<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 31, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
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. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED BE REGISTERED PER UNIT OFFERING PRICE(1) FEE(2)
<S> <C> <C> <C> <C>
9 3/8% Senior Subordinated Notes due 2008... $150,000,000 100% $150,000,000 $44,250
</TABLE>
(1) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933, as amended.
(2) Pursuant to Rule 457(n), no separate registration fee is payable with
respect to the subsidiary guarantees.
--------------------------
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 Group Purchasing, Inc........................................ Delaware 22-3046484
Americare Health Services Corp......................................... Delaware 22-3046557
Americare Homecare, Inc................................................ Ohio 31-1221902
Americare of West Virginia, Inc........................................ West Virginia 55-0591320
AmeriDyne Corporation.................................................. Tennessee 62-1327112
Atlantic Medical Supply Company, Inc................................... Georgia 58-1458679
Bay Colony Health Service, Inc......................................... Massachusetts 04-2761614
Beckley Health Care Corp............................................... West Virginia 31-1042548
Bergen Eldercare, Inc.................................................. New Jersey 04-2916682
Bibb Health & Rehabilitation, Inc...................................... Georgia 58-2291182
Braswell Enterprises, Inc.............................................. California 95-2506400
Brent-Lox Hall Nursing Home, Inc....................................... Virginia 54-1040945
Brittany Rehabilitation Center, Inc.................................... California 68-0258445
Cal-Med, Inc........................................................... California 33-0579128
Capitol Care Management Company, Inc................................... Georgia 58-2042415
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
Charlton Healthcare, Inc............................................... Georgia 58-2274859
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
Contour Medical of Central Florida, Inc................................ Florida 59-2492613
Contour Medical, Inc................................................... Nevada 77-0163521
Contour Medical - Michigan............................................. Michigan 38-2051292
Covina Rehabilitation Center........................................... California 95-4143257
Crescent Medical Services, Inc......................................... Georgia 58-2253030
Dunbar Health Care Corp................................................ West Virginia 55-1593257
Duval Healthcare Center, Inc........................................... Georgia 58-2263059
Evergreen Rehabilitation Center........................................ California 33-0275077
Executive Pharmacy Services, Inc....................................... North Carolina 56-1742124
F & L Associates, Inc.................................................. Virginia 54-1055888
Facility Supply, Inc................................................... Florida 65-0053587
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
Gainesville Healthcare Center, Inc..................................... Georgia 58-2262845
Gardendale Health Care Center, Inc..................................... Georgia 58-2238801
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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
I.R.S. EMPLOYER
STATE OF IDENTIFICATION
COMPANY INCORPORATION NUMBER
- ----------------------------------------------------------------------- ------------------ --------------------
<S> <C> <C>
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
Jeff Davis Healthcare, Inc............................................. Georgia 58-2274872
Lake Forest Healthcare Center, Inc..................................... Georgia 58-2223168
Lake Health Care Center, Inc........................................... Georgia 58-2238805
Libbie Rehabilitation Center, Inc...................................... Virginia 54-0841294
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
Maplewood Health Care Center of Jackson, Tennessee, Inc................ Tennessee 62-1493961
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
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
Mid-Florida, Inc....................................................... Georgia 58-2193751
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
Phoenix Associates, Inc................................................ Virginia 54-1021703
P.M.N.F. Management, Inc............................................... New Jersey 22-2470101
Pro-Scription, Inc..................................................... Georgia 58-2071710
Putnam Health Care Corp................................................ West Virginia 31-0996773
Quality Care Holding Corporation....................................... Massachusetts 04-2981931
Quality N.H.F. Leasing, Inc............................................ Georgia [Applied for]
Quality Nursing Care of Massachusetts, Inc............................. Massachusetts 04-2981932
Quest Medical Supply, Inc.............................................. Georgia 58-2304143
Regency Health Services, Inc........................................... Delaware 33-0210226
Regency High School, Inc............................................... California 33-0595313
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
I.R.S. EMPLOYER
STATE OF IDENTIFICATION
COMPANY INCORPORATION NUMBER
- ----------------------------------------------------------------------- ------------------ --------------------
<S> <C> <C>
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
Renaissance Retirement, Inc............................................ Georgia 58-2263101
Retirement Care Associates, Inc........................................ Colorado 43-1441789
Retirement Management Corp............................................. Georgia 59-3213688
RHS Management Corporation............................................. California 33-0267103
Riviera Retirement, Inc................................................ Georgia 58-2250070
Roberta Health Care Center, Inc........................................ Georgia 58-2239033
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
Sea Side Retirement, Inc............................................... Georgia 58-2175004
Shandin Hills Rehabilitation Center.................................... California 33-0274086
SHG International Holdings, Inc........................................ Delaware 85-0447503
Southside Health Care Center, Inc...................................... Georgia 58-2255228
Special Medical Services, Inc.......................................... Texas 75-2269050
Spofford Land, Inc..................................................... New Hampshire 04-2817522
Statesboro Health Care Center, Inc..................................... Georgia 58-2244890
Stockton Rehabilitation Center, Inc.................................... California 68-0296045
Summers Landing, Inc................................................... Georgia 58-2221909
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
Sun Coast Retirement, Inc.............................................. Georgia 58-2202098
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
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
West Tennessee, Inc.................................................... Georgia 58-2170727
Willowview Rehabilitation Center....................................... California 33-0273968
Willow Way, Inc........................................................ Georgia 58-2230851
Woodbury Health Care Center, Inc....................................... Georgia 58-2238807
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 JULY 31, 1998
PROSPECTUS
SUN HEALTHCARE GROUP, INC.
---------------
Offer to Exchange 9 3/8% Series B Senior Subordinated Notes due 2008, which
have been registered under the Securities Act of 1933, as amended, for any and
all outstanding 9 3/8% Series A Senior Subordinated Notes due 2008.
The Exchange Offer will expire at 5:00 p.m., New York City time, on August
, 1998, unless extended.
The 9 3/8% Series B Senior Subordinated Notes due 2008 (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 3/8% Series A Senior Subordinated Notes due
2008 (the "Old Notes"), of which $150,000,000 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 August , 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 May 4, 1998, among the Company,
the Guarantors named therein (the "Guarantors") and Bear, Stearns & Co. Inc.,
Donaldson, Lufkin & Jenrette Securities Corporation, J.P. Morgan & Co.,
NationsBanc Montgomery Securities LLC and Schroder & Co. 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 AUGUST , 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
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 November 1 and May 1
of each year commencing November 1, 1998. The New Notes will mature on May 1,
2008. On or after May 1, 2003, 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 the Old
Notes (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 $256.2 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). 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 NOVEMBER , 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 Group Purchasing, Inc.
Americare Health Services Corp.
Americare Homecare, Inc.
Americare of West Virginia, Inc.
AmeriDyne Corporation
Atlantic Medical Supply Company, Inc.
Bay Colony Health Service, Inc.
Beckley Health Care Corp.
Bergen Eldercare, Inc.
Bibb Health & Rehabilitation, Inc.
Braswell Enterprises, Inc.
Brent-Lox Hall Nursing Home, Inc.
Brittany Rehabilitation Center, Inc.
Cal-Med, Inc.
Capitol Care Management Company, Inc.
Care Enterprises, Inc.
Care Enterprises West
Care Home Health Services
Carmichael Rehabilitation Center
Charlton Healthcare, Inc.
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.
Contour Medical of Central Florida, Inc.
Contour Medical, Inc.
Contour Medical - Michigan
Covina Rehabilitation Center
Crescent Medical Services, Inc.
Dunbar Health Care Corp.
Duval Healthcare Center, Inc.
Evergreen Rehabilitation Center
Executive Pharmacy Services, Inc
F & L Associates, Inc.
Facility Supply, Inc.
Fairfield Rehabilitation Center
First Class Pharmacy, Inc.
Fullerton Rehabilitation Center
G-WZ of Stamford, Inc.
Gainesville Healthcare Center, Inc.
Gardendale Health Care Center, 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
HC, Inc.
Heritage Rehabilitation Center
Heritage - Torrance Rehabilitation Center
HTA of New Jersey, Inc.
Huntington Beach Convalescent Hospital
Jackson Rehabilitation Center, Inc.
4
<PAGE>
SCHEDULE A CONTINUED
Jeff Davis Healthcare, Inc.
Lake Forest Healthcare Center, Inc.
Lake Health Care Center, Inc.
Libbie Rehabilitation Center, Inc.
Linda-Mar Rehabilitation Center
Living Services, Inc.
LTC Staffinders, Inc.
Manatee Springs Nursing Center, Inc.
Maplewood Health Care Center of Jackson, Tennessee, Inc.
Marion Health Care Corp.
Masthead Corporation
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 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.
Mid-Florida, 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.
Phoenix Associates, Inc.
P.M.N.F. Management, Inc.
Pro-Scription, Inc.
Putnam Health Care Corp.
Quality Care Holding Corporation
Quality N.H.F. Leasing, Inc.
Quality Nursing Care of Massachusetts, Inc.
Quest Medical Supply, Inc.
Regency Health Services, 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.
5
<PAGE>
SCHEDULE A CONTINUED
Renaissance Retirement, Inc.
Retirement Care Associates, Inc.
Retirement Management Corp.
RHS Management Corporation
Riviera Retirement, Inc.
Roberta Health Care Center, Inc.
Rosewood Rehabilitation Center, Inc.
Salem Health Care Corp.
San Bernardino Rehabilitation Hospital, Inc.
Savannas Hospital Limited Partnership
Sea Side Retirement, Inc.
Shandin Hills Rehabilitation Center
SHG International Holdings, Inc.
Southside Health Care Center, Inc.
Special Medical Services, Inc.
Spofford Land, Inc.
Statesboro Health Care Center, Inc.
Stockton Rehabilitation Center, Inc.
Summers Landing, Inc.
SunAlliance Healthcare Services, Inc.
SunBridge, Inc.
Sun Care Corp.
SunCare Respiratory Services, Inc.
SunChoice Medical Supply, Inc.
Sun Coast Retirement, Inc.
SunDance Rehabilitation Corporation
SunFactors, Inc.
Sun Healthcare (Europe) LLC
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.
West Jersey/Mediplex Rehabilitation L.P.
West Tennessee, Inc.
Willowview Rehabilitation Center
Willow Way, Inc.
Woodbury Health Care Center, Inc.
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 three months ended March 31, 1998 filed June 2, 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 May 22, 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, June 25, 1998 and
July 21, 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 August , 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.
THE COMPANY
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 May 4, 1998 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, $150,000,000 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 August , 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 November 1 and May 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................ U.S. Bank 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 $150,000,000 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..................... May 1, 2008.
Interest Payment Dates............ May 1 and November 1, commencing on November 1, 1998.
Mandatory Redemption.............. None.
Optional Redemption............... The New Notes may not be redeemed prior to November 1,
2003. At any time on or after November 1, 2003, 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 the Old Notes (the "2008 Notes
Offering" and the offering of Convertible Trust Issued
Preferred Securities in May 1998 (the "Convertible
</TABLE>
14
<PAGE>
<TABLE>
<S> <C>
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 $256.2 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.
Upon consummation of the RCA and Contour Mergers (as
defined), Sun's consolidated long-term debt would have
increased by approximately $177.3 million as of March
31, 1998, $177.3 million of which ranked senior to the
New Notes and/or the Guarantees (based on Retirement
Care's March 31, 1998 balance sheet). 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>
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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 July 30, 1998, Sun had
the ability to borrow approximately $164.3 million under the Company's Credit
Agreement, as amended (the "Senior Credit Facility"), with certain lenders,
certain co-agents and NationsBank of Texas, N.A., as administrative lender. Upon
consummation of the merger between Sun and Retirement Care (the "RCA Merger")
and the acquisition of Contour (the "Contour Merger") (the "RCA and Contour
Mergers" and, together with the Regency Merger, the "Mergers"), Sun's
consolidated long-term debt (including current maturities) increased by
approximately $177.3 million, based on Retirement Care's March 31, 1998 balance
sheet.
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 three months 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
Company's 9 1/2% Senior Subordinated Notes due 2007 (the "9 1/2 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, 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
16
<PAGE>
in the future. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital 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
$256.2 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
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<PAGE>
such Indebtedness has been paid in full. Moreover, under certain circumstances,
if any non-payment 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 Sun's common stock, par value $.01 per share (the
"Company Common Stock") 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
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by such subsidiary would be reduced from current levels. See "--Investigations;
Uncertain Impact on Future Operating Results."
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 the 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
19
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assurance that Sun's financial condition and results of operations will not be
materially and adversely affected.
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
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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.
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
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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
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
22
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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 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 by 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 three months 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
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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."
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 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--
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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 Health
Services, Inc. ("Regency") (the "Regency Merger"), 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 three months
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 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 will
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 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" above and "Business--Acquisitions" in Sun's
Annual Report on Form 10-K for the year
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ended December 31, 1997, Sun faces risks specific to its mergers with Retirement
Care and Contour, including risks related to the following:
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
Associates, Inc. ("Retirement Care") and Contour Medical, Inc. ("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 indicated that it was 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 Merger Agreement with respect to the RCA Merger
(the "RCA Merger Agreement") does not provide for any contractual
indemnification of Sun by Retirement Care's shareholders, nor did Sun retain any
of the merger consideration as protection against any liabilities, known or
unknown, of Retirement Care for which Sun became 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.
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 former 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 paid $9 million into an interest bearing escrow account maintained by
Sun to settle the Actions (the "Settlement"). The Settlement is subject to,
among other things, confirmatory discovery, the execution of definitive
documentation and court approval, and, therefore, no assurance can be given that
the Settlement will become final. Upon satisfaction of the 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
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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.
There can be no assurance that additional class actions will not be filed
against Retirement Care and its former 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 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. 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. Sun has agreed to provide
indemnification to Retirement Care's officers and directors who were in office
prior to the RCA Merger under certain circumstances.
RECENT DETERIORATION OF RETIREMENT CARE'S FINANCIAL CONDITION. Retirement
Care experienced 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. There can be no assurance that Retirement Care will not experience
continued operating 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. As a result, Sun as the owner of Retirement
Care 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. 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 experienced
operating losses 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. There can be no assurance that Contour will not experience continued
operating losses in the future, and 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
may be materially and adversely affected by expenses it will incur 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. There
can be no assurance that the future combined results will not continue to be
dilutive to Sun.
- ------------------------
* 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.
** 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.
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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 Sun. 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 second quarter. 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 paid $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 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.
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 three months 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 Company Common Stock and indebtedness to fund many of its
acquisitions. 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 "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 Company Common Stock for acquisition or financing
purposes will depend on, among other things, the
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market price of the Company 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 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
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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.
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
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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 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
31
<PAGE>
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 Company 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.
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.
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<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.
33
<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 18,387
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).
34
<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 Company 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 Company 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 Company 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.
35
<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 April 29, 1998, 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
36
<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
37
<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 August , 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.
38
<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 May 1 and November 1 of each year
commencing November 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.
39
<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.
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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
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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
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<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.
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<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 May 4, 1998 (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 $150 million, and will mature on
May 1, 2008. 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 $256.2 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 Offering Memorandum and will be payable in cash semi-annually
in arrears on May 1 and November 1 of each year, commencing on November 1, 1998,
to Holders of record on the immediately preceding April 15 and October 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.
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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 or from a trust related to
defeasance of indebtedness (a "Defeasance Trust"), (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 (in the case of both (i) and (ii)) 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 or from a Defeasance
Trust. 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 or from a Defeasance Trust) 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 or from a Defeasance Trust) to which the Holders or the Trustee on
behalf of
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the Holders would be entitled (by set-off or otherwise), except for the
subordination provisions contained in the Indenture, will be paid by the
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 or
from a Defeasance Trust) 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
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court concludes that such obligations were incurred for less than reasonably
equivalent value or fair 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 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 May 1, 2003. The
Notes will be redeemable for cash, at the option of Sun, in whole or in part, at
any time on or after May 1, 2003 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 May 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>
2003.............................................................................. 104.688%
2004.............................................................................. 103.126
2005.............................................................................. 101.563
2006 and thereafter............................................................... 100.000%
</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
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<PAGE>
"Change of Control Payment") on a date (the "Change of Control Payment Date")
that is not more than 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. See "Description of
Certain Indebtedness."
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
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are thereafter actually converted into cash or Cash Equivalents within such
90-day period) will be deemed 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 (or, if applicable,
accreted values of Indebtedness issued with an original issue discount) of Notes
and such other Indebtedness then outstanding (collectively, an "Asset Sale
Offer") to purchase the maximum principal amount (or, if applicable, accreted
values of Indebtedness issued with an original issue discount) 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 (or, if applicable,
accreted values of Indebtedness issued with an original issue discount) 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
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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 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 (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 July 8, 1997 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 holders of Capital Stock 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 holder of Capital Stock 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 $22.5 million for the redemption or other acquisition of any
of the outstanding 6 1/2% Convertible Subordinated Debentures due 2003; (x) the
redemption, repurchase, retirement or other acquisition of any Equity Interests
of Sun issued after July 8, 1997 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 July 8,
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1997 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, 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) or issue Preferred Stock 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 or issuance of Preferred Stock and (b) the Fixed Charge Coverage
Ratio for the Reference Period immediately preceding the date on which such
additional Indebtedness is incurred or such Preferred Stock is issued would have
been at least 2.0 to 1 for incurrences on or prior to June 30, 1999, 2.25 to 1
for incurrences after June 30, 1999 and on or prior to June 30, 2000 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 or the Preferred Stock issued 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 under this clause (i) by Sun or any of its
Subsidiaries (other than the Foreign Companies) of (a) Maximum Senior
Revolving Debt less the aggregate amount of all Net Proceeds of Asset Sales
applied to permanently reduce the commitments with respect to such
Indebtedness pursuant to covenant described above the under the caption
"Repurchases at the Option of Holders -- Asset Sales" after the Issue Date
and (b) Maximum Senior Term Debt less the aggregate amount of all principal
payments made with respect to such Senior Maximum Term Debt;
(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 and including any Permitted
Refinancing Indebtedness incurred under this clause (ii) to extend, renew,
refinance, defense, or refund any such Indebtedness) not to exceed an amount
equal to L75.0 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;
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(iii) the incurrence by Sun and the Guarantors of Indebtedness
represented by the Notes (including $25.0 million principal amount which the
Initial Purchasers have the option to purchase to cover over-allotments, if
any);
(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 and a new
incurrence shall be deemed to occur for purposes of this covenant upon any
such Subsidiary ceasing to be a Subsidiary such that such Indebtedness is no
longer intercompany Indebtedness between or among Sun and/or any
Subsidiaries;
(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 extend, refinance,
replace, defease or refund such Indebtedness) not to exceed $75.0 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, except as specifically
stated otherwise and only at the time of such incurrence 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 as being incurred 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, Acquired Debt (except to the extent incurred in
connection with or in contemplation of such acquisition or merger or in
violation of the covenant described under the caption "Incurrence of
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Indebtedness and Issuance of Preferred Stock") 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 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 or any indenture or similar instrument governing
Indebtedness ranking on a parity with the Notes, provided that such restrictions
are no more restrictive than those contained in 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 or merger (except to the extent incurred in connection with or in
contemplation of such acquisition or merger 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 or merged, (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
July 8, 1997 and as amended or replaced from time to time (and Senior Debt under
other credit agreements with lender banks or other financial institutions that
are no more restrictive than the Credit Agreement), 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 July 8, 1997. 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.
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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 (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
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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
$5.0 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 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 (x) Subsidiaries having total
assets with a book value of less than $500,000 and that do not guarantee any
Senior Debt and (y) any Subsidiary which is not then either a Guarantor or a
guarantor under the Credit Agreement or other Indebtedness under any agreement
or instrument to which Sun is a party or by which Sun is bound, if (i) such
Subsidiary is not required by the terms of the Credit Agreement or such other
agreement or instrument to become a guarantor under the Credit Agreement or such
other agreement or instrument and (ii) the conditions for releasing a Guarantor
from its obligations as a Guarantor of the Notes specified in clause (ii) in the
second paragraph under the caption "--Release of Guarantors" are then satisfied)
and (b) Sun Systems, Inc., each CareerStaff Company, and each 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. Neither Sun Financing I nor Sun Financing II, both subsidiaries of
the Company, will be required to guarantee any principal, premium, if any or
interest on the Notes pursuant to the foregoing paragraph.
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;
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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. The lenders party to the Credit Agreement have agreed not to
require Sun Financing I, the issuer of the Convertible Preferred Securities, to
be a guarantor under the Credit Agreement.
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
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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.
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
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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 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).
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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 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.
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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.
"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.
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"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 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.
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"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 and (iv) the cumulative effect of a change in
accounting principles 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 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 Credit Agreement, dated as of October
8, 1997 and as amended by the First Amendment thereto dated November 12, 1997
and the Second Amendment thereto dated March 27, 1998, by and among Sun and
NationsBank of Texas, N.A. and the other banks that are parties thereto,
providing for availability of up to $1.2 billion of loans to Sun in the
following components: (a) a revolving credit facility of up to $500.0 million
and (b) three term loans in the amounts of $200.0 million, $250.0 million and
$250.0 million, respectively, 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
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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 or any of its Subsidiaries, times (b) a fraction, the numerator of which
is one and the denominator of which is 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
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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.
"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).
"MAXIMUM SENIOR REVOLVING DEBT" means 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), and including any Permitted Refinancing Indebtedness incurred to
extend, renew, refinance, defease or refund any such Indebtedness, incurred
under clause (i)(a) of the covenant described above under the caption
"Incurrence of Indebtedness and Issuance of Preferred Stock," not to exceed an
amount equal to $500.0 million.
"MAXIMUM SENIOR TERM DEBT" means loans outstanding with respect to any term
loan facilities contained in 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), and including any Permitted
Refinancing Indebtedness incurred to extend, renew, refinance, defease or refund
any such Indebtedness, incurred under clause (i)(b) of the covenant described
under the caption "Incurrence of Indebtedness and Issuance of Preferred Stock,"
not to exceed an amount equal to $400.0 million.
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"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.
"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
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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 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
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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,
defeased 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.
"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.
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"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, any corporation,
partnership, joint venture, trust or other Person of which (or in which) more
than 50% of (i) the outstanding capital stock having voting power to elect a
majority of the board of directors of such corporation (irrespective of whether
at the time capital of any other class or classes shall or might have voting
power upon the occurrence of any contingency), (ii) the ownership interests
having voting power to elect persons performing functions similar to the board
of directors, (iii) the interest in the capital or profits of such partnership
or joint venture, (iv) the beneficial interest of such trust, or (v) the equity
interest of such other Person, is at the time directly or indirectly owned by
such Person, by such Person and one or more of its Subsidiaries or by one or
more of such Person's Subsidiaries.
"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.
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"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 L25.0 million 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 L25.0 million 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.
BOOK-ENTRY; DELIVERY AND FORM
The Notes sold to Qualified Institutional Buyers initially will be in the
form of one or more registered global book-entry notes without interest coupons
(collectively, the "U.S. Global Notes"). Upon issuance, the U.S. Global Notes
will be deposited with the Trustee, as custodian for The Depository Trust
Company ("the Depository"), in New York, New York, and registered in the name of
the Depository or its nominee, in each case for credit to the accounts of Direct
and Indirect Participants (as defined below). The Notes being offered and sold
in offshore transactions in reliance on Regulation S, if any, initially will be
in the form of one or more temporary, registered, global book-entry notes
without interest coupons (the "Reg S Temporary Global Notes"). The Reg S
Temporary Global Notes will be deposited with the Trustee, as custodian for the
the Depository, in New York, New York, and registered in the name of a nominee
of the Depository (a "Nominee") for credit to the accounts of Indirect
Participants at the Euroclear System ("Euroclear") and Cedel Bank, societe
anonyme ("CEDEL"). During the 40-day period commencing on the day after the
later of the offering date and the Issue Date (the "40 Day Restricted Period"),
beneficial interests in the Reg S Temporary Global Notes may be held only
through Euroclear or CEDEL, and, pursuant to the Depository's procedures,
Indirect Participants that hold a beneficial interest in the Reg S Temporary
Global Note will not be able to transfer such interest to a person that takes
delivery thereof in the form of an interest in the U.S. Global Notes. Within a
reasonable time after the expiration of the 40 Day Restricted Period, the Reg S
Temporary Global Notes will be exchanged for one or more permanent global notes
(the "Reg S Permanent Global Notes"; collectively with the Reg S Temporary
Global Notes, the "Reg S Global Notes") upon delivery to the Depository of
certification of compliance with the transfer restrictions applicable to the
Notes and pursuant to Regulation S as provided in the Indenture. After the 40
Day Restricted Period, (i) beneficial interests in the Reg S Permanent Global
Notes may be transferred to a person that takes delivery in the form of an
interest in the U.S. Global Notes and (ii) beneficial interests in the U.S.
Global Notes may be transferred to a person that takes delivery in the form of
an interest in the Reg S Permanent Global Notes, PROVIDED, in each case, that
the certification
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requirements described below are complied with. All registered, global
book-entry notes referred to herein are collectively "Global Notes."
Beneficial interests in all Global Notes and all Certificated Notes (as
defined below) will be subject to certain restrictions on transfer and will bear
a restrictive legend as described under "Notices to Investors." In addition,
transfer of beneficial interests in any Global Notes will be subject to the
applicable rules and procedures of the Depository and its Direct or Indirect
Participants (including, if applicable, those of Euroclear and CEDEL), which may
change from time to time.
The Global Notes may be transferred, in whole and not in part, only to
another nominee of the Depository or to a successor of the Depository or its
nominee in certain limited circumstances. Beneficial interests in the Global
Notes may be exchanged for Notes in certificated form in certain limited
circumstances. See "-- Exchange of Global Notes for Certificated Notes."
Initially, the Trustee will act as Paying Agent and Registrar. The Notes may
be presented for registration of transfer and exchange at the offices of the
Registrar.
DEPOSITARY PROCEDURES
The Depository has advised the Company that the Depository is a
limited-purpose trust company created to hold securities for its participating
organizations (collectively, the "Direct Participants") and to facilitate the
clearance and settlement of transactions in those securities between Direct
Participants through electronic book-entry changes in accounts of participants.
The Direct Participants include securities brokers and dealers (including the
Initial Purchasers), banks, trust companies, clearing corporations and certain
other organizations, including Euroclear and Cedel. Access to the Depository's
system is also available to other entities that clear through or maintain a
direct or indirect, custodial relationship with a Direct Participant
(collectively, the "Indirect Participants"). The Depository may hold securities
beneficially owned by other persons only through the Direct Participants or
Indirect Participants and such other persons' ownership interest and transfer of
ownership interest will be recorded only on the records of the Direct
Participation and/or Indirect Participant, and not on the records maintained by
the Depository.
The Depository has also advised the Company that, pursuant to the Depository
procedures, (i) upon deposit of the Global Notes, the Depository will credit the
accounts of Direct Participants designated by the Initial Purchaser with
portions of the principal amount of Global Notes allocated by the Initial
Purchasers to such Direct Participants, and (ii) the Depository will maintain
records of the ownership interests of Direct Participants in the Global Notes
and the transfer of ownership interests by and between Direct Participants. The
Depository will not maintain records of the ownership interests of, or the
transfer of ownership interests by and between, Indirect Participants or other
owners of beneficial interests in the Global Notes. Direct Participants and the
Indirect Participants must maintain their own records of the ownership interests
of, and the transfer of ownership interests by and between, Indirect
Participants and other owners of beneficial interests in the Global Notes.
Investors in the U.S. Global Notes may hold their interests therein directly
through the Depository if they are Direct Participants in the Depository or
indirectly through organizations which are Direct Participants in the
Depository. Investors in the Reg S Temporary Global Notes may hold their
interests therein directly through Euroclear or CEDEL or indirectly through
organizations which are participants in Euroclear or CEDEL. After the expiration
of the 40 Day Restricted Period (but not earlier), investors may hold interests
in the Reg S Permanent Global Notes through organizations other than Euroclear
and CEDEL that are Direct Participants in the the Depository system. Morgan
Guaranty Trust Company of New York, Brussels office is the operator and
depository of Euroclear and Citibank, N.A. is the operator and depository of
CEDEL (each a "Nominee" of the Depository for the benefit of Euroclear and
CEDEL, respectively). Therefore, they will each be recorded on the Depository's
records as the registered holders of all ownership interests held by them as
depositary for Euroclear and CEDEL, respectively. Euroclear and CEDEL will
maintain on their records the ownership interests, and transfers of ownership
interests by
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and between, their own customer's securities accounts. The Depository will not
maintain records of the ownership interests of, or the transfer of ownership
interests by and between, customers of Euroclear or CEDEL. All ownership
interests in any Global Notes, including those of customers' securities accounts
held through Euroclear or CEDEL, may be subject to the procedures and
requirements of the Depository.
The laws of some states require that certain persons take physical delivery
in definitive, certificated form, of securities that they own. This may limit or
curtail the ability to transfer beneficial interests in a Global Note to such
persons. Because the Depository can act only on behalf of Direct Participants,
which in turn act on behalf of Indirect Participants and others, the ability of
a person having a beneficial interest in a Global Note to pledge such interest
to persons or entities that are not Direct Participants in the Depository, or to
otherwise take actions in respect of such interests, may be affected by the lack
of physical certificates evidencing such interests.
EXCEPT AS DESCRIBED BELOW, OWNERS OF BENEFICIAL INTERESTS IN THE GLOBAL
NOTES WILL NOT HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL
DELIVERY OF NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED
OWNERS OR HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Under the terms of the Indenture, the Company, the Guarantors and the
Trustee will treat the persons in whose names the Notes are registered
(including Notes represented by Global Notes) as the owners thereof for the
purpose of receiving payments and for any and all other purposes whatsoever.
Payments in respect of the principal, premium, Liquidated Damages, if any, and
interest on Global Notes registered in the name of the Depository or its nominee
will be payable by the Trustee to the Depository or its nominee as the
registered holder under the Indenture. Consequently, neither the Company, the
Trustee nor any agent of the Company or the Trustee has or will have any
responsibility or liability for (i) any aspect of the Depository's records or
any Direct Participant's or Indirect Participant's records relating to or
payments made on account of beneficial ownership interests in the Global Notes
or for maintaining, supervising or reviewing any of the Depository's records or
any Direct Participant's or Indirect Participant's records relating to the
beneficial ownership interests in any Global Note or (ii) any other matter
relating to the actions and practices of the Depository or any of its Direct
Participants or Indirect Participants.
The Depository has advised the Company that its current payment practice
(for payments of principal, interest and the like) with respect to securities
such as the Notes is to credit the accounts of the relevant Direct Participants
with such payment on the payment date in amounts proportionate to such Direct
Participant's respective holdings in principal amount of its ownership interests
in the Global Notes as shown on the Depository's records. Payments by Direct
Participants and Indirect Participants to the beneficial owners of the Notes
will be governed by standing instructions and customary practices between them
and will not be the responsibility of the Depository, the Trustee, the Company
or the Guarantors. Neither the Company, the Guarantors nor the Trustee will be
liable for any delay by the Depository or its Direct Participants or Indirect
Participants in identifying the beneficial owners of the Notes, and the Company
and the Trustee may conclusively rely on and will be protected in relying on
instructions from the Depository or its nominee as the registered owner of the
Notes for all purposes.
The Global Notes will trade in the Depository's Same-Day Funds Settlement
System and, therefore, transfers between Direct Participants in the Depository
will be effected in accordance with the Depository's procedures and will be
settled in immediately available funds. Transfers between Indirect Participants
(other than Indirect Participants who hold an interest in the Notes through
Euroclear or CEDEL) who hold an interest through a Direct Participant will be
effected in accordance with the procedures of such Direct Participant but
generally will settle in immediately available funds. Transfers between and
among Indirect Participants who hold interests in the Notes through Euroclear
and CEDEL will be effected in the ordinary way in accordance with their
respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the Notes
described herein, cross-market transfers between Direct Participants in the
Depository, on the one hand, and Indirect Participants
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who hold interests in the Notes through Euroclear or CEDEL, on the other hand,
will be effected by Euroclear or CEDEL's respective Nominee through the
Depository in accordance with the Depository's rules on behalf of Euroclear or
CEDEL, HOWEVER, delivery of instructions relating to crossmarket transactions
must be made directly to Euroclear or CEDEL, as the case may be, by the
counterparty in accordance with the rules and procedures of Euroclear or CEDEL
and within their established deadlines (Brussels time for Euroclear and UK time
for CEDEL). Indirect Participants who hold interest in the Notes through
Euroclear and CEDEL may not deliver instructions directly to Euroclear's or
CEDEL's Nominee. Euroclear or CEDEL will, if the transaction meets its
settlement requirements, deliver instructions to its respective Nominee to
deliver or receive interests on Euroclear's or CEDEL's behalf in the relevant
Global Note in the Depository, and make or receive payment in accordance with
normal procedures for same-day fund settlement applicable to the Depository.
Because of time zone differences, the securities accounts of an Indirect
Participant who holds an interest in the Notes through Euroclear or CEDEL
purchasing an interest in a Global Note from a Direct Participant in the
Depository will be credited, and any such crediting will be reported to
Euroclear or CEDEL during the European business day immediately following the
settlement date of the Depository in New York. Although recorded in the
Depository's accounting records as of DTC's settlement date in New York,
Euroclear and CEDEL customers will not have access to the cash amount credited
to their accounts as a result of a sale of an interest in a Reg S Permanent
Global Note to a DTC Participant until the European business day for Euroclear
or CEDEL immediately following DTC's settlement date.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes only at the direction of one or more Direct
Participants to whose account interests in the Global Notes are credited and
only in respect of such portion of the aggregate principal amount of the Notes
as to which such Direct Participant or Direct Participants has or have given
direction. However, if there is an Event of Default under the Notes, DTC
reserves the right to exchange Global Notes (without the direction of one or
more of its Direct Participants) for legended Notes in certificated form, and to
distribute such certificated forms of Notes to its Direct Participants. See "--
Exchange of Global Notes for Certificated Notes."
Although DTC, Euroclear and CEDEL have agreed to the foregoing procedures to
facilitate transfers of interests in the Reg S Permanent Global Notes and in the
U.S. Global Notes among Direct Participants Euroclear and CEDEL, they are under
no obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. None of the Company, the Guarantors,
the Initial Purchasers or the Trustee will have any responsibility for the
performance by DTC, Euroclear or CEDEL or their respective Direct and Indirect
Participants of their respective obligations under the rules and procedures
governing any of their operations.
The information in this section concerning DTC, Euroclear and CEDEL and
their book-entry systems has been obtained from sources that the Company
believes to be reliable, but the Company takes no responsibility for the
accuracy thereof.
PAYMENTS; CERTIFICATIONS BY HOLDERS OF REG S TEMPORARY GLOBAL NOTES
An Indirect Participant who holds an interest in the Reg S Temporary Global
Notes through Euroclear or CEDEL must provide Euroclear or CEDEL, as the case
may be, with a certificate in the form required by the Indenture that such
Indirect Participant is either not a U.S. Person (as defined below) or has
purchased such interests in a transaction that is exempt from the registration
requirements under the Securities Act, and Euroclear or CEDEL, as the case may
be, must provide to the Trustee (or the Paying Agent, if other than the Trustee)
a certificate in the form required by the Indenture prior to (i) the payment of
interest or principal with respect to such Indirect Participant's beneficial
interests in such Reg S Temporary Global Notes or (ii) any exchange of such
beneficial interests for beneficial interests in Reg S Permanent Global Notes.
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"U.S. Person" means (i) any individual resident in the United States, (ii)
any partnership or corporation organized or incorporated under the laws of the
United States, (iii) any estate of which an executor or administrator is a U.S.
Person (other than an estate governed by foreign law and of which at least one
executor or administrator is a non-U.S. Person who has sole or shared investment
discretion with respect to its assets), (iv) any trust of which any trustee is a
U.S. Person (other than a trust of which at least one trustee is a non-U.S.
Person who has sole or shared investment discretion with respect to its assets
and no beneficiary of the trust (and no settler, if the trust is revocable) is a
U.S. Person), (v) any agency or branch of a foreign entity located in the United
States, (vi) any non-discretionary or similar account (other than an estate or
trust) held by a dealer or other fiduciary for the benefit or account of a U.S.
Person, (vii) any discretionary or similar account (other than an estate or
trust) held by a dealer or other fiduciary organized, incorporated or (if an
individual) resident in the United States (other than such an account held for
the benefit or account of a non-U.S. Person), and (viii) any partnership or
corporation organized or incorporated under the laws of a foreign jurisdiction
and formed by a U.S. person principally for the purpose of investing in
securities not registered under the Securities Act (unless it is organized or
incorporated and owned, by "accredited investors" within the meaning of Rule
501(a) under the Securities Act who are not natural persons, estates or trusts);
PROVIDED, HOWEVER, that the term "U.S. Person" shall not include (A) a branch or
agency of a U.S. Person that is located and operating outside the United States
for valid business purposes as a locally regulated branch or agency engaged in
the banking or insurance business, (B) any employee benefit plan established and
administered in accordance with the law, customary practices and documentation
of a foreign country and (C) the international organizations set forth in
Section 902(o)(7) of Regulation S under the Securities Act and any other similar
international organizations, and their agencies, affiliates and pension plans.
EXCHANGE OF REG S NOTES FOR OTHER GLOBAL NOTES AND VICE VERSA
Prior to the expiration of the 40 Day Restricted Period, an Indirect
Participant who holds an interest in the Reg S Temporary Global Note through
Euroclear or CEDEL will not be permitted to transfer its interest to a U.S.
Person who takes delivery in the form of an interest in U.S. Global Notes. After
the expiration of the 40 Day Restricted Period, an Indirect Participant who
holds an interest in Reg S Permanent Global Notes will be permitted to transfer
its interest to a U.S. Person who takes delivery in the form of an interest in
U.S Global Notes only upon receipt by the Trustee of a written certification
from the transferor to the effect that such transfer is being made in accordance
with the restrictions on transfer set forth under "Notice to Investors" and set
forth in the legend printed on the Reg S Permanent Global Notes.
Prior to the expiration of the 40 Day Restricted Period, a Direct or
Indirect Participant who holds an interest in the U.S. Global Note will not be
permitted to transfer its interests to any person that takes delivery thereof in
the form of an interest in the Reg S Temporary Global Notes. After the
expiration of the 40 Day Restricted Period, a Direct or Indirect Participant who
holds an interest in U.S. Global Notes may transfer its interests to a person
who takes delivery in the form of an interest in Reg S Permanent Global Notes
only upon receipt by the Trustee of a written certification from the transferor
to the effect that such transfer is being made in accordance with Rule 903 or
904 of Regulation S.
Transfers involving an exchange of a beneficial interest in Reg S Global
Notes for a beneficial interest in U.S. Global Notes or vice versa will be
effected by DTC by means of an instruction originated by the Trustee through
DTC/Deposit Withdraw at Custodian (DWAC) system. Accordingly, in connection with
such transfer, appropriate adjustments will be made to reflect a decrease in the
principal amount of the one Global Note and a corresponding increase in the
principal amount of the other Global Note, as applicable. Any beneficial
interest in the one Global Note that is transferred to a person who takes
delivery in the form of the other Global Note will, upon transfer, cease to be
an interest in such first Global Note and become an interest in such other
Global Note and, accordingly, will thereafter be subject to all transfer
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restrictions and other procedures applicable to beneficial interests in such
other Global Note for as long as it remains such an interest.
EXCHANGE OF GLOBAL NOTES FOR CERTIFICATED NOTES
An entire Global Note may be exchanged for definitive Notes in registered,
certificated form without interest coupons ("Certificated Notes") if (i) DTC (x)
notifies the Company that it is unwilling or unable to continue as depositary
for the Global Notes and the Company thereupon fails to appoint a successor
depositary within 90 days or (y) has ceased to be a clearing agency registered
under the Exchange Act, (ii) the Company, at its option, notifies the Trustee in
writing that it elects to cause the issuance of Certificated Notes or (iii)
there shall have occurred and be continuing to occur a Default or an Event of
Default with respect to the Notes. In any such case, the Company will notify the
Trustee in writing that, upon surrender by the Direct and Indirect Participants
of their interest in such Global Note, Certificated Notes will be issued to each
person that such Direct and Indirect Participants and the DTC identify as being
the beneficial owner of the related Notes.
Beneficial interests in Global Notes held by any Direct or Indirect
Participant may be exchanged for Certificated Notes upon request to DTC, on
behalf of such Direct or Indirect Participant, to the Trustee in accordance with
customary DTC procedures. Certificated Notes delivered in exchange for any
beneficial interest in any Global Note will be registered in the names, and
issued in any approved denominations, requested by DTC on behalf of such Direct
or Indirect Participants (in accordance with DTC's customary procedures).
In all cases described herein, such Certificated Notes will bear the
restrictive legend referred to in "Notice to Investors," unless the Company
determines otherwise in compliance with applicable law.
Neither the Company, the Guarantors nor the Trustee will be liable for any
delay by the holder of the Global Notes or DTC in identifying the beneficial
owners of Notes, and the Company and the Trustee may conclusively rely on, and
will be protected in relying on, instructions from the holder of the Global Note
or DTC for all purposes.
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.
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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 consolidated financial statements and schedules of Sun Healthcare Group,
Inc. and subsidiaries incorporated by reference in this prospectus and elsewhere
in the registration statement and the consolidated financial statements of
Regency Health Services, Inc. and subsidiaries as of and for the year ended
December 31, 1996 included in Sun Healthcare Group, Inc. and subsidiaries'
Current Report on Form 8-K/A-2 filed with the Securities and Exchange Commission
on April 16, 1998 and 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.
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* Consent to be filed by amendment.
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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.
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Available Information.......................... 7
Incorporation of Certain Documents by
Reference..................................... 7
Prospectus Summary............................. 9
Risk Factors................................... 16
Use of Proceeds................................ 32
Ratio of Earnings to Fixed Charges............. 33
Selected Consolidated Financial Data........... 34
The Exchange Offer............................. 36
Description of New Notes....................... 44
Certain U.S. Federal Income Tax Consequences... 74
Plan of Distribution........................... 75
Legal Matters.................................. 75
Experts........................................ 75
</TABLE>
[LOGO]
OFFER TO EXCHANGE
9 3/8% SERIES B SENIOR SUBORDINATED
NOTES DUE 2008
WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933,
AS AMENDED
FOR ANY AND ALL OUTSTANDING
9 3/8% SERIES A SENIOR SUBORDINATED
NOTES DUE 2008
---------------------
PROSPECTUS
---------------------
, 1998
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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
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<S> <C>
Exhibit 1.1 Purchase Agreement, dated as of April 29, 1998, among Sun Healthcare Group, Inc. and Bear,
Stearns & Co. Inc., Donaldson, Lufkin & Jenrette Securities Corporation, J.P. Morgan & Co.,
NationsBanc Montgomery Securities LLC and Schroder & Co. Inc., as Initial Purchasers
Exhibit 1.2 Amendment No. 1 to Purchase Agreement, dated as of May 26, 1998, among Sun Healthcare Group,
Inc. and Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette Securities Corporation, J.P.
Morgan & Co., NationsBanc Montgomery Securities LLC and Schroder & Co. Inc., as Initial
Purchasers
Exhibit 4.1 Form of 9 3/8% Senior Subordinated Notes due 2008 (included in Exhibit 4.2)
Exhibit 4.2 Indenture, dated as of May 4, 1998, among Sun Healthcare Group, Inc., the Guarantors named
therein and U.S. Bank Trust National Association, as Trustee, relating to 9 3/8% Senior
Subordinated Notes due 2008 (included as an exhibit to Sun's Form 10-Q for the quarterly
period ended March 31, 1998)
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT DESCRIPTION
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<S> <C>
Exhibit 4.3 Registration Rights Agreement, dated as of May 4, 1997, between Sun Healthcare Group, Inc., the
Guarantors named therein and Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette
Securities Corporation, J.P. Morgan & Co., NationsBanc Montgomery Securities LLC and
Schroeder & Co. Inc., as Initial Purchasers (included as an exhibit to Sun's Form 10-Q for
the quarterly period ended March 31, 1998)
Exhibit 5.1 Form of Opinion of Shearman & Sterling relating to the New Notes
Exhibit 8.1 Form of Opinion of Shearman & Sterling (Tax)
Exhibit 12 Computation of Ratio of Earnings to Fixed Charges
Exhibit 23.1 Form of Consent of Independent Public Accountants
Exhibit 23.2* Consent of Arthur Andersen LLP
Exhibit 23.3 Consent of Shearman & Sterling (included in Exhibit 5.1)
Exhibit 23.4 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 U.S. Bank Trust National Association, as Trustee, relating to the
Senior Subordinated Notes due 2008, 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>
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* To be filed by amendment.
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
II-2
<PAGE>
(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.
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 Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Albuquerque, New Mexico on the 31st day of July, 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 William C. Warrick, Robert F. 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>
/s/ ANDREW L. TURNER Chairman of the Board and July 31, 1998
---------------------------- Chief Executive Officer
Andrew L. Turner of Sun Healthcare Group,
Inc.
/s/ MARK G. WIMER President, Chief Operating July 31, 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;
Senior Vice President of
Retirement Care
Associates, Inc. and
Willow Way, Inc.; Senior
Vice President and
Director of Riviera
Retirement, Inc., Sea
Side Retirement, Inc.,
Summers Landing, Inc.,
Sun Coast Retirement,
Inc. and each subsidiary
listed on Annex G;
Director and Vice
President of each
subsidiary on Annex I
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ ROBERT D. WOLTIL Chief Financial Officer July 31, 1998
---------------------------- and Director of Sun
Robert D. Woltil Healthcare Group, Inc.,
SHG Netherlands I, Inc.,
Pro-Scription, Inc.,
Willow Way, Inc.,
Riviera Retirement,
Inc., Sea Side
Retirement, Inc.,
Summers Landing, Inc.,
Sun Coast Retirement,
Inc., and each
subsidiary listed on
Annexes G and H;
President, Chief
Financial Officer and
Director of Regency
Health Services, Inc.,
Retirement Care
Associates, Inc., Sun
Lane Purchase
Corporation, Masthead
Corporation, Sunmark of
New Mexico, Inc., SHG
International Holdings,
Inc. and each subsidiary
listed on Annex I; 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.
/s/ WILLIAM R. ANIXTER Director of Sun Healthcare July 31, 1998
---------------------------- Group, Inc.
William R. Anixter
/s/ ANDREW P. MASETTI Vice President--Finance of July 31, 1998
---------------------------- Sun Healthcare Group,
Andrew P. Masetti Inc.
Director of Sun Healthcare July 31, 1998
---------------------------- Group, Inc.
Zev Karkomi
/s/ JOHN E. BINGAMAN Director of Sun Healthcare July 31, 1998
---------------------------- Group, Inc.
John E. Bingaman
/s/ JAMES R. TOLBERT, III Director of Sun Healthcare July 31, 1998
---------------------------- Group, Inc.
James R. Tolbert, III
/s/ LOIS E. SILVERMAN Director of Sun Healthcare July 31, 1998
---------------------------- Group, Inc.
Lois E. Silverman
/s/ R. JAMES WOOLSEY Director of Sun Healthcare July 31, 1998
---------------------------- Group, Inc.
R. James Woolsey
Director of Sun Healthcare July 31, 1998
---------------------------- Group, Inc.
Martin G. Mand
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ ROBERT A. LEVIN President and Director of July 31, 1998
---------------------------- HTA of New Jersey, Inc.;
Robert A. Levin Director of SunSolution,
Inc., Sun Quest
Consulting, Inc., Willow
Way, Inc. and each
subsidiary listed on
Annex D;
/s/ WARREN C. SCHELLING President and Director of July 31, 1998
---------------------------- each subsidiary listed
Warren C. Schelling on Annex C; Director and
Senior Vice President of
Pro-Scription, Inc. and
each subsidiary listed
on Annex H
/s/ WILLIAM C. WARRICK Vice President and July 31, 1998
---------------------------- Controller (on behalf of
William C. Warrick Sun Healthcare Group,
Inc. as the sole member
of Sun Healthcare
(Europe) L.L.C.); of
Regency Health Services,
Inc., Pro-Scription,
Inc., Willow Way, Inc.,
Riviera Retirement,
Inc., Sea Side
Retirement, Inc.,
Summers Landing, Inc.,
Sun Coast Retirement,
Inc. and each subsidiary
listed in Annexes A and
G
/s/ DALE ZULAUF President of Worcester July 31, 1998
---------------------------- Nursing Center, Inc. and
Dale Zulauf each subsidiary listed
on Annex B
/s/ MICHAEL SLICE President of Pharmacy July 31, 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 July 31, 1998
---------------------------- Subsidiary listed on
David Kniess Annex F.
/s/ JERRY MEYER President and Chief July 31, 1998
---------------------------- Executive Officer of
Jerry Meyer SunBridge, Inc. and
President of Riviera
Retirement, Inc., Sea
Side Retirement, Inc.,
Summers Landing, Inc.
and Sun Coast
Retirement, Inc.
/s/ TOM R. FUTCH President and Chief July 31, 1998
---------------------------- Executive Officer of Sun
Tom R. Futch Care Respiratory
Services, Inc.
/s/ MICHAEL S. WESTMILLER President of SunQuest July 31, 1998
---------------------------- Consulting, Inc.
Michael S. Westmiller
/s/ JOHN W. DRISCOLL President of First Class July 31, 1998
---------------------------- Pharmacy, Inc., Pro-
John W. Driscoll Scription, Inc. and
Sunscript Pharmacy
Corporation
/s/ ROBERT F. MURPHY Director of Regency Health July 31, 1998
---------------------------- Services, Inc.,
Robert F. Murphy Retirement Care
Associates, Inc.,
Masthead Corporation,
SunLane Purchase
Corporation, SHG
International Holdings,
Inc. and Sunmark of New
Mexico, Inc. and SHG
Netherlands I, Inc.
/s/ PETER STEENBLOCK President and Chief July 31, 1998
---------------------------- Executive Officer of
Peter Steenblock SunAlliance Health
Services, Inc., Director
of Golan Healthcare
Group, Inc. and
President of Willow Way,
Inc.
/s/ TIMOTHY J. COBURN President, Chief Executive July 31, 1998
---------------------------- Officer and Director of
Timothy J. Coburn Golan Healthcare Group,
Inc.
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ DONALD F. FOX President of SunChoice July 31, 1998
---------------------------- Medical Supply, Inc. and
Donald F. Fox each subsidiary listed
on Annex H
/s/ KENNETH NOONAN President and Director of July 31, 1998
---------------------------- SunSolution, Inc.
Kenneth Noonan
/s/ JENNIFER CLARKE President of SunPlus Home July 31, 1998
---------------------------- Health Services, Inc.,
Jennifer Clarke Americare Homecare, Inc.
and Care Home Health
Services.
/s/ LARRY STEUDLE President of each July 31, 1998
---------------------------- subsidiary listed on
Larry Steudle Annex E.
</TABLE>
II-7
<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-8
<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-9
<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-10
<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-11
<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-12
<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-13
<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-14
<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-15
<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-16
<PAGE>
ANNEX G
Bibb Health & Rehabilitation, Inc.
Brent-Lox Hall Nursing Home, Inc.
Charlton Healthcare, Inc.
Duval Healthcare Center, Inc.
Gainesville Healthcare Center, Inc.
Gardendale Health Care Center, Inc.
Jeff Davis Healthcare, Inc.
Lake Forest Healthcare Center, Inc.
Lake Health Care Center, Inc.
Libbie Rehabilitation Center, Inc.
Maplewood Health Care Center of Jackson, Tennessee, Inc.
Mid-Florida, Inc.
Phoenix Associates, Inc.
Pine Manor Rest Home, Incorporated
Roberta Health Care Center, Inc.
Southside Health Care Center, Inc.
Statesboro Health Care Center, Inc.
West Tennessee, Inc.
Woodbury Health Care Center, Inc.
II-17
<PAGE>
ANNEX H
Americare Group Purchasing, Inc.
Americare Health Services Corp.
AmeriDyne Corporation
Atlantic Medical Supply Company, Inc.
Contour Medical of Central Florida, Inc.
Contour Medical, Inc.
Contour Medical-Michigan
Facility Supply, Inc.
Quest Medical Supply, Inc.
II-18
<PAGE>
ANNEX I
Capitol Care Management Company, Inc.
Crescent Medical Services, Inc.
F & L Associates, Inc.
Quality N.H.F. Leasing, Inc.
Renaissance Retirement, Inc.
Retirement Management Corp.
II-19
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT DESCRIPTION
- ----------------- -----------------------------------------------------------------------------------------------
<S> <C>
Exhibit 1.1 Purchase Agreement, dated as of April 29, 1998, among Sun Healthcare Group, Inc. and Bear,
Stearns & Co. Inc., Donaldson, Lufkin & Jenrette Securities Corporation, J.P. Morgan & Co.,
NationsBanc Montgomery Securities LLC and Schroder & Co. Inc., as Initial Purchasers
Exhibit 1.2 Amendment No. 1 to Purchase Agreement, dated as of May 26, 1998, among Sun Healthcare Group,
Inc. and Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette Securities Corporation, J.P.
Morgan & Co., NationsBanc Montgomery Securities LLC and Schroder & Co. Inc., as Initial
Purchasers
Exhibit 4.1 Form of 9 3/8% Senior Subordinated Notes due 2008 (included in Exhibit 4.2)
Exhibit 4.2 Indenture, dated as of May 4, 1998, among Sun Healthcare Group, Inc., the Guarantors named
therein and U.S. Bank Trust National Association, as Trustee, relating to 9 3/8% Senior
Subordinated Notes due 2008 (included in exhibit to Sun's Form 10-Q for the quarterly period
ended March 31, 1998)
Exhibit 4.3 Registration Rights Agreement, dated as of May 4, 1998, between Sun Healthcare Group, Inc., the
Guarantors named therein and Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette
Securities Corporation, J.P. Morgan & Co., and NationsBanc Montgomery Securities LLC and
Schroder & Co. Inc., as Initial Purchasers (included as an exhibit to Sun's Form 10-Q for the
quarterly period ended March 31, 1998)
Exhibit 5.1 Form of Opinion of Shearman & Sterling relating to the New Notes
Exhibit 8.1 Form of Opinion of Shearman & Sterling (tax)
Exhibit 12 Computation of Ratio of Earnings to Fixed Charges
Exhibit 23.1 Form of Consent of Independent Public Accountants
Exhibit 23.2* Consent of Arthur Andersen LLP
Exhibit 23.3 Consent of Shearman & Sterling (included in exhibit 5.1)
Exhibit 23.4 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 U.S. Bank Trust National Association, as Trustee, relating to the
Senior Subordinated Notes due 2008, 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>
- ------------------------
* To be filed by amendment.
<PAGE>
$125,000,000 Principal Amount of 9 3/8% Senior Subordinated Notes due 2008
SUN HEALTHCARE GROUP, INC.
(Payment of Principal and Interest Guaranteed by
the Guarantors referred to within)
PURCHASE AGREEMENT
April 29, 1998
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
J.P. MORGAN SECURITIES INC.
NATIONSBANC MONTGOMERY SECURITIES LLC
SCHRODER & CO. INC.
c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, N.Y. 10167
Dear Sirs:
Sun Healthcare Group, Inc., a corporation organized and existing under
the laws of the State of Delaware (the "COMPANY"), proposes, subject to the
terms and conditions stated herein, to issue and sell to Bear, Stearns & Co.
Inc. (the "REPRESENTATIVE"), Donaldson, Lufkin & Jenrette Securities
Corporation, J.P. Morgan Securities Inc., NationsBanc Montgomery Securities LLC
and Schroder & Co. Inc. (collectively with the Representative, the "INITIAL
PURCHASERS") an aggregate of up to $125,000,000 principal amount (the "FIRM
SECURITIES") and, at the election of the Initial Purchasers, an aggregate of up
to an additional $25,000,000 principal amount (the "OPTIONAL SECURITIES"), of
its 9 3/8% Senior Subordinated Notes due 2008. The Firm Securities and the
Optional Securities that the Initial Purchasers elect to purchase pursuant to
Section 2 hereof are referred to collectively as the "NOTES."
The Notes are to be issued pursuant to an indenture to be dated as of
May 4, 1998 (the "INDENTURE") between the Company, the Guarantors (as defined
below)
<PAGE>
and U.S. Bank Trust National Association, as trustee (the "TRUSTEE"). The
Notes will be guaranteed (the "SUBSIDIARY GUARANTEES") by each of the
entities listed on Schedule I hereto (each, a "GUARANTOR" and, collectively,
the "GUARANTORS"). Additionally, the Notes will be entitled to certain
registration rights provided under a Note Registration Rights Agreement, to
be dated as of May 4, 1998, (the "REGISTRATION RIGHTS AGREEMENT") between the
Company and the Initial Purchasers.
Prior to or concurrently with the issuance and sale of the Notes, Sun
Financing I, a statutory business trust formed under the laws of the State of
Delaware and all of whose common securities are owned by the Company ("SUN
FINANCING I"), is proposing to issue and sell $300,000,000 of its 7% Convertible
Trust Issued Preferred Securities ("TIPS") (plus an aggregate of $45,000,000
additional TIPS subject to an over-allotment option) to the Initial Purchasers
pursuant to a purchase agreement, to be dated as of the date hereof (the "TIPS
PURCHASE AGREEMENT"), by and among Sun Financing I, the Company and the Initial
Purchasers. This Agreement, the Indenture, the Notes, the Subsidiary
Guarantees, the Registration Rights Agreement and all documents to which the
Company or Sun Financing I is a party related to the offering of the TIPS (the
"TIPS OFFERING"), including without limitation the TIPS Purchase Agreement, the
Declaration, the Indenture, the Registration Rights Agreement, the Guarantee,
the Debenture Purchase Agreement and the Common Securities Purchase Agreement
(as such terms are defined in the TIPS Purchase Agreement), are collectively
referred to herein as the "TRANSACTION DOCUMENTS."
The Company has prepared a preliminary offering memorandum dated April
14, 1998 (the "PRELIMINARY OFFERING MEMORANDUM") and a final offering memorandum
dated April 29, 1998 (the "OFFERING MEMORANDUM") with respect to the offering of
the Notes contemplated by this Agreement (the "OFFERING").
The Notes have not been registered under the Securities Act of 1933,
as amended (the "SECURITIES ACT"), and are being sold in reliance on exemptions
from or in transactions not subject to the registration requirements of the
Securities Act, including sales (i) made in the United States to "qualified
institutional buyers" as defined in, and in reliance on, Rule 144A under the
Securities Act ("RULE 144A") and (ii) made outside the United States in reliance
on Regulation S under the Securities Act ("REGULATION S").
1. 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, and agrees with, each of the Initial Purchasers that:
2
<PAGE>
a. Each of the Preliminary Offering Memorandum and the Offering
Memorandum does not (and any amendment or supplement will not) contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein in 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 amendment or supplement thereto) that are corrected in the
Offering Memorandum (or any amendment or supplement thereto) or statements in or
omissions from the Preliminary Offering Memorandum (or any amendment or
supplement thereto) based on any information contained in or omitted from the
Preliminary Offering Memorandum or the Offering Memorandum or any amendment
thereof or supplement thereto in reliance upon and in conformity with
information furnished in writing to the Company by the Representatives expressly
for use therein.
b. Arthur Andersen LLP, whose reports are included in the
Offering Memorandum, are independent public accountants with respect to the
Company and Regency Health Services, Inc. ("REGENCY"), in each case as required
by the Securities Act and the rules and regulations promulgated thereunder (the
"SECURITIES ACT REGULATIONS").
c. Each of the historical financial statements of the Company
and Regency, including the notes thereto, and supporting schedules included in
the Offering Memorandum present fairly the consolidated financial position of
the Company and its subsidiaries and Regency and its subsidiaries, as the case
may be, as of the dates indicated and the consolidated results of operations
and changes in financial position of the Company and its subsidiaries and
Regency and its subsidiaries, as the case may be, for the periods specified,
except as otherwise stated in the Offering Memorandum, such historical financial
statements have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis. The PRO FORMA financial statements
have been prepared on a basis consistent with the historical financial
statements, except for the PRO FORMA adjustments specified therein, and give
effect to assumptions made on a reasonable basis and present fairly the
historical and proposed transactions contemplated by the Offering Memorandum.
d. Each of the Company's and Regency's historical financial
statements, including the notes thereto, set forth in the Offering Memorandum
comply as to form in all material respects with the requirements applicable to
registration statements on Form S-3 under the Securities Act.
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e. The Company's PRO FORMA financial statements, including the
notes thereto, set forth in the Offering Memorandum comply as to form in all
material respects with the requirements of the Securities Act.
f. Subsequent to the respective dates as of which information
is given in the Offering Memorandum, except 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 been no material
adverse change nor 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.
g. Each of the Company and its subsidiaries (i) has been duly
organized and is validly existing as a corporation, partnership or limited
liability company, as the case may be, in good standing under the laws of its
jurisdiction of organization and (ii) is duly qualified and in good standing as
a foreign corporation, partnership or limited liability company, as the case may
be, in each jurisdiction in which the location of its properties (owned or
leased) or the nature of its business makes such qualification necessary, except
for those failures to be so qualified or in good standing that will not (a) have
a material adverse effect on the business, prospects, financial conditions or
results of operations of the Company and its subsidiaries taken as a whole, (b)
materially interfere with or materially adversely affect the issuance or
marketability of the Notes pursuant hereto or (c) in any manner draw into
question the validity of this Agreement or the other Transaction Documents (the
events referred to in clauses (a) through (c), a "MATERIAL ADVERSE EFFECT").
h. 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, bond,
agreement, debenture, note, or any other evidence of indebtedness or any
indenture, mortgage, deed or trust or other contract, lease or other 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 such subsidiaries is bound, or to which any of its
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respective property is subject except for such violations or defaults that
would not, singly or in the aggregate, have a Material Adverse Effect.
i. 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 defined herein), as are necessary to own, lease, license
and operate its respective properties and to 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.
j. The execution, delivery, and performance of this Agreement
and the other Transaction Documents by the Company and by Sun Financing I, as
applicable, and the consummation of the transactions contemplated hereby and
thereby do not and will not (i) conflict with or result in a breach of any of
the terms and provisions of, or constitute a default (or an event which with
notice or lapse of time, or both, would constitute 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 their respective properties or
assets may be bound, except for such conflicts, breaches or defaults as would
not, singly or in the aggregate, have a Material Adverse Effect, (ii) violate or
conflict with any provision of the charter, by-laws, partnership agreement or
other organizational document of the Company, (iii) violate or conflict with
any of its subsidiaries or any applicable judgment, decree, order, statute, law,
rule or regulation of any court or any governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of their
respective properties except for such violations
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<PAGE>
or conflicts as would not, singly or in the aggregate, have a Material
Adverse Effect, (iv) require any consent, approval, authorization or other
order and, or other qualification with any court or governmental body or
agency having jurisdiction over the Company or any of its subsidiaries or any
of their respective properties, except (in the case of clauses (ii), (iii)
and (iv) above) for any such consents, approvals, authorizations or other
orders or qualifications as have been made or obtained in or will be made or
obtained in the case of the transactions contemplated by the Registration
Rights Agreements as may be required under state securities or Blue Sky laws
or the securities laws of any jurisdiction outside the United States in
connection with the purchase and distribution of the Notes and TIPS by the
Initial Purchasers and except for the filing of registration statements under
the Securities Act or Exchange Act applicable in connection with the
transactions contemplated by the Registration Rights Agreements, and
qualification of the Indentures, the Declaration and the Guarantee under the
Trust Indenture Act in connection with the Registration Rights Agreements,
(v) result in the imposition or creation of (or the obligation to create or
impose) any security interest, claim, lien encumbrances or adverse interest
of any nature (each, 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 (vi) result in the termination or
revocation of any permit of the Company or any of its subsidiaries or result
in any other impairment of the rights of the holder of any such permit.
k. The Indenture has been duly authorized by the Company and
each of the Guarantors and, when validly executed and delivered by the Company
and each of the Guarantors and the Trustee, will have been validly executed and
delivered and (assuming the due authorization, execution and delivery thereof by
the Trustee) will constitute the valid and binding obligation of the Company and
each of the Guarantors, enforceable against the Company and each of the
Guarantors 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 other
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. On the Closing Date and any
Option Closing Date (as defined herein), the Indenture will conform in all
material respects to the description thereof contained in the Offering
Memorandum and 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 Securities and Exchange Commission (the "Commission")
applicable to an indenture which is qualified thereunder.
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l. The Notes have been duly authorized by the Company and, when
duly authorized, authenticated and delivered by the Trustee and issued, sold and
delivered in accordance with this Agreement and the Indenture, will have been
validly executed and delivered by the Company and will constitute the valid and
binding obligation of the Company, 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. On the Closing Date and any Option Closing
Date, the Notes will conform in all material respects to the description thereof
contained in the Offering Memorandum.
m. The Subsidiary Guarantees in respect of the Notes have been
duly authorized by each such Guarantor and, when the Notes have been issued,
authenticated, sold and delivered in accordance with this Agreement and the
Indenture with the Subsidiary Guarantee of each Guarantor endorsed thereon, the
Subsidiary Guarantees will have been validly executed and delivered and will
constitute the valid and binding obligation of each such Guarantor, enforceable
against each such Guarantor 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 enforceability. On the
Closing Date and any Option Closing Date, the Subsidiary Guarantees will conform
in all material respects to the description thereof contained in the Offering
Memorandum.
n. The Registration Rights Agreement has been duly authorized
by the Company. The Registration Rights Agreement, when executed and delivered
by the Company and the Initial Purchasers (assuming the Registration Rights
Agreement is duly authorized by the Initial Purchasers), will have been validly
executed and delivered by the Company and will constitute the valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except (i) 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, (ii) enforcement thereof is subject to general
principles of equity (regardless of whether enforcement is brought in a
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<PAGE>
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 contained in the
Offering Memorandum.
o. As of the date hereof, there is no litigation or
governmental proceeding to which the Company or any of its subsidiaries is a
party or to which any property of the Company or any of its subsidiaries is
subject or which is pending or, to the knowledge of the Company, contemplated
against the Company or any of its subsidiaries, except (in each case) as
disclosed in the Offering Memorandum or for any such proceeding which the
Company has reasonably concluded is not likely to result in a Material Adverse
Effect.
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
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<PAGE>
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. All of the outstanding equity interests of the Guarantors
have been duly authorized and validly issued and are fully paid and
nonassessable, were not issued and are not now in violation of or subject to any
preemptive rights and, to the extent owned by the Company or any of its direct
or indirect subsidiaries, are owned, directly or indirectly, by the Company free
and clear of any lien, claim, encumbrance, security interest, restriction on
transfer, shareholders' agreement, voting trust or other preferential
arrangement or defect of title whatsoever, except as described in the Offering
Memorandum or as are not material.
r. Except as otherwise set forth in the Offering Memorandum and
Article XV (Subordination) of the Indenture, the Notes, when issued, delivered
and sold in accordance with this Agreement, will rank PARI PASSU in right of
payment with the Company's 9 1/2% Senior Subordinated Notes due 2007.
s. (i) None of the Company, the Guarantors or any of their
affiliates (as defined in Rule 501(b) under the Securities Act) nor any person
acting on behalf of any such person (excluding the Initial Purchasers and their
respective affiliates, as to which no representation is made) has engaged in any
directed selling efforts (as such term is defined in Regulation S) in the United
States with respect to the Notes and (ii) each of the Company, the Guarantors or
their affiliates and each person acting on behalf of any of them (other than the
Initial Purchasers and their respective affiliates, as to which no
representation made) has complied with and will comply with the offering
restrictions requirement of Regulation S in connection with the offering of
Notes outside the United States.
t. None of the Company, the Guarantors, any of their affiliates
nor any person acting on behalf of any of them (excluding the Initial Purchasers
and their respective affiliates, as to which no representation is made) has
sold, offered for sale, solicited offers to buy or otherwise negotiated in
respect of any security (as such term is defined in the Securities Act) that is
or may be integrated with the sale of the Notes in a manner that would require
registration under the Securities Act.
u. The Notes are eligible for resale pursuant to Rule 144A and,
when issued, will not be of the same class as any securities listed on a
national
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securities exchange registered under section 6 of the Exchange Act (as
hereinafter defined) or quoted in a U.S. automated inter-dealer quotation
system.
v. Subject to compliance by the Initial Purchasers with the
procedures set forth in Section 3 hereof, it is not necessary, in connection
with the offer, sale and delivery of the Notes to the Initial Purchasers in the
manner contemplated by this Agreement and the Offering Memorandum, to register
the Notes under the Securities Act or to qualify the Indenture under the Trust
Indenture Act of 1939, as amended.
w. The Company is not, and upon consummation of the
transactions contemplated hereby will not be, subject to registration as an
"investment company" under the Investment Company Act of 1940, as amended.
x. 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
Notes to violate 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.
y. 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.
z. To the extent described in the Offering Memorandum, the
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
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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 or as to which the Company has reasonably concluded
is not likely to have a Material Adverse Effect, 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.
aa. 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.
bb. All indebtedness of the Company and the Guarantors that will
be repaid with the proceeds of the issuance and sale of the Notes was incurred,
and the indebtedness represented by the 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 Notes, and will be on the Closing
Date (after giving effect to the application of the proceeds from the issuance
of the 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 Notes and will have on the Closing Date (after giving effect to the
application of the proceeds from the issuance of the 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 Notes, and will be on the Closing Date (after giving
effect to the application of the proceeds from the issuance of the Notes) able
to pay their respective debts as they mature.
cc. To the best of the Company's knowledge, 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
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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 is in violation of
any Federal "fraud and abuse legislation" or Federal "anti-kickback law."
dd. The lenders have approved the issuance of the Notes and
Guarantees in accordance with the terms of that certain Credit Agreement, dated
as of October 8, 1997, by and among the Company and NationsBank of Texas, N.A.
and the other banks that are parties thereto.
ee. Each certificate provided on the Closing Date by any officer
of the Company and delivered to the Initial Purchasers or counsel for the
Initial Purchasers shall be deemed to be a representation and warranty of the
Company to the Initial Purchasers as to the matters covered thereby.
ff. The Company acknowledges that the Initial Purchasers and,
for purposes of the opinions to be delivered to the Initial Purchasers pursuant
to Section 6 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.
2. PURCHASE, SALE AND DELIVERY OF THE NOTES. On the basis of the
representations, warranties, covenants and agreements herein contained, but
subject to the terms and conditions herein set forth, the Company agrees to sell
to the Initial Purchasers, and the Initial Purchasers, severally and not
jointly, agree to purchase from the Company, the principal amount of the Notes
set forth opposite their respective names in Schedule II hereto at a purchase
price equal to 97.25% of such principal amount. Payment of the purchase price
for, and delivery of, the Notes will be made at the offices of Skadden, Arps,
Slate, Meagher & Flom LLP, 919 Third Street, New York, New York 10022-3897 at
9:30 a.m. (New York City time) on May 4, 1998, unless postponed in accordance
with Section 9 hereof, or such other time and date as may be mutually agreed in
writing between you and the Company (the time and date of such payment and
delivery being herein called the "CLOSING DATE").
The Company also grants to the Initial Purchasers an option to
purchase, solely for the purpose of covering over-allotments in the sale of Firm
Securities, if any,
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all or any portion of the Optional Securities at the purchase price set forth
above. The option granted hereby may be exercised as to all or any part of
the Optional Securities at any time (but only once) within 30 days after the
date of the Offering Memorandum. The Initial Purchasers shall not be under
any obligation to purchase any Optional Securities prior to the exercise of
such option. The option granted hereby may be exercised by the
Representative giving written notice to the Company setting forth the number
of Optional Securities to be purchased and the date and time for delivery of
and payment for such Optional Securities and stating that the Optional
Securities referred to therein are to be used for the purpose of covering
over-allotments in connection with the distribution and sale of the Firm
Securities. If such notice is given prior to the Closing Date, the date set
forth therein for such delivery and payment shall not be earlier than two
full business days thereafter or the Closing Date, whichever occurs later.
If such notice is given on or after the Closing Date, the date set forth
therein for such delivery and payment shall not be earlier than three full
business days thereafter. In either event, the date so set forth shall not
be more than 15 full business days after the date of such notice. The date
and time set forth in such notice is herein called the "OPTION CLOSING DATE."
Upon exercise of the option, the Company shall become obligated to sell to
the Initial Purchasers, and, subject to the terms and conditions herein set
forth, the Initial Purchasers shall become obligated to purchase, for the
account of each Initial Purchaser, from the Company, severally and not
jointly, the number of Optional Securities specified in such notice.
Optional Securities shall be purchased for the accounts of the Initial
Purchasers in proportion to the number of Firm Securities set forth opposite
such Initial Purchaser's name in Schedule II hereto, except that the
respective purchase obligations of each Initial Purchaser shall be adjusted
so that no Initial Purchaser shall be obligated to purchase fractional
Optional Securities.
At or prior to the Closing Date and any Option Closing Date hereunder,
the Company shall execute and deliver for authentication the Notes to be
purchased and sold on such date and shall deposit such Notes with The Depositary
Trust Company ("DTC") for the account or accounts of participants in DTC
(including Euroclear and CEDEL, as the case may be) purchasing beneficial
interests in one or more certificates in global or definitive form in such
denominations and registered in such names as the Initial Purchasers request
upon notice to the Company at least two business days prior to such date.
Against delivery of the Notes to DTC for the respective accounts of the Initial
Purchasers, the Initial Purchasers shall pay or cause to be paid to the Company
the purchase price for such Notes by wire transfer in same day funds, payable to
the order of the Company. Certificates evidencing the Notes shall be registered
in such name or names and in such authorized denominations as you may request in
writing at least two full business days prior to the Closing Date, or if not so
requested, in the name
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of Cede & Co. as nominee for DTC. The Company will permit you to inspect
such certificates at the offices of Skadden, Arps, Slate, Meagher & Flom LLP
at least one full business day prior to the Closing Date and any Option
Closing Date.
3. SUBSEQUENT OFFERS AND RESALES OF THE NOTES. The Initial
Purchasers and the Company hereby establish and agree to observe the following
procedures in connection with the offer and sale of the Notes:
a. Each Initial Purchaser has advised the Company that it will
offer the Notes for resale (the "EXEMPT RESALES") upon the terms and conditions
set forth in this Agreement and the Offering Memorandum. The Notes have not been
and will not be registered under the Securities Act. Each Initial Purchaser
agrees that it will not take, and acknowledges that the Company has not taken,
any action that would permit a public offering of the Notes in any jurisdiction
and further agrees that, with respect to the offer or sale of any Notes or the
delivery or distribution of any Offering Memorandum, it will comply with
applicable laws and regulations in such jurisdictions or to which it is
otherwise subject. Such Initial Purchaser further agrees that it is not
acquiring the Notes with a view to any distribution thereof or with any present
intention of offering or selling any of the Notes in a transaction that would
violate the Securities Act or the securities laws of any State of the United
States or any other applicable jurisdiction.
b. Each Initial Purchaser represents and warrants that (i) it
is a qualified institutional buyer within the meaning of Rule 144A with such
knowledge and experience in financial and business matters as are necessary in
order to evaluate the merits and risks of investing in the Notes or is not a
U.S. person and is acquiring the Notes outside the United States in compliance
with Rule 903 or 904 under the Securities Act and (ii) that neither it nor any
of its affiliates nor any person acting on behalf of any such person has engaged
in any general solicitation or general advertising, within the meaning of
Regulation D, under the Securities Act, in connection with the offer, sale or
resale of the Notes.
c. In connection with sales outside the United States, each
Initial Purchaser agrees that it has not and will not offer, sell or deliver
Notes (i) as part of its distribution thereof at any time or (ii) otherwise
until 40 days after completion of the distribution, as determined by the
Representative, to or for the account or benefit of U.S. persons (as defined in
Regulation S). Each Initial Purchaser confirms that neither it nor its
affiliates nor any person acting on behalf of any such person has engaged in any
"directed selling efforts" (as such term is defined in Regulation S) with
respect to
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the Notes and that it and each such other person has complied with the
offering restrictions requirement of Regulation S with respect to the Notes.
d. 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.
e. Each of the Initial Purchasers acknowledges and agrees that
it has not and will not offer, sell or deliver the Notes in the United States or
to or for the account of any U.S. Person other than (A)(i) distributors (as
defined in Regulation S) who, in purchasing the Notes will be deemed to have
represented and agreed that their purchase of the Notes pursuant to Regulation S
is not a part of a plan or a scheme to evade the registration provisions of the
Securities Act and (ii) institutional buyers that are reasonably believed to be
"qualified institutional buyers" (as defined in Rule 144A) who, in purchasing
the Notes will be deemed to have represented that (x) they are purchasing the
Notes for their own account or accounts with respect to which they exercise sole
investment discretion and that they or such accounts are "qualified
institutional buyers" (as defined in Rule 144A) and (y) they acknowledge that
the seller of such Notes may be relying on the exemption from the provisions of
Section 5 of the Securities Act provided by Rule 144A thereunder and such Notes
will not have been registered under the Securities Act, and (B) to eligible
purchasers who agree (1) that 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 Securities Act, if
applicable) under the Securities Act, as in effect on the date of the transfer
of such Notes, only (a) to the Company, (b) to a "qualified institutional buyer"
in compliance with Rule 144A, (c) outside the United States in compliance with
Rule 903 or 904 under the Securities Act, (d) pursuant to the exemption from
registration provided by Rule 144 under the Securities Act (if available) or,
(e) pursuant to a registration statement which has been declared effective under
the Securities Act, and (2) to deliver to each person to whom such Notes or an
interest therein is transferred a notice substantially to the effect of the
foregoing.
f. Each of the Initial Purchasers has advised the Company that,
prior to the confirmation of sale of any Notes, it will have sent to each
dealer, distributor or person receiving a selling concession fee or other
remuneration that
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purchases any Notes from it during the restricted period a confirmation or
notice substantially to the following effect:
"The Notes have not been registered under the 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 their distribution at any time or (ii) otherwise until 40 days after the
later of the commencement of the Offering and the Closing Date or Option 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 Notes 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."
g. Each Initial Purchaser represents, warrants and agrees that
(i) it has not offered or sold and prior to the expiration of six months from
the Closing Date or Option Closing Date will not offer or sell Notes to persons
in the United Kingdom, other than to persons whose ordinary activities involve
them in acquiring, holding, managing or disposing of investments (whether as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which will not result in an offer to the public within the meaning
of the Public Offers of Securities Regulations 1995, (ii) it has complied and
will comply with all applicable provisions of the Public Offers of Securities
Regulations and the Financial Services Act of 1986 with respect to anything done
by it in relation to the Notes in, from, or otherwise involving the United
Kingdom and (iii) it has only issued or passed on and will only issue or pass
on, to any person in the United Kingdom any documents received by it in
connection with the issue of the Notes if the person is of a kind described in
Article 11(c) of the Financial Services Act of 1986 (Investment Advertisements)
(Exemptions) Order 1995 or is a person whom the documents may lawfully be issued
or passed on.
h. Each Initial Purchaser agrees that it will not offer, sell
or deliver any of the Notes in any jurisdiction outside the United States except
under circumstances that will result in compliance with the applicable laws
thereof, and that it will take at its own expense whatever action is required to
permit its purchase and resale of the Notes in such jurisdictions. Each 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.
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i. The 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.
j. The sale of the Notes offered and sold by the Initial
Purchaser pursuant hereto in reliance on Regulation S is not part of a plan or
scheme to evade the registration provisions of the Securities Act.
k. 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 6 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 by the Initial Purchasers and the Initial
Purchasers hereby consent to such reliance.
4. COVENANTS OF THE COMPANY. The Company covenants and agrees with
the Initial Purchasers that:
a. If, after the date hereof during such period as in the
opinion of Skadden, Arps, Slate, Meagher & Flom LLP ("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 Counsel for 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 for 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.
b. The Company will promptly deliver to each of the Initial
Purchasers such number of copies of the Offering Memorandum and all amendments
of and supplements thereto as the Initial Purchasers may reasonably request
within 90 days following the date of the Offering Memorandum.
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<PAGE>
c. The Company will endeavor in good faith, in cooperation with
the Initial Purchasers to qualify the Notes for offering and sale under the
securities and legal investment laws relating to the offering or sale of the
Notes of such jurisdictions as you may reasonably request and to maintain such
qualification in effect for so long as required for the distribution thereof;
except that in no event shall the Company be obligated in connection therewith
to qualify as a foreign corporation or to execute a general consent to service
of process or to take any other action that would subject it to service of
process or taxation other than as to matters relating to sales of Notes in any
jurisdiction in which it is not now so subject.
d. The Company will apply the proceeds from the sale of the
Notes as set forth under "Use of Proceeds" in the Offering Memorandum.
e. The Company will cooperate to cause the Notes to be
designated Private Offerings, Resales and Trading through Automated Linkage
("PORTAL") market securities in accordance with the rules and regulations of the
National Association of Securities Dealers, Inc., relating to trading on the
PORTAL market.
f. So long as any of the Notes are "restricted securities"
within the meaning of Rule 144(a)(3) under the Securities Act and during any
period in which the Company is not subject to Section 13 or 15(d) of the
Exchange Act, the Company will provide to any holder of the Notes or to any
prospective purchaser of the Notes designated by any holder, upon request of
such holder or prospective purchaser, information required to be provided by
Rule 144A(d)(4) of the Securities Act.
g. None of the Company, its subsidiaries or, to the Company's
knowledge, affiliates or any person acting on their behalf (other than the
Initial Purchasers and their respective affiliates, as to which no
representation is made) will solicit any offer to buy or offer or sell the Notes
by means of any form of general solicitation or general advertising (as those
terms are used in Regulation D under the Securities Act) or in any manner
involving a public offering within the meaning of Section 4(2) of the Securities
Act.
h. None of the Company, its subsidiaries or, to the Company's
knowledge, affiliates or any person acting on their behalf (other than the
Initial Purchasers and their respective affiliates, as to which no
representation is made) will offer, sell or solicit offers to buy or otherwise
negotiate in respect of any security
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<PAGE>
(as defined in the Securities Act) which will be integrated with the sale of
the Notes in a manner that would require the registration of the Notes under
the Securities Act.
i. During the period from the Closing Date until two years
after the Closing Date, the Company and its subsidiaries will not, and, to the
Company's knowledge, will not permit any of their "affiliates" (as defined in
Rule 144 under the Securities Act) to, resell any of the Notes that have been
reacquired by them, except for Notes acquired by the Company and its
subsidiaries or any of their affiliates and resold in a transaction registered
under the Securities Act.
j. None of the Company, its subsidiaries or, to the Company's
knowledge, affiliates or any person acting on their behalf (other than the
Initial Purchasers and their respective affiliates, as to which no
representation is made) will engage in any directed selling efforts (as that
term is defined in Regulation S) with respect to the Notes sold pursuant to
Regulation S, and the Company and their affiliates and each person acting on
their behalf (other than the Initial Purchasers and their respective affiliates,
as to which no representation is made) will comply with the offering
restrictions of Regulation S with respect to those Notes sold pursuant thereto.
k. The Company will cooperate with the Initial Purchasers in
arranging for the Notes to be accepted for clearance and settlement through
Euroclear, CEDEL and The Depository Trust Company.
l. Each of the Notes will bear the legend contained in "Notices
to Investors" in the Offering Memorandum for the time period and upon the other
terms stated therein, except as otherwise specified in such section of the
Offering Memorandum.
m. The Company will use its reasonable 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 Notes.
5. PAYMENT OF EXPENSES. Whether or not the transactions
contemplated in this Agreement are consummated or this Agreement is terminated,
the Company hereby agrees to pay all costs and expenses incident to the
performance of the obligations of the Company hereunder, including those in
connection with (i) preparing, printing, duplicating, filing and distributing
the Offering Memorandum and any amendments or supplements thereto (including,
without limitation, fees and expenses
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of the Company's accountants and counsel), the underwriting documents
(including this Agreement and the other Transaction Documents and all other
documents related to the offering of the Notes and/or the TIPS (including
those supplied to the Initial Purchasers in quantities provided for herein),
(ii) the issuance, transfer and delivery of the Notes to the Initial
Purchasers, including any transfer or other taxes payable thereon, (iii) the
qualification of the Notes under state or foreign legal investment,
securities or Blue Sky laws, including the costs of printing and mailing a
preliminary and final "Blue Sky Survey" and the reasonable fees of Counsel
for the Initial Purchasers and such counsel's reasonable disbursements in
relation thereto, (iv) the cost of printing the Notes, (v) all expenses and
listing fees in connection with the application for quotation of the Notes in
the PORTAL market, (vi) the cost and charges of any transfer agent,
registrar, trustee or fiscal paying agent, (vii) the costs and charges of
DTC, Euroclear and CEDEL and (viii) all other costs and expenses incident to
the performance of the obligations of the Company hereunder for which
provision is not otherwise made in this Section 5.
6. CONDITIONS OF INITIAL PURCHASERS' OBLIGATIONS. The obligations
of the Initial Purchasers to purchase and pay for the Notes, as provided herein,
shall be subject to the accuracy of the representations and warranties of the
Company herein contained, as of the date hereof and as of the Closing Date (for
purposes of this Section 6, "Closing Date" shall refer to the Closing Date and
any Option Closing Date), to the absence from any certificates, opinions,
written statements or letters furnished to you or to Counsel for the Initial
Purchasers pursuant to this Section 6 of any misstatement or omission, to the
performance by the Company of its obligations hereunder, and to the following
additional conditions:
a. On the Closing Date, you shall have received:
A. An opinion, dated the Closing Date, of Shearman &
Sterling, special counsel for the Company, substantially to the effect that:
i) the Company is a corporation duly incorporated and
validly existing in good standing under the laws of the State of
Delaware with corporate power and authority under such laws to
own, lease and operate its properties and conduct its business as
described in the Offering Memorandum;
ii) the Notes have been duly authorized by the Company and,
assuming that the Notes have been duly executed by the Company
and authenticated by the Trustee in accordance
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<PAGE>
with the provisions of the Indenture and in the manner
described in the certificate delivered to you on the Closing
Date (which facts have not been determined by an inspection of
the Notes), the Notes have been duly issued and delivered by
the Company and constitute 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 as (x) as the enforcement 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
considered 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, constitutes a
valid and binding obligation of the Company and each of the
Guarantors, enforceable against the Company and each Guarantor in
accordance with its 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 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;
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, assuming
due authorization, execution and delivery by the Initial
Purchasers, constitutes a valid and binding obligation of the
Company, enforceable against the Company in accordance with its
terms, except as (w) the enforcement thereof may be limited
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<PAGE>
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
considered 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 indemnification or
contribution provisions in the Registration Rights Agreement
may not be enforceable;
vi) the Indenture, the Notes and the Subsidiary Guarantees
conform in all material respects to the statements in the
Offering Memorandum relating thereto under the caption
"Description of Notes;"
vii) the Company is not in violation of its certificate of
incorporation or by-laws;
viii) the execution, delivery and performance of this
Agreement and other Transaction Documents and compliance by the
Company 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 and except for the filing of
registration statements under the Securities Act or Exchange Act
applicable in connection with the transactions contemplated by
the Registration Rights Agreements, and qualification of the
Indentures, the Declaration and the Guarantee under the Trust
Indenture Act, in connection with the Registration Rights
Agreements);
ix) the Company is not and, after giving effect to the
offering and sale of the 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;
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<PAGE>
x) 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
xi) no registration under the Securities Act of the Notes
or qualification of the Indenture under the TIA is required for
the sale of the 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 3 of this
Agreement and (ii) the accuracy of the representations and
agreements of the Company and the Guarantors set forth in
Sections 1(s) to (v) and 4(f) to 4(j) of this Agreement and (iii)
that the offer, sale and delivery of the 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 6B
hereof (including any assumptions or qualifications thereto) as to matters of
the laws of the states 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, such counsel shall state that (a) it has acted as special
counsel to the Company 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 Memorandum with certain
officers and employees of the Company 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
23
<PAGE>
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 (vi), (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--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--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, substantially to the effect that:
i) each of the Guarantors has been duly organized and is
validly existing in good standing as a corporation, limited
liability company or partnership under the laws of its
jurisdiction of organization, with power and authority under such
laws to own lease and operate its properties and to conduct its
business 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
the failure to be so qualified would not have been a Material
Adverse Effect;
iii) each of the Indenture and this Agreement has been duly
authorized, executed and delivered by each of the Guarantors;
iv) to the best of such counsel's knowledge, after due
inquiry, all of the outstanding equity interests of each of the
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<PAGE>
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 in the Offering Memorandum relating to
Connecticut Matters and OIG Matters under the caption "Risk
Factors-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
vii) the execution, delivery and performance of this
Agreement and other Transaction 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 its subsidiaries,
taken as a whole, to which the Company or any of the Guarantors
is a party or by which the Company or any of
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<PAGE>
the Guarantors or their respective property is bound except
for such conflicts or breaches or 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 the same as 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, or an attorney
admitted to the practice of law in the State of New Mexico, 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, 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 foregoing,
no facts have come to its attention which caused it to believe that the
statements in the Offering Memorandum under the caption "Risk Factors --
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 required to be stated therein or
necessary 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
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<PAGE>
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 in the Offering Memorandum under
the caption "Risk Factors -- 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 required to be stated therein or necessary 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.
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 in the Offering Memorandum under
the captions "Risk Factors--Risks Related to Prospective Payment System,"
"Risk Factors--Potential Reduction of Reimbursement Rates from Third Party
Payors and Impact on Future Operating Results," "Risk Factors--Investigations;
Uncertain Impact on Future Operating Results," "Risk Factors--Potential Adverse
Impact From Extensive Regulation," "Business--United States Revenue Sources,"
and "Business--Government
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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 do not extend to any other Federal or state laws governing the
licensors 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 in the Offering Memorandum 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 and this Agreement has been duly authorized by each
of Sunrise Healthcare Corporation and SunScript Pharmacy Corporation.
Such counsel may state that such opinions are limited to the matters
governed by the laws of the State of New Mexico.
b. The Initial Purchasers shall have received from Counsel for
the Initial Purchasers, a favorable opinion, dated as of the Closing Date with
respect to the issuance and sale of the Notes, the Offering Memorandum and such
other related matters as you may reasonably require, and the Company shall have
furnished to Counsel for the Initial Purchasers, such documents as they request
for the purpose of enabling them to pass upon such matters.
c. At the Closing Date you shall have received a certificate of
the Chief Financial Officer and the Secretary or Assistant Secretary of the
Company, dated the Closing Date in substantially the form of Exhibit A attached
hereto.
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d. At the time this Agreement is executed and at the Closing
Date, you shall have received a "comfort" letter, from Arthur Andersen LLP,
independent public accountants for the Company and Regency, dated, respectively,
as of the date of this Agreement and as of the Closing Date addressed to the
Initial Purchasers in form and substance satisfactory to the Initial Purchasers.
e. Prior to the Closing Date the Company shall have furnished
to the Initial Purchasers such further information, certificates and documents
as the Initial Purchasers may reasonably request.
f. At the Closing Date, the Notes shall have been approved for
quotation in the PORTAL market.
g. The Company shall have executed the Registration Rights
Agreement and the Initial Purchasers shall have received an original copy
thereof, duly executed by the Company.
h. 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.
i. If any of the conditions specified in this Section 6 shall
not have been fulfilled when and as required by this Agreement, or if any of the
certificates, opinions, written statements or letters furnished to you or to
Counsel for the Initial Purchasers pursuant to this Section 6 shall not be in
all material respects reasonably satisfactory in form and substance to the
Representative and to Counsel for the Initial Purchasers, all obligations of the
Initial Purchasers hereunder may be canceled by you at, or at any time prior to,
the Closing Date and such termination shall be without liability of any party to
any other party except as provided in Section 11(c). Notice of such
cancellation shall be given to the Company in writing, or by telephone, telex or
telegraph, confirmed in writing.
7. INDEMNIFICATION.
a. The Company and the Guarantors agree to indemnify and hold
harmless each of the Initial Purchasers and each person, if any, who controls
any of the Initial Purchasers within the meaning of Section 15 of the Securities
Act or Section 20(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange
29
<PAGE>
Act"), against any and all losses, liabilities, claims, damages and expenses
whatsoever as incurred (including but not limited to attorneys' fees and any
and all expenses whatsoever incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim whatsoever, and
any and all amounts paid in settlement of any claim or litigation, subject to
the last sentence of Section 7(c)), joint or several, to which they or any of
them may become subject under the Securities Act, the Exchange Act or
otherwise, insofar as such losses, liabilities, claims, damages or expenses
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Offering Memorandum, or the Preliminary Offering Memorandum or any amendment
or supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; PROVIDED,
HOWEVER, that the Company and the Guarantors will not be liable in any such
case to the extent but only to the extent that any such loss, liability,
claim, damage or expense arises out of or is based upon any such untrue
statements or omissions from the Preliminary Offering Memorandum that are
corrected in the Offering Memorandum or any such untrue statement or alleged
untrue statement or omission or alleged omission made therein in reliance
upon and in conformity with written information furnished to the Company or
the Guarantors by or on behalf of any Initial Purchaser through the
Representative expressly for use therein. This indemnity agreement will be in
addition to any liability which the Company and the Guarantors may otherwise
have including under this Agreement.
b. Each Initial Purchaser, severally, and not jointly, agrees
to indemnify and hold harmless the Company and the Guarantors, each of the
directors of the Company or the Guarantors, each of the officers of the Company
or the Guarantors, and each other person, if any, who controls the Company or
any of the Guarantors within the meaning of Section 15 of the Securities Act or
Section 20(a) of the Exchange Act, against any losses, liabilities, claims,
damages and expenses whatsoever as incurred (including but not limited to
attorneys' fees and any and all expenses whatsoever incurred in investigating,
preparing or defending against any litigation, commenced or threatened, or any
claim whatsoever, and any and all amounts paid in settlement of any claim or
litigation, subject to the last sentence of Section 7(c)), jointly or severally,
to which they or any of them may become subject under the Securities Act, the
Exchange Act or otherwise, insofar as such losses, liabilities, claims, damages
or expenses (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in the
Offering Memorandum, or the Preliminary Offering Memorandum or any amendment
thereof or supplement thereto, or arise out of or are based upon the omission or
alleged omission
30
<PAGE>
to state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, in each case to the extent,
but only to the extent, that any such loss, liability, claim, damage or
expense arises out of or is based upon any such untrue statement or alleged
untrue statement or omission or alleged omission made therein in reliance
upon and in conformity with written information furnished to the Company or
any of the Guarantors by or on behalf of any Initial Purchaser through the
Representative expressly for use therein; PROVIDED, HOWEVER, that in no case
shall any Initial Purchaser be liable or responsible for any amount in excess
of the underwriting discount applicable to the Notes purchased by such
Initial Purchaser hereunder. This indemnity will be in addition to any
liability which any Initial Purchaser may otherwise have including under this
Agreement. The Company and the Guarantors acknowledge that the statements
set forth in the first sentence of the last paragraph of the cover page, the
information on page vi regarding stabilization, in the third paragraph, the
third sentence of the fourth paragraph, the fifth paragraph and the sixth
paragraph under the caption "Plan of Distribution" in the Offering Memorandum
constitute the only information furnished in writing by or on behalf of any
Initial Purchaser through the Representative expressly for use in the
Offering Memorandum or in any amendment thereof or supplement thereto, as the
case may be.
c. Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 7 unless the indemnifying party
is materially prejudiced by the failure to notify). In case any such action is
brought against any indemnified party, and it notifies an indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
therein, and to the extent it may elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel satisfactory to
such indemnified party. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by the Company or, if the Company is not a
party, by one of the indemnifying parties in connection with the defense of such
action, (ii) the indemnifying parties shall not have employed counsel to have
charge of the defense of such action within a reasonable time after notice of
commencement of the action, or (iii) such indemnified party or parties
31
<PAGE>
shall have reasonably concluded that there may be defenses available to it or
them which are different from or additional to those available to one or all
of the indemnifying parties (in which case the indemnifying parties shall not
have the right to direct the defense of such action on behalf of the
indemnified party or parties), in any of which events such fees and expenses
of one counsel (in addition to any local counsel) for all indemnified parties
shall be borne by the indemnifying parties. Anything in this subsection to
the contrary notwithstanding, an indemnifying party shall not be liable for
any settlement of any claim or action effected without its written consent;
PROVIDED, HOWEVER, that such consent was not unreasonably withheld.
8. CONTRIBUTION. In order to provide for contribution in
circumstances in which the indemnification provided for in Section 7 hereof is
for any reason finally held by a court of competent jurisdiction to be
unavailable from any indemnifying party or is insufficient to hold harmless a
party indemnified thereunder, the Company, the Guarantors and the Initial
Purchasers shall contribute to the aggregate losses, claims, damages,
liabilities and expenses of the nature contemplated by such indemnification
provision (including any investigation, legal and other expenses incurred in
connection with, and any amount paid in settlement (subject to the last sentence
of this Section 8) of, any action, suit or proceeding or any claims asserted,
but after deducting in the case of losses, claims, damages, liabilities and
expenses suffered by the Company, the Guarantors or other Initial Purchasers, as
applicable, any contribution received by the Company or the Guarantors from
persons, other than the Initial Purchaser(s), who may also be liable for
contribution, including persons who control the Company within the meaning of
Section 15 of the Securities Act or Section 20(a) of the Exchange Act, officers
and directors of the Company) as incurred to which the Company and one or more
of the Initial Purchasers may be subject, in such proportions 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 Notes or, if such allocation is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to above but also the relative fault of the Company and the Guarantors and the
Initial Purchasers in connection with the statements or omissions which resulted
in such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative benefits received by the
Company, the Guarantors and the Initial Purchasers shall be deemed to be in the
same proportion as (x) the total proceeds from the offering (net of underwriting
discounts and commissions but before deducting expenses) received by the Company
and (y) the underwriting discounts and commissions received by the Initial
Purchasers respectively. The relative fault of the Company and the Guarantors
and of the Initial Purchasers shall be determined by reference to, among
32
<PAGE>
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 or the Guarantors or the Initial
Purchasers and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The
Company, the Guarantors and the Initial Purchasers agree that it would not be
just and equitable if contribution pursuant to this Section 8 were determined
by pro rata allocation (even if the Initial Purchasers were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above.
Notwithstanding the provisions of this Section 8, (i) in no case shall any
Initial Purchaser be liable or responsible for any amount in excess of the
underwriting discount applicable to the Notes purchased by such Initial
Purchaser hereunder, (ii) 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 and (iii) no Initial Purchaser shall be required to
contribute any amount in excess of the amount by which the total price at
which the Note purchased by it and sold in the Offering were offered to
subsequent purchasers exceeds the amount of any damages that such Initial
Purchaser has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. For purposes of
this Section 8, each person, if any, who controls an Initial Purchaser within
the meaning of Section 15 of the Securities Act or Section 20(a) of the
Exchange Act shall have the same rights to contribution as such Initial
Purchaser, and each person, if any, who controls the Company or the
Guarantors within the meaning of Section 15 of the Securities Act or Section
20(a) of the Exchange Act, each officer and each director of the Company or
the Guarantors shall have the same rights to contribution as the Company and
the Guarantors, subject in each case to clauses (i) and (ii) of this Section
8. Any party entitled to contribution will, promptly after receipt of notice
of commencement of any action, suit or proceeding against such party in
respect of which a claim for contribution may be made against another party
or parties, notify each party or parties from whom contribution may be
sought, but the omission to so notify such party or parties shall not relieve
the party or parties from whom contribution may be sought from any obligation
it or they may have under this Section 8 or otherwise unless the contributing
party is materially prejudiced by the failure to notify. No party shall be
liable for contribution with respect to any action or claim settled without
its consent; PROVIDED, HOWEVER, that such consent was not unreasonably
withheld.
9. DEFAULT BY AN INITIAL PURCHASER. If one or more of the Initial
Purchasers shall fail at the Closing Date or any Option Closing Date to purchase
the Notes which it is obligated to purchase under this Agreement (the "DEFAULTED
NOTES"),
33
<PAGE>
the non-defaulting Initial Purchaser(s) shall have the right, within 24 hours
thereafter, to make arrangements for it or any other Initial Purchaser(s) to
purchase all, but not less than all, of the Defaulted Notes in such amounts
as may be agreed upon and upon the terms herein set forth; if, however, the
non-defaulting Initial Purchaser(s) shall not have completed such
arrangements within such 24-hour period, then this Agreement shall terminate
without liability on the part of the non-defaulting Initial Purchaser(s).
Notwithstanding anything to the contrary above, if the aggregate principal
amount of the Defaulted Notes is not more than one-tenth of the aggregate
principal amount of the 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 Notes set
forth opposite its name in Schedule I bears to the aggregate principal amount
of the 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 Defaulted Notes; PROVIDED that in no event shall the
aggregate principal amount of the Notes which any Initial Purchaser has
agreed to purchase pursuant to Section 2 hereof be increased pursuant to this
Section 9 by an amount in excess of one-ninth of such principal amount of the
Notes without the written consent of such Initial Purchaser.
No action taken pursuant to this Section 9 shall relieve any
defaulting Initial Purchaser from liability in respect of its default.
In the event of any such default which does not result in a
termination of this Agreement, either the non-defaulting Initial Purchaser or
the Company shall have the right to postpone the Closing Date for a period not
exceeding seven days in order to effect any required changes in the Offering
Memorandum or in any other documents or arrangements.
10. SURVIVAL OF REPRESENTATIONS AND AGREEMENTS. All representations
and warranties, covenants and agreements of the Initial Purchasers, the Company
and the Guarantors contained in this Agreement, including the agreements
contained in Section 5, the indemnity agreements contained in Section 7 and the
contribution agreements contained in Section 8, shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
any Initial Purchasers or any agent, representative or controlling person
thereof or by or on behalf of the Company, any Guarantor, any of the officers
and directors or any controlling person thereof, of the Company or any Guarantor
and shall survive delivery of and payment for the Notes to and by the Initial
Purchasers. The representations contained in Section 1 and the agreements
contained in Sections 5, 7, 8 and 11(c) hereof shall survive the termination of
this Agreement, including termination pursuant to Section 9 or 11 hereof.
34
<PAGE>
11. TERMINATION.
a. The Initial Purchasers shall have the right to terminate
this Agreement at any time prior to the Closing Date, if (A) any domestic or
international event or act or occurrence has materially disrupted, or in the
Initial Purchasers' opinion will in the immediate future materially disrupt the
market for the Company's securities or the United States or international
securities markets generally; or (B) if trading on the New York Stock Exchange,
the American Stock Exchange, the Chicago Board and Options Exchange, the Chicago
Mercantile Exchange, the Chicago Board of Trade or The Nasdaq National Market
shall have been suspended, or materially limited; or (C) if a banking moratorium
has been declared by any United States Federal or New York State authority or if
any new restriction materially adversely affecting the distribution of the Notes
shall have become effective; or (D) if any downgrading in the rating of the
Company's debt securities by any "nationally recognized statistical rating
organization" (as defined for purposes of Rule 436(g) under the Securities Act);
or (E)(i) if the United States becomes engaged in hostilities or there is an
escalation of hostilities involving the United States or there is a declaration
of a national emergency or war by the United States or (ii) if there shall have
been such change in political, financial or economic conditions and if the
effect of any such event in the Representative's judgment makes it impracticable
or inadvisable to proceed with the offering, sale and delivery of the Notes, as
the case may be, on the terms contemplated by the Offering Memorandum.
b. Any notice of termination pursuant to this Section 11 shall
be by telephone, telex, or telegraph, confirmed in writing by letter.
c. If this Agreement shall be terminated pursuant to any of the
provisions hereof (other than (i) pursuant to Section 9 or 11(a)(A), (B), (C) or
(E) hereof, (ii) as a result of the material breach of this Agreement by the
Initial Purchasers or (iii) as a result of the failure of Counsel for the
Initial Purchasers to deliver an opinion as provided in Section 6(b) where all
other law firms required to deliver opinions pursuant to Section 6(a) have
provided written confirmation of their willingness to deliver such opinions as
required thereunder), the Company will, subject to demand by you, reimburse the
Initial Purchasers for all out-of-pocket expenses (including the fees and
expenses of their counsel), reasonably incurred by the Initial Purchasers in
connection herewith.
12. NOTICE. All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing and, if sent to any Initial
35
<PAGE>
Purchaser, shall be mailed, delivered, or telexed or telegraphed and confirmed
in writing, to it c/o Bear, Stearns & Co. Inc., 245 Park Avenue, New York, New
York 10167, Attention: Syndicate Department, with a copy to Skadden, Arps,
Slate, Meagher & Flom LLP, 300 South Grand Avenue, Los Angeles, California
90071, Attention: Jonathan H. Grunzweig, Esq.; if sent to the Company, shall be
mailed, delivered, or telegraphed and confirmed in writing to the Company, 101
Sun Avenue N.E., Albuquerque, New Mexico 87109, Attention: Robert F. Murphy,
Esq., Senior Vice President, General Counsel and Secretary, with a copy to
Shearman & Sterling, 555 California Street, Suite 2000, San Francisco,
California 94104, Attention: William H. Hinman, Esq.
13. PARTIES. This Agreement shall insure solely to the benefit of,
and shall be binding upon, the Initial Purchasers, the Company and the
Guarantors and the controlling persons, directors, officers, employees and
agents referred to in Section 7 and 8, and their respective successors and
assigns, and no other person shall have or be construed to have any legal or
equitable right, remedy or claim under or in respect of or by virtue of this
Agreement or any provision herein contained. The term "successors and assigns"
shall not include a purchaser, in its capacity as such, of Notes from any of the
Initial Purchasers.
14. GOVERNING LAW. This Agreement shall be governed by the laws of
the State of New York.
36
<PAGE>
If the foregoing correctly sets forth the understanding between you
and the Company, please so indicate in the space provided below for that
purpose, whereupon this letter shall constitute a binding agreement among us.
Very truly yours,
SUN HEALTHCARE GROUP, INC.
By: /s/ Robert D. Woltil
------------------------------
Name: Robert D. Woltil
Title: Chief Financial Officer
GUARANTORS, as listed on Schedule I to this
Purchase Agreement
By: /s/ Robert D. Woltil
------------------------------
Name: Robert D. Woltil
Title: Authorized Signatory
<PAGE>
Accepted as of the date first above written
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
J.P. MORGAN SECURITIES INC.
NATIONSBANC MONTGOMERY
SECURITIES LLC
SCHRODER & CO. INC.
BY: BEAR, STEARNS, & CO. INC.
By: /S/ Curtis Lane
-------------------------------
Name: Curtis Lane
Title: Senior Managing Director
<PAGE>
SCHEDULE I
GUARANTORS
Accelerated Care Plus, LLC
Americare Homecare, Inc.
Americare of West Virginia, 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
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
Executive Pharmacy Services, Inc.
Fairfield Rehabilitation Center
First Class Pharmacy, Inc.
Fullerton Rehabilitation Center
Glendora Rehabilitation Center
Glenville Health Care, Inc.
Golan Healthcare Group, Inc.
Goodwin Nursing Home, Inc.
Grand Terrace Rehabilitation Center
G-WZ of Stamford, Inc.
Hallmark Health Services, Inc.
Harbor View Rehabilitation Center
Hawthorne Rehabilitation Center
<PAGE>
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
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 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
<PAGE>
Peachwood Physical Therapy, Inc.
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 Health Services, Inc.
Regency High School, Inc.
Regency - North Carolina, Inc.
Regency Outpatient Services, Inc.
Regency Rehab Hospitals, 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 Bernardino Rehabilitation Hospital, Inc.
Savannas Hospital Limited Partnership
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.
SunChoice Medical Supply, Inc.
SunDance Rehabilitation Corporation
SunFactors, Inc.
Sun Healthcare (Europe) LLC
Sun Healthcare, Inc.
Sun Lane Purchase Corporation
Sunmark of New Mexico, Inc.
SunPlus Home Health Services, Inc.
SunQuest Consulting, Inc.
<PAGE>
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.
West Jersey/Mediplex Rehabilitation L.P.
Willowview Rehabilitation Center
Worcester Nursing Center, Inc.
<PAGE>
SCHEDULE II
<TABLE>
NAME OF INITIAL PURCHASER NOTES TO BE PURCHASED
- ------------------------- ---------------------
<S> <C>
Bear, Stearns & Co. Inc. ....................... 62,500,000
Donaldson, Lufkin & Jenrette
Securities Corporation ...................... 18,750,000
J.P. Morgan Securities Inc. .................... 18,750,000
NationsBanc Montgomery Securities LLC .......... 18,750,000
Schroder & Co. Inc. ............................ 6,250,000
------------
Total .......................................... $125,000,000
</TABLE>
<PAGE>
EXHIBIT A
SUN HEALTHCARE GROUP, INC.
OFFICERS' CERTIFICATE
Each of the undersigned Robert D. Woltil, Chief Financial Officer of
Sun Healthcare Group, Inc., a Delaware corporation (the "Company") and Robert F.
Murphy, Senior Vice President, General Counsel and Secretary of the Company,
pursuant to Section 6(c) of the Purchase Agreement, dated April 28, 1998, by and
among the Company, the Guarantors named therein (the "Guarantors"), and Bear,
Stearns & Co. Inc., Donaldson, Lufkin & Jenrette Securities Corporation, J.P.
Morgan Securities Inc., NationsBanc Montgomery Securities LLC and Schroder & Co.
Inc., as initial purchasers (the "Purchase Agreement"), hereby certify on behalf
of the Company that:
(i) The representations and warranties of the Company and the
Guarantors contained in Section 1 of the Purchase Agreement are accurate
with the same force and effect as if made on and as of the date hereof.
(ii) As of the date hereof, the obligations of the Company and the
Guarantors to be performed thereunder on or prior to the date hereof have
been duly performed.
(iii) Subsequent to the respective dates as of which information
is given in the Offering Memorandum, (A) the Company and its subsidiaries
have not sustained any loss or interference with their respective
businesses or properties from (1) fire, flood, hurricane, accident or other
calamity, whether or not covered by insurance, or (2) from any labor
dispute or any legal or governmental proceeding, and (B) there has not been
any change, or any development reasonably likely to involve a prospective
change, in the business, properties, operations, condition (financial or
otherwise), or results of operations of the Company and its subsidiaries
taken as a whole, in the case of either (A) or (B), the effect of which in
such person's reasonable judgment is material and adverse and except in the
case of either (A) or (B) as disclosed in the Offering Memorandum.
Capitalized terms used herein without definition shall have the meanings
given such terms in the Purchase Agreement.
A-1
<PAGE>
Skadden, Arps, Slate, Meagher & Flom LLP, Shearman & Sterling, Sidley &
Austin 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 6 of the Purchase Agreement.
A-2
<PAGE>
$125,000,000 Principal Amount of 9 3/8% Senior Subordinated Notes due 2008
SUN HEALTHCARE GROUP, INC.
(Payment of Principal and Interest Guaranteed by
the Guarantors referred to within)
AMENDMENT NO. 1 TO PURCHASE AGREEMENT
May 26, 1998
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
J.P. MORGAN SECURITIES INC.
NATIONSBANC MONTGOMERY SECURITIES LLC
SCHRODER & CO. INC.
c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, N.Y. 10167
Dear Sirs:
Sun Healthcare Group, Inc., a corporation organized and existing under
the laws of the State of Delaware (the "COMPANY") proposes to amend the Purchase
Agreement (the "PURCHASE AGREEMENT"), dated as of April 29, 1998 by and among
the Company and Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette
Securities Corporation, J.P. Morgan Securities Inc., NationsBanc Montgomery
Securities LLC and Schroder & Co. Inc. (collectively, the "INITIAL
PURCHASERS").
The capitalized terms used in this Amendment No. 1 to Purchase
Agreement (the "AMENDMENT") and not otherwise defined herein shall have the
meanings set froth in the Purchase Agreement.
<PAGE>
1. INDEMNIFICATION. Section 7a of the Purchase Agreement is
hereby amended and restated to read in its entirety as follows:
"a. The Company and the Guarantors agree to indemnify and hold
harmless each of the Initial Purchasers and each person, if any, who controls
any of the Initial Purchasers within the meaning of Section 15 of the Securities
Act or Section 20(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), against any and all losses, liabilities, claims, damages and
expenses whatsoever as incurred (including but not limited to attorneys' fees
and any and all expenses whatsoever incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any claim
whatsoever, and any and all amounts paid in settlement of any claim or
litigation, subject to the last sentence of Section 7(c)), joint or several, to
which they or any of them may become subject under the Securities Act, the
Exchange Act or otherwise, insofar as such losses, liabilities, claims, damages
or expenses (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in the
Offering Memorandum, or the Preliminary Offering Memorandum or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; PROVIDED, HOWEVER, that
the Company and the Guarantors will not be liable in any such case to the extent
but only to the extent that any such loss, liability, claim, damage or expense
arises out of or is based upon any such untrue statements or omissions from the
Preliminary Offering Memorandum that are corrected in the Offering Memorandum or
any such untrue statement or alleged untrue statement or omission or alleged
omission made therein in reliance upon and in conformity with written
information furnished to the Company or the Guarantors by or on behalf of any
Initial Purchaser through the Representative expressly for use therein. The
foregoing indemnity agreement with respect to any untrue statements contained in
or omissions from the Offering Memorandum shall not inure to the benefit of any
Initial Purchaser from whom the person asserting any such losses, liabilities,
claims, damages or expenses purchased Notes, or any person controlling such
Initial Purchaser, if a copy of the Offering Memorandum as then amended or
supplemented (if the Company shall have furnished any amendments or supplements
thereto) was not sent or given by or on behalf of the Initial Purchasers to such
person, if such is required by law to be made available to such person, at or
prior to the written confirmation of the sale of such Notes to such person and
the untrue statement contained in or the omission from such Offering Memorandum
was corrected in the Offering Memorandum as amended or supplemented. This
indemnity agreement will be in addition to any liability which the Company and
the Guarantors may otherwise have including under this Agreement."
2
<PAGE>
2. EFFECT OF AMENDMENT. Except as expressly modified by this
Amendment, the Purchase Agreement shall continue to be and remain in full force
and effect in accordance with its terms. Any future reference to the Purchase
Agreement shall be deemed to be a reference to the Purchase Agreement as
modified by this Amendment.
3. PARTIES. This Amendment shall insure solely to the benefit of,
and shall be binding upon, the Initial Purchasers, the Company and the
Guarantors and the controlling persons, directors, officers, employees and
agents referred to in Section 7 and 8 of the Purchase Agreement, and their
respective successors and assigns, and no other person shall have or be
construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Amendment or any provision herein contained.
The term "successors and assigns" shall not include a purchaser, in its capacity
as such, of Notes from any of the Initial Purchasers.
3. GOVERNING LAW. This Amendment shall be governed by the laws of
the State of New York.
3
<PAGE>
If the foregoing correctly sets forth the understanding between you
and the Company, please so indicate in the space provided below for that
purpose, whereupon this letter shall constitute a binding agreement among us.
Very truly yours,
SUN HEALTHCARE GROUP, INC.
By: /s/ Robert D. Woltil
-------------------------------------
Name: Robert D. Woltil
Title: Chief Financial Officer
GUARANTORS, as listed on Schedule I to the
Purchase Agreement
By: /s/ Robert D. Woltil
-------------------------------------
Name: Robert D. Woltil
Title: Authorized Signatory
<PAGE>
Accepted as of the date first above written
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
J.P. MORGAN SECURITIES INC.
NATIONSBANC MONTGOMERY
SECURITIES LLC
SCHRODER & CO. INC.
BY: BEAR, STEARNS, & CO. INC.
By: /s/ Curtis Lane
-------------------------------------
Name: Curtis Lane
Title: Senior Managing Director
<PAGE>
Exhibit 5.1
, 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, filed with the
Securities and Exchange Commission (the "Commission") on , 1998, of
$150,000,000 aggregate principal amount of the Company's 9 3/8% Series B
Senior Subordinated Notes due 2008 (the "Notes"). The Notes and the
guarantees in respect thereof (the "Guarantees") were issued pursuant to the
Indenture (the "Indenture"), dated as of May 4, 1998, between the Company and
U.S. Bank 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 April 29, 1998
among the Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette Securities
Corporation, J.P. Morgan & Co., NationsBanc Montgomery Securities LLC and
Schroder & Co. 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 3/8% Series A
Senior Subordinated Notes due 2008 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 3/8% Series B Senior Subordinated Notes due 2008,
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,
------------------------
Shearman & Sterling
<PAGE>
Exhibit 8.1
, 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 3/8% Series B
Senior Subordinated Notes due 2008 for any and all of its 9 3/8% Series A
Senior Subordinated Notes due 2008 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"), filed with the Securities and
Exchange Commission (the "Commission") on , 1998.
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 3/8% Series B Senior Subordinated Notes due 2008, 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,
-------------------------
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
FORM OF 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/A-2 for the
year ended December 31, 1997 and our report dated February 14, 1997 related to
Regency Health Services, Inc. and subsidiaries' financial statements as of and
for the year ended December 31, 1996 included in Sun Healthcare Group, Inc. and
subsidiaries' Current Report on Form 8-K/A-2 filed with the Securities and
Exchange Commission on April 16, 1998 and to all references to our Firm included
in this registration statement.
<PAGE>
LETTER OF TRANSMITTAL
SUN HEALTHCARE GROUP, INC.
OFFER TO EXCHANGE
9 3/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2008,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED,
FOR ANY AND ALL OUTSTANDING
9 3/8% SERIES A SENIOR SUBORDINATED NOTES DUE 2008,
PURSUANT TO THE PROSPECTUS, DATED , 1998
----------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY
, 1998, UNLESS EXTENDED (THE "EXPIRATION DATE").
TENDERS MAY BE WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK
CITY TIME, ON , 1998.
- --------------------------------------------------------------------------------
DELIVERY TO: U.S. Bank Trust National Association, Exchange Agent
<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 4th Floor
St. Paul, Minnesota 55101 Bond-Drop Window
St. Paul, Minnesota 55101
</TABLE>
ATTENTION: Therese Linscheid
TELEPHONE: (612) 244-1234
FACSIMILE: (612) 244-1537
Delivery of this instrument to an address other than as set forth above,
or transmission of instructions via facsimile other than as set forth above,
will not constitute a valid delivery.
The undersigned acknowledges receipt of the Prospectus, dated ,
1998 (the "Prospectus"), of Sun Healthcare Group, Inc., a Delaware
corporation (the "Company") and the Guarantors named therein, and this Letter
of Transmittal (this "Letter"), which together constitute the offer (the
"Exchange Offer") to exchange an aggregate principal amount of up to
$150,000,000 of 9 3/8% Series B Senior Subordinated Notes dues 2008 (the "New
Notes") for an equal principal amount of the outstanding 9 3/8% Series A
Senior Subordinated Notes due 2008 (the "Old Notes").
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount at maturity equal to that of the
surrendered Old Note. The New Notes will accrue interest at the applicable
per annum rate from May 4, 1998 (the "Issue Date"). Interest on the New Notes
is payable on November 1 and May 1 of each year commencing November 1, 1998.
In the event that neither the consummation of the Exchange Offer nor the
declaration by the Commission of the Shelf Registration Statement to be
effective (each a "Registration Default") occurs on or prior to the 225th
calendar day after
1
<PAGE>
the Issue Date, then Sun is obligated to pay liquidated damages ("Liquidated
Damages") to each Holder, with respect to the first 90-day period immediately
following the occurrence of such 225 day period, in an amount equal to $.05 per
week per $1,000 principal amount of the Notes held by such Holder. Liquidated
Damages will continue to 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 such Registration Default is 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. In the event that the Shelf Registration Statement ceases to be
effective at any time, during the period the Company is required to keep such
Shelf Registration Statement effective, Sun is obligated to pay liquidated
damages at the rate set forth above. The Company reserves the right, at any time
or from time to time, to extend the Exchange Offer at its discretion, in which
event the term "Expiration Date" shall mean the latest time and date to which
the Exchange Offer is extended. The Company shall notify the holders of the Old
Notes of any extension 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.
This Letter is to be used: (i) by all Holders who are not members of the
Automated Tender Offering Program ("ATOP") at the Depository Trust Company (the
"Book-Entry Transfer Facility"); (ii) by Holders who are ATOP members but choose
not to use ATOP; or (iii) if the Old Securities are to be tendered in accordance
with the guaranteed delivery procedures set forth in "The Exchange Offer"
section of the Prospectus. Holders of Old Notes whose certificates are not
immediately available, or who are unable to deliver their certificates or
confirmation of the book-entry tender of their Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility (a "Book-Entry
Confirmation") and all other documents required by this Letter to the Exchange
Agent on or prior to the Expiration Date, must tender their Old Notes according
to the guaranteed delivery procedures set forth in "The Exchange Offer--
Guaranteed Delivery Procedures" section of the Prospectus. See Instruction 1.
Delivery of documents to the Book-Entry Transfer Facility does not constitute
delivery to the Exchange Agent.
2
<PAGE>
The undersigned has completed the appropriate boxes below and signed this
Letter to indicate the action the undersigned desires to take with respect to
the Exchange Offer.
List below the Old Notes to which this Letter relates. If the space provided
below is inadequate, the certificate numbers and principal amount of Old Notes
should be listed on a separate signed schedule affixed hereto.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES
-------------------------------------------------------------------------------------------
1 2 3
AGGREGATE
NAME(S) AND ADDRESS(ES) OF PRINCIPAL PRINCIPAL
REGISTERED HOLDER(S) CERTIFICATE AMOUNT OF OLD AMOUNT
(PLEASE FILL IN, IF BLANK) NUMBER(S)* NOTE(S) TENDERED**
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
----------------------------------------------
----------------------------------------------
----------------------------------------------
----------------------------------------------
----------------------------------------------
----------------------------------------------
----------------------------------------------
TOTAL
- ---------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed if Old Notes are being tendered by book-entry
transfer.
** Unless otherwise indicated in this column, a holder will be deemed to have
tendered ALL of the Old Notes represented by the Old Notes indicated in
column 2. See Instruction 2. Old Notes tendered hereby must be in
denominations of principal amount of $1,000 and any integral multiple
thereof. See Instruction 1.
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution ______________________________________________
Account Number _________________ Transaction Code Number ________________
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING:
Name(s) of Registered Holder(s) ____________________________________________
Window Ticket Number (if any) ______________________________________________
Date of Execution of Notice of Guaranteed Delivery _________________________
Name of Institution which guaranteed delivery ______________________________
If Delivered by Book-Entry Transfer, Complete the Following:
Account Number _________________ Transaction Code Number ________________
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name: ______________________________________________________________________
Address: ___________________________________________________________________
3
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount of Old
Notes indicated above. Subject to, and effective upon, the acceptance for
exchange of the Old Notes tendered hereby, the undersigned hereby sells, assigns
and transfers to, or upon the order of, the Company all right, title and
interest in and to such Old Notes as are being tendered hereby.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Old Notes tendered
hereby and that the Company will acquire good and unencumbered title thereto,
free and clear of all liens, restrictions, charges and encumbrances and not
subject to any adverse claim when the same are accepted by the Company. The
undersigned hereby further represents that any New Notes acquired in exchange
for Old Notes tendered hereby will have been acquired in the ordinary course of
business of the person receiving such New Notes, whether or not such person is
the undersigned, that neither the holder of such Old Notes nor any such other
person is engaged in, or intends to engage in a distribution of such New Notes,
or has an arrangement or understanding with any person to participate in the
distribution of such New Notes, and that neither the holder of such Old Notes
nor any such other person is an "affiliate," as defined in Rule 405 under the
Securities Act of 1933, as amended (the "Securities Act"), of the Company.
The undersigned also acknowledges that this Exchange Offer is being made
based upon the Company's understanding of an interpretation 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), that the New Notes
issued in exchange for the Old Notes pursuant to the Exchange Offer may be
offered for resale, resold and 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 such holder that is an "affiliate" of
the Company within the meaning of 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 the distribution of such 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. If the undersigned is a broker-dealer that will receive New
Notes for its own account in exchange for Old Notes, it represents that the Old
Notes to be exchanged for the New Notes were acquired by it as a result of
market-making activities or other trading activities and acknowledges that it
will deliver a prospectus in connection with any resale of such New Notes;
however, by so acknowledging and by delivering a prospectus, the undersigned
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives of
the undersigned and shall not be affected by, and shall
4
<PAGE>
survive, the death or incapacity of the undersigned. This tender may be
withdrawn only in accordance with the procedures set forth in "The Exchange
Offer--Withdrawal of Tenders" section of the Prospectus.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please deliver the New Notes (and, if applicable,
substitute certificates representing Old Notes for any Old Notes not exchanged)
in the name of the undersigned or, in the case of a book-entry delivery of Old
Notes, please credit the account indicated above maintained at the Book-Entry
Transfer Facility. Similarly, unless otherwise indicated under the box entitled
"Special Delivery Instructions" below, please send the New Notes (and, if
applicable, substitute certificates representing Old Notes for any Old Notes not
exchanged) to the undersigned at the address shown above in the box entitled
"Description of Old Notes."
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES"
ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES AS
SET FORTH IN SUCH BOX ABOVE.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C>
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4) (SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if To be completed ONLY if certificates
certificates for Old Notes not for Old Notes not exchanged and/or New
exchanged and/or New Notes are to be Notes are to be sent to someone other
issued in the name of and sent to than the person(s) whose signature(s)
someone other than the person(s) whose appear(s) on this Letter below or to
signature(s) appear(s) on this Letter such person(s) at an address other than
below, or if Old Notes delivered by shown in the box entitled "Description
book-entry transfer which are not of Old Notes" on this Letter above.
accepted for exchange are to be
returned by credit to an account
maintained at the Book-Entry Transfer
Facility other than the account
indicated above.
Issue New Notes and/or Old Notes to Mail New Notes and/or Old Notes to:
(Please Type or Print): (Please Type or Print):
Name(s): Name(s):
Address: Address:
(Complete accompany Substitute Form (Complete accompany Substitute Form
W-9) W-9)
Credit unexchanged Old Notes Credit unexchanged Old Notes delivered
delivered by book-entry transfer to the by book-entry transfer to the
Book-Entry Transfer Facility account Book-Entry Transfer Facility account
set forth below: set forth below:
(BOOK-ENTRY TRANSFER FACILITY (BOOK-ENTRY TRANSFER FACILITY
ACCOUNT NUMBER, IF APPLICABLE) ACCOUNT NUMBER, IF APPLICABLE)
- --------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C>
BENEFICIAL OWNER(S)--RESIDENCE
- --------------------------------------------------------------------------------
STATE OF DOMICILE/PRINCIPLE PLACE PRINCIPAL AMOUNT OF
OF BUSINESS OF EACH OLD NOTE HELD FOR
BENEFICIAL OWNER OF OLD NOTES ACCOUNT OF BENEFICIAL OWNER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
BENEFICIAL OWNER(S)--PURCHASER STATUS
The beneficial owner of each of the Old Notes described herein is (check
the box that applies):
/ / A "Qualified Institutional Buyer" (as defined in Rule 144A under the
Securities Act)
/ / A non "U.S. person" (as defined in Regulation S of the Securities
Act) that purchased the Old Notes outside the United States in
accordance with Rule 904 of the Securities Act
/ / Other (describe) ___________________________________________________
______________________________________________________________________
----------------------------------------------------------------------------
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE
CERTIFICATES FOR OLD NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER
REQUIRED DOCUMENTS OR THE NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY
THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION
DATE.
----------------------------------------------------------------------------
PLEASE READ THIS LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
----------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(Complete accompanying Substitute Form W-9)
(SIGNATURE(S) OF OWNER) (DATE)
Area Code and Telephone Number: ____________________________________________
If a holder is tendering any Old Notes, this Letter must be signed by
the registered holder(s) as the name(s) appear(s) on the certificate(s) for
the Old Notes or by any person(s) authorized to become registered holder(s)
by endorsements and documents transmitted herewith. If signature is by a
trustee, executor, administrator, guardian, officer or other person acting
in a fiduciary or representative capacity, please set forth their full
title. See Instruction 3.
Name(s): ___________________________________________________________________
____________________________________________________________________________
(PLEASE TYPE OR PRINT)
Capacity: __________________________________________________________________
Address: ___________________________________________________________________
____________________________________________________________________________
(INCLUDING ZIP CODE)
Principal place of business (if different from address listed above): ______
____________________________________________________________________________
____________________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone No.: ( )_______________________________________
----------------------------------------------------------------------------
SIGNATURE GUARANTEE
(if required by Instruction 3)
Signature(s) Guaranteed by an Eligible Institution: ________________________
(AUTHORIZED SIGNATURE)
____________________________________________________________________________
(TITLE)
____________________________________________________________________________
(NAME AND FIRM)
Dated: _____________________ , 1998
----------------------------------------------------------------------------
7
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER TO EXCHANGE
9 3/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2008,
WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
FOR ANY AND ALL OUTSTANDING
9 3/8% SERIES A SENIOR SUBORDINATED NOTES DUE 2008
SUN HEALTHCARE GROUP, INC.
1. DELIVERY OF THIS LETTER AND OLD NOTES; GUARANTEED DELIVERY PROCEDURES.
This Letter of Transmittal is to be used: (i) by all Holders who are not
ATOP members, (ii) by Holders who are ATOP members but choose not to use ATOP or
(iii) if the Old Securities are to be tendered in accordance with the guaranteed
delivery procedures set forth in the Prospectus under "The Exchange
Offer--Guaranteed Delivery Procedures." To validly tender Old Securities, a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof) with any required signature guarantees and all other required documents
must be received by the Exchange Agent at its address set forth on the cover of
this Letter of Transmittal prior to the Expiration Date or the Holder must
properly complete and duly execute an ATOP ticket in accordance with the
Book-Entry Transfer Facility procedures. Otherwise, the Holder must comply with
the guaranteed delivery procedures set forth below. Old Notes tendered hereby
must be in denominations of principal amount at maturity of $1,000 and any
integral multiple thereof.
Holders of Old Notes whose certificates for Old Notes are not immediately
available or who cannot deliver their certificates and all other required
documents to the Exchange Agent on or prior to the Expiration Date, or who
cannot complete the procedure for book-entry transfer on a timely basis, may
tender their Old Notes pursuant to the guaranteed delivery procedures set forth
in "The Exchange Offer-- Guaranteed Delivery Procedures" section of the
Prospectus. Pursuant to such procedures, (i) such tender must be made through an
Eligible Institution (as defined below), (ii) prior to the Expiration Date, the
Exchange Agent must receive from such Eligible Institution a properly completed
and duly executed Letter of Transmittal (or 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, or a Book-Entry Confirmation, as the case may be, and any other documents
required by this letter 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 Book-Entry Confirmation, as the case may
be, and all other documents required by this Letter, are received by the
Exchange Agent within three NYSE trading days after the date of execution of the
Notice of Guaranteed Delivery.
The method of delivery of this Letter, the Old Notes and all other required
documents is at the election and risk of the tendering holders, but the delivery
will be deemed made only when actually received or confirmed by the Exchange
Agent. If Old Notes are sent by mail, it is suggested that the mailing be made
sufficiently in advance of the Expiration Date to permit delivery to the
Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date.
See "The Exchange Offer" section of the Prospectus.
8
<PAGE>
2. PARTIAL TENDERS (NOT APPLICABLE TO HOLDERS OF OLD NOTES WHO TENDER BY
BOOK-ENTRY TRANSFER).
If less than all of the Old Notes evidenced by a submitted certificate are
to be tendered, the tendering holder(s) should fill in the aggregate principal
amount of Old Notes to be tendered in the box above entitled "Description of Old
Notes--Principal Amount Tendered." A reissued certificate representing the
balance of nontendered Old Notes will be sent to such tendering holder, unless
otherwise provided in the appropriate box on this Letter, promptly after the
Expiration Date. All of the Old Notes delivered to the Exchange Agent will be
deemed to have been tendered unless otherwise indicated.
3. SIGNATURES OF THIS LETTER; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF
SIGNATURES.
If this Letter is signed by the registered holder of the Old Notes tendered
hereby, the signature must correspond exactly with the name as written on the
face of the certificates without any change whatsoever.
If any tendered Old Notes are owned of record by two or more joint owners,
all such owners must sign this Letter.
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this Letter as there are different registrations of certificates.
When this Letter is signed by the registered holder of the Old Notes
specified herein and tendered hereby, no endorsements of certificates or
separate bond powers are required. If, however, the New Notes are to be issued,
or any untendered Old Notes are to be reissued, to a person other than the
registered holder, then endorsements of any certificates transmitted hereby or
separate bond powers are required. Signatures on such certificates must be
guaranteed by an Eligible Institution.
If this Letter is signed by a person other than the registered holder of any
certificates specified herein, such certificates must be endorsed or accompanied
by appropriate bond powers, in either case signed exactly as the name of the
registered holder appears on the certificates and the signatures on such
certificates must be guaranteed by an Eligible Institution.
If this Letter or any certificates 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,
proper evidence satisfactory to the Company of their authority to so act must be
submitted.
Endorsements on certificates for Old Notes or signatures on bond powers
required by this Instruction 3 must be guaranteed by a firm which is a member of
a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc., by a commercial bank or trust company
having an office or correspondent in the United States or by an "eligible
guarantor" institution within the meaning of Rule 17Ad-15 under the Securities
Exchange Act of 1934 (an "Eligible Institution").
Signatures on this Letter need not be guaranteed by an Eligible Institution,
provided the Old Notes are tendered: (i) by a registered holder of Old Notes
(which term, for purposes of the Exchange Offer, includes any participant in the
Book-Entry Transfer Facility system whose name appears on a security position
listing as the holder of such Old Notes) tendered who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery Instructions" on
this Letter or (ii) for the account of an Eligible Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering holders of Old Notes should indicate in the applicable box the
name and address to which New Notes issued pursuant to the Exchange Offer and/or
substitute certificates evidencing Old Notes not exchanged are to be issued or
sent, if different from the name or address of the person signing this Letter.
In the case of issuance in a different name, the employer identification or
social security number of the
9
<PAGE>
person named must also be indicated. A holder of Old Notes tendering Old Notes
by book-entry transfer may request that Old Notes not exchanged be credited to
such account maintained at the Book-Entry Transfer Facility as such holder of
Old Notes may designate hereon. If no such instructions are given, such Old
Notes not exchanged will be returned to the name or address of the person
signing this Letter.
5. TAX IDENTIFICATION NUMBER.
Federal income tax law generally requires that a tendering holder whose Old
Notes are accepted for exchange must provide the Company (as payor) with such
Holder's correct Taxpayer Identification Number ("TIN") on Substitute Form W-9
below, which, in the case of a tendering holder who is an individual, is his or
her social security number. If the Company is not provided with the current TIN
or an adequate basis for an exemption, such tendering holder may be subject to a
$50 penalty imposed by the Internal Revenue Service. In addition, delivery of
New Notes to such tendering holder may be subject to backup withholding in an
amount equal to 31% of all reportable payments made after the exchange. If
withholding results in an overpayment of taxes, a refund may be obtained.
Exempt holders of Old Notes (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. See the enclosed Guidelines of Certification of Taxpayer
Identification Number on Substitute Form W-9 (the "W-9 Guidelines") for
additional instructions.
To prevent backup withholding, each tendering holder of Old Notes must
provide its correct TIN by completing the "Substitute Form W-9" set forth below,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN) and that (i) the holder is exempt from backup withholding, (ii) the holder
has not been notified by the Internal Revenue Service that such holder is
subject to a backup withholding as a result of a failure to report all interest
or dividends or (iii) the Internal Revenue Service has notified the holder that
such holder is no longer subject to backup withholding. If the tendering holder
of Old Notes is a nonresident alien or foreign entity not subject to backup
withholding, such holder must give the Company a completed Form W-8, Certificate
of Foreign Status. These forms may be obtained from the Exchange Agent. If the
Old Notes are in more than one name or are not in the name of the actual owner,
such holder should consult the W-9 Guidelines for information on which TIN to
report. If such holder does not have a TIN, such holder should consult the W-9
Guidelines for instructions on applying for a TIN, check the box in Part 2 of
the Substitute Form W-9 and write "applied for" in lieu of its TIN. Note:
checking this box and writing "applied for" on the form means that such holder
has already applied for a TIN or that such holder intends to apply for one in
the near future. If such holder does not provide its TIN to the Company within
60 days, backup withholding will begin and continue until such holder furnishes
its TIN to the Company.
6. TRANSFER TAXES.
The Company will pay all transfer taxes, if any, applicable to the transfer
of Old Notes to it or its order pursuant to the Exchange Offer. If, however, New
Notes and/or substitute Old Notes not exchanged 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 hereby, or if tendered Old Notes are registered
in the name of any person other than the person signing this Letter, or if a
transfer tax is imposed for any reason other than the transfer of Old Notes to
the Company or its order pursuant to the Exchange Offer, 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 herewith, the amount of such
transfer taxes will be billed directly to such tendering holder.
Except as provided in this Instruction 6, it is not necessary for transfer
tax stamps to be affixed to the Old Notes specified in this Letter.
10
<PAGE>
7. WAIVER OF CONDITIONS.
The Company reserves the absolute right to waive satisfaction of any or all
conditions enumerated in the Prospectus.
8. NO CONDITIONAL TENDERS.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Old Notes, by execution of this Letter, shall
waive any right to receive notice of the acceptance of their Old Notes for
exchange.
Neither the Company, the Exchange Agent nor any other person is obligated to
give notice of any defect or irregularity with respect to any tender of Old
Notes nor shall any of them incur any liability for failure to give any such
notice.
9. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES.
Any holder whose Old Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above for further
instructions.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter, may be directed to the
Exchange Agent, at the address and telephone number indicated above.
11
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
PAYOR'S NAME: SUN HEALTHCARE GROUP
<TABLE>
<C> <S> <C>
- ---------------------------------------------------------------------------------------
SUBSTITUTE Name:
FORM W-9 / / Individual/Sole
Proprietor / / Corporation / / Partnership / / Other
-----------------------------------------------------
Department of the Treasury Part 1--PLEASE
Internal Revenue Service PROVIDE YOUR TIN IN
Payor's Request For Taxpayer THE BOX AT RIGHT TIN:
Identification Number ("TIN") AND CERTIFY BY (Social Security Number or
and Certification SIGNING AND DATING Employer Identification Number)
BELOW.
-----------------------------------------------------
Part 2--TIN Applied For / /
- ---------------------------------------------------------------------------------------
</TABLE>
CERTIFICATION: UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT:
(1) the number shown on this form is my correct Taxpayer Identification
Number (or I am waiting for a number to be issued to me).
(2) I am not subject to backup withholding either because:
(a) I am exempt from backup withholding, or
(b) I have not been notified by the Internal Revenue Service (the "IRS")
that I am subject to backup withholding as a result of a failure to
report all interest or dividends, or
(c) the IRS has notified me that I am no longer subject to backup
withholding, and
(3) any other information provided on this form is true and correct.
SIGNATURE _______________________________________ DATE ____________, 1998
NAME _______________________________________________________________________
ADDRESS ____________________________________________________________________
CITY ______________________________ STATE _________ ZIP CODE _________
----------------------------------------------------------------------------
You must cross out item (2) of the above certification if you have been
notified by the IRS that you are subject to backup withholding because of
underreporting of interest or dividends on your tax return and you have not
been notified by the IRS that you are no longer subject to backup
withholding.
----------------------------------------------------------------------------
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 2 OF SUBSTITUTE FORM W-9
----------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (a) I have mailed or delivered
an application to receive a taxpayer identification number to the
appropriate Internal Revenue Service Center or Social Security
Administration Office or (b) I intend to mail or deliver an application in
the near future. I understand that if I do not provide a taxpayer
identification number by the time of the exchange, 31 percent of all
reportable payments made to me thereafter will be withheld until I provide a
number.
SIGNATURE ___________________________________________ DATE ______________
----------------------------------------------------------------------------
12
<PAGE>
NOTICE OF GUARANTEED DELIVERY FOR
SUN HEALTHCARE GROUP, INC.
This form or one substantially equivalent hereto must be used to accept the
Exchange Offer of Sun Healthcare Group, Inc. (the "Company") made pursuant to
the Prospectus, dated , 1998 (the "Prospectus"), and the enclosed
Letter of Transmittal (the "Letter of Transmittal") if certificates for Old
Notes are not immediately available or if the procedure for book-entry transfer
cannot be completed on a timely basis or time will not permit all required
documents to reach the Company prior to 5:00 P.M., New York City time, on the
Expiration Date of the Exchange Offer. Such form may be delivered or transmitted
by facsimile transmission, mail or hand delivery to First Trust National
Association (the "Exchange Agent") as set forth below. In addition, in order to
utilize the guaranteed delivery procedure to tender Old Notes pursuant to the
Exchange Offer, a completed, signed and dated Letter of Transmittal (or
facsimile thereof) must also be received by the Exchange Agent prior to 5:00
P.M., New York City time, on the Expiration Date. Capitalized terms not defined
herein are defined in the Prospectus.
DELIVERY TO: U.S. Bank Trust National Association, Exchange Agent
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 4th Floor Bond-Drop Window
St. Paul, Minnesota 55101
ATTENTION: Therese Linscheid
Telephone: (612) 244-1234
Facsimile: (612) 244-1537
Delivery of this instrument to an address other than as set forth above, or
transmission of instructions via facsimile other than as set forth above, will
not constitute a valid delivery.
<PAGE>
Ladies and Gentlemen:
By execution hereof, the undersigned acknowledges receipt of the
Prospectus dated , 1998 (as the same may be amended from time to time,
the "Prospectus") of Sun Healthcare Group, Inc., a Delaware corporation (the
"Company"), relating to the Securities of the Issuers, and the accompanying
Letter of Transmittal and the instructions thereto (the "Letter of
Transmittal"), which together constitute the Company's offer to exchange (the
"Exchange Offer") registered 9 3/8% Series B Senior Subordinated Notes due
2008 (the "New Notes") for any and all outstanding 9 3/8% Series A Senior
Subordinated Notes due 2008 (the "Old Notes"), upon the terms and subject to
the conditions described in the Prospectus.
Upon the terms and conditions set forth in the Prospectus and the
accompanying Letter of Transmittal, the undersigned hereby tenders to the
Company the principal amount of Old Notes set forth below, pursuant to the
guaranteed delivery procedure described in "The Exchange Offer--Guaranteed
Delivery Procedures" section of the Prospectus.
All authority conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall survive the death or incapacity of the undersigned and
every obligation of the undersigned under the Letter of Transmittal shall be
binding upon the undersigned's heirs, personal representatives, executors,
administrators, successors, assigns, trustees in bankruptcy and other legal
representatives.
<TABLE>
<S> <C>
Principal Amount of Old Notes Name(s) of Record Holders(s): Tendered:
$
Certificate Nos. (if available): Address(es):
If Old Notes will be delivered by book-entry
transfer to The Depositary Trust Company,
provide account number.
Account Number Area Code and Telephone Number(s):
Signature(s):
</TABLE>
THE ACCOMPANYING GUARANTEE MUST BE COMPLETED.
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm that is a 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 correspondent in the United
States or any "eligible guarantor" institution within the meaning of Rule
17Ad-15 of the Exchange Act of 1934, as amended, hereby (a) guarantees to
deliver to the Exchange Agent, at one of its addresses set forth above, the
certificates representing all tendered Old Notes, in proper form for transfer,
or a Book-Entry Confirmation, together with a properly completed and duly
executed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees, and any other documents required by the Letter of
Transmittal within three New York Stock Exchange, Inc. trading days after the
date of execution of this Notice of Guaranteed Delivery.
<TABLE>
<S> <C>
Name of Firm:
Address: (AUTHORIZED SIGNATURE)
Title:
Area Code and Name:
Telephone Number: Date:
</TABLE>
<PAGE>
SUN HEALTHCARE, INC.
OFFER TO EXCHANGE
9 3/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2008
WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
FOR ANY AND ALL OUTSTANDING
9 3/8% SERIES A SENIOR SUBORDINATED NOTES DUE 2008
To: Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
Upon and subject to the terms and conditions set forth in the Prospectus,
dated , 1998 (the "Prospectus"), and the enclosed Letter of
Transmittal (the "Letter of Transmittal"), an offer to exchange (the
"Exchange Offer") the registered 9 3/8% Series B Senior Subordinated Notes
due 2008 (the "New Notes") for any and all outstanding 9 3/8% Series A Senior
Subordinated Notes due 2008 (the "Old Notes") is being made pursuant to such
Prospectus. The Exchange Offer is being made in order to satisfy certain
obligations of Sun Healthcare, Inc. (the "Company") contained in the
Registration Rights Agreement, dated as of May 4, 1998, among the Company,
the Guarantors and Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette
Securities Corporation, J.P. Morgan & Co., NationsBanc Montgomery Securities
LLC and Schroder & Co. Inc. (the "Initial Purchasers")
We are requesting that you contact your clients for whom you hold Old Notes
regarding the Exchange Offer. For your information and for forwarding to your
clients for whom you hold Old Notes registered in your name or in the name of
your nominee, or who hold Old Notes registered in their own names, we are
enclosing the following documents:
1. Prospectus dated , 1998;
2. The Letter of Transmittal for your use and for the information of your
clients;
3. A Notice of Guaranteed Delivery to be used to accept the Exchange Offer
if certificates for Old Notes are not immediately available or time will not
permit all required documents to reach the Exchange Agent prior to the
Expiration Date (as defined below) or if the procedure for book-entry transfer
cannot be completed on a timely basis; and
4. A form of letter which may be sent to your clients for whose account you
hold Old Notes registered in your name or the name of your nominee, with space
provided for obtaining such clients' instructions with regard to the Exchange
Offer.
Your prompt action is requested. The Exchange Offer will expire at 5:00
p.m., New York City time, on , 1998 (the "Expiration Date") (20
business days following the commencement of the Exchange Offer), unless extended
by the Company. The Old Notes tendered pursuant to the Exchange Offer may be
withdrawn at any time before the Expiration Date.
To participate in the Exchange Offer, a duly executed and properly completed
Letter of Transmittal (or facsimile thereof), with any required signature
guarantees and any other required documents, should be sent to the Exchange
Agent and certificates representing the Old Notes should be delivered to the
Exchange Agent, all in accordance with the instructions set forth in the Letter
of Transmittal and the Prospectus.
If holders of Old Notes wish to tender, but it is impracticable for them to
forward their certificates for Old Notes prior to the expiration of the Exchange
Offer or to comply with the book-entry transfer procedures on a timely basis, a
tender may be effected by following the guaranteed delivery procedures described
in the Prospectus under "The Exchange Offer--Guaranteed Delivery Procedures."
Additional copies of the enclosed material may be obtained from U.S. Bank
Trust National Association, the Exchange Agent, First Trust Center, 180 East
Fifth Street, St. Paul, Minnesota 55101, Attention: Therese Linscheid,
Telephone: (612) 244-1234, Facsimile: (612) 244-1537.
<PAGE>
SUN HEALTHCARE GROUP, INC.
OFFER TO EXCHANGE
9 3/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2008,
WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
FOR ANY AND ALL OUTSTANDING
9 3/8% SERIES A SENIOR SUBORDINATED NOTES DUE 2008,
To Our Clients:
Enclosed for your consideration is a Prospectus of Sun Healthcare Group,
Inc., a Delaware corporation (the "Company" or "Sun") and the Guarantors
named therein (the "Guarantors"), dated , 1998 (the "Prospectus"), and
the enclosed Letter of Transmittal (the "Letter of Transmittal") relating to
the offer to exchange (the "Exchange Offer") registered 9 3/8% Series B
Senior Subordinated Notes due 2008 (the "New Notes") for any and all
outstanding 9 3/8% Series A Senior Subordinated Notes due 2008 (the "Old
Notes") upon the terms and subject to the conditions described in the
Prospectus. The Exchange Offer is being made in order to satisfy certain
obligations of Sun and the Guarantors contained in the Registration Rights
Agreement, dated as of May 4, 1998, among the Company, the Guarantors and
Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette Securities Corporation,
J.P. Morgan & Co., and NationsBanc Montgomery Securities LLC and Schroder &
Co. Inc., (the "Initial Purchasers").
This material is being forwarded to you as the beneficial owner of the Old
Notes carried by us in your account but not registered in your name. A tender of
such Old Notes may only be made by us as the holder of record and pursuant to
your instructions.
Accordingly, we request instructions as to whether you wish us to tender on
your behalf the Old Notes held by us for your account, pursuant to the terms and
conditions set forth in the enclosed Prospectus and Letter of Transmittal. We
also request that we may, on your behalf, make the representations and
warranties contained in the Letter of Transmittal.
Your instructions should be forwarded to us as promptly as possible in order
to permit us to tender the Old Notes on your behalf in accordance with the
provisions of the Exchange Offer. The Exchange Offer will expire at 5:00 p.m.,
New York City time, on , 1998 (the "Expiration Date") (20 business
days following the commencement of the Exchange Offer), unless extended by the
Company. Any Old Notes tendered pursuant to the Exchange Offer may be withdrawn
at any time before 5:00 p.m., New York City time on the Expiration Date.
Your attention is directed to the following:
1. The Exchange Offer is for any and all Old Notes.
2. The Exchange Offer is subject to certain conditions set forth in the
Prospectus in the section captioned "The Exchange Offer--Conditions."
3. Any transfer taxes incident to the transfer of Old Notes from the holder
to the Company will be paid by the Company, except as otherwise provided in the
Instructions in the Letter of Transmittal.
4. The Exchange Offer expires at 5:00 p.m., New York City time, on the
Expiration Date unless extended by the Company. If you wish to have us tender
your Old Notes, please so instruct us by completing, executing and returning to
us the instruction form set forth below. The Letter of Transmittal is furnished
to you for information only and may not be used directly by you to tender Old
Notes.
<PAGE>
INSTRUCTIONS WITH RESPECT TO THE EXCHANGE OFFER
The undersigned acknowledge(s) receipt of your letter enclosing the
Prospectus, dated , 1998, of Sun Healthcare Group, Inc., a Delaware
corporation, and the related specimen Letter of Transmittal.
- --------------------------------------------------------------------------------
This will instruct you to tender the number of Old Notes indicated
below held by you for the account of the undersigned, pursuant to
the terms and conditions set forth in the Prospectus and the
related Letter of Transmittal. (CHECK ONE).
<TABLE>
<S> <C>
Box 1 / / Please tender my Old Notes held by you for my account. If I do not
wish to tender all of the Old Notes held by you for my account, I
have identified on a signed schedule attached hereto the number of
Old Notes that I do not wish tendered.
Box 2 / / Please do not tender any Old Notes held by you for my account.
</TABLE>
- --------------------------------------------------------------------------------
Date , 1998
<TABLE>
<S> <C>
--------------------------------------------
Signature(s)
--------------------------------------------
Please print name(s) here
--------------------------------------------
Area Code and Telephone No.
</TABLE>
Unless a specific contrary instruction is given in the space provided, your
signature(s) hereon shall constitute an instruction to us to tender all Old
Notes.
2
