hereof.
(iii) [Describe any rating agency notice] or [state the
following: "Since the date of the Purchase Agreement, there has not
occurred any downgrading, nor has any notice been given to the Company
or a public announcement made of any intended or potential downgrading
or of any review for a possible change that does not indicate the
direction of the possible change (other than a change that indicates a
possible upgrade but no other possible change), in the rating of any
securities of the Company or any Guarantor (including, without
limitation, the placing of any securities on negative or developing
watch or negative or developing outlook) by any "nationally recognized
statistical rating organization" as such term is defined for purposes
of Rule 426(g)(2) of the Act"].
(iv) Since July [ ], 1997 or the dates as of which
information is given in the Offering Memorandum (exclusive of any
amendments or supplements thereto subsequent to the date of the Purchase
Agreement), (i)
<PAGE>
there has not occurred any change or any development reasonably likely
to involve a prospective change in the condition, financial or
otherwise, or the earnings, business, management or operations of the
Company and it subsidiaries, taken as a whole, (ii) there has not been
any change or any development reasonably likely to involve a prospective
change in the capital stock or in the long-term debt of the Company or
any of its subsidiaries and (iii) neither the Company nor any of its
subsidiaries have incurred any material liability or obligation, direct
or contingent outside the ordinary course of business, the effect of
which, in any such case described in clauses (i), (ii) or (iii), in my
reasonable judgment is material and adverse, or in my reasonable
judgment, makes it impracticable to market the Series A Notes on the
terms and in the manner contemplated in the Offering Memorandum.
(v) Prior to or simultaneously with the date hereof,
approval of the Lenders under the Credit Facility approving the issuance
of the Notes and the Guarantees has been obtained.
Capitalized terms used herein without definition shall have
the meanings given such terms in the Purchase Agreement.
Skadden, Arps, Slate, Meagher & Flom LLP, Shearman & Sterling
and Murtha, Cullina, Richter and Pinney are entitled to rely upon this
Officers' Certificate in connection with the opinions given by such
firms pursuant to Section 9 of the Purchase Agreement.
<PAGE>
OFFICER'S CERTIFICATE
IN WITNESS WHEREOF, the undersigned have hereunto signed their names.
Dated: July [ ], 1997
SUN HEALTHCARE GROUP, INC.
--------------------------
By: Robert D. Woltil
Title: Senior Vice President,
Financial Services and Chief
Financial Officer
--------------------------
By: Robert F. Murphy
Title: Secretary
<PAGE>
- -------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
DATED AS OF JULY 8, 1997
BY AND AMONG
SUN HEALTHCARE GROUP, INC.
AS ISSUER,
THE GUARANTORS NAMED HEREIN
AND
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION,
CREDIT SUISSE FIRST BOSTON,
J.P. MORGAN SECURITIES, INC.
AND
NATIONSBANC CAPITAL MARKETS, INC.
AS INITIAL PURCHASERS
- -------------------------------------------------------------------------------
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into as of July 8, 1997, among SUN HEALTHCARE GROUP, INC., a Delaware
corporation (the "Issuer"), the Guarantors named herein, and DONALDSON,
LUFKIN & JENRETTE SECURITIES CORPORATION, CREDIT SUISSE FIRST BOSTON, J.P.
MORGAN SECURITIES, INC. and NATIONSBANC CAPITAL MARKETS, INC. (collectively,
the "Initial Purchasers").
This Agreement is made pursuant to the Purchase Agreement, dated
July 1, 1997, among the Issuer, the Guarantors and the Initial Purchasers
(the "Purchase Agreement"), which provides for the sale by the Issuer to the
Initial Purchasers of $250,000,000 aggregate principal amount of 9 1/2% Senior
Subordinated Notes due 2007 and the related guarantees by the Guarantors
(collectively, the "Notes"). In order to induce the Initial Purchasers to
enter into the Purchase Agreement, the Issuer and the Guarantors have agreed
to provide to the Initial Purchasers and their respective direct and indirect
transferees, among other things, the registration rights for the Notes set
forth in this Agreement. The execution of this Agreement is a condition to
the closing of the transactions contemplated by the Purchase Agreement.
The parties hereby agree as follows:
1. DEFINITIONS
As used in this Agreement, the following terms shall have the
following meanings (and, unless otherwise indicated, capitalized terms used
herein without definition shall have the respective meanings ascribed to them
by the Purchase Agreement):
APPLICABLE PERIOD: See Section 2(b) hereof.
EFFECTIVENESS PERIOD: See Section 3(a) hereof.
EFFECTIVENESS TARGET DATE: See Section 4(a)(ii) hereof.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC promulgated thereunder.
1
<PAGE>
EXCHANGE NOTES: See Section 2(a) hereof.
EXCHANGE OFFER: See Section 2(a) hereof.
EXCHANGE OFFER REGISTRATION STATEMENT: See Section 2(a) hereof.
GUARANTORS: As defined in the Indenture.
HOLDER: Any holder of Transfer Restricted Securities.
INDEMNIFIED PARTY: See Section 7 hereof.
INDEMNIFIED PERSON: See Section 7 hereof.
INDEMNIFYING PERSON: See Section 7 hereof.
INDENTURE: The Indenture, dated as of the date hereof, by and among
the Issuer, the Guarantors and First Trust National Association as trustee,
pursuant to which the Notes are being issued, as amended or supplemented from
time to time in accordance with the terms thereof.
INITIAL PURCHASERS: See the introductory paragraphs to this Agreement.
INSPECTORS: See Section 3(m) hereof.
ISSUE DATE: As defined in the Offering Memorandum.
ISSUER: See the introductory paragraphs to this Agreement.
LIQUIDATED DAMAGES: See Section 4(a) hereof.
NOTES: See the introductory paragraphs to this Agreement.
OFFERING MEMORANDUM: The final Offering Memorandum dated July 1, 1997
related to the sale of the Notes.
PARTICIPATING BROKER-DEALER: See Section 2(b) hereof.
2
<PAGE>
PERSON or PERSON: An individual, trustee, corporation, partnership,
joint stock company, trust, unincorporated association, union, business
association, limited liability company, limited liability partnership, firm
or other legal entity.
PROSPECTUS: The prospectus included in any Registration Statement
(including, without limitation, any prospectus subject to completion and a
prospectus that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule
430A promulgated under the Securities Act), as amended or supplemented by any
pro-spectus supplement, with respect to the terms of the offering of any
portion of the Exchange Notes and/or the Transfer Restricted Securities (as
applicable), covered by such Registration Statement, and all other amendments
and supplements to the Prospectus, including post-effective amendments, and
all material incorporated by reference or deemed to be incorporated by
reference in such Prospectus.
RECORDS: See Section 4(m) hereof.
REGISTRATION DEFAULT: See Section 4(a) hereof.
REGISTRATION STATEMENT: Any registration statement of the Issuer
and the Guarantors, including, but not limited to, the Exchange Offer
Registration Statement or a registration statement of the Issuer and the
Guarantors that otherwise covers any of the Transfer Restricted Securities
pursuant to the provisions of this Agreement, including the Prospectus,
amendments and supplements to such registration statement, including
post-effective amendments, all exhibits, and all material incorporated by
reference or deemed to be incorporated by reference in such registration
statement.
RULE 144: Rule 144 promulgated pursuant to the Securities Act, as
currently in effect, as such rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the SEC.
RULE 144A: Rule 144A promulgated pursuant to the Securities Act, as
currently in effect, as such rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the SEC.
RULE 415: Rule 415 promulgated pursuant to the Securities Act, as
such rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC.
3
<PAGE>
SEC: The Securities and Exchange Commission.
SECURITIES ACT: The Securities Act of 1933, as amended, and the rules
and regulations of the SEC promulgated thereunder.
SHELF NOTICE: See Section 2(c) hereof.
SHELF REGISTRATION: See Section 3(a) hereof.
TIA: The Trust Indenture Act of 1939, as amended, and the rules and
regulations of the SEC promulgated thereunder.
TRANSFER RESTRICTED SECURITIES: The Notes upon original issuance
thereof and at all times subsequent thereto, until (i) a Registration
Statement covering such Notes has been declared effective by the SEC and such
Notes have been disposed of in accordance with such effective Registration
Statement, (ii) such Notes are sold in compliance with Rule 144 or are
eligible for sale under Rule 144(k) or (iii) such Notes cease to be
outstanding.
TRUSTEE: The trustee under the Indenture and, if existent, under any
indenture governing the Exchange Notes.
UNDERWRITTEN REGISTRATION OR UNDERWRITTEN OFFERING: A registration
in which securities of the Issuer or a Guarantor are sold to an underwriter
for reoffering to the public.
2. EXCHANGE OFFER
(a) To the extent not prohibited by applicable law or applicable
interpretations of the Staff of the SEC, the Issuer and the Guarantors agree
to file with the SEC within 90 days after the Issue Date a registration
statement under the Securities Act with respect to an offer to exchange (the
"Exchange Offer") any and all of the Transfer Restricted Securities for a
like aggregate principal amount of debt securities of the Issuer and the
Guarantors (the "Exchange Notes"), which Exchange Notes will be (i)
substantially identical in all material respects to the Notes, except that
such Exchange Notes will not contain terms with respect to transfer
restrictions and the identity of the Guarantors may change in accordance with
the terms of the Indenture and, (ii) entitled to the benefits of the
Indenture or a trust indenture which is identical to the Indenture (other
than such changes to the Indenture or any such
4
<PAGE>
identical trust indenture as are necessary to comply with any requirements of
the SEC to effect or maintain the qualification thereof under the TIA), and
which, in either case, has been qualified under the TIA, and (iii) registered
pursuant to an effective Registration Statement in compliance with the
Securities Act. The Exchange Offer will be registered pursuant to the
Securities Act on an appropriate form of Registration Statement (the
"Exchange Offer Registration Statement"), and will comply with all applicable
tender offer rules and regulations promulgated pursuant to the Exchange Act
and shall be duly registered or qualified pursuant to all applicable state
securities or Blue Sky laws. The Exchange Offer shall not be subject to any
condition, other than that the Exchange Offer does not violate any applicable
law, policy or interpretation of the staff of the SEC. No securities shall
be included in the Exchange Offer Registration Statement other than the
Transfer Restricted Securities and the Exchange Notes. The Issuer and the
Guarantors agree to use their reasonable best efforts to cause such Exchange
Offer Registration Statement to be declared effective under the Securities
Act within 180 days after the Issue Date. Promptly after the Exchange Offer
Registration Statement is declared effective, the Issuer and Guarantors will
commence the offer of Exchange Notes in exchange for properly tendered Notes.
The Issuer and Guarantors will keep the Exchange Offer open for not less than
20 business days (or such longer period required by applicable law) after the
date that the notice of the Exchange Offer referred to below is mailed to
Holders. For each Note validly tendered pursuant to the Exchange Offer, the
holder of such Note will receive the Exchange Notes having a principal amount
at maturity equal to that of the tendered Note.
Each Holder who participates in the Exchange Offer will be required
to represent that any Exchange Notes received by it will be acquired in the
ordinary course of its business, that at the time of the consummation of the
Exchange Offer such Holder will have no arrangement or understanding with any
person to participate in the distribution (within the meaning of the
Securities Act) of the Exchange Notes, and that such Holder is not an
"affiliate" of the Issuer within the meaning of Rule 405 of the Securities
Act (or that if it is such an affiliate, it will comply with the registration
and prospectus delivery requirements of the Securities Act to the extent
applicable). Each Holder that is not a Participating Broker-Dealer will be
required to represent that it is not engaged in, and does not intend to
engage in, the distribution of the Exchange Notes. Each Holder that (i) is a
Participating Broker-Dealer and (ii) will receive Exchange Notes for its own
account in exchange for the Transfer Restricted Securities that it acquired
as the result of market-making or other trading activities will be required
to acknowledge that it will deliver a Prospectus as required by law in
connection with any resale of such Exchange Notes. The Issuer shall allow
5
<PAGE>
Participating Broker-Dealers and other persons, if any, subject to similar
prospectus delivery requirements to use the Prospectus included in the
Exchange Offer Registration Statement in connection with the resale of the
Exchange Notes. Upon consummation of the Exchange Offer in accordance with
this Agreement, the Issuer and the Guarantors shall have no further
obligation to register Transfer Restricted Securities pursuant to Section 3
of this Agreement.
(b) The Issuer and the Guarantors shall include within the
Exchange Offer Registration Statement a section entitled "Plan of
Distribution," reasonably acceptable to the Initial Purchasers, which shall
contain a summary statement of the positions taken or policies made by the
staff of the SEC with respect to the potential "underwriter" status of any
broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under
the Exchange Act), of Exchange Notes received by such broker-dealer in the
Exchange Offer (a "Participating Broker-Dealer"). Such "Plan of
Distribution" section shall also allow the use of the Prospectus by all
persons subject to the prospectus delivery requirements of the Securities
Act, including all Participating Broker-Dealers, and include a statement
describing the means by which Participating Broker-Dealers may resell the
Exchange Notes.
The Issuer and the Guarantors shall use their reasonable best
efforts to keep the Exchange Offer Registration Statement effective under the
Securities Act and to amend and supplement the Prospectus contained therein,
in order to permit such Prospectus to be lawfully delivered by all persons
subject to the prospectus delivery requirements of the Securities Act for
such period of time as such persons must comply with such requirements in
order to resell the Exchange Notes; PROVIDED that such period shall not
exceed 90 days after consummation of the Exchange Offer (or such longer
period if extended pursuant to the last paragraph of Section 5 hereof) (the
"Applicable Period").
In connection with the Exchange Offer, the Issuer and the Guarantors
shall:
(a) mail as promptly as practicable to each Holder a copy of the Pro-
spectus forming part of the Exchange Offer Registration Statement, together
with an appropriate letter of transmittal and related documents;
(b) utilize the services of a depositary for the Exchange Offer with
an address in the Borough of Manhattan, The City of New York; and
6
<PAGE>
(c) permit Holders to withdraw tendered Notes at any time prior to
the close of business, New York time, on the last business day on which the
Exchange Offer shall remain open by sending to the institution and at the
address (located in the Borough of Manhattan, The City of New York)
specified in the notice, a telegram, telex, facsimile transmission or letter
setting forth the name of such Holder, the principal amount of Transfer
Restricted Securities delivered for exchange and a statement that such
Holder is withdrawing his or her election to have such Transfer Restricted
Securities exchanged.
As soon as practicable after the close of the Exchange Offer, the
Issuer and the Guarantors shall:
(i) accept for exchange all Notes tendered and not validly withdrawn
pursuant to the Exchange Offer;
(ii) deliver, or cause to be delivered, to the Trustee for cancella-
tion all Notes so accepted for exchange; and
(iii) cause the Trustee to authenticate and deliver promptly to each
Holder of Notes, Exchange Notes equal in principal amount to the Notes of
such Holder so accepted for exchange.
(c) If (1) prior to the consummation of the Exchange Offer, any
change in law or in the applicable interpretations of the staff of the SEC do
not permit the Issuer and the Guarantors to effect the Exchange Offer, or (2)
if for any other reason the Exchange Offer is not consummated within 225 days
of the Issue Date, then the Issuer shall promptly deliver to the Holders and
the Trustee written notice thereof (the "Shelf Notice"), and the Issuer and
the Guarantors shall file a Registration Statement pursuant to Section 3
hereof. Following the delivery of a Shelf Notice to the Holders of Transfer
Restricted Securities, the Issuer and the Guarantors shall not have any
further obligation to conduct the Exchange Offer pursuant to this Section 2,
PROVIDED that the Issuer and the Guarantors shall have the right,
nonetheless, to proceed to consummate the Exchange Offer notwithstanding
their obligations pursuant to this Section 2(c) (and, upon such consummation,
their obligation to consummate a Shelf Registration shall terminate).
3. SHELF REGISTRATION
7
<PAGE>
If the Issuer and the Guarantors are required to deliver a Shelf
Notice as contemplated by Section 2(c) hereof, then:
SHELF REGISTRATION. The Issuer and the Guarantors shall prepare and
file with the SEC, within 60 days after such filing obligation arises, a
Registration Statement for an offering to be made on a continuous basis
pursuant to Rule 415 covering all of the Transfer Restricted Securities (the
"Shelf Registration Statement"). The Shelf Registration shall be on Form S-1
or another appropriate form permitting registration of the Transfer
Restricted Securities for resale by the Holders in the manner or manners
reasonably designated by the Holders of a majority in aggregate principal
amount of the outstanding Transfer Restricted Securities (including, without
limitation, an underwritten offering). The Issuer and the Guarantors shall
not permit any securities other than the Transfer Restricted Securities to be
included in the Shelf Registration Statement. The Issuer and the Guarantors
shall use their reasonable best efforts to cause the Shelf Registration
Statement to be declared effective pursuant to the Securities Act on or prior
to 60 days after the filing of such Shelf Registration Statement and to keep
the Shelf Registration Statement continuously effective under the Securities
Act until the earlier of (i) the date which is 24 months after the Issue
Date, (ii) the date that all Transfer Restricted Securities covered by the
Shelf Registration Statement have been sold in the manner set forth and as
contemplated in the Shelf Registration Statement or (iii) the date that there
ceases to be outstanding any Transfer Restricted Securities (the
"Effectiveness Period").
4. LIQUIDATED DAMAGES
(a) The Issuer, the Guarantors and the Initial Purchasers agree
that the Holders of Transfer Restricted Securities will suffer damages if the
Issuer or the Guarantors fail to fulfill their obligations pursuant to
Section 2 or Section 3 hereof and that it would not be possible to ascertain
the extent of such damages. Accordingly, in the event of such failure by the
Issuer or the Guarantors to fulfill such obligations, the Issuer hereby
agrees to pay liquidated damages ("Liquidated Damages") to each Holder of
Transfer Restricted Securities under the circumstances and to the extent set
forth below:
(i) if either the Exchange Offer Registration Statement or the Shelf
Registration Statement has not been filed with the SEC on or prior to the
date specified for such filing; or
8
<PAGE>
(ii) if either the Exchange Offer Registration Statement or the Shelf
Registration Statement is not declared effective by the SEC on or prior to
the date specified for such effectiveness (the "Effectiveness Target Date");
or
(iii) if an Exchange Offer Registration Statement becomes effective,
and the Issuer and the Guarantors fail to consummate the Exchange Offer
within 45 days of the Effectiveness Target Date with respect to the Exchange
Offer Registration Statement; or
(iv) the Shelf Registration Statement is declared effective by the SEC
and such Shelf Registration Statement ceases to be effective or usable in
connection with resales of Notes during the Effectiveness Period;
(any of the foregoing, a "Registration Default"), then the Issuer shall pay
Liquidated Damages to each Holder, with respect to the first 90-day period
immediately following the occurrence of such Registration Default, in an
amount equal to $.05 per week per $1,000 principal amount of Transfer
Restricted Securities held by such Holder. Upon a Registration Default,
Liquidated Damages will accrue at the rate specified above until such
Registration Default is cured and the amount of Liquidated Damages will
increase by an additional $.05 per week per $1,000 principal amount of
Transfer Restricted Securities with respect to each subsequent 90-day period,
up to a maximum amount of Liquidated Damages of $.25 per week per $1,000
principal amount of Transfer Restricted Securities (regardless of whether one
or more than one Registration Default is outstanding). Following the cure of
any Registration Default relating to any Transfer Restricted Securities, the
accrual of Liquidated Damages with respect to such Registration Default will
cease. A Registration Default under clause (i) above shall be cured on the
date that either the Exchange Offer Registration Statement or the Shelf
Registration Statement is filed with the SEC; a Registration Default under
clause (ii) above shall be cured on the date that either the Exchange Offer
Registration Statement or the Shelf Registration Statement is declared
effective by the SEC; a Registration Default under clause (iii) above shall
be cured on the earlier of the date (A) the Exchange Offer is consummated or
(B) the Issuer and the Guarantors deliver a Shelf Notice to the Holders of
Transfer Restricted Securities; and a Registration Default under clause (iv)
above shall be cured on the earlier of (A) the date the Shelf Registration
Statement is declared effective or (B) the Effectiveness Period expires.
9
<PAGE>
(b) The Issuer shall notify the Trustee within one business day
after each and every date on which a Registration Default first occurs.
Accrued and unpaid Liquidated Damages shall be paid by the Issuer to the
Holders by wire transfer of immediately available funds to the accounts
specified by them or by mailing checks to their registered addresses if no
such accounts have been specified on each interest payment date provided in
the Indenture (whether or not any interest is then payable on the Notes) and
on each payment date provided in the Indenture including, without limitation,
whether upon redemption, maturity (by acceleration or otherwise), purchase
upon a change of control or purchase upon a sale of assets. Each obligation
to pay Liquidated Damages with respect to any Registration Default shall be
deemed to commence accruing on the date of such Registration Default and to
cease accruing when such Registration Default has been cured. In no event
shall the Issuer pay Liquidated Damages in excess of the applicable maximum
weekly amount set forth above, regardless of whether one or multiple
Registration Defaults exist.
(c) The parties hereto agree that the Liquidated Damages provided
for in this Section 4 constitute a reasonable estimate of the damages that
will be suffered by Holders by reason of the failure to file the Exchange
Offer Registration Statement or the Shelf Registration Statement, the failure
of the Exchange Offer Registration Statement or the Shelf Registration
Statement to be declared effective, the failure to consummate the Exchange
Offer or the failure of the Shelf Registration Statement to remain effective,
as the case may be, in accordance with this Agreement.
5. REGISTRATION PROCEDURES
In connection with the registration of any Exchange Notes or
Transfer Restricted Securities pursuant to Sections 2 or 3 hereof, the Issuer
and the Guarantors shall effect such registration to permit the sale of such
Exchange Notes or Transfer Restricted Securities (as applicable) in
accordance with the intended method or methods of disposition thereof, and
pursuant thereto the Issuer and the Guarantors shall:
(a) prepare and file with the SEC, a Registration Statement or
Registration Statements as prescribed by Section 2 or Section 3 hereof, and
to use their reasonable best efforts to cause such Registration Statement to
become effective and remain effective as provided herein; provided that if
(1) such filing is pursuant to Section 3 hereof, or (2) a Prospectus
contained in an Exchange Offer Registration Statement filed pursuant to
Section 2 hereof is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Notes
10
<PAGE>
during the Applicable Period, before filing any Registration Statement or
Prospectus or any amendments or supplements thereto, the Issuer and the
Guarantors shall furnish to and afford the Initial Purchasers and their
counsel (and, in the case of a Shelf Registration Statement, the Holders of
the Transfer Restricted Securities covered thereby and their counsel and the
managing underwriters, if any) a reasonable opportunity to review copies of
all such documents (including copies of any documents to be incorporated by
reference therein and all exhibits thereto) proposed to be filed. Such
documents shall be so furnished at least 3 business days prior to such
filing, or such later date as is reasonable under the circumstances. The
Issuer and the Guarantors shall not file any Registration Statement or
Prospectus or any amendments or supplements thereto if the Initial Purchasers
and their counsel (and, in the case of a Shelf Registration Statement, the
Holders of a majority in aggregate principal amount of the Transfer
Restricted Securities covered by such Registration Statement and their
counsel, or the managing underwriters, if any), shall reasonably object on a
timely basis (except that documents filed as exhibits that are incorporated
by reference or deemed to be incorporated by reference shall not be subject
to such objections);
(b) prepare and file with SEC such amendments and post-effective
amendments to each Shelf Registration Statement or Exchange Offer
Registration Statement, as the case may be, as may be necessary to keep such
Registration Statement continuously effective for the Effectiveness Period or
the Applicable Period, as the case may be, or such shorter period as will
terminate when all Transfer Restricted Securities covered by such
Registration Statement have been sold; cause the related Prospectus to be
supplemented by any required Prospectus supplement, and as so supplemented to
be filed pursuant to Rule 424 (or any similar provisions then in force) under
the Securities Act; and comply with the provisions of the Securities Act, the
Exchange Act and the rules and regulations of the SEC promulgated thereunder
with respect to the disposition of all securities covered by such
Registration Statement, as so amended, or in such Prospectus, as so
supplemented, and with respect to the subsequent resale of any Notes being
sold by a Participating Broker-Dealer covered by any such Prospectus; the
Issuer and the Guarantors shall be deemed not to have used their reasonable
best efforts to keep a Registration Statement effective during the Applicable
Period or the Effectiveness Period, as the case may be, if they voluntarily
take any action that would result in selling Holders of the Transfer
Restricted Securities covered thereby or Participating Broker-Dealers seeking
to sell Exchange Notes not being able to sell such Transfer Restricted
Securities or such Exchange Notes during such Period, unless (i) such action
is required by applicable law, or (ii) such action is taken by them in good
faith and for valid business rea-
11
<PAGE>
sons (not including avoidance of their obligations hereunder), including the
acquisition or divestiture of assets;
(c) if (1) a Shelf Registration Statement is filed pursuant to
Section 3 hereof, or (2) a Prospectus contained in an Exchange Offer
Registration Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any Participating Broker-Dealer who
seeks to sell Exchange Notes during the Applicable Period, notify the selling
Holders of Transfer Restricted Securities, or each Participating
Broker-Dealer that has provided in writing to the Company a telephone or
facsimile number and address for notices, as the case may be, their counsel
and the managing underwriters, if any, promptly and, if requested, confirm
such notice in writing, (i) when a Prospectus, any prospectus supplement or
post-effective amendment has been filed, and, with respect to a Registration
Statement or any post-effective amendment, when the same has become effective
(including in any such written notice a statement that any Holder may, upon
request, obtain, without charge, one conformed copy of such Registration
Statement or post-effective amendment including financial statements and
schedules, documents incorporated or deemed to be incorporated by reference
and exhibits), (ii) of the issuance by the SEC of any stop order suspending
the effectiveness of a Registration Statement or of any order preventing or
suspending the use of any Prospectus or the initiation of any proceedings for
that purpose, (iii) of the receipt by the Issuer or any Guarantor of any
notification with respect to the suspension of the qualification or
exemption from qualification of a Registration Statement or any of the
Transfer Restricted Securities or the Exchange Notes to be sold by any
Participating Broker-Dealer for offer or sale in any jurisdiction, or the
initiation of any proceeding for such purpose, (iv) of the happening of any
material event or any material information becoming known that makes any
statement made in such Registration Statement or related Prospectus or any
document incorporated or deemed to be incorporated therein by reference
untrue in any material respect or that requires the making of any changes in
such Registration Statement, Prospectus or documents so that, in the case of
the Registration Statement, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and that
in the case of the Prospectus, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and (v) of the
Issuer's and the Guarantors' reasonable determination that a post-effective
amendment to a Registration Statement would be appropriate;
12
<PAGE>
(d) if (1) a Shelf Registration Statement is filed pursuant to
Section 3 hereof, or (2) a Prospectus contained in an Exchange Offer
Registration Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any Participating Broker-Dealer who
seeks to sell Exchange Notes during the Applicable Period, use their best
efforts to prevent the issuance of any order suspending the effectiveness of
a Registration Statement or of any order preventing or suspending the use of
a Prospectus and, if any such order is issued, to use their reasonable best
efforts to obtain the withdrawal of any such order at the earliest possible
moment;
(e) if a Shelf Registration Statement is filed pursuant to Section
3 hereof and if requested by the managing underwriters, if any, or the
Holders of a majority in aggregate principal amount of the Transfer
Restricted Securities being sold in connection with an underwritten offering,
(i) promptly incorporate in a prospectus supplement or post-effective
amendment such information relating to underwriters, if any, any Holder of
Transfer Restricted Securities or the plan of distribution of the Transfer
Restricted Securities as the managing underwriter, if any, or such Holders
may reasonably request to be included therein, (ii) make all required filings
of such prospectus supplement or such post-effective amendment as soon as
practicable after the Issuer has received notification of the matters to be
incorporated in such prospectus supplement or post-effective amendment
pursuant to clause (i), and (iii) supplement or make amendments to such
Registration Statement with such information as is required in connection
with any request made pursuant to clause (i);
(f) if (1) a Shelf Registration Statement is filed pursuant to
Section 3 hereof, or (2) a Prospectus contained in an Exchange Offer
Registration Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any Participating Broker-Dealer who
seeks to sell Exchange Notes during the Applicable Period, furnish to each
selling Holder of Transfer Restricted Securities and to each such
Participating Broker-Dealer who so requests and to each managing underwriter,
if any, without charge, one conformed copy of the Registration Statement or
Registration Statements and each post-effective amendment thereto, including
financial statements and schedules, and, if requested, all documents
incorporated or deemed to be incorporated therein by reference and all
exhibits;
(g) if (1) a Shelf Registration Statement is filed pursuant to
Section 3 hereof, or (2) a Prospectus contained in an Exchange Offer
Registration Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any Participating Broker-Dealer who
seeks to sell Exchange Notes during the
13
<PAGE>
Applicable Period, deliver to each selling Holder, or each such Participating
Broker-Dealer, as the case may be, its counsel, and the underwriters, if
any, without charge, as many copies of the Prospectus or Prospectuses
(including each form of preliminary Prospectus), and each amendment or
supplement thereto and any documents incorporated by reference therein, as
such Persons may reasonably request; and, subject to the last paragraph of
this Section 5 hereof, the Issuer and the Guarantors hereby consent to the
use of such Prospectus and each amendment or supplement thereto by each of
the selling Holders or, during the Applicable Period, each such Participating
Broker-Dealer, as the case may be, and their underwriters or agents, if any,
and dealers, if any, in connection with the offering and sale of the Transfer
Restricted Securities covered by or the sale by Participating Broker-Dealers
of the Exchange Notes pursuant to such Prospectus and any amendment or
supplement thereto;
(h) prior to any public offering of Transfer Restricted Securities
or any delivery of a Prospectus contained in the Exchange Offer Registration
Statement by any Participating Broker-Dealer who seeks to sell Exchange Notes
during the Applicable Period, use their reasonable best efforts to register
or qualify, and to cooperate with the selling Holders of Transfer Restricted
Securities or each such Participating Broker-Dealer, as the case may be, the
underwriters, if any, and their respective counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Transfer Restricted Securities for offer and sale
under the securities or Blue Sky laws of such jurisdictions as any selling
Holder, Participating Broker-Dealer, or the managing underwriters reasonably
request in writing; keep each such registration or qualification (or
exemption therefrom), effective during the period such Registration Statement
is required to be kept effective and do any and all other acts or things
reasonably necessary or advisable to enable the disposition in such
jurisdictions of the Exchange Notes held by Participating Broker-Dealers or
the Transfer Restricted Securities covered by the applicable Registration
Statement; PROVIDED that the Issuer and the Guarantors shall not be required
to (A) qualify as a foreign corporation or as a dealer in securities in any
jurisdiction where they are not then so qualified, (B) take any action that
would subject them to general service of process in any such jurisdiction
where they are not then so subject or (C) subject themselves to taxation in
any such jurisdiction where they are not then so subject;
(i) if a Shelf Registration Statement is filed pursuant to Section
3 hereof, cooperate with the selling Holders of Transfer Restricted
Securities and the managing underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing Transfer Restricted
Securities to be sold, which certificates
14
<PAGE>
shall not bear any restrictive legends and shall be in a form eligible for
deposit with The Depository Trust Company ("DTC"), and enable such Transfer
Restricted Securities to be in such denominations and registered in such
names as the managing underwriters, if any, or Holders may reasonably request
at least two business days prior to any sale of the Transfer Restricted
Securities;
(j) if (1) a Shelf Registration Statement is filed pursuant to
Section 3 hereof, or (2) a Prospectus contained in an Exchange Offer
Registration Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any Participating Broker-Dealer who
seeks to sell Exchange Notes during the Applicable Period, upon the
occurrence of any event contemplated by paragraph 5(c)(v) or 5(c)(vi) above,
as promptly as practicable prepare and (subject to Section 5(a) hereof), file
with the SEC, at the expense of the Issuer, a supplement or post-effective
amendment to the Registration Statement or a supplement to the related
Prospectus or any document incorporated or deemed to be incorporated therein
by reference, or file any other required document so that, as thereafter
delivered to the purchasers of the Transfer Restricted Securities being sold
thereunder or to the purchasers of the Exchange Notes to whom such Prospectus
will be delivered by a Participating Broker-Dealer, any such Prospectus will
not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading;
(k) prior to the effective date of the first Registration
Statement relating to the Transfer Restricted Securities, (i) provide the
Trustee with certificates for the Transfer Restricted Securities in a form
eligible for deposit with DTC and (ii) use its reasonable best efforts to
provide a CUSIP number for the Transfer Restricted Securities;
(l) in connection with an underwritten offering of Transfer
Restricted Securities pursuant to a Shelf Registration Statement, enter into
an underwriting agreement as is customary in underwritten offerings and take
all other customary and appropriate actions as are reasonably requested by
the managing underwriters in order to expedite or facilitate the registration
or the disposition of such Transfer Restricted Securities, and in such
connection, (i) make such representations and warranties to the
underwriters, with respect to the business of the Issuer, the Guarantors and
the Registration Statement, Prospectus and documents, if any, incorporated
or deemed to be incorporated by reference therein, in each case, as are
customarily made by issuers to underwriters in underwritten offerings; (ii)
obtain opinions of counsel to the Issuer
15
<PAGE>
and Guarantors and updates thereof in form and substance reasonably
satisfactory to the managing underwriters, addressed to the underwriters
covering the matters customarily covered in opinions requested in
underwritten offerings and such other matters as may be reasonably requested
by underwriters; (iii) obtain "cold comfort" letters and updates thereof in
form and substance reasonably satisfactory to the managing underwriters from
the independent certified public accountants of the Issuer and the Guarantors
(and, if necessary, any other independent certified public accountants of
any subsidiary of the Issuer or the Guarantors or of any business acquired by
any of them for which financial statements and financial data are, or are
required to be, included in the Registration Statement), addressed to each of
the underwriters, such letters to be in customary form and covering matters
of the type customarily covered in "cold comfort" letters in connection with
underwritten offerings and such other matters as are reasonably requested by
underwriters as permitted by STATEMENT ON AUDITING STANDARDS NO. 72; and (iv)
if an underwriting agreement is entered into, the same shall contain
indemnification provisions and procedures no less favorable than those set
forth in Section 7 hereof with respect to all parties to be indemnified
pursuant to said Section. The above shall be done at each closing under such
underwriting agreement, or as and to the extent required thereunder;
(m) if (1) a Shelf Registration Statement is filed pursuant to
Section 3 hereof, or (2) a Prospectus contained in an Exchange Offer
Registration Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any Participating Broker-Dealer who
seeks to sell Exchange Notes during the Applicable Period, make available for
inspection by any selling Holder of such Transfer Restricted Securities being
sold, or each such Participating Broker-Dealer, as the case may be, any
underwriter participating in any such disposition of Transfer Restricted
Securities, if any, and any attorney, accountant or other agent retained by
any such selling Holder or each such Participating Broker-Dealer, as the case
may be, or underwriter (collectively, the "Inspectors"), at the offices where
normally kept, during reasonable business hours, all financial and other
records, pertinent corporate documents and properties of the Issuer, the
Guarantors and their subsidiaries (collectively, the "Records"), as shall be
reasonably necessary to enable them to exercise any applicable due diligence
responsibilities, and cause the officers, directors and employees of the
Issuer, the Guarantors and their subsidiaries to supply all relevant
information reasonably requested by any such Inspector in connection with
such Registration Statement as is customary for due diligence examinations;
provided, however, that the foregoing inspection and information gathering
shall, to the extent reasonably possible, be coordinated on behalf of the
Inspectors by one counsel designated by and on behalf of all such Inspectors.
Records which the Issuer
16
<PAGE>
determines, in good faith, to be confidential and any Records which it
notifies the Inspectors are confidential shall not be disclosed by the
Inspectors, unless (i) the release of such Records is ordered pursuant to a
subpoena or other order from a court of competent jurisdiction or (ii) the
information in such Records has been made generally available to the public,
other than as a result of the disclosure or failure to safeguard by such
Inspector;
(n) provide an indenture trustee for the Transfer Restricted
Securities or the Exchange Notes, as the case may be, and cause the Indenture
to be qualified under the TIA not later than the effective date of the
Exchange Offer or the first Registration Statement relating to the Transfer
Restricted Securities; and in connection therewith, cooperate with the
trustee under any such indenture and the Holders of the Transfer Restricted
Securities, to effect such changes to such indenture as may be required for
such indenture to be so qualified in accordance with the terms of the TIA;
and execute, and use their best efforts to cause such trustee to execute, all
customary documents as may be required to effect such changes, and all other
forms and documents required to be filed with the SEC to enable such
indenture to be so qualified in a timely manner;
(o) use its best efforts to comply with all applicable rules and
regulations of the SEC and, as soon as reasonably practicable after the
effective date of the applicable Registration Statement, make generally
available to the holders of Exchange Notes and the Holders, if any, a
consolidated earning statement of the Issuer that satisfies the provisions
of Section 11(a) of the Securities Act and Rule 158 thereunder;
(p) if an Exchange Offer is to be consummated, upon delivery of
the Transfer Restricted Securities by Holders to the Issuer (or to such other
Person as directed by the Issuer), in exchange for the Exchange Notes, mark,
or cause to be marked, on such Transfer Restricted Securities that such
Transfer Restricted Securities are being cancelled in exchange for the
Exchange Notes; in no event shall such Transfer Restricted Securities be
marked as paid or otherwise satisfied;
(q) cooperate with each seller of Transfer Restricted Securities
covered by any Registration Statement and each underwriter, if any,
participating in the disposition of such Transfer Restricted Securities and
their respective counsel in connection with any filings required to be made
with the National Association of Securities Dealers, Inc. (the "NASD");
17
<PAGE>
(r) use their reasonable best efforts to take all other steps
necessary to effect the registration of the Transfer Restricted Securities
covered by a Registration Statement contemplated hereby; and
(s) use their best efforts to cause the Transfer Restricted
Securities or the Exchange Notes, as applicable, covered by an effective
registration statement required by Section 2 or Section 3 hereof to be rated
by no more than two rating agencies, if so requested by the Holders of a
majority in aggregate principal amount of Transfer Restricted Securities
relating to such registration statement or the managing underwriters in
connection therewith, if any.
The Issuer and the Guarantors may require each seller of Transfer
Restricted Securities or Participating Broker-Dealer as to which any
registration is being effected to furnish to the Issuer such information
regarding such seller or Participating Broker-Dealer and the distribution of
such Transfer Restricted Securities or Exchange Notes to be sold by such
Participating Broker-Dealer, as the case may be, as the Issuer may, from time
to time, reasonably request. The Issuer may exclude from such registration
the Transfer Restricted Securities or Exchange Notes of any seller or
Participating Broker-Dealer, as the case may be, who fails to furnish such
information within a reasonable time after receiving such request.
Each Holder of Transfer Restricted Securities and each
Participating Broker-Dealer agrees by acquisition of such Transfer Restricted
Securities or Ex-change Notes to be sold by such Participating Broker-Dealer,
as the case may be, that, upon receipt of any notice from the Issuer of the
happening of any event of the kind described in Section 5(c)(ii), 5(c)(iv),
5(c)(v) or 5(c)(vi) hereof, such Holder shall forthwith discontinue
disposition of such Transfer Restricted Securities covered by such
Registration Statement or Prospectus or such Exchange Notes to be sold by
such Participating Broker-Dealer, as the case may be, until such Holder's
receipt of the copies of the supplemented or amended Prospectus contemplated
by Section 5(j) hereof, or until it is advised in writing by the Issuer that
the use of the applicable Prospectus may be resumed, and has received copies
of any amendments or supplements thereto.
18
<PAGE>
6. REGISTRATION EXPENSES
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Issuer and the Guarantors shall be
borne by the Issuer and the Guarantors, whether or not the Exchange Offer or
a Shelf Registration Statement is filed or becomes effective, including,
without limitation, (i) all registration and filing fees (including, without
limitation, (A) fees with respect to filings required to be made with the
NASD in connection with an underwritten offering and (B) fees and expenses of
compliance with state securities or Blue Sky laws (including, without
limitation, reasonable fees and disbursements of counsel in connection with
Blue Sky qualifications of the Transfer Restricted Securities or Exchange
Notes), (ii) printing expenses (including, without limitation, expenses of
printing certificates for Transfer Restricted Securities or Exchange Notes in
a form eligible for deposit with DTC and of printing Prospectuses, (iii) fees
and disbursements of counsel for the Issuer and the Guarantors, (iv) fees and
disbursements of all independent certified public accountants referred to in
Section 5(l)(iii) hereof (including, without limitation, the expenses of any
special audit and "cold comfort" letters required by or incident to such
performance), (v) the fees and expenses of any "qualified independent
underwriter" or other independent appraiser participating in an offering
pursuant to Section 3 of Schedule E to the By-laws of the NASD, (vi) rating
agency fees, (vii) fees and expenses of all other Persons retained by the
Issuer and the Guarantors, (viii) internal expenses of the Issuer and the
Guarantors (including, without limitation, all salaries and expenses of
officers and employees of the Issuer and the Guarantors performing legal or
accounting duties), (ix) the expense of any annual audit and (x) the fees and
expenses incurred in connection with the listing of the securities to be
registered on any securities exchange. Nothing contained in this Section 6
shall create an obligation on the part of the Issuer or any Guarantor to pay
or reimburse any Holder for any underwriting commission or discount
attributable to any such Holder's Transfer Restricted Securities included in
an underwritten offering pursuant to a Registration Statement filed in
accordance with the terms of this Agreement, or to guarantee such Holder any
profit or proceeds from the sale of such Notes.
(b) In connection with any Shelf Registration Statement hereunder,
the Issuer and the Guarantors shall reimburse the Holders of the Transfer
Restricted Securities being registered in such registration for the
reasonable fees and disbursements of not more than one counsel chosen by the
Holders of a majority in aggregate principal amount of the Transfer
Restricted Securities to be included in such Registration Statement.
19
<PAGE>
7. INDEMNIFICATION
In connection with any Registration Statement, the Issuer and the
Guarantors jointly and severally agree to indemnify and hold harmless (i) the
Initial Purchasers, (ii) each Holder covered thereby and, with respect any
Prospectus delivery as contemplated by the second paragraph of Section 2(b),
each Participating Broker-Dealer, (iii) each person, if any, who controls
(within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act), any such Person (any of the persons referred to in this clause
(ii) being hereinafter referred to as a "controlling person"), and (iv) the
respective officers, directors, partners, employees, representatives and
agents of any of such Person or any controlling person (any person referred
to in clause (i), (ii), (iii) or (iv) may hereinafter be referred to as an
"Indemnified Person"), to the fullest extent lawful, from and against any and
all losses, claims, damages, liabilities and judgments (including, without
limitation, any legal or other expenses incurred in connection with defending
and investigating any matter, including any action that could give rise to
any such losses, claims, damages, liabilities or judgments) directly or
indirectly based upon or arising out of any untrue statement or alleged
untrue statement of a material fact contained in such Registration Statement
or any Prospectus (as amended or supplemented if the Issuer shall have
furnished to such Indemnified Person any amendments or supplements thereto),
or any preliminary prospectus, arising out of or based upon any omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except insofar as
such losses, claims, damages or liabilities arise out of or are based upon
(i) any untrue statement or omission or alleged untrue statement or omission
made in reliance upon and in conformity with information relating to any
Indemnified Person furnished to the Issuer or any underwriter in writing by
such Indemnified Person expressly for use therein, or (ii) any untrue
statement contained in or omission from a preliminary Prospectus or
Prospectus if a copy of the Prospectus (as then amended or supplemented, if
the Issuer shall have furnished to or on behalf of the Holder participating
in the distribution relating to the relevant Registration Statement any
amendments or supplements thereto) was not sent or given by or on behalf of
such Holder to the person asserting any such losses, liabilities, claims,
damages or expenses who purchased Notes, if such Prospectus (or Prospectus as
amended or supplemented), is required by law at or prior to the written
confirmation of the sale of such Notes to such person and the untrue
statement contained in or omission from such preliminary Prospectus or
Prospectus was corrected in the Prospectus (or the Prospectus as amended or
supplemented) or (iii) the Holder has not complied with the last paragraph of
Section 5 of this Agreement.
20
<PAGE>
In connection with any Registration Statement in which a Holder of
Transfer Restricted Securities is participating, such Holder of Transfer
Restricted Securities agrees, severally and not jointly, to indemnify and
hold harmless the Issuer, each Guarantor, each person who controls the Issuer
or the Guarantors within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act and the respective partners, directors,
officers, representatives, employees and agents of such person or controlling
person to the same extent as the foregoing indemnity from the Issuer and the
Guarantors to each Indemnified Person, but only with reference to information
relating to such Holder furnished to the Issuer in writing by or on behalf of
such Holder expressly for use in any Registration Statement or Prospectus,
any amendment or supplement thereto, or any preliminary Prospectus. The
liability of any Indemnified Person pursuant to this paragraph shall in no
event exceed the net proceeds received by such Indemnified Person from sales
of Transfer Restricted Securities giving rise to such obligations.
If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted
against any person in respect of which indemnity may be sought pursuant to
either of the two preceding paragraphs, such person (the "Indemnified
Party"), shall promptly notify the person against whom such indemnity may be
sought (the "Indemnifying Person"), in writing, and the Indemnifying Person,
upon request of the Indemnified Party, shall assume promptly the defense of
such action, including the employment of counsel reasonably satisfactory to
the Indemnified Party to represent the Indemnified Party and any others the
Indemnifying Person may reasonably designate in such proceeding and shall pay
the reasonable fees and expenses actually incurred by such counsel related to
such proceeding. In any such proceeding, any Indemnified Party shall have
the right to retain its own counsel, but the fees and expenses of such
counsel shall be at the expense of such Indemnified Party, unless (i) the
employment of such counsel shall have been specifically authorized in writing
by the Indemnifying Person (ii) the Indemnifying Person failed promptly to
assume the defense and employ counsel reasonably satisfactory to the
Indemnified Party or (iii) the named parties to any such action (including
any impleaded parties) include both such Indemnified Party and the
Indemnifying Person, or any affiliate of the Indemnifying Person, and such
Indemnified Party shall have been reasonably advised by counsel that there
may be one or more legal defenses available to it which are different from or
additional to those available to the Indemnifying Person or such affiliate of
the Indemnifying Person (in which case the Indemnifying Person shall not have
the right to assume the defense of such action on behalf of such Indemnified
Party). In any such case, the Indemnifying Person shall not, in connection
with any one such action or separate but substantially
21
<PAGE>
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel),
for all such indemnified parties, which firm shall be designated in writing
by those indemnified parties who sold a majority in outstanding aggregate
principal amount of Transfer Restricted Securities sold by all such
indemnified parties, and any such separate firm for the Issuer and the
Guarantors, their directors, their officers and such control persons of the
Issuer and the Guarantors shall be designated in writing by the Issuer. The
Indemnifying Person shall not be liable for any settlement of any proceeding
effected without its written consent, which consent shall not be unreasonably
withheld, but if settled with such consent or if there be a final judgment
for the plaintiff, the Indemnifying Person agrees to indemnify any
Indemnified Party from and against any loss or liability by reason of such
settlement or judgment. No Indemnifying Person shall, without the prior
written consent of the Indemnified Party, effect any settlement of any
pending or threatened proceeding in respect of which any Indemnified Party is
or could have been a party and indemnity could have been sought hereunder by
such Indemnified Party, unless such settlement includes an unconditional
release of such Indemnified Party from all liability on claims that are the
subject matter of such proceeding.
If the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault
of the Indemnifying Person(s) and the Indemnified Party, as well as any other
relevant equitable considerations. The relative fault of the Issuer and the
Guarantors on the one hand and any Indemnified Party(s) on the other shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Issuer and the
Guarantors or by such Indemnified Party(s) and the parties' relative intent,
knowl-
22
<PAGE>
edge, access to information and opportunity to correct or prevent such
statement or omission.
The parties agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by PRO RATA
allocation (even if such indemnified parties were treated as one entity for
such purpose), or by any other method of allocation that does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an Indemnified Party as a
result of the losses, liabilities, claims, damages, judgments, actions and
expenses referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any reasonable legal
or other expenses actually incurred by such Indemnified Party in connection
with investigating or defending any such action or claim. Notwithstanding
the provisions of this Section 7, in no event shall an Indemnified Person be
required to contribute any amount in excess of the amount by which proceeds
received by such Indemnified Person from sales of Transfer Restricted
Securities or Exchange Notes exceeds the amount of any damages that such
Indemnified Person has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act), shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section 7
will be in addition to any liability which the indemnifying parties may
otherwise have to the indemnified parties referred to above. The Indemnified
Persons' obligations to contribute pursuant to this Section 7 are several in
proportion to the respective principal amount of Notes sold by each of the
Indemnified Persons hereunder and not joint.
8. RULES 144 AND 144A
The Issuer and the Guarantors covenant that they will file the reports
required to be filed by them pursuant to the Securities Act and the Exchange
Act and the rules and regulations adopted by the SEC thereunder in a timely
manner and, if at any time the Issuer and the Guarantors are not required to
file such reports, they will, upon the request of any Holder of Transfer
Restricted Securities, make available information required by Rule 144 and
Rule 144A under the Securities Act in order to permit sales pursuant to Rule
144 and Rule 144A. The Issuer and the Guarantors further covenant that they
will take such further action as any Holder of Transfer Re-
23
<PAGE>
stricted Securities may reasonably request, all to the extent required from
time to time to enable such Holder to sell Transfer Restricted Securities
without registration under the Securities Act within the limitation of the
exemptions provided by (a) Rule 144 and Rule 144A or (b) any similar rule or
regulation hereafter adopted by the SEC.
9. UNDERWRITTEN REGISTRATIONS
(a) If any of the Transfer Restricted Securities covered by any Shelf
Registration Statement are to be sold in an underwritten offering, the
investment banker or investment bankers and manager or managers that will
manage the offering will be selected by the Holders of a majority in
aggregate principal amount of such Transfer Restricted Securities included in
such offering and shall be reasonably acceptable to the Issuer. The Issuer
and the Guarantors shall not be obligated to arrange for more than one
underwritten offering during the Effectiveness Period.
No Holder of Transfer Restricted Securities may participate in any
underwritten registration hereunder, unless such Holder (a) agrees to sell
such Holder's Transfer Restricted Securities on the basis provided in any
underwriting arrangements approved by the Persons entitled hereunder to
approve such arrangements and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements.
(b) Each Holder of Transfer Restricted Securities agrees, if requested
(pursuant to a timely written notice) by the managing underwriters in an
underwritten offering or by a placement agent in a private offering of the
Issuer's or the Guarantors' debt securities, not to effect any private sale
or distribution (including a sale pursuant to Rule 144(k) or Rule 144A under
the Securities Act, but excluding non-public sales to any of its affiliates,
officers, directors, employees and controlling persons), of any of the Notes
except pursuant to an Exchange Offer, during the period beginning 10 days
prior to, and ending 90 days after, the closing date of the underwritten
offering.
The foregoing provisions shall not apply to any Holder of Transfer
Restricted Securities if such Holder is prevented by applicable statute or
regulation from entering into any such agreement.
The Issuer and the Guarantors agree not to offer, sell, contract to sell
or otherwise transfer or dispose of any debt securities of the Issuer or the
Guarantors
24
<PAGE>
or any warrants, rights or options to purchase or otherwise acquire debt
securities of the Company or any Guarantor substantially similar to the Notes
(other than (i) the Notes and (ii) commercial paper issued in the ordinary
course of business, during such reasonable and customary period beginning 10
days prior to, and ending 60 days after the closing date of each underwritten
offering made pursuant to such Registration Statement as the managing
underwriters therefor request, without the prior written consent of such
managing underwriters of an underwritten offering of Transfer Restricted
Securities covered by a Registration Statement filed pursuant to Section 3
hereof.
10. MISCELLANEOUS
(a) REMEDIES. In the event of a breach by the Issuer or any Guarantor of
any of its obligations under this Agreement, each Holder of Transfer
Restricted Securities, in addition to being entitled to exercise all rights
provided herein, in the Indenture or, in the case of the Initial Purchasers,
in the Purchase Agreement, or granted by law, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement.
Subject to Section 4, the Issuer and the Guarantors agree that monetary
damages would not be adequate compensation for any loss incurred by reason of
a breach by any of them of any of the provisions of this Agreement and hereby
further agree that, in the event of any action for specific performance in
respect of such breach, they shall waive the defense that a remedy at law
would be adequate.
(b) NO INCONSISTENT AGREEMENTS. The Issuer and the Guarantors have
not, as of the date hereof, and they shall not, after the date of this
Agreement, enter into any agreement with respect to any of their respective
securities that is inconsistent with the rights granted to the Holders of
Transfer Restricted Securities in this Agreement or otherwise conflicts with
the provisions hereof. The Issuer and the Guarantors will not enter into any
agreement with respect to any of their respective securities which will grant
to any Person piggy-back registration rights with respect to a Registration
Statement.
(c) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to or departures from the provisions
hereof may not be given, unless the Issuer has obtained the written consent
of Holders of at least a majority of the then outstanding aggregate principal
amount of Transfer Restricted Securities. Notwithstanding the foregoing, a
waiver or consent to or
25
<PAGE>
departure from the provisions hereof with respect to a matter that relates
exclusively to the rights of Holders whose securities are being sold pursuant
to a Registration Statement and that does not directly or indirectly affect,
impair, limit or compromise the rights of other Holders may be given by
Holders of at least a majority in aggregate principal amount of the Transfer
Restricted Securities being sold by such Holders pursuant to such
Registration Statement; PROVIDED that the provisions of this sentence may not
be amended, modified or supplemented except in accordance with the provisions
of the immediately preceding sentence.
(d) NOTICES. All notices and other communications (including,
without limitation, any notices or other communications to the Trustee),
provided for or permitted hereunder shall be made in writing by
hand-delivery, registered first-class mail, next-day air courier or
telecopier:
(i) if to a Holder of Transfer Restricted Securities, at the most
current address given by the Trustee to the Issuer;
(ii) if to the Issuer or the Guarantors, Sun Healthcare Group,
Inc., 101 Sun Lane, N.E., Albuquerque, New Mexico 87109, Attention:
Chief Financial Officer, with a copy to Shearman & Sterling, 555
California Street, Suite 2000, San Francisco, California 94104,
Attention: William H. Hinman, Esq.; and
(iii) if to any Initial Purchasers, c/o Donaldson, Lufkin &
Jenrette Securities Corporation, 277 Park Avenue, New York, New York
10172, Attention: Syndicate Department, with a copy to Skadden, Arps,
Slate, Meagher & Flom LLP at 300 South Grand Avenue, Suite 3400, Los
Angeles, California 90071, Attention: Nick P. Saggese, Esq.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; five business days
after being deposited in the mail, postage prepaid, if mailed; one business
day after being timely delivered to a nationally recognized next-day air
courier, if made by next-day air courier; and when receipt is acknowledged by
the addressee, if telecopied on a business day on such business day, if not
on a business day, on the first business day thereafter.
26
<PAGE>
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee under the
Indenture at the address specified in such Indenture.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties
hereto, including, without limitation and without the need for an express
assignment, subsequent Holders of Transfer Restricted Securities. The Issuer
and the Guarantors agree that the Holders of the Notes shall be third party
creditor beneficiaries to the agreements made hereunder by the Initial
Purchasers, the Issuer and the Guarantors, and each Holder shall have the
right to enforce such agreements directly to the extent it deems such
enforcement necessary or advisable to protect its rights hereunder.
(f) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(g) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(i) SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the
parties hereto shall use their best efforts to find and employ an alternative
means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties hereto that they
would have executed the remaining terms, provisions, covenants and
restrictions without including any of such that may be hereafter declared
invalid, illegal, void or unenforceable.
(j) ENTIRE AGREEMENT. This Agreement, together with the Purchase
Agreement, is intended by the parties hereto as a final expression of their
agreement, and is intended to be a complete and exclusive statement of the
agreement and
27
<PAGE>
understanding of the parties hereto in respect of the subject matter
contained herein and therein.
(k) NOTES HELD BY THE ISSUER, THE GUARANTORS OR THEIR RESPECTIVE
AFFILIATES. Whenever the consent or approval of Holders of a specified
percentage of Transfer Restricted Securities is required hereunder, Transfer
Restricted Securities held by the Issuer, the Guarantors, or their respective
affiliates (as such term is defined in Rule 405 under the Securities Act)
(other than the Initial Purchasers or subsequent Holders of Transfer
Restricted Securities or Exchange Notes if such subsequent Holders are deemed
to be affiliates solely by reason of their holdings of such Transfer
Restricted Securities or Exchange Notes), shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.
(l) SURVIVAL. This Agreement is intended to survive the consummation
of the transactions contemplated by the Purchase Agreement. The
indemnification and contribution obligations under section 7 of this
Agreement shall survive the termination of the Issuer's and the Guarantors'
obligations under sections 2 and 3 of this Agreement.
28
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
SUN HEALTHCARE GROUP, INC.
By: /s/ Robert D. Woltil
----------------------------------
Name: Robert D. Woltil
Title: Senior Vice President,
Financial Services and Chief
Financial Officer
GUARANTORS, as listed on Schedule A to
the Purchase Agreement
By: /s/ Robert D. Woltil
----------------------------------
Name: Robert D. Woltil
Title: Senior Vice President and Chief
Financial Officer of the
Guarantors except for
Accelerated Care Plus, LLC
of which he is Senior Vice
President and Chief
Executive Officer of its
members HC, Inc. and
Cal-Med, Inc.
<PAGE>
The foregoing Registration
Rights Agreement is hereby
confirmed and accepted as of
the date first above written.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CREDIT SUISSE FIRST BOSTON
CORPORATION
J.P. MORGAN SECURITIES, INC.
NATIONSBANC CAPITAL MARKETS, INC.
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ Craig R. Callen
-----------------------------
Name: Craig R. Callen
Title: Managing Director
<PAGE>
Exhibit 5.1
June 24, 1998
Sun Healthcare Group, Inc.
101 Sun Avenue, N.E.
Albuquerque, NM 87109
Sun Healthcare Group, Inc.
Registration Statement on Form S-4
----------------------------------
Ladies and Gentlemen:
We are acting as special counsel for Sun Healthcare Group, Inc. (the
"Company") and the Guarantors (as defined in the Purchase Agreement) in
connection with the registration by the Company pursuant to the
above-referenced Registration Statement on Form S-4 (the "Registration
Statement") under the Securities Act of 1933, as amended, originally filed
with the Securities and Exchange Commission (the "Commission") on October 10,
1997, of $250,000,000 aggregate principal amount of the Company's 9 1/2% Series
B Senior Subordinated Notes due 2007 (the "Notes"). The Notes and the
guarantees in respect thereof (the "Guarantees") were issued pursuant to the
Indenture (the "Indenture"), dated as of July 8, 1997, between the Company
and First Trust National Association, as Trustee thereunder (the "Trustee").
Capitalized terms used but not defined herein shall have the respective
meanings ascribed thereto in the Purchase Agreement dated July 1, 1997 among
the Donaldson, Lufkin & Jenrette Securities Corporation, Credit Suisse First
Boston Corporation, J.P. Morgan Securities Inc., NationsBanc Capital Markets,
Inc., the Guarantors (as defined therein) and the Company.
In this capacity, we have examined a copy of (a) the Registration
Statement, (b) the Indenture, (c) a specimen of the Notes and (d) originals,
or copies identified to our satisfaction, of such corporate records of the
Company and such other agreements and instruments, certificates of public
officials and certificates of officers of the Company and other persons as we
have deemed necessary as a basis for the opinions hereinafter expressed. In
addition, in our examination, we have assumed the authenticity of all
documents submitted to us as originals and the conformity with the originals
of all documents submitted to us as copies. In rendering the opinions
expressed below, we have relied as to factual matters upon certificates of
officers of the Company and certificates of public officials.
<PAGE>
2
Our opinions set forth below are limited to the laws of the State of New
York, the General Corporation Law of the State of Delaware and Federal laws
of the United States, and we do not express any opinion herein concerning any
other laws.
Based upon the foregoing, we are of the opinion that:
(i) the Notes have been duly authorized by the Company and, when executed,
authenticated, and delivered in exchange for the Company's 9 1/2% Series A
Senior Subordinated Notes due 2007 in accordance with the terms of the
Indenture and Exchange Offer (assuming the due authorization, execution and
delivery of the Indenture by the Trustee and due authentication and delivery
of the Indenture by the Trustee and due authentication and delivery of the
Notes by the Trustee in accordance with the Indenture) will constitute valid
and binding obligations of the Company entitled to the benefits provided by
the Indenture and enforceable against the Company in accordance with their
terms, except as (x) the enforcement thereof may be limited by bankruptcy,
insolvency (including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or other similar laws affecting
creditors' rights generally, (y) enforcement thereof is subject to general
principles of equity (regardless of whether enforcement is considered in a
proceeding at law or in equity) and (z) the waiver as to stay, extension or
usury laws may not be enforceable;
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to this firm under the caption
"Legal Matters" in the Registration Statement. In giving such consent, we do
not thereby admit that we come within the category of persons whose consent
is required under Section 7 of the Securities Act or the rules and
regulations of the Commission promulgated thereunder.
This opinion has been delivered to you solely for the purpose of being
included as an exhibit to the Registration Statement. It may not be relied
upon for any other purpose or by any other person or entity, other than the
holders of the Company's 9 1/2% Series B Senior Subordinated Notes due 2007,
and may not be made available to any other person or entity without our prior
written consent. In accordance with customary practice relating to opinion
letters, our opinion speaks only as of the date hereof; we disclaim any duty
to update such opinion.
Very truly yours,
/s/ Shearman & Sterling
------------------------
Shearman & Sterling
<PAGE>
Exhibit 8.1
June 24, 1998
Sun Healthcare Group, Inc.
101 Sun Avenue, NE
Albuquerque, New Mexico 87109
Ladies and Gentlemen:
You have requested our opinion regarding the material Federal income tax
consequences in connection with the offer to exchange by Sun Healthcare
Group, Inc., a Delaware corporation (the "Company"), of its 9 1/2% Series B
Senior Subordinated Notes due 2007 for any and all of its 9 1/2% Series A
Senior Subordinated Notes due 2007 pursuant to the Company's Registration
Statement on Form S-4 (the "Registration Statement") under the Securities Act
of 1933, as amended (the "Securities Act"), originally filed with the
Securities and Exchange Commission (the "Commission") on October 10, 1997.
In delivering this opinion, we have reviewed and relied upon facts and
descriptions set forth in the Registration Statement and related documents
pertaining to the Registration Statement. Based on the foregoing and the
Internal Revenue Code of 1986, as amended, the Income Tax Regulations issued
by the United States Treasury Department thereunder and administrative
rulings of the Internal Revenue Service and judicial decisions, all as in
effect on the date hereof, we are of the opinion that the discussion entitled
"Certain U.S. Federal Income Tax Consequences" in the Registration Statement,
insofar as it relates to statements of law of legal conclusions, is correct
in all material respects.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to this firm under the caption
"Legal Matters" in the Registration Statement. In giving such consent, we do
not thereby admit that we come within the category of persons whose consent
is required under Section 7 of the Securities Act or the rules and
regulations of the Commission promulgated thereunder.
This opinion has been delivered to you solely for the purpose of being
included as an exhibit to the Registration Statement. It may not be relied
upon for any other purpose
<PAGE>
2
or by any other person or entity, other than the holders of the Company's
9 1/2% Series B Senior Subordinated Notes due 2007, and may not be made
available to any other person or entity without our prior written consent.
In accordance with customary practice relating to opinion letters, our
opinion speaks only as of the date hereof; we disclaim any duty to update
such opinion.
Very truly yours,
/s/ Shearman & Sterling
-------------------------
Shearman & Sterling
<PAGE>
EXHIBIT 12
SUN HEALTHCARE GROUP, INC.
RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS OF DOLLARS, EXCEPT RATIO)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------------- -------------
1993 1994 1995 1996 1997 1998
--------- --------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS:
Earnings before income taxes and
extraordinary items............... $ 22,710 $ 36,807 $ 12,794 $ 52,466 $ 95,882 $ 31,977
Add Fixed Charges (excluding portion
capitalized)...................... 9,634 39,742 65,444 75,553 143,139 60,251
--------- --------- --------- ---------- ------------- -------------
Earnings available for fixed
charges............................. $ 32,344 $ 76,549 $ 78,238 $ 128,019 $ 239,021 $ 92,228
--------- --------- --------- ---------- ------------- -------------
--------- --------- --------- ---------- ------------- -------------
FIXED CHARGES:
Interest charges (including portion
capitalized)...................... $ 379 $ 14,253 $ 24,668 $ 28,371 $ 76,924 $ 35,824
Estimated interest factor on rental
expense........................... 9,293 29,194 43,615 49,654 68,238 25,001
--------- --------- --------- ---------- ------------- -------------
Total fixed charges................... $ 9,672 $ 43,447 $ 68,283 $ 78,025 $ 145,162 $ 60,825
--------- --------- --------- ---------- ------------- -------------
--------- --------- --------- ---------- ------------- -------------
RATIO OF EARNINGS TO FIXED
CHARGES............................. 3.34 1.76 1.15 1.64 1.65 1.52
--------- --------- --------- ---------- ------------- -------------
--------- --------- --------- ---------- ------------- -------------
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our reports dated February 24, 1998
included in Sun Healthcare Group, Inc. and Subsidiaries' Form 10-K/A2 for the
year ended December 31, 1997 and to all references to our Firm included in this
registration statement.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Albuquerque, New Mexico
June 23, 1998
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
FORM T-1
Statement of Eligibility Under the
Trust Indenture Act of 1939 of a Corporation
Designated to Act as Trustee
FIRST TRUST NATIONAL ASSOCIATION
(Exact name of Trustee as specified in its charter)
United States 41-0257700
(State of Incorporation) (I.R.S. Employer
Identification No.)
First Trust Center
180 East Fifth Street
St. Paul, Minnesota 55101
(Address of Principal Executive Offices) (Zip Code)
SUN HEALTHCARE GROUP, INC.
and the Guarantors listed on Form S-4 Schedule A
(Exact name of Registrant as specified in its charter)
See Schedule A on Form S-4 See Schedule A on Form S-4
(State of Incorporation) (I.R.S. Employer
Identification No.)
101 Sun Lane, N.E.
Albuquerque, New Mexico 87109
(Address of Principal Executive Offices) (Zip Code)
9 1/2% SENIOR SUBORDINATED NOTES DUE 2007
(Title of the Indenture Securities)
<PAGE>
GENERAL
1. GENERAL INFORMATION Furnish the following information as to the Trustee.
(a) Name and address of each examining or supervising authority to which
it is subject.
Comptroller of the Currency
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes
2. AFFILIATIONS WITH OBLIGOR AND UNDERWRITERS If the obligor or any
underwriter for the obligor is an affiliate of the Trustee, describe each
such affiliation.
None
See Note following Item 16.
Items 3-15 are not applicable because to the best of the Trustee's
knowledge the obligor is not in default under any Indenture for which the
Trustee acts as Trustee.
16. LIST OF EXHIBITS List below all exhibits filed as a part of this statement
of eligibility and qualification.
1. Copy of Articles of Association.*
2. Copy of Certificate of Authority to Commence Business.*
3. Authorization of the Trustee to exercise corporate trust powers
(included in Exhibits 1 and 2; no separate instrument).*
4. Copy of existing By-Laws.*
5. Copy of each Indenture referred to in Item 4. N/A.
6. The consents of the Trustee required by Section 321(b) of the act.
7. Copy of the latest report of condition of the Trustee published
pursuant to law or the requirements of its supervising or examining
authority is incorporated by reference to Registration Number
333-42147.
* Incorporated by reference to Registration Number 22-27000.
<PAGE>
NOTE
The answers to this statement insofar as such answers relate to what
persons have been underwriters for any securities of the obligors within
three years prior to the date of filing this statement, or what persons are
owners of 10% or more of the voting securities of the obligors, or
affiliates, are based upon information furnished to the Trustee by the
obligors. While the Trustee has no reason to doubt the accuracy of any such
information, it cannot accept any responsibility therefor.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, First Trust National Association, an Association organized and
existing under the laws of the United States, has duly caused this statement
of eligibility and qualification to be signed on its behalf by the
undersigned, thereunto duly authorized, and its seal to be hereunto affixed
and attested, all in the City of Saint Paul and State of Minnesota on the
17th day of December, 1997.
FIRST TRUST NATIONAL ASSOCIATION
/s/ Richard H. Prokosch
---------------------------------
Richard H. Prokosch
Assistant Vice President
/s/ Kathe M Barrett
- -------------------------
Kathe M Barrett
Assistant Secretary
<PAGE>
EXHIBIT 6
CONSENT
In accordance with Section 321(b) of the Trust Indenture Act of 1939,
the undersigned, FIRST TRUST NATIONAL ASSOCIATION hereby consents that
reports of examination of the undersigned by Federal, State, Territorial or
District authorities may be furnished by such authorities to the Securities
and Exchange Commission upon its request therefor.
Dated: December 17, 1997
FIRST TRUST NATIONAL ASSOCIATION
/s/ Richard H. Prokosch
---------------------------------
Richard H. Prokosch
Assistant Vice President
