<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 31, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
<TABLE>
<S> <C> <C>
SUN HEALTHCARE GROUP, INC. DELAWARE 85-0410612
SUN FINANCING I DELAWARE 85-0452046
(Exact Name of Registrant (State or Other Jurisdiction of (IRS Employer
as Specified in Its Charter) Incorporation or Organization) Identification No.)
</TABLE>
101 SUN AVENUE, N.E.
ALBUQUERQUE, NM 87109
(505) 821-3355
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
ROBERT F. MURPHY
SENIOR VICE PRESIDENT, GENERAL COUNSEL
SUN HEALTHCARE GROUP, INC.
101 SUN AVENUE, N.E.
ALBUQUERQUE, NM 87109
(505) 821-3355
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES TO:
William H. Hinman, Jr., Esq.
Shearman & Sterling
555 California Street
San Francisco, CA 94104
(415) 616-1100
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: From time to time after the effective date of this Registration
Statement
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please 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(c)
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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PRICE PER UNIT OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Convertible Trust Issued Preferred Securities of
Sun Financing I (liquidation amount $25 per
share).......................................... 13,800,000 $25(1) $345,000,000(1)(2) $101,775
Convertible Subordinated Debentures of Sun
Healthcare Group, Inc........................... (3) (3) (3) n/a
Guarantees of Convertible Trust Issued Preferred
Securities of Sun Financing I by Sun Healthcare
Group, Inc. and certain back-up undertakings.... (4) (4) (4) n/a
Common Stock, $.01 par value, of Sun Healthcare
Group, Inc...................................... (5) (5) (5) n/a
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
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.
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<PAGE>
(FOOTNOTES FOR PREVIOUS PAGE)
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(1) Estimated for the sole purpose of computing the registration fee pursuant to
Rule 457(c) under the Securities Act of 1933.
(2) Exclusive of accrued interest and distributions, if any.
(3) $355,670,131.25 in aggregate principal amount of 7% Convertible Subordinated
Debentures of Sun Healthcare Group, Inc. were issued and sold to Sun
Financing I in connection with the issuance by Sun Financing I of 13,800,000
shares of its 7% Convertible Trust Preferred Securities. The Convertible
Debentures may be distributed, under certain circumstances, to the holders
of the Convertible Trust Issued Preferred Securities for no additional
consideration.
(4) No separate consideration will be received for the Preferred Securities
Guarantee.
(5) Includes such indeterminate number of shares of Common Stock as may be
issued upon conversion of or exchange for any Trust Preferred Securities,
including such shares as may be issuable pursuant to antidilution
adjustments.
<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 AN 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
13,800,000 PREFERRED SECURITIES
SUN FINANCING I
7% CONVERTIBLE TRUST ISSUED PREFERRED SECURITIES
(LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY,
AND CONVERTIBLE INTO COMMON STOCK OF
SUN HEALTHCARE GROUP, INC.
---------------------
This Prospectus relates to the 7% Convertible Trust Issued Preferred
Securities (the "Convertible Preferred Securities"), liquidation preference $25
per Preferred Security, which represent preferred undivided beneficial interests
in the assets of Sun Financing I, a statutory business trust formed under the
laws of the State of Delaware ("Sun Financing" or the "Trust"), the shares of
common stock, $.01 par value per share (the "Company Common Stock"), of Sun
Financing I, a Delaware corporation (the "Company"), issuable upon conversion of
the Convertible Preferred Securities. The Company owns all the common securities
issued by the Trust (the "Common Securities" and, together with the Convertible
Preferred Securities, the "Trust Securities") representing undivided beneficial
interests in the assets of the Trust. The Convertible Preferred Securities were
issued and sold (the "Original Offering") on May 4, 1998 (the "Original Offering
Date") in transactions exempt from the registration requirements of the
Securities Act, in the United States to persons reasonably believed by the
Initial Purchasers (as defined below) of the Convertible Preferred Securities to
be qualified institutional buyers in reliance on Rule 144A under the Securities
Act of 1933, as amended (the "Securities Act"), and to "institutional accredited
investors" as defined in Rule 501(a)(1), (2), (3) or (7) ("Institutional
Accredited Investors") under the Securities Act. The Trust exists for the sole
purpose of issuing the Trust Securities and investing the proceeds thereof in an
equivalent amount of 7% Convertible Subordinated Debentures due 2028 (the
"Convertible Debentures") of the Company. Upon an event of default under the
Trust Agreement (as defined herein), the holders of the Convertible Preferred
Securities will have a preference over the holders of the Common Securities with
respect to payments in respect of distributions and payments upon redemption,
liquidation and otherwise.
The Convertible Preferred Securities and the Company Common Stock issuable
upon conversion of the Convertible Preferred Securities (the "Offered
Securities") may be offered and sold from time to time by the holders named
herein or by their transferees, pledgees, donees or their successors
(collectively, the "Selling Holders") pursuant to this Prospectus. The Offered
Securities may be sold by the Selling Holders from time to time directly to
purchasers or through agents, underwriters or dealers. See "Plan of
Distribution." If required, the names of any such agents or underwriters
involved in the sale of the Offered Securities and the applicable agent's
commission, dealer's purchase price or underwriter's discount, if any, will be
set forth in an accompanying supplement to this Prospectus (the "Prospectus
Supplement"). The Selling Holders will receive all of the net proceeds from the
sale of the Offered Securities and will pay all underwriting discounts and
selling commissions, if any, applicable to any such sale. The Company is
responsible for payment of all other expenses incident to the offer and sale of
the Offered Securities. The Selling Holders and any broker-dealers, agents or
underwriters which participate in the distribution of the Offered Securities may
be deemed to be "underwriters" within the meaning of the Securities Act, and any
commission received by them and any profit on the resale of the Offered
Securities purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. See "Plan of Distribution" for a description
of indemnification arrangements.
Holders of the Convertible Preferred Securities are entitled to receive
cumulative cash distributions at an annual rate of 7% of the liquidation amount
of $25 per Preferred Security, accruing from the date of original issuance and
payable quarterly in arrears on each February 1, May 1, August 1 and November 1,
commencing August 1, 1998. See "Description of the Convertible Preferred
Securities--Distributions." The distribution rate and the distribution payment
dates and other payment dates for the Convertible Preferred Securities
correspond to the interest rate and interest payment dates and other payment
dates for the Convertible Debentures, which are the sole assets of the Trust. As
a result, if principal or interest is not paid on the Convertible Debentures, no
amounts will be paid with respect to the Convertible Preferred Securities.
Each Preferred Security is convertible at the option of the holder thereof,
into shares of the Company Common Stock at a conversion rate of 1.2419 shares of
Company Common Stock for each Preferred Security (equivalent to a conversion
price of $20.13 per share of Company Common Stock), subject to adjustment in
certain circumstances. The Company Common Stock is quoted on the New York Stock
Exchange ("NYSE") under the symbol "SHG." On July 28, 1998, the last reported
sale price of the Company Common Stock on the NYSE was $14 13/16.
SEE RISK FACTORS BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN
FACTORS TO BE CONSIDERED IN CONNECTION WITH AN INVESTMENT
IN THE CONVERTIBLE PREFERRED SECURITIES.
---------------------
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 DATE OF THIS PROSPECTUS IS , 1998
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
The Company has the right to defer payments of interest on the Convertible
Debentures at any time for up to 20 consecutive quarters (each, an "Extension
Period"), but not beyond the maturity of the Convertible Debentures. If interest
payments are so deferred, distributions on the Convertible Preferred Securities
also will be deferred. During any Extension Period, distributions will continue
to accrue with interest thereon (to the extent permitted by applicable law) at a
rate of 7% per annum compounded quarterly. During any Extension Period, holders
of Convertible Preferred Securities will be required to include such deferred
interest in their gross income for United States federal income tax purposes in
advance of receipt of the cash distributions with respect to such deferred
interest payments. Moreover, if a holder of Convertible Preferred Securities
converts its Convertible Preferred Securities into Company Common Stock during
any Extension Period, the holder will not receive any cash related to the
deferred distributions. There could be multiple Extension Periods of varying
lengths throughout the term of Convertible Debentures (but distributions would
continue to accumulate quarterly and accrue interest until the end of any such
Extension Period). See "Risk Factors--Option to Extend Interest Payment
Periods," "Description of the Convertible Preferred Securities--Distributions"
and "Description of the Convertible Debentures--Option to Extend Interest
Payment Periods."
The payment of distributions out of moneys held by the Trust and payments on
liquidation of the Trust or the redemption of Convertible Preferred Securities,
as described below, are guaranteed by the Company (the "Guarantee") to the
extent the Trust has funds available therefor as described under "Description of
the Guarantee." The Guarantee, when taken together with the Company's
obligations under the Indenture (as defined herein) pursuant to which the
Convertible Debentures are issued and its obligations under the Declaration,
including its obligations to pay costs, expenses, debts and liabilities of the
Trust (other than with respect to the Trust Securities), provide a full and
unconditional guarantee of amounts due on the Convertible Preferred Securities.
The Company's obligations under the Guarantee rank (i) subordinate and junior to
all other liabilities of the Company except any liabilities that may be pari
passu by their terms, (ii) pari passu with the most senior preferred stock
issued from time to time by the Company and with any guarantee now or hereafter
entered into by the Company in respect of any preferred or preference stock or
any Convertible Preferred Securities of any affiliate of the Company and (iii)
senior to the Company Common Stock. See "Description of the Guarantee." The
obligations of the Company under the Convertible Debentures are subordinate and
junior in right of payment to Senior Indebtedness (as defined herein) of the
Company. See "Capitalization."
The Convertible Debentures are redeemable by the Company, in whole or in
part, from time to time, on or after May 3, 2001 at the redemption prices set
forth herein. The Convertible Debentures may also be redeemed at any time upon
the occurrence of a Tax Event (as defined herein). If the Company redeems
Convertible Debentures, the Trust must redeem Trust Securities on a pro rata
basis having an aggregate liquidation amount equal to the aggregate principal
amount of the Convertible Debentures so redeemed at a redemption price
corresponding to the redemption price of the Convertible Debentures plus accrued
and unpaid distributions thereon (the "Redemption Price") to the date fixed for
redemption. See "Description of the Convertible Preferred
Securities--Redemption." The Convertible Preferred Securities will be redeemed
upon maturity of the Convertible Debentures. In addition, the Trust will be
dissolved upon the occurrence of a Tax Event arising from a change in law or a
change in legal interpretation regarding tax matters, unless the Convertible
Debentures are redeemed in the limited circumstances described herein. The Trust
will also be dissolved upon the occurrence of an Investment Company Event (as
defined herein). Upon dissolution of the Trust, the Convertible Debentures will
be distributed to the holders of the Convertible Preferred Securities, on a pro
rata basis, in lieu of any cash distribution. If the Convertible Debentures are
distributed to the holders of the Convertible Preferred Securities, the Company
will use its reasonable best efforts to cause the Convertible Debentures to be
listed on the NYSE or other national securities exchange or similar organization
as the Convertible Preferred Securities are then listed or quoted. See
"Description of the Convertible Preferred Securities--Special Event Redemption
or Distribution" and "Description of the Convertible Debentures."
In the event of the liquidation, winding up or termination of the Trust, the
holders of the Convertible Preferred Securities will be entitled to receive for
each Preferred Security a liquidation amount of $25 plus accrued and unpaid
distributions thereon (including interest thereon) to the date of payment,
unless, in connection with such dissolution, Convertible Debentures are
distributed to the holders of the Convertible Preferred Securities. See
"Description of the Convertible Preferred Securities--Liquidation Distribution
Upon Dissolution."
The Convertible Preferred Securities sold to qualified institutional buyers
in reliance on Rule 144A under the Securities Act are represented by a global
certificate or certificates registered in the name of The Depository Trust
Company ("DTC") or its nominee. Beneficial interests in such Convertible
Preferred Securities are shown on, and transfers thereof will be effected only
through, records maintained by the participants in DTC. Beneficial interests in
the Regulation S Global Security (as defined herein) initially may be held only
through the Euroclear System ("Euroclear") and Cedel Bank, societe anonyme
("Cedel Bank"). Convertible Preferred Securities sold to Institutional
Accredited Investors are represented by Certificated Securities (as defined).
After initial issuance of the Global Securities (as defined herein), Convertible
Preferred Securities in certificated form (the "Certificated Securities") may be
issued in exchange for the Global Securities on the terms and under the limited
circumstances set forth in the indenture governing the Convertible Debentures
(the "Indenture"). See "Description of the Convertible Preferred
Securities--Book-Entry Only Issuance--The Depository Trust Company."
2
<PAGE>
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). In particular, any statement, express
or implied, concerning future financial performance or the ability to generate
revenues, income or cash flow to service the obligations under the Convertible
Debentures or the impact of the phase-in of a prospective payment system for
skilled nursing facilities or fee schedule reimbursement for therapy services
and the Company's response thereto are forward looking statements including,
without limitation, certain statements under the captions "Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business." When used in this Prospectus, the words
"estimate," "project," "anticipate," "expect," "intend," "believe" and similar
expressions are intended to identify forward looking statements. Although the
Company believes that the expectations reflected in such forward looking
statements are reasonable, they can give no assurance that such expectations
will prove to have been correct. 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 dates
hereof or to reflect the occurrence of anticipated events. Important factors
that could cause actual results to differ materially from the Company's
expectations are disclosed in this Prospectus, including, without limitation,
under the caption "Risk Factors." All forward looking statements by the Company
are expressly qualified by such cautionary statements.
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS OR IN THE PROSPECTUS SUPPLEMENT, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER, DEALER OR AGENT. THIS PROSPECTUS
AND ANY ACCOMPANYING PROSPECTUS SUPPLEMENT DO NOT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY SECURITIES OTHER THAN THE SECURITIES TO WHICH
THEY RELATE OR BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS, NOR ANY SALE
MADE HEREUNDER AND THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE HEREIN
OR THEREIN BY ANYONE IS CORRECT AS OF ANY TIME SUBSEQUENT TO THEIR RESPECTIVE
DATES.
------------------------
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange Act
and, in accordance therewith, files reports, proxy statements and other
information with the Securities and Exchange Commission ("Commission"). Such
reports, proxy statements and other information filed by the Company can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at its Regional
Offices located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511, and 7 World Trade Center, 13th Floor, New York,
New York 10048. Copies of such material can be obtained at prescribed rates from
the Public Reference Section of the Commission, 450 Fifth Street, N.W. Plaza,
Washington, D.C. 20549. The Commission maintains a World Wide Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of the site is http:// www.sec.gov. In addition, such reports and proxy
statements can be inspected at the offices of The New York Stock Exchange, Inc.,
20 Broad Street, New York, New York 10005.
The Company, the Trust and the Subsidiary Guarantors have filed with the
Commission a Registration Statement on Form S-3 (together with all amendments,
supplements and exhibits thereto, the "Registration Statement") under the
Securities Act with respect to the Securities and Subsidiary Guarantees offered
hereby. This Prospectus, which constitutes a part of the Registration Statement,
and any accompanying Prospectus Supplement do not contain all the information
set forth in the Registration Statement, certain parts of which were omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Securities offered hereby,
reference is hereby made to the Registration Statement. Statements contained in
this Prospectus or any Prospectus Supplement as to the contents of certain
documents are not necessarily complete, and, with respect to each such document
filed as an exhibit to the Registration Statement or otherwise filed with the
Commission, reference is made to the copy of the document so filed. Each such
statement is qualified in its entirety by such reference.
No separate financial statements any of the Trust have been included herein.
The Company does not consider that such financial statements would be material
to holders of the Convertible Preferred Securities because (i) all of the voting
securities of the Trust will be owned, directly or indirectly, by the Company, a
reporting company under the Exchange Act, (ii) the Trust has no independent
operations but
3
<PAGE>
exists for the sole purpose of issuing securities representing undivided
beneficial interests in the assets of the Trust and investing the proceeds
thereof in the Convertible Debentures issued by the Company, and (iii) the
Company's obligations described herein and in any accompanying Prospectus
Supplement under the Declaration of the Trust, the guarantee issued with respect
to Convertible Preferred Securities issued by the Trust, the Convertible
Debentures purchased by the Trust and the related Indenture, taken together,
constitute a full and unconditional guarantee of payments due on the Convertible
Preferred Securities. See "Sun Financing I," "Description of the Convertible
Preferred Securities," "Description of the Convertible Debentures" and
"Description of the Guarantee."
In future filings under the Exchange Act, a footnote to the Company's annual
consolidated financial statements will state that the Trust is consolidated with
the Company and that the sole assets of the Trust are the Convertible
Debentures. The Guarantee, when taken together with the Convertible Debentures
and the Company's obligations to pay all fees and expenses of the Trust,
constitutes a guarantee to the extent described herein by the Company of the
distribution, liquidation and other payments payble to the holders of the
Convertible Preferred Securities. The Guarantee does not apply, however, to
distributions by the Trust unless and until the Trust has funds available
therefor, as more fully described under "Description of the Guarantee."
The Trust and Subsidiary Guarantors are not currently subject to the
information reporting requirements of the Exchange Act. The Trust and Subsidiary
Guarantors will become subject to such requirements upon the effectiveness of
the Registration Statement, although they intend to seek and expect to receive
exemptions therefrom.
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 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.
4
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED HEREIN BEFORE PURCHASING THE
SECURITIES OFFERED HEREBY.
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
the 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.
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
purchasers of the securities offered hereby, 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 indentures with respect
to the Company's 9 1/2% Senior Subordinated Notes due 2007 (the "9 1/2% Notes")
and the Company's 9 3/8% Senior Subordinated Notes due 2008 (the "9 3/8%
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 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
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December 31, 1997 and Sun's Quarterly Report on Form 10-Q for three months ended
March 31, 1998, incorporated by reference herein.
RANKING OF SUBORDINATE OBLIGATIONS UNDER THE GUARANTEE AND CONVERTIBLE
DEBENTURES
Sun's obligations under the Guarantee are subordinate and junior in right of
payment to all liabilities of Sun and PARI PASSU in right of payment with the
most senior preferred stock issued, from time to time, if any, by Sun. The
obligations of Sun under the Convertible Debentures are subordinate and junior
in right of payment to all present and future Senior Indebtedness of Sun. Sun
may not pay principal of, premium, if any, or interest on or other amounts owing
in respect of the Convertible Debentures, make any deposit pursuant to any
defeasance provisions or repurchase, redeem or otherwise retire the Convertible
Debentures if certain Senior Indebtedness is not paid when due or any other
default on such Indebtedness occurs and the maturity of such Indebtedness is
accelerated in accordance with its terms unless, in either case, the default has
been cured or waived, any such acceleration has been rescinded or such
Indebtedness has been paid in full. Moreover, under certain circumstances, if
any non-payment default exists with respect to such Indebtedness, Sun may not
make any payments on the Convertible Debentures 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. As of March 31, 1998, the
aggregate amount of consolidated indebtedness that would have effectively ranked
senior to the Convertible Debentures and the Guarantee was approximately $1.4
billion. In addition, on a pro forma basis after giving effect to the Offerings
and the application of the net proceeds therefrom as described in "Use of
Proceeds," the Company would have had approximately $269.5 million available
under the Senior Credit Facility as of March 31, 1998. There are no terms in the
Convertible Preferred Securities, the Convertible Debentures or the Guarantee
that limit Sun's ability to incur additional indebtedness, including
indebtedness that ranks senior to the Convertible Debentures and the Guarantee,
or to grant security interests to secure outstanding or new indebtedness. See
"Description of the Guarantee--Status of the Guarantee" and "Description of
Convertible Debentures--Subordination."
RIGHTS UNDER THE GUARANTEE
The Guarantee will be qualified as an indenture under the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act"). The Property Trustee will
act as indenture trustee under the Guarantee for the purposes of compliance with
the provisions of the Trust Indenture Act (the "Guarantee Trustee"). The
Guarantee Trustee will hold the Guarantee for the benefit of the holders of the
Convertible Preferred Securities.
Under the Guarantee, Sun guarantees the holders of the Convertible Preferred
Securities the payment of (i) any accrued and unpaid distributions that are
required to be paid on the Convertible Preferred Securities, to the extent the
Trust has funds available therefor, (ii) the Redemption Price, including all
accrued and unpaid distributions with respect to Convertible Preferred
Securities called for redemption by the Trust, to the extent the Trust has funds
available therefor, and (iii) upon a voluntary or involuntary dissolution,
winding-up or termination of the Trust (other than in connection with the
distribution of Convertible Debentures to the holders of Convertible Preferred
Securities or a redemption of all the Convertible Preferred Securities), the
lesser of (a) the aggregate of the liquidation amount and all accrued and unpaid
distributions on the Convertible Preferred Securities to the date of the payment
to the extent the Trust has funds available therefor or (b) the amount of assets
of the Trust remaining available for distribution to holders of the Convertible
Preferred Securities in liquidation of the Trust. The holders of a majority in
liquidation amount of the Convertible Preferred Securities have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Guarantee Trustee or to direct the exercise of any trust or
power conferred upon the Guarantee Trustee under the Guarantee. In addition, any
record holder of Convertible Preferred Securities may institute a legal
proceeding directly against Sun to enforce the Guarantee without first
instituting a legal proceeding against the Trust, the Guarantee Trustee or any
other person or entity if (i) the Property Trustee fails to enforce its rights
under the Convertible Debentures, or (ii) Sun defaults under the Guarantee with
respect to the Convertible Preferred Securities. If Sun were to default on its
obligation to pay amounts payable on
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the Convertible Debentures, the Trust would lack available funds for the payment
of distributions or amounts payable on redemption of the Convertible Preferred
Securities or otherwise, and, in such event, holders of the Convertible
Preferred Securities would not be able to rely upon the Guarantee for payment of
such amounts. Instead, holders of the Convertible Preferred Securities would
rely on the enforcement (1) by the Property Trustee of its rights as registered
holder of the Convertible Debentures against Sun pursuant to the terms of the
Convertible Debentures or (2) by such holder of its right of direct action
against Sun to enforce payments on the Convertible Debentures. See "Description
of the Guarantee" and "Description of Convertible Debentures." The Declaration
(as defined herein) provides that each holder of Convertible Preferred
Securities, by acceptance thereof, agrees to the provisions of the Guarantee,
including the subordination provisions thereof, and the Indenture.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF CONVERTIBLE PREFERRED SECURITIES
If (i) Sun Financing fails to pay distributions in full on the Convertible
Preferred Securities (other than pursuant to a deferral) or (ii) a Declaration
Event of Default (as defined herein) occurs and is continuing, then the holders
of Convertible Preferred Securities would rely on the enforcement by the
Property Trustee of its rights as a holder of the Convertible Debentures against
Sun. In addition, the holders of a majority in liquidation amount of the
Convertible Preferred Securities will have the right to direct the time, method,
and place of conducting any proceeding for any remedy available to the Property
Trustee or to direct the exercise of any trust or power conferred upon the
Property Trustee under the Declaration, including the right to direct the
Property Trustee to exercise the remedies available to it as a holder of the
Convertible Debentures. If the Property Trustee fails to enforce its rights
under the Convertible Debentures, a holder of Convertible Preferred Securities
may institute a legal proceeding directly against Sun to enforce the Property
Trustee's rights under the Convertible Debentures without first instituting any
legal proceeding against the Property Trustee or any other person or entity.
Notwithstanding the foregoing, if a Declaration Event of Default has occurred
and is continuing and such event is attributable to the failure of Sun to pay
interest or principal on the Convertible Debentures on the date such interest or
principal is otherwise payable (or in the case of redemption, on the redemption
date), then the registered holder of Convertible Preferred Securities may
directly institute a proceeding for enforcement of payment to such holder of the
principal of or interest on the Convertible Debentures having a principal amount
equal to the aggregate liquidation amount of the Convertible Preferred
Securities of such holder (a "Direct Action") on or after the respective due
date specified in the Convertible Debentures. In connection with such Direct
Action, Sun will be subrogated to the rights of such holders of Convertible
Preferred Securities under the Declaration to the extent of any payment made by
Sun to such holder of Convertible Preferred Securities in such Direct Action.
The holders of Convertible Preferred Securities will not be able to exercise
directly any other remedy available to the holders of the Convertible
Debentures. See "Description of the Convertible Preferred
Securities--Declaration Events of Default."
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as Sun shall not be in default in the payment of interest on the
Convertible Debentures, Sun has the right under the Indenture to defer payments
of interest on the Convertible Debentures by extending the interest payment
period at any time, and from time to time, on the Convertible Debentures. As a
consequence of such an extension, quarterly distributions on the Convertible
Preferred Securities would be deferred (but despite such deferral would continue
to accumulate with interest thereon at the distribution rate, compounded
quarterly) by the Trust during any such extended interest payment period. Prior
to the termination of any such Extension Period, Sun may further extend such
Extension Period; provided that such right to extend the interest payment period
for the Convertible Debentures is limited to a period not exceeding 20
consecutive quarters and may not extend beyond the maturity of the Convertible
Debentures. See "Description of the Convertible Debentures--Option to Extend
Interest Payment Period."
In the event that Sun exercises this right to defer interest payments, then
(a) Sun shall not declare or pay dividends on, or make a distribution with
respect to, or redeem, purchase or acquire, or make a liquidation payment with
respect to, any of its capital stock (other than (i) purchases or acquisitions
of
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shares of Company Common Stock in connection with the satisfaction by Sun of its
obligations under any employee benefit plans or the satisfaction by the Company
of its obligations pursuant to any contract or security requiring the Company to
purchase shares of Company Common Stock, (ii) as a result of a reclassification
of Sun capital stock or the exchange or conversion of one class or series of Sun
capital stock for another class or series of Sun capital stock or (iii) the
purchase of fractional interests in shares of Sun capital stock pursuant to the
conversion or exchange provisions of such Sun capital stock pursuant to the
conversion or exchange provisions of such capital stock or the security being
converted or exchanged), (b) Sun shall not make any payment of interest,
principal or premium, if any, on or repay, repurchase or redeem any debt
securities (including guarantees) issued by Sun that rank PARI PASSU with or
junior to the Convertible Debentures and (c) Sun shall not make any guarantee
payments with respect to the foregoing (other than pursuant to the Guarantee).
See "Description of the Convertible Preferred Securities--Distributions" and
"Description of the Guarantee--Certain Covenants of the Company." If Sun makes a
partial payment to the Trust, all of the proceeds will be used to pay the
holders of the Convertible Preferred Securities, which payment may not be
permitted by the financial and restrictive covenants, including the restricted
payment covenant, of the indenture governing the 9 1/2% Notes (the "9 1/2% Notes
Indenture") and the indenture which will govern the 2008 Notes (the "2008
Indenture"). In addition, any payments of cash for fractional shares made in
connection with the conversion of the Trust Securities may violate the financial
and restrictive covenants, including the restricted payment covenant, of the
9 1/2% Notes Indenture and the 2008 Indenture.
Should Sun exercise its right to defer payments of interest by extending the
interest payment period, each holder of Convertible Preferred Securities will
continue to accrue income (as original issue discount ("OID")) in respect of the
deferred and compounded interest allocable to its Convertible Preferred
Securities for United States federal income tax purposes, which will be
allocated but not distributed, to holders of record of Convertible Preferred
Securities, and such holders will continue to accrue interest and OID on an
economic accrual basis even after the extension period, regardless of the
holders' regular method of accounting. As a result, each such holder of
Convertible Preferred Securities will recognize income for United States federal
income tax purposes in advance of the receipt of cash and will not receive the
cash from Sun Financing related to such income if such holder disposes of its
Convertible Preferred Securities prior to the record date for the date on which
distributions of such amounts are made. Sun has no current intention of
exercising its right to defer payments of interest by extending the interest
payment period of the Convertible Debentures. However, should Sun determine to
exercise such right in the future, the market price of the Convertible Preferred
Securities is likely to be affected. A holder that disposes of its Convertible
Preferred Securities during an Extension Period, therefore, might not receive
the same return on its investment as a holder that continues to hold its
Convertible Preferred Securities. In addition, as a result of the existence of
Sun's right to defer interest payments, the market price of the Convertible
Preferred Securities (which represent an undivided beneficial interest in the
Convertible Debentures) may be more volatile than other securities on which OID
accrues that do not have such rights. Furthermore, since the market value of the
Convertible Preferred Securities may not reflect the accumulated distributions
that will be paid at the end of the Extension Period, a holder who sells or
converts its Convertible Preferred Securities during the Extension Period will
not receive from the Company any cash or additional shares of Company Common
Stock related to the interest income the holder accrued and included in its
taxable income under the OID rules.
SPECIAL EVENT REDEMPTION OR DISTRIBUTION
Upon the occurrence of a Special Event, the Trust shall, unless the
Convertible Debentures are redeemed in the limited circumstances described
herein, be dissolved, with the result that the Convertible Debentures would be
distributed to the holders of the Trust Securities. In addition, in certain
circumstances upon the occurrence of a Special Event, the Convertible Debentures
may be redeemed by Sun. See "Description of the Convertible Preferred
Securities--Special Event Redemption or Distribution."
Under current United States Federal income tax law, a distribution of
Convertible Debentures upon the dissolution of Sun Financing would not be a
taxable event to holders of the Convertible Preferred Securities. Upon
occurrence of a Special Event, however, a dissolution of the Trust in which
holders of the
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Convertible Preferred Securities receive cash would be a taxable event to such
holders. See "United States Federal Income Taxation--Receipt of Convertible
Debentures or Cash Upon Liquidation of Sun Financing."
There can be no assurance as to the market prices for the Convertible
Preferred Securities or the Convertible Debentures that may be distributed in
exchange for Convertible Preferred Securities if a dissolution or liquidation of
the Trust were to occur. Accordingly, the Convertible Preferred Securities that
an investor may purchase, whether pursuant to the offer made hereby or in the
secondary market, or the Convertible Debentures that a holder of Convertible
Preferred Securities may receive on dissolution and liquidation of the Trust,
may trade at a discount to the price that the investor paid to purchase the
Convertible Preferred Securities offered hereby. Because holders of Convertible
Preferred Securities may receive Convertible Debentures upon the occurrence of a
Special Event, prospective purchasers of Convertible Preferred Securities are
also making an investment decision with regard to the Convertible Debentures and
should carefully review all the information regarding the Convertible Debentures
contained herein. See "Description of the Convertible Preferred
Securities--Special Event Redemption or Distribution" and "Description of the
Convertible Debentures--General."
LIMITED VOTING RIGHTS
Holders of Convertible Preferred Securities will have limited voting rights
and will not be entitled to vote to appoint, remove or replace, or to increase
or decrease the number of, Sun Trustees, which voting rights are vested
exclusively in the holder of the Common Securities. See "Description of the
Convertible Preferred Securities--Voting Rights."
RISKS ASSOCIATED WITH THE DEVELOPMENT AND EXPANSION OF ANCILLARY SERVICES
A significant aspect of Sun's operating strategy is to expand its therapy,
temporary therapy staffing and pharmaceutical services and, in particular, to
offer these services to nonaffiliated facilities. Therapy, temporary therapy
staffing and pharmaceutical services provided to nonaffiliated facilities in the
United States, while representing 26%, 28%, 31% and 28% of Sun's revenues for
the three months ended March 31, 1998, and for the years ended December 31,
1995, 1996, and 1997, respectively, provided more than half of Sun's operating
profits for such periods. In addition, a substantial portion of Sun's
consolidated interest expense was attributable to Sun's long-term and subacute
care services and its foreign operations and not the ancillary services business
due to the capital intensive nature of these businesses and to related
acquisitions. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included in Sun's Annual Report on Form 10-K for the
year ended December 31, 1997 and Sun's Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 1998, incorporated by reference herein. As a
result of the Regency Acquisition and RCA Merger,the percentage of revenues from
services provided to nonaffiliated facilities is expected to decrease.
Regulatory changes, including a Prospective Payment System ("PPS"), are expected
to be made that affect reimbursement for these services, which could adversely
affect Sun's profitability. See "--Risks Related to Prospective Payment System,"
"--Potential Reduction of Reimbursement Rates From Third Party Payors and
Possible Adverse Impact on Future Operating Results" and "--Risk of Adverse
Effect of Future Healthcare Reform." From time to time the negative publicity
surrounding the government investigations of Sun has slowed Sun's success in
obtaining additional outside contracts in the rehabilitation therapy business,
which in the past has resulted in higher than required therapist staffing levels
and has affected the private pay enrollment in certain inpatient facilities. In
addition, if government investigations have a negative impact on the future
billing practices related to Sun's rehabilitation therapy subsidiary, the
profitability of the services provided by such subsidiary would be reduced from
current levels. See "--Investigations; Uncertain Impact on Future Operating
Results."
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,
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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 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.
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In addition, for all Medicare patients not receiving post-hospital extended
care services (i.e., Medicare Part B patients), effective July 1, 1998,
reimbursement for ancillary services, including rehabilitation therapy, medical
supplies, pharmacy, temporary staffing for rehabilitation therapy, and other
ancillary services, will be made pursuant to yet-to-be developed fee schedules.
In addition, effective January 1, 1999, there will be an annual per beneficiary
cap of $1,500 on reimbursement for outpatient physical therapy and speech
therapy and an annual per beneficiary cap of $1,500 on reimbursement for
occupational therapy. Facilities will be permitted to bill patients directly for
services rendered in excess of these caps; however, there can be no assurance
that Sun will receive any payments in excess of these caps. There can also be no
assurance that such yet-to-be developed fee schedules or caps will not have a
material adverse effect on Sun.
POTENTIAL REDUCTION OF REIMBURSEMENT RATES FROM THIRD PARTY PAYORS AND POSSIBLE
ADVERSE IMPACT ON FUTURE OPERATING RESULTS
Various cost containment measures adopted by governmental and private pay
sources have begun to restrict the scope and amount of reimbursable healthcare
expenses and limit increases in reimbursement rates for medical services. Any
reductions in reimbursement levels under Medicaid, Medicare or private payor
programs and any changes in applicable government regulations or interpretations
of existing regulations could significantly affect Sun's profitability.
Furthermore, government programs are subject to statutory and regulatory
changes, retroactive rate adjustments, administrative rulings and government
funding restrictions, all of which may materially affect the rate of payment to
Sun's facilities and its therapy and pharmaceutical businesses. There can be no
assurance that payments under governmental or private payor programs will remain
at levels comparable to present levels or will be adequate to cover the costs of
providing services to patients eligible for assistance under such programs.
Significant decreases in utilization and limits on reimbursement could have a
material adverse effect on Sun's financial condition and results of operations,
including the possible impairment of certain assets. Most recently, in the BBA
Congress amended the reimbursement provisions applicable to exempt hospitals
services, skilled nursing, therapy and other ancillary services. See "--Risks
Associated with the Development and Expansion of Ancillary Services." See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in Sun's Annual Report on Form 10-K for the year ended
December 31, 1997 and Sun's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31,1998, incorporated by reference herein, for a summary of sources
of revenues for Sun for the three most recent fiscal years.
Reimbursement for therapy services is currently evaluated under Medicare's
reasonable cost principles. Under current law, the reasonable costs for physical
therapy and respiratory therapy services may not exceed an amount equal to the
salary that would reasonably have been paid to a therapist for providing the
services (together with certain additional costs) within each geographical area.
Salary equivalency guidelines are the amounts published by the Health Care
Financing Administration ("HCFA"), which reflect the prevailing salary, fringe
benefit and expense factors as determined by HCFA. HCFA then uses the salary
equivalency guidelines to determine the reimbursement rates for physical therapy
and respiratory therapy costs. Although salary equivalency guidelines will no
longer be effective following the implementation of PPS and fee schedule
reimbursement, HCFA has published new equivalency guidelines.
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.
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In 1995, and periodically since then, HCFA has provided information to
intermediaries for use in determining reasonable costs for occupational and
speech therapy. This information, although not intended to impose limits on such
costs, suggests that fiscal intermediaries should carefully review costs which
appear to be in excess of what a "prudent buyer" would pay for those services.
While the effect of these directives is still uncertain, they are a factor
considered by such intermediaries in evaluating the reasonableness of amounts
paid by providers for the services of Sun's rehabilitation therapy subsidiary.
When salary equivalency guidelines, PPS and fee schedules are implemented,
reimbursement for these services will no longer be on a "pass through" basis and
the HCFA directives and reasonable cost guidelines discussed in this paragraph
will become moot as to services rendered after their effectiveness. In addition,
some intermediaries require facilities to justify the cost of contract
therapists versus employed therapists as an aspect of the "prudent buyer"
analysis. With respect to rehabilitation therapy services provided to affiliated
facilities, a retroactive adjustment of Medicare reimbursement could be made for
some prior periods. With respect to nonaffiliated facilities, an adjustment of
reimbursement rates for therapy services could result in indemnity claims
against Sun, based on the terms of substantially all of the Sun's existing
contracts with such facilities, for payments previously made by such facilities
to Sun that are reduced by Medicare in the audit process. Any change in
reimbursement rates resulting from implementation of the HCFA directives or a
reduction in reimbursement as a result of a change in application of reasonable
cost guidelines could have a material adverse effect on the Sun's financial
condition and results of operations (depending on the rates adopted) and
customers' ability to pay for prior and continuing services. When PPS with
respect to Medicare Part A (effective for Sun's facilities on January 1, 1999)
and fee schedules with respect to Medicare Part B (which may be effective as
early as July 1, 1998) are implemented, Sun's facilities' reimbursement will no
longer be affected by salary equivalency guidelines and the cost reporting
settlement process for services rendered after their effectiveness. See "Risks
Related to Prospective Payment System," and"--Risks Associated with Development
and Expansion of Ancillary Services" and "--Risk of Adverse Effect of Future
Healthcare Reform" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in Sun's Quarterly Report for the three
months ended March 31, 1998.
RISKS ASSOCIATED WITH REIMBURSEMENT PROCESS AND COLLECTIBILITY OF CERTAIN
ACCOUNTS RECEIVABLE
Sun derives a substantial percentage of its total revenues from Medicare,
Medicaid and private insurance. Sun's financial condition and results of
operations may be affected by the revenue reimbursement process, which is
complex and can involve lengthy delays between the recognition of revenue and
the time reimbursement amounts are settled. Net revenues realizable under
third-party payor agreements are subject to change due to examination and
retroactive adjustment by payors during the settlement process. Payors may
disallow in whole or in part requests for reimbursement based on determinations
that certain costs are not reimbursable or reasonable or because additional
supporting documentation is necessary. Sun recognizes revenues from third-party
payors and accrues estimated settlement amounts in the period in which the
related services are provided. Sun estimates these settlement balances by making
determinations 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
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intermediaries which, in some instances, have been delayed due to the fiscal
intermediaries conducting reviews of facilities' therapy claims. In addition,
accounts receivable have increased in part because of the growth in the
Company's inpatient, therapy and pharmaceutical services businesses since
December 31, 1996. During 1996 and the first two quarters of 1997, as a result
of these factors, accounts receivable for therapy services grew
disproportionately to the growth in revenue of that line of business. As a
result, the Company increased its provision for losses on accounts receivable in
mid-1996. No assurance can be given that further increases in the provision for
losses on accounts receivable will not be required.
Sun's financial condition and results of operations would be materially and
adversely affected if the amounts actually received from third-party payors in
any reporting period differ materially from the amounts accrued in prior
periods. Sun's financial condition and results of operations may also be
affected by the timing of reimbursement payments and rate adjustments from
third-party payors. Sun has from time to time experienced delays in receiving
final settlement and reimbursement from government agencies. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" included in Sun's Annual Report on
Form 10-K for the year ended December 31, 1997 and Sun's Quarterly Report on
Form 10-Q for the fiscal quarter ended March 31, 1998, incorporated by reference
herein.
POTENTIAL LIABILITY FOR REIMBURSEMENTS PAID TO FORMER OPERATORS OF ACQUIRED
FACILITIES
Sun's growth strategy relies heavily on the acquisition of long-term and
subacute care facilities. Regardless of the legal form of the acquisition, the
Medicare and Medicaid programs often require that Sun assume certain obligations
relating to the reimbursement paid to the former operators of facilities
acquired by Sun. From time to time, fiscal intermediaries and Medicaid agencies
examine cost reports filed by such predecessor operators. If, as a result of any
such examination, it is concluded that overpayments to a predecessor operator
were made, Sun, as the current operator of such facilities, may be held
financially responsible for such overpayments. At this time Sun is unable to
predict the outcome of any existing or future examinations. See "--Difficulty of
Integrating Acquired Operations" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in Sun's Quarterly Report for the
three months ended March 31, 1998.
RISKS ASSOCIATED WITH RELATED PARTY TRANSACTIONS
Current Medicare regulations that apply to transactions between related
parties, such as Sun's subsidiaries, are relevant to the amount of Medicare
reimbursement that Sun is entitled to receive for the rehabilitation and
respiratory therapy and pharmaceutical services that it provides to Sun-operated
facilities. These related party regulations require that, among other things, a
substantial part of the rehabilitation and respiratory therapy services or
pharmaceutical services, as the case may be, of the relevant subsidiary be
transacted with nonaffiliated entities in order for Sun to receive reimbursement
for services provided to Sun-operated facilities at the rates applicable to
services provided to nonaffiliated entities. The related party regulations do
not indicate a specific level of services that must be provided to nonaffiliated
entities in order to satisfy the "substantial part" requirement of such
regulations. In instances 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
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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 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
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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-- 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
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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 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
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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 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
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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.
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.
- ------------------------
* 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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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 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
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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 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
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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
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
21
<PAGE>
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 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.
22
<PAGE>
THE COMPANY
UNLESS OTHERWISE INDICATED OR THE CONTEXT OTHERWISE REQUIRES, ALL REFERENCE
TO "SUN" OR THE "COMPANY" INCLUDE SUN HEALTHCARE GROUP, INC. AND ITS DIRECT AND
INDIRECT SUBSIDIARIES.
Sun is a leading provider of high quality and cost efficient long-term,
subacute and related specialty healthcare services in the United States and the
United Kingdom and also has operations in Spain, Germany and Australia. At March
31, 1998, Sun operated 318 long-term and subacute care facilities (which
includes assisted living facilities and managed facilities) with 36,488 licensed
beds in the United States and 177 long-term care 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.
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<PAGE>
SUN FINANCING I
Sun Financing is a statutory business trust created under Delaware law
pursuant to (i) a declaration of trust, dated as of November 7, 1997, executed
by the Company (as Sponsor), the Delaware Trustee and one of the Administrative
Trustees (each as defined herein) and (ii) the filing of a certificate of trust
with the Delaware Secretary of State on November 7, 1997. In connection with the
Offering, such declaration will be amended and restated in its entirety (as so
amended and restated, the "Declaration"). The Trust exists for the sole purposes
of (i) issuing and selling the Convertible Preferred Securities and Common
Securities, (ii) using the proceeds from the sale of the Convertible Preferred
Securities and Common Securities to acquire the Convertible Debentures issued by
the Company and (iii) engaging in only those other activities necessary or
incidental thereto. Accordingly, the Convertible Debentures will be the sole
assets of the Trust, and payments under the Convertible Debentures will be the
sole revenue of the Trust. The Trust has a term of 55 years, but may dissolve
earlier as provided in the Declaration.
All of the Common Securities will be directly or indirectly owned by the
Company. The Common Securities will rank PARI PASSU, and payments will be made
thereon PRO RATA, with the Convertible Preferred Securities, except that upon
the occurrence and continuance of a Declaration Event of Default (as defined
herein), the rights of the Company as holder of the Common Securities to payment
in respect of distributions and payments upon liquidation, redemption or
otherwise will be subordinated to the rights of the holders of the Convertible
Preferred Securities. See "Description of the Convertible Preferred
Securities--Subordination of Common Securities." The Company will acquire Common
Securities in an aggregate liquidation amount equal to approximately 3% of the
total capitalization of the Trust.
The Trust's business and affairs are conducted by its trustees, which will
be appointed by the Company as holder of the Common Securities. Pursuant to the
Declaration, the number of trustees will initially be five. Three of the
trustees (the "Administrative Trustees") will be persons who are employees or
officers of, or affiliated with, the Company. A fourth trustee will be a
financial institution unaffiliated with the Company that will serve as property
trustee (the "Property Trustee") under the Declaration. The Bank of New York, a
New York banking corporation, will act as the Property Trustee until removed or
replaced by the holder of the Common Securities. See "Description of the
Convertible Preferred Securities." The fifth trustee will be a financial
institution or an affiliate thereof which maintains a principal place of
business or residence in the State of Delaware (the "Delaware Trustee"). The
Bank of New York (Delaware), an affiliate of the Property Trustee will act as
Delaware Trustee until removed or replaced by the holder of the Common
Securities. The Administrative Trustees, the Property Trustee and the Delaware
Trustee are referred to herein as the "Issuer Trustees." The Bank of New York
will also act as indenture trustee under the Guarantee (the "Guarantee Trustee")
and as the indenture trustee under the Indenture. See "Description of the
Guarantee" and "Description of the Convertible Debentures."
The Property Trustee will hold the title to the Convertible Debentures for
the benefit of the Trust and holders of the Convertible Preferred Securities and
the Common Securities and will have the power to exercise all of the rights,
powers and privileges as the holder of the Convertible Debentures. In addition,
the Property Trustee will maintain exclusive control of a segregated
non-interest bearing bank account (the "Property Account") to hold all payments
made in respect of the Convertible Debentures for the benefit of the Trust and
holders of the Convertible Preferred Securities and the Common Securities. The
Property Trustee will make payments of distributions and payments on
liquidation, redemption and otherwise to holders of the Convertible Preferred
Securities and the Common Securities out of funds from the Property Account. The
Guarantee Trustee will hold the Guarantee for the benefit of the holders of the
Convertible Preferred Securities. The Company, as the holder of all the Common
Securities, will have the right to appoint, remove or replace any Issuer Trustee
and to increase or decrease the number of Issuer Trustees, PROVIDED that the
number of Issuer Trustees shall be at least three, the majority of which will be
Administrative Trustees. The duties and obligations of the Issuer Trustees are
governed by the Declaration. The rights of the holders of the Convertible
Preferred Securities, including economic rights, rights to
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<PAGE>
information and voting rights, are as set forth in the Declaration and the
Delaware Business Trust Act, as amended (the "Trust Act").
The Company will pay all fees and expenses related to the Trust and the
offering of the Trust Securities and will pay, directly or indirectly, all
ongoing costs and expenses of the Trust. See "Description of the Convertible
Debentures." The principal corporate offices of the Trust are located at 101 Sun
Avenue, N.E., Albuquerque, NM 87109, and its telephone number at such address is
(505) 821-3355.
USE OF PROCEEDS
Neither the Company nor the Trust will receive any proceeds from the sale of
the Offered Securities.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company Common Stock is traded on the New York Stock Exchange under the
symbol "SHG". The following table sets forth the quarterly high and low sales
prices per share of the Company Common Stock as reported by the New York Stock
Exchange for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL YEAR ENDED DECEMBER 31, 1996
First quarter................................................................................ $ 14.25 $ 11.25
Second quarter............................................................................... 15.63 12.88
Third quarter................................................................................ 14.63 11.63
Fourth quarter............................................................................... 13.63 11.50
FISCAL YEAR ENDING DECEMBER 31, 1997
First quarter................................................................................ $ 16.25 $ 12.75
Second quarter............................................................................... 20.81 13.88
Third quarter................................................................................ 23.44 19.63
Fourth quarter............................................................................... 22.94 17.25
FISCAL YEAR ENDING DECEMBER 31, 1998
First quarter................................................................................ $ 20.31 $ 17.88
Second quarter............................................................................... 19.31 14.62
Third quarter (through July 28, 1998)........................................................ 18.12 14.25
</TABLE>
On July 28, 1998, the last reported bid price of the Company Common Stock as
reported on the New York Stock Exchange was $14 13/16 per share. As of May 28,
1998 there were approximately 49,735,426 shares of the Company Common Stock
outstanding, net of treasury stock.
Sun has not paid nor declared dividends on its capital stock since its
inception and presently intends to continue a policy of retaining any earnings
for reinvestment in its business. The payment of any future dividends will be at
the discretion of Sun's board of directors and will depend upon, among other
things, future earnings, the success of Sun's business activities, regulatory
and capital requirements, the general financial condition of Sun and general
business conditions. Furthermore, the Senior Credit Facility and the indentures
governing the 9 1/2% Notes and the 2008 Notes restrict the payment of cash
dividends by Sun.
ACCOUNTING TREATMENT
The financial statements of the Trust will be reflected in Sun's
consolidated financial statements with the Convertible Preferred Securities
shown as Company-obligated mandatorily redeemable convertible preferred
securities of a subsidiary Trust holding solely 7% convertible junior
subordinated debentures of Sun.
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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, THREE MONTHS
---------------------------- ENDED MARCH
1993 1994 1995 1996 1997 31, 1998
---- ---- ---- ---- ---- ------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.......................... 3.34 1.76 1.15 1.64 1.65 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.
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<PAGE>
CAPITALIZATION
The following table sets forth (i) Sun's actual cash position and
consolidated capitalization as of March 31, 1998 and (ii) as adjusted as if the
offerings of the Convertible Preferred Securities and the 9 3/8% Notes had
occurred on March 31, 1998. The table set forth below does not reflect the RCA
and Contour Mergers which occurred on June 30, 1998. See "Risk
Factors--Difficulty of Integrating Acquired Operations" and "--Risks Related to
Retirement Care and Contour Mergers" and the Consolidated Financial Statements
and the notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................................................ $ 1,113 $ 1,113
--------- -----------
--------- -----------
Current maturities of long-term debt:
United States.......................................................................... $ 22,875 $ 20,732
United Kingdom......................................................................... 30,077 30,077
Germany................................................................................ 2,113 2,113
Spain.................................................................................. 1,208 1,208
--------- -----------
Total.............................................................................. $ 56,273 $ 54,130
--------- -----------
--------- -----------
Long-term debt (excluding current maturities):
Senior Credit Facility (1)............................................................. $1,043,332 $ 566,431
United Kingdom Revolving Credit Facilities............................................. 66,900 66,900
11 3/4% Senior Subordinated Notes Due 2002............................................. 6,161 6,161
6 1/2% Convertible Subordinated Debentures Due 2003.................................... 20,650 20,650
6% Convertible Subordinated Debentures Due 2004........................................ 83,300 83,300
9 1/2% Senior Subordinated Notes Due 2007.............................................. 250,000 250,000
9 3/8% Senior Subordinated Notes Due 2008.............................................. -- 149,519
Other long-term debt:
United States........................................................................ 62,173 62,173
United Kingdom....................................................................... 6,726 6,726
Germany.............................................................................. 7,101 7,101
Spain................................................................................ 12,000 12,000
--------- -----------
Total long-term debt (2)........................................................... 1,558,343 1,230,961
Capital lease obligations:
United States........................................................................ 4,640 4,640
United Kingdom....................................................................... 75,382 75,382
--------- -----------
Total capital lease obligations.................................................... 80,022 80,022
Minority interest........................................................................ 16,573 16,573
Company-obligated mandatorily redeemable convertible preferred securities of a subsidiary
trust holding solely 7% convertible junior subordinated debentures of Sun.............. -- 345,000
Stockholders' equity:
Preferred stock of $.01 par value, authorized 5,000,000 shares, none issued............ -- --
Common stock of $.01 par value, authorized 100,000,000 shares, 51,716,655 shares issued
and outstanding at March 31, 1998.................................................... 517 517
Additional paid-in capital............................................................. 638,324 638,324
Retained earnings (3).................................................................. 75,501 68,937
Accumulated other comprehensive income................................................. 5,391 5,391
--------- -----------
719,733 713,169
Less:
Unearned compensation.................................................................. 12,952 12,952
Common stock held in treasury, at cost, 2,122,701 shares as of March 31, 1998.......... 26,931 26,931
Grantor stock trust, at market, 2,163,747 shares as of March 31, 1998.................. 40,300 40,300
--------- -----------
Total stockholders' equity........................................................... 639,550 632,986
--------- -----------
Total capitalization............................................................. $2,294,488 $2,305,542
--------- -----------
--------- -----------
</TABLE>
- ------------------------------
(1) As of July 30, 1998, the outstanding balance under the Senior Credit
Facility is $671.8 million, excluding outstanding letters of credit of $50.7
million. Approximately $164.3 million is available for borrowing under the
Senior Credit Facility as of July 30, 1998.
(2) Had the RCA and Contour Mergers been consummated on March 31, 1998, Sun's
consolidated long-term debt (including current maturities) would have
increased by approximately $177.3 million, excluding $14.8 million of
long-term debt which would have eliminated in consolidation, based on
Retirement Care's March 31, 1998 balance sheet.
(3) The pro forma adjusted retained earnings reflects the extraordinary loss of
$6.6 million, net of related tax benefit of $4.2 million, recorded in
connection with the writeoff of the debt issuance costs associated with the
repayment of the term loan portion of the Senior Credit Facility.
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<PAGE>
DESCRIPTION OF THE CONVERTIBLE PREFERRED SECURITIES
The following summary of certain material terms and provisions of the
Convertible Preferred Securities and the Declaration does not purport to be
complete and is subject to, and qualified in its entirety by reference to, all
the provisions of the Declaration and those made a part of the Declaration by
the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The
Convertible Preferred Securities will be issued pursuant to the terms of the
Declaration and the Trust Act. It is expected that at the time the Shelf
Registration Statement becomes effective, the Declaration will be qualified as
an indenture under the Trust Indenture Act. The Bank of New York, as Property
Trustee, will act as indenture trustee for purposes of compliance with the Trust
Indenture Act. Capitalized terms not otherwise defined herein have the meanings
assigned to them in the Declaration and those made part of the Declaration by
the Trust Indenture Act.
GENERAL
Pursuant to the terms of the Declaration, the Issuer Trustees, on behalf of
the Trust, will issue the Trust Securities. The Convertible Preferred Securities
represent preferred, undivided beneficial ownership interests in the assets of
the Trust and entitle the holders thereof to a preference in certain
circumstances with respect to distributions and amounts payable on redemption or
liquidation over the Common Securities, as well as other benefits as described
in the Declaration. The Convertible Preferred Securities will be issued in fully
registered form without interest coupons. The Common Securities represent
common, undivided beneficial interests in the assets of the Trust.
All of the Common Securities will be owned, directly or indirectly, by the
Company. The Common Securities rank PARI PASSU, and payments will be made
thereon on a PRO RATA basis, with the Convertible Preferred Securities, except
that upon the occurrence of a Declaration Event of Default, the rights of the
holders of the Common Securities to receive payment of periodic distributions
and payments upon liquidation, redemption and otherwise will be subordinated to
the rights of the holders of Convertible Preferred Securities. See "Risk
Factors--Option to Extend Interest Payment Period" and "--Subordination of
Common Securities." Title to the Convertible Debentures will be held by the
Property Trustee for the benefit of the holders of the Trust Securities. The
Declaration does not permit the issuance by the Trust of any securities other
than the Trust Securities or the incurrence of any indebtedness by the Trust.
The payment of distributions out of moneys held by the Trust, and payments upon
redemption of the Convertible Preferred Securities or liquidation of the Trust,
are guaranteed by the Company as described under "Description of the Guarantee."
The Guarantee will be held by The Bank of New York, the Guarantee Trustee, for
the benefit of the holders of the Convertible Preferred Securities. The
Guarantee does not cover payment of distributions when the Trust does not have
sufficient available funds to pay such distributions. In such event, the remedy
of a holder of Convertible Preferred Securities is to (i) vote to direct the
Property Trustee to enforce the Property Trustee's rights under the Convertible
Debentures or (ii) if the failure of the Trust to pay distributions is
attributable to the failure of the Company to pay interest or principal on the
Convertible Debentures, to institute a proceeding directly against the Company
for enforcement of payment to such holder of the principal of or interest on the
Convertible Debentures having a principal amount equal to the aggregate
liquidation amount of the Convertible Preferred Securities of such holder on or
after the respective due date specified in the Convertible Debentures. See
"--Voting Rights."
DISTRIBUTIONS
Distributions on the Convertible Preferred Securities will be fixed at a
rate per annum of 7% of the stated liquidation amount of $25 per Convertible
Preferred Security. Distributions in arrears for more than one quarter will bear
interest thereon (to the extent permitted by applicable law) at a rate per annum
of 7% thereof compounded quarterly. The term "distribution" as used herein
includes any such interest (including any Additional Interest, Compounded
Interest and Liquidated Damages, if any (each as defined
28
<PAGE>
herein)) payable unless otherwise stated. The amount of distributions payable
for any period will be computed on the basis of a 360-day year of twelve 30-day
months.
Distributions on the Convertible Preferred Securities will be cumulative,
will accrue from the date of initial issuance and will be payable quarterly in
arrears on each February 1, May 1, August 1 and November 1, commencing August 1,
1998, when, as and if available for payment, by the Property Trustee, except as
otherwise described below. So long as no Indenture Event of Default has occurred
and is continuing, the Company has the right under the Indenture to defer
interest payments from time to time on the Convertible Debentures for successive
periods not exceeding 20 consecutive quarterly interest periods (each, an
Extension Period) during which no interest shall be due and payable; PROVIDED
that no such Extension Period may extend beyond the maturity date of the
Convertible Debentures. As a consequence of such extension, quarterly
distributions on the Convertible Preferred Securities would be deferred (though
such distributions would continue to accrue with interest) during any such
extended interest payment period. In the event that the Company exercises this
right, then, during such period, the Company has agreed, among other things, (a)
not to declare or pay dividends on, or make a distribution with respect to, or
redeem, purchase or acquire, or make a liquidation payment with respect to, any
of its capital stock (other than (i) purchases or acquisitions of shares of
Company Common Stock in connection with the satisfaction by the Company of its
obligations under any employee benefit plans or the satisfaction by the Company
of its obligations pursuant to any contract or security requiring the Company to
purchase shares of Company Common Stock, (ii) as a result of a reclassification
of the Company's capital stock or the exchange or conversion of one class or
series of the Company's capital stock for another class or series of the
Company's capital stock or (iii) the purchase of fractional interests in shares
of the Company's capital stock pursuant to the conversion or exchange provisions
of such capital stock or the security being converted or exchanged (or make any
guarantee payments with respect to the foregoing)), (b) not to make any payment
of interest, principal of or premium, if any, on, or repay, repurchase or redeem
any debt securities (including guarantees) issued by the Company that rank PARI
PASSU with or junior to the Convertible Debentures (except by conversion into or
exchange for shares of its capital stock) and (c) not to make any guarantee
payments with respect to the foregoing (other than pursuant to the Guarantee).
Prior to the termination of any such Extension Period, the Company may further
extend such Extension Period; PROVIDED that such Extension Period, together with
all previous and further extensions thereof, may not exceed 20 consecutive
quarters and that such Extension Period may not extend beyond the maturity date
of the Convertible Debentures. Upon the termination of any Extension Period and
the payment of all amounts then due, the Company may select a new Extension
Period, subject to the above requirements. Consequently, there could be multiple
Extension Periods of varying lengths throughout the term of the Convertible
Debentures. See "Description of the Convertible Debentures--Interest" and
"Description of the Convertible Debentures--Option to Extend Interest Payment
Period." If distributions are deferred, the deferred distributions and accrued
interest thereon shall be paid to the holders of record of Convertible Preferred
Securities as they appear on the books and records of the Trust on the record
date next following the termination of such deferral period.
The Company has no current intention to exercise its right to defer payments
of interest by extending the interest payment period on the Convertible
Debentures.
Distributions on the Convertible Preferred Securities will be made to the
extent that the Trust has funds available for the payment of such distributions
in the Property Account. Amounts available to the Trust for distribution to the
holders of the Convertible Preferred Securities will be limited to payments
received by the Trust from the Company for the Convertible Debentures. See
"Description of the Convertible Debentures." The payment of distributions out of
funds held by the Trust is guaranteed by the Company on a limited basis as set
forth under "Description of the Guarantee."
Distributions on the Convertible Preferred Securities will be payable to the
holders thereof as they appear on the books and records of the Trust on the
relevant record dates, which will be fifteen days prior to the relevant payment
dates. Subject to any applicable laws and regulations and the provisions of the
29
<PAGE>
Declaration, each such payment will be made as described under "--Payment and
Paying Agency" below. In the event that any date on which distributions are
payable on the Convertible Preferred Securities is not a Business Day, payment
of the distribution payable on such date will be made on the next succeeding day
which is a Business Day (without any distribution or other payment in respect of
any such delay) except that, if such Business Day is in the next succeeding
calendar year, such payment shall be made on the immediately preceding Business
Day, in each case with the same force and effect as if made on such date. A
"Business Day" shall mean any day other than a day on which banking institutions
in New York, New York or in Wilmington, Delaware are authorized or required by
law to close.
CONVERSION RIGHTS
GENERAL. Convertible Preferred Securities will be convertible at any time
after June 28, 1998 and prior to 5:00 p.m. (New York City time) on the Business
Day immediately preceding the date of repayment of such Convertible Preferred
Securities, whether at maturity or upon redemption (either at the option of the
Company or pursuant to a Tax Event), at the option of the holder thereof and in
the manner described below, into shares of Company Common Stock at an initial
conversion rate of 1.2419 shares of Company Common Stock for each Convertible
Preferred Security (equivalent to a conversion price of $20.13 per share of
Company Common Stock), subject to adjustment as described below. The Trust will
covenant in the Declaration not to convert Convertible Debentures held by it
except pursuant to a notice of conversion delivered to the Property Trustee, as
conversion agent (the "Conversion Agent"), by a holder of Convertible Preferred
Securities.
A holder of a Convertible Preferred Security wishing to exercise its
conversion right shall deliver an irrevocable conversion notice, together, if
the Convertible Preferred Security is a Certificated Security (as defined
herein), with such Certificated Security, to the Conversion Agent which shall,
on behalf of such holder, exchange such Convertible Preferred Security for a
portion of the Convertible Debentures and immediately convert such Convertible
Debentures into Company Common Stock. Holders may obtain copies of the required
form of the conversion notice from the Conversion Agent. Procedures for
converting book-entry Convertible Preferred Securities into shares of Company
Common Stock will differ. See "--Form, Denomination and Registration."
Holders of Convertible Preferred Securities at 5:00 p.m. (New York City
time) on a distribution record date will be entitled to receive the distribution
payable on such Convertible Preferred Securities on the corresponding
distribution payment date notwithstanding the conversion of such Convertible
Preferred Securities following such distribution record date but prior to such
distribution payment date. Except as provided in the immediately preceding
sentence, neither the Trust nor the Company will make, or be required to make,
any payment, allowance or adjustment for accumulated and unpaid distributions,
whether or not in arrears, on converted Convertible Preferred Securities. The
Company will make no payment or allowance for distributions on the shares of
Company Common Stock issued upon such conversion, except to the extent that such
shares of Company Common Stock are held of record on the record date for any
such distributions. Each conversion will be deemed to have been effected
immediately prior to 5:00 p.m. (New York City time) on the day on which the
related conversion notice was received by the Conversion Agent.
Shares of Company Common Stock issued upon conversion of Convertible
Preferred Securities will be validly issued, fully paid and non-assessable. No
fractional shares of Company Common Stock will be issued as a result of
conversion, but in lieu thereof such fractional interest will be paid by the
Company in cash based on the last reported sale price of Company Common Stock on
the date such Convertible Preferred Securities are surrendered for conversion.
CONVERSION PRICE ADJUSTMENTS--GENERAL. The conversion price is subject to
adjustment in certain events, including (a) the issuance of shares of Company
Common Stock as a dividend or a distribution on the outstanding Company Common
Stock, (b) certain subdivisions, combinations and reclassifications of
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Company Common Stock, (c) the issuance to all holders of Company Common Stock of
rights or warrants entitling them (for a period not exceeding 45 days) to
subscribe for shares of Company Common Stock at less than the then Current
Market Price (as defined below) of Company Common Stock, (d) the distribution to
holders of Company Common Stock of evidences of indebtedness of the Company,
securities or capital stock, cash or assets (including securities, but excluding
those rights, warrants, dividends and distributions referred to above, dividends
and distributions in connection with the liquidation, dissolution or winding up
of the Company and dividends and distributions paid exclusively in cash), (e)
the payment of dividends (and other distributions) on Company Common Stock paid
exclusively in cash (excluding any cash portion of distributions referred to in
clause (d) or in connection with a consolidation, merger or sale of assets of
the Company as referred to in clause (ii) of the second paragraph under
"CONVERSION PRICE ADJUSTMENTS--MERGER, CONSOLIDATION OR SALE OF ASSETS OF THE
COMPANY" below), excluding cash dividends if such dividends (and other
distributions) together with all other such all-cash dividends and distributions
made within the preceding 12 months in respect of which no adjustment has been
made, do not exceed 20% of the Company's market capitalization (being the
product of the then Current Market Price of the Common Stock times the number of
shares of Common Stock then outstanding) as of the trading day immediately
preceding the date of declaration of such dividend, and (f) payment to holders
of Company Common Stock in respect of a tender or exchange offer (other than an
odd-lot offer) by the Company for Company Common Stock at a price in excess of
110% of the then Current Market Price of Company Common Stock as of the trading
day next succeeding the last date tenders or exchanges may be made pursuant to
such tender or exchange offer. The term "Current Market Price" means the average
of the daily closing prices for the five consecutive trading days selected by
the Company commencing not more than 20 trading days before, and ending not
later than, the earlier of the day in question or, if applicable, the day before
the "ex" date with respect to the issuance or distribution in question. Except
as stated above, the conversion price will not be adjusted for the issuance of
Common Stock or any securities convertible into or exchangeable for Common Stock
or having the right to purchase any of the foregoing.
The Company from time to time may reduce the conversion price of the
Convertible Debentures (and thus the conversion price of the Convertible
Preferred Securities) by any amount selected by the Company for any period of at
least 20 days, in which case the Company shall give at least 15 days' notice of
such reduction. The Company may, at its option, make such reductions in the
conversion price, in addition to those set forth above, as the Company's Board
of Directors deems advisable to avoid or diminish any income tax to holders of
Company Common Stock resulting from any dividend or distribution of stock (or
rights to acquire stock) or from any event treated as such for income tax
purposes. See "United States Federal Income Taxation--Adjustment of Conversion
Price."
No adjustment of the conversion price will be made upon the issuance of any
shares of Company Common Stock pursuant to any present or future plan providing
for the reinvestment of dividends or interest payable on securities of the
Company and the investment of additional optional amounts in shares of Company
Common Stock under any such plan. No adjustment in the conversion price will be
required unless such adjustment would require a change of at least one percent
(1%) in the price then in effect; PROVIDED, HOWEVER, that any adjustment that
would not be required to be made shall be carried forward and taken into account
in any subsequent adjustment. If any action would require adjustment of the
conversion price pursuant to more than one of the provisions described above,
only one adjustment shall be made and such adjustment shall be the amount of
adjustment that has the highest absolute value to the holder of the Convertible
Preferred Securities.
No adjustment will be made pursuant to clause (d) of the first paragraph of
this section "CONVERSION PRICE ADJUSTMENTS--GENERAL," if the Company makes
proper provision for each Holder of Convertible Preferred Securities who
converts a Convertible Preferred Security to receive, in addition to the Company
Common Stock issuable upon such conversion, the kind and amount assets
(including securities) if such Holder had been a holder of the Common Stock at
the time of the distribution of such assets or securities.
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Rights, options or warrants distributed by the Company to all holders of the
Company Common Stock that entitle the holders thereof to purchase shares of the
Company's capital stock and that, until the occurrence of an event (a
"Triggering Event"), (i) are deemed to be transferred with the Company Common
Stock, (ii) are not exercisable and (iii) are also issued in respect of future
issuances of Company Common Stock, shall not be deemed to be distributed until
the occurrence of the Triggering Event.
CONVERSION PRICE ADJUSTMENTS--MERGER, CONSOLIDATION OR SALE OF ASSETS OF THE
COMPANY. If any Fundamental Change (as defined below) occurs, then the
conversion price in effect will be adjusted immediately after such Fundamental
Change as described below. In addition, in the event of a Common Stock
Fundamental Change (as defined below), each Convertible Preferred Security shall
be convertible solely into common stock of the kind received by holders of
Company Common Stock Common Stock Fundamental Change.
In the event that the Company is party to any transaction (including,
without limitation, a merger other than a merger that does not result in a
reclassification, conversion, exchange or cancellation of Company Common Stock),
consolidation, sale of all or substantially all of the assets of the Company,
recapitalization or reclassification of Company Common Stock (other than a
change in par value, or from par value to no par value, or from no par value to
par value or as a result of a subdivision or combination of Company Common
Stock) or any compulsory share exchange (each of the foregoing being referred to
as a "Transaction"), in each case, as a result of which shares of Company Common
Stock shall be converted into the right to receive, or shall be exchanged for,
(i) in the case of any Transaction other than a Transaction involving a Common
Stock Fundamental Change (and subject to funds being legally available for such
purpose under applicable law at the time of such conversion), securities, cash
or other property, each Convertible Preferred Security shall thereafter be
convertible into the kind and, in the case of a Transaction which does not
involve a Fundamental Change, amount of securities, cash and other property
receivable upon the consummation of such Transaction by a holder of that number
of shares of Company Common Stock into which a Convertible Preferred Security
was convertible immediately prior to such Transaction, or (ii) in the case of a
Transaction involving a Common Stock Fundamental Change, common stock, each
Convertible Preferred Security shall thereafter be convertible (in the manner
described therein) into common stock of the kind received by holders of Company
Common Stock (but in each case after giving effect to any adjustment discussed
below relating to a Fundamental Change if such Transaction constitutes a
Fundamental Change). The holders of Convertible Preferred Securities will have
no voting rights with respect to any Transaction.
The conversion price in the case of any Transaction involving a Fundamental
Change will be adjusted immediately after such Fundamental Change:
(i) in the case of a Non-Stock Fundamental Change (as defined below), the
conversion price of the Convertible Preferred Securities will thereupon
become the lower of (A) the conversion price in effect immediately prior to
such Non-Stock Fundamental Change, but after giving effect to any other
prior adjustments effected pursuant to the preceding paragraphs, and (B) the
greater of the Applicable Price (as defined below) or the then applicable
Reference Market Price (as defined below) plus any then-accrued and unpaid
distributions on one Convertible Preferred Security; and
(ii) in the case of a Common Stock Fundamental Change, the conversion price of
the Convertible Preferred Securities in effect immediately prior to such
Common Stock Fundamental Change, but after giving effect to any other prior
adjustments effected pursuant to the preceding paragraphs, will thereupon be
adjusted by multiplying such conversion price by a fraction of which the
numerator will be the Purchaser Stock Price (as defined below) and the
denominator will be the Applicable Price; provided, however, that in the
event of a Common Stock Fundamental Change in which (A) 100% of the value of
the consideration received by a holder of Company Common Stock is common
stock of the successor, acquirer, or other third party (and cash, if any, is
paid only with respect to any fractional interests in such common stock
resulting from such Common Stock Fundamental Change) and (B) all
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Company Common Stock will have been exchanged for, converted into, or
acquired for common stock (and cash with respect to fractional interests) of
the successor, acquirer, or other third party, the conversion price of the
Convertible Preferred Securities in effect immediately prior to such Common
Stock Fundamental Change will thereupon be adjusted by multiplying such
conversion price by a fraction of which the numerator will be one and the
denominator will be the number of shares of common stock of the successor,
acquirer, or other third party received by a holder of one share of Company
Common Stock as a result of such Common Stock Fundamental Change.
The foregoing conversion price adjustments are designed, in certain
circumstances, to reduce the conversion price that would be applicable in
"Fundamental Change" Transactions where all or substantially all the Company
Common Stock is converted into securities, cash, or property and not more than
50% of the value received by the holders of Company Common Stock consists of
stock listed or admitted for listing subject to notice of issuance on the New
York Stock Exchange or a national securities exchange or quoted on the Nasdaq
National Market (a Non-Stock Fundamental Change, as defined below). Such
reduction would result in an increase in the amount of the securities, cash, or
property into which each Convertible Preferred Security is convertible over that
which would have been obtained in the absence of such conversion price
adjustment.
In a Non-Stock Fundamental Change Transaction where the initial value
received per share of Company Common Stock (measured as described in the
definition of Applicable Price below) is lower than the then applicable
conversion price of a Convertible Preferred Security but greater than or equal
to the "Reference Market Price," the conversion price will be adjusted as
described above with the effect that each Convertible Preferred Security will be
convertible into securities, cash or property of the same type received by the
holders of Company Common Stock in the Transaction but in an amount per
Convertible Preferred Security that would at the time of the Transaction have
had a value equal to the Liquidation Preference.
In a Non-Stock Fundamental Change Transaction where the initial value
received per share of Company Common Stock (measured as described in the
definition of Applicable Price) is lower than both the conversion price of a
Convertible Preferred Security in effect prior to any adjustment described above
and the Reference Market Price, the conversion price will be adjusted as
described above but calculated as though such initial value had been the
Reference Market Price.
In a Fundamental Change Transaction where all or substantially all the
Company Common Stock is converted into securities, cash, or property and more
than 50% of the value received by the holders of Company Common Stock consist of
listed or Nasdaq National Market traded common stock (a Common Stock Fundamental
Change, as defined below), the foregoing adjustments are designed to provide in
effect that (a) where Company Common Stock is converted partly into such common
stock and partly into other securities, cash, or property, each Convertible
Preferred Security will be convertible solely into a number of shares of such
common stock determined so that the initial value of such shares (measured as
described in the definition of "Purchaser Stock Price" below) equals the value
of the shares of Company Common Stock into which such Convertible Preferred
Security was convertible immediately before the Transaction (measured as
aforesaid) and (b) where Company Common Stock is converted solely into such
common stock, each Convertible Preferred Security will be convertible into the
same number of shares of such common stock receivable by a holder of the number
of shares of Company Common Stock into which such Convertible Preferred Security
was convertible immediately before such Transaction.
The term "Applicable Price" means (i) in the case of a Non-Stock Fundamental
Change in which the holders of Company Common Stock receive only cash, the
amount of cash received by the holder of one share of Company Common Stock and
(ii) in the event of any other Non-Stock Fundamental Change or any Common Stock
Fundamental Change, the average of the Closing Prices (as defined below) for
Company Common Stock during the ten days prior to the record date for the
determination of the holders of Company Common Stock entitled to receive such
securities, cash, or other property in connection with
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such Non-Stock Fundamental Change or Common Stock Fundamental Change or, if
there is no such record date, the date upon which the holders of Company Common
Stock shall have the right to receive such securities, cash, or other property
(such record date or distribution date being hereinafter referred to as the
"Entitlement Date").
The term "Closing Price" means on any day the reported last sale price on
such day or in case no sale takes place on such day, the average of the reported
closing bid and asked prices in each case on the New York Stock Exchange
Consolidated Transactions Tape or, if the stock is not listed or admitted to
trading on the New York Stock Exchange, on the principal national securities
exchange on which such stock is listed or admitted to trading or, if not listed
or admitted to trading on any national securities exchange, the average of the
closing bid and asked prices as furnished by any New York Stock Exchange member
firm, selected by the Debenture Trustee for that purpose.
The term "Common Stock Fundamental Change" means any Fundamental Change in
which more than 50% of the value (as determined in good faith by the Board of
Directors of the Company) of the consideration received by holders of Company
Common Stock consists of common stock that for each of the ten consecutive
trading days prior to the Entitlement Date has been admitted for listing or
admitted for listing subject to notice of issuance on a national securities
exchange or quoted on the NASDAQ National Market; provided, however, that a
Fundamental Change shall not be a Common Stock Fundamental Change unless either
(i) the Company continues to exist after the occurrence of such Fundamental
Change and the outstanding Convertible Preferred Securities continue to exist as
outstanding Convertible Preferred Securities or (ii) not later than the
occurrence of such Fundamental Change, the outstanding Convertible Preferred
Securities are converted into or exchanged for shares of convertible preferred
stock or debentures of an entity succeeding to the business of the Company or a
subsidiary thereof, which convertible preferred stock (or debentures, as the
case may be) has powers, preferences, and relative, participating, optional, or
other rights, and qualifications, limitations, and restrictions, substantially
similar to those of the Convertible Preferred Securities.
The term "Fundamental Change" means the occurrence of any Transaction or
event in connection with a plan pursuant to which all or substantially all of
Company Common Stock shall be exchanged for, converted into, acquired for, or
constitute solely the right to receive securities, cash, or other property
(whether by means of an exchange offer, liquidation, tender offer,
consolidation, merger, combination, reclassification, recapitalization, or
otherwise), provided, that, in the case of a plan involving more than one such
Transaction or event, for purposes of adjustment of the conversion price, such
Fundamental Change shall be deemed to have occurred when substantially all of
the Company Common Stock shall be exchanged for, converted into, or acquired for
or constitute solely the right to receive securities, cash, or other property,
but the adjustment shall be based upon the consideration that a holder of
Company Common Stock received in such Transaction or event as a result of which
more than 50% of the Company Common Stock shall have been exchanged for,
converted into, or acquired for or constitute solely the right to receive
securities, cash, or other property.
The term "Non-Stock Fundamental Change" means any Fundamental Change other
than a Common Stock Fundamental Change.
The term "Purchaser Stock Price" means, with respect to any Common Stock
Fundamental Change, the average of the Closing Price for the common stock
received in such Common Stock Fundamental Change for the ten consecutive trading
days prior to and including the Entitlement Date.
The term "Reference Market Price" shall initially mean $11.00 (which is an
amount equal to 66 2/3% of the reported last sale price for Company Common Stock
on the New York Stock Exchange Consolidated Transactions Tape on April 28, 1998)
and in the event of any adjustment of the conversion price other than as a
result of a Non-Stock Fundamental Change, the Reference Market Price shall also
be adjusted so that the ratio of the Reference Market Price to the conversion
price after giving effect to any such adjustment shall always be the same as the
ratio of the initial Reference Market Price to the initial conversion price of
the Convertible Preferred Securities.
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Conversion price adjustments or omissions in making such adjustments may,
under certain circumstances, be deemed to be distributions that could be taxable
as dividends to holders of Convertible Preferred Securities or to the holders of
Company Common Stock. See "United States Federal Income Taxation--Adjustments of
Conversion Price."
No adjustment to the conversion price will be required to be made in any
case until cumulative adjustments amount to 1% or more of the conversion price.
REDEMPTION
The Convertible Debentures will mature on May 1, 2028, and may be redeemed,
in whole or in part, at any time after May 3, 2001 or at any time in certain
circumstances upon the occurrence of a Tax Event, as described herein. Upon the
repayment of the Convertible Debentures, whether at maturity or upon redemption
(either at the option of the Company or pursuant to a Tax Event), the proceeds
from such repayment shall simultaneously be applied to redeem Trust Securities
on a pro rata basis having an aggregate liquidation amount equal to the
aggregate principal amount of the Convertible Debentures so repaid or redeemed
at the applicable Redemption Price of the Convertible Debentures; PROVIDED that
holders of the Trust Securities shall be given not less than 30 nor more than 60
days' notice of such redemption. See "--Special Event Redemption or
Distribution," "--Redemption Procedures," "Description of the Convertible
Debentures--General," "Description of the Convertible Debentures--Mandatory
Redemption" and "Description of the Convertible Debentures--Optional
Redemption."
SPECIAL EVENT REDEMPTION OR DISTRIBUTION
If, at any time, a Tax Event or an Investment Company Event (either event, a
"Special Event") shall occur and be continuing, the Trust shall, unless the
Convertible Debentures are redeemed in the limited circumstances described
below, be dissolved with the result that, after satisfaction of creditors, if
any, of the Trust, Convertible Debentures with an aggregate principal amount
equal to the aggregate stated liquidation amount of, with an interest rate
identical to the distribution rate of, and accrued and unpaid interest equal to
accrued and unpaid distributions on, and having the same record date for payment
as the Convertible Preferred Securities and the Common Securities outstanding at
such time would be distributed on a PRO RATA basis to the holders of the
Convertible Preferred Securities and the Common Securities in liquidation of
such holders' interests in the Trust, within 90 days following the occurrence of
such Special Event; PROVIDED, HOWEVER, that in the case of the occurrence of a
Tax Event, as a condition of such dissolution and distribution, the Property
Trustee, on behalf of the Trust, shall have received an opinion of nationally
recognized independent tax counsel experienced in such matters (a "No
Recognition Opinion"), which opinion may rely on published revenue rulings of
the Internal Revenue Service, to the effect that the holders of the Convertible
Preferred Securities will not recognize any income, gain or loss for United
States federal income tax purposes as a result of such dissolution and
distribution of Convertible Debentures; and, PROVIDED, FURTHER, that if at the
time there is available to the Trust the opportunity to eliminate, within such
90-day period, the Special Event by taking some ministerial action, such as
filing a form or making an election, or pursuing some other similar reasonable
measure which in the sole judgment of the Company has or will cause no adverse
effect on the Trust, the Company or the holders of the Trust Securities and will
involve no material cost, the Trust will pursue such measure in lieu of
dissolution. Furthermore, if in the case of the occurrence of a Tax Event, (i)
the Property Trustee, on behalf of the Trust, has received an opinion (a
"Redemption Tax Opinion") of nationally recognized independent tax counsel
experienced in such matters that, as a result of a Tax Event, there is more than
an insubstantial risk that the Company would be precluded from deducting the
interest on the Convertible Debentures for United States federal income tax
purposes even if the Convertible Debentures were distributed to the holders of
Convertible Preferred Securities and Common Securities in liquidation of such
holders' interests in the Trust as described above or (ii) the Property Trustee
shall have been informed by such tax counsel that a No Recognition Opinion
cannot be delivered to the Trust, the Company shall have the right, upon
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not less than 30 nor more than 60 days' notice, to redeem the Convertible
Debentures, in whole (but not in part) for cash at 100% of the principal amount
thereof plus accrued and unpaid interest thereon within 90 days following the
occurrence of such Tax Event, and promptly following such redemption, the
Convertible Preferred Securities and Common Securities will be redeemed for cash
by the Trust at the liquidation amount thereof plus accrued and unpaid
distributions thereon; PROVIDED, HOWEVER, that if at the time there is available
to the Company or the Trust the opportunity to eliminate, within such 90-day
period, the Tax Event by taking some ministerial action, such as filing a form
or making an election, or pursuing some other similar reasonable measure which
in the sole judgment of the Company has or will cause no adverse effect on the
Trust, the Company or the holders of the Trust Securities and will involve no
material cost, the Company or the Trust will pursue such measure in lieu of
redemption.
"Tax Event" means that the Property Trustee, on behalf of the Trust, shall
have received an opinion of nationally recognized independent tax counsel
experienced in such matters (a "Dissolution Tax Opinion") to the effect that as
a result of (a) any amendment to or change (including any announced prospective
change) in the laws (or any regulations thereunder) of the United States or any
political subdivision or taxing authority thereof or therein, (b) any amendment
to or change in an interpretation or application of any such laws or regulations
by any legislative body, court, governmental agency or regulatory authority
(including the enactment of any legislation and the publication of any judicial
decision or regulatory determination), (c) any interpretation or pronouncement
that provides for a position with respect to such laws or regulations that
differs from the theretofore generally accepted position or (d) any action taken
by any governmental agency or regulatory authority, which amendment or change is
enacted, promulgated, issued or announced or which interpretation or
pronouncement is issued or announced or which action is taken, in each case on
or after the date of this Offering Memorandum (collectively, a "Change in Tax
Law"), there is more than an insubstantial risk that (i) the Trust is, or will
be within 90 days of the date thereof, subject to United States federal income
tax with respect to income accrued or received on the Convertible Debentures,
(ii) the Trust is, or will be within 90 days of the date thereof, subject to
more than a DE MINIMIS amount of other taxes, duties or other governmental
charges or (iii) interest payable by the Company to the Trust on the Convertible
Debentures is not, or within 90 days of the date thereof will not be, deductible
by the Company for United States federal income tax purposes. Notwithstanding
anything in the previous sentence to the contrary, a Tax Event shall not include
any Change in Tax Law that requires the Company for United States federal income
tax purposes to defer taking a deduction for any OID that accrues with respect
to the Convertible Debentures until the interest payment related to such OID is
paid by the Company in cash; PROVIDED that such Change in Tax Law does not
create more than an insubstantial risk that the Company will be prevented from
taking a deduction for OID accruing with respect to the Convertible Debentures
at a date that is no later than the date the interest payment related to such
OID is actually paid by the Company in cash.
"Investment Company Event" means that the Property Trustee, on behalf of the
Trust, shall have received an opinion of nationally recognized independent
counsel experienced in practice under the Investment Company Act of 1940, as
amended (the "1940 Act"), that as a result of the occurrence of a change in law
or regulation or a change in interpretation or application of law or regulation
by any legislative body, court, governmental agency or regulatory authority (a
"Change in 1940 Act Law"), there is more than an insubstantial risk that the
Trust is or will be considered an "investment company" which is required to be
registered under the 1940 Act, which Change in 1940 Act Law becomes effective on
or after the date hereof.
On the date fixed for any distribution of Convertible Debentures, upon
dissolution of the Trust, (i) the Convertible Preferred Securities and the
Common Securities will no longer be deemed to be outstanding, (ii) DTC or its
nominee, as the record holder of such Convertible Preferred Securities, will
receive a registered global certificate or certificates representing the
Convertible Debentures to be delivered upon such distribution and (iii)
certificates representing Trust Securities not held by DTC or its nominee will
be deemed to represent beneficial interests in the Convertible Debentures having
an aggregate principal
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amount equal to the stated liquidation amount of, and bearing accrued and unpaid
interest equal to accrued and unpaid distributions on, such Convertible
Preferred Securities until such certificates are presented to the Company or its
agent for transfer or reissuance.
Because the Company is a holding company substantially all of whose
operations are conducted through its subsidiaries, the ability of the Company to
redeem the Convertible Debentures, and therefore the Trust's ability to redeem
the Convertible Preferred Securities, will be dependent on the Subsidiaries'
ability to pay dividends to the Company in sufficient amounts. The Senior Credit
Facility and the indentures with respect to the 9 1/2% Notes and 2008 Notes
impose certain restrictions on the ability of the Subsidiaries to dividend funds
to the Company. Such restrictions may require a waiver or amendment subsequent
to any redemption of the Convertible Debentures, and, therefore, the Convertible
Preferred Securities. See "Risk Factors--Holding Company Structure; Effects of
Asset Encumbrances."
There can be no assurance as to the market price for the Convertible
Debentures which may be distributed in exchange for Trust Securities if a
dissolution and liquidation of the Trust were to occur. Accordingly, the
Convertible Debentures which the investor may subsequently receive on
dissolution and liquidation of the Trust may trade at a discount to the price of
the Trust Securities exchanged. If the Convertible Debentures are distributed to
the holders of the Convertible Preferred Securities, the Company will use its
best efforts to cause the Convertible Debentures to be listed on the New York
Stock Exchange or on any such other national securities exchange or similar
organization (if any) as the Convertible Preferred Securities are then listed or
quoted.
At any time, the Company will have the right to dissolve the Trust and,
after satisfaction of the liabilities of creditors of the Trust as provided by
applicable law, cause the Convertible Debentures to be distributed to the
holders of the Convertible Preferred Securities in liquidation of the Trust.
Under current United States federal income tax law and interpretations and
assuming, as expected, the Trust is treated as a grantor trust, a distribution
of the Convertible Debentures should not be a taxable event to the Trust and
holders of the Convertible Preferred Securities. Should there be a change in
law, a change in legal interpretation, a Special Event or other circumstances,
however, the distribution could be a taxable event to holders of the Convertible
Preferred Securities. See "United States Federal Income Taxation--Receipt of
Convertible Debentures or Cash upon Liquidation of the Trust."
REDEMPTION PROCEDURES
The Trust may not redeem fewer than all of the outstanding Convertible
Preferred Securities unless all accrued and unpaid distributions have been paid
in cash on all Convertible Preferred Securities for all quarterly distribution
periods terminating on or prior to the date of redemption.
In the event of any redemption, the Trust shall not be required to (i)
issue, register the transfer of or exchange any Convertible Preferred Security
during a period beginning at the opening of business 15 days before any
selection for redemption of Convertible Preferred Securities and ending at the
close of business on the earliest date in which the relevant notice of
redemption is deemed to have been given to all holders of Convertible Preferred
Securities to be so redeemed and (ii) register the transfer of or exchange any
Convertible Preferred Securities so selected for redemption, in whole or in
part, except for the unredeemed portion of any Convertible Preferred Securities
being redeemed in part.
If the Trust gives a notice of redemption in respect of Convertible
Preferred Securities (which notice will be irrevocable), and if the Company has
paid to the Property Trustee a sufficient amount of cash in connection with the
related redemption or maturity of the Convertible Debentures, then, by 12:00
noon, New York City time, on the redemption date, the Trust will irrevocably
deposit with DTC funds sufficient to pay the amount payable on redemption of all
book-entry certificates and will give DTC irrevocable instructions and authority
to pay such amount in respect of Convertible Preferred Securities represented by
the Global Certificates (as defined herein) and will irrevocably deposit with
the paying agent for the Convertible Preferred Securities funds sufficient to
pay such amount in respect of any Certificated
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Securities and will give such paying agent irrevocable instructions and
authority to pay such amount to the holders of Certificated Securities upon
surrender of their certificates. If notice of redemption shall have been given
and funds are deposited as required, then upon the date of such deposit, all
rights of holders of such Convertible Preferred Securities so called for
redemption will cease, except (i) the right of the holders of such Convertible
Preferred Securities to receive the Redemption Price, but, except as provided
below, without interest on such Redemption Price, and (ii) the right to convert
such Convertible Preferred Securities into Company Common Stock in the manner
described herein through the close of business on the date fixed for redemption.
In the event that any date fixed for redemption of Convertible Preferred
Securities is not a Business Day, then payment of the amount payable on such
date will be made on the next succeeding day which is a Business Day (without
any interest or other payment in respect of any such delay), except that, if
such Business Day falls in the next calendar year, such payment will be made on
the immediately preceding Business Day. In the event that payment of the
Redemption Price in respect of Convertible Preferred Securities is improperly
withheld or refused and not paid either by the Trust or by the Company pursuant
to the Guarantee described under "Description of the Guarantee," distributions
on such Convertible Preferred Securities will continue to accrue at the then
applicable rate, from the original redemption date to the date of payment, in
which case the actual payment date will be considered the date fixed for
redemption for purposes of calculating the amount payable upon redemption (other
than for calculating any premium).
Subject to the foregoing and applicable law (including, without limitation,
United States federal securities laws), the Company or its subsidiaries may at
any time and from time to time purchase outstanding Convertible Preferred
Securities by tender, in the open market or by private agreement.
If less than all of the Convertible Preferred Securities and Common
Securities issued by the Trust are to be redeemed on a redemption date, then the
aggregate liquidation preference of such Convertible Preferred Securities and
Common Securities to be redeemed shall be allocated PRO RATA among the
Convertible Preferred Securities and the Common Securities. The particular
Convertible Preferred Securities to be redeemed shall be selected not more than
60 days prior to the redemption date by the Property Trustee from the
outstanding Convertible Preferred Securities not previously called for
redemption, by lot or by such method as the Property Trustee shall deem fair and
appropriate and which may provide for the selection for redemption of portions
(equal to $25 or an integral multiple of $25 in excess thereof) of the
liquidation amount of the Convertible Preferred Securities. The Property Trustee
shall promptly notify the Conversion Agent in writing of the Convertible
Preferred Securities selected for redemption and, in the case of any Convertible
Preferred Securities selected for partial redemption, the liquidation preference
thereof to be redeemed; it being understood that, in the case of Convertible
Preferred Securities held by DTC (or any successor) or its nominee, the
distribution of the proceeds of such redemption will be made in accordance with
the procedures of DTC or its nominee. For all purposes of the Declaration,
unless the context otherwise requires, all provisions relating to the redemption
of Convertible Preferred Securities shall relate, in the case of any Convertible
Preferred Securities redeemed or to be redeemed only in part, to the portion of
the aggregate liquidation preference of Convertible Preferred Securities which
has been or is to be redeemed.
Notice of any redemption of Convertible Debentures will be mailed at least
30 days but not more than 60 days before the redemption date to each holder of
Convertible Debentures to be redeemed at its registered address. Unless the
Company defaults in payment of the Redemption Price, on and after the redemption
date interest shall cease to accrue on such Convertible Debentures or portions
thereof called for redemption.
SUBORDINATION OF COMMON SECURITIES
Payment of distributions on, and the amount payable upon redemption of, the
Trust Securities, as applicable, shall be made PRO RATA based on the liquidation
amount of the Trust Securities; PROVIDED, HOWEVER, that, if on any distribution
date or redemption date a Declaration Event of Default shall have
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occurred and be continuing, no payment of any distribution on, or amount payable
upon redemption of, any Common Security, and no other payment on account of the
redemption, liquidation or other acquisition of Common Securities, shall be made
unless payment in full in cash of all accumulated and unpaid distributions on
all outstanding Convertible Preferred Securities for all distribution periods
terminating on or prior thereto, or in the case of payment of the amount payable
upon redemption of the Convertible Preferred Securities, the full amount of such
amount in respect of all outstanding Convertible Preferred Securities shall have
been made or provided for, and all funds available to the Property Trustee shall
first be applied to the payment in full in cash of all distributions on, or the
amount payable upon redemption of, Convertible Preferred Securities then due and
payable.
In the case of any Declaration Event of Default, the holder of Common
Securities will be deemed to have waived any such Declaration Event of Default
until all such Declaration Events of Default with respect to the Convertible
Preferred Securities have been cured, waived or otherwise eliminated. Until any
such Declaration Events of Default with respect to the Convertible Preferred
Securities have been so cured, waived or otherwise eliminated, the Property
Trustee shall act solely on behalf of the holders of the Convertible Preferred
Securities and not the holder of the Common Securities, and only the holders of
the Convertible Preferred Securities will have the right to direct the Property
Trustee to act on their behalf.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary dissolution of the Trust (each
a "Liquidation"), the then holders of the Convertible Preferred Securities will
be entitled to receive out of the assets of the Trust, after satisfaction of
liabilities to creditors, distributions in an amount equal to the aggregate of
the stated liquidation amount of $25 per Convertible Preferred Security plus
accrued and unpaid distributions thereon to the date of payment (the
"Liquidation Distribution"), unless, in connection with such Liquidation,
Convertible Debentures in an aggregate stated principal amount equal to the
aggregate stated liquidation amount of, with an interest rate identical to the
distribution rate of, and accrued and unpaid interest equal to accrued and
unpaid distributions on, the Convertible Preferred Securities have been
distributed on a PRO RATA basis to the holders of the Convertible Preferred
Securities in accordance with the provisions of "--Special Event Redemption or
Distribution."
If, upon any such Liquidation, the Liquidation Distribution can be paid only
in part because the Trust has insufficient assets available to pay in full the
aggregate Liquidation Distribution, then the amounts payable directly by the
Trust on the Trust Securities shall be paid on a PRO RATA basis. The holders of
the Common Securities will be entitled to receive distributions upon any such
dissolution PRO RATA with the holders of the Convertible Preferred Securities,
except that if a Declaration Event of Default has occurred and is continuing,
the Convertible Preferred Securities shall have a preference over the Common
Securities with regard to such distributions.
Pursuant to the Declaration, the Trust shall dissolve (i) on November 7,
2052, the expiration of the term of the Trust, (ii) upon the bankruptcy of the
Company, (iii) upon the filing of a certificate of dissolution or the equivalent
with respect to the Company, or upon the consent of at least a majority in
liquidation amount of the Trust Securities, voting together as a single class,
to dissolve the Trust, or the revocation of the charter of the Company and the
expiration of 90 days after the date of revocation without a reinstatement
thereof, (iv) upon the distribution of all of the Convertible Debentures upon
the occurrence of a Special Event, except in the case of a Tax Event that has
occurred and is continuing following which the Company has elected to pay any
additional sums such that the net amount received by holders of Convertible
Preferred Securities in respect of Distributions is not reduced as a result of
such Tax Event and the Company has not revoked any such election or failed to
make such payments, (v) upon the entry of a decree of a judicial dissolution of
the Company or the Trust, or (vi) upon the redemption, conversion or exchange of
all the Trust Securities and the amounts necessary for redemption, conversion or
exchange thereof, including any Additional Interest, Compounded Interest and
Liquidated Damages, if any, shall have been paid to the holders in accordance
with the terms of the Trust Securities.
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MERGER OR CONSOLIDATION OF ISSUER TRUSTEES
Any entity into which the Property Trustee, the Delaware Trustee or any
Administrative Trustee that is not a natural person may be merged or converted
or with which it may be consolidated, or any entity resulting from any merger,
conversion or consolidation to which such Issuer Trustee shall be a party, or
any entity succeeding to all or substantially all the corporate trust business
of such Issuer Trustee, shall be the successor of such Issuer Trustee under the
Declaration, provided such entity shall be otherwise qualified and eligible.
MERGER, CONSOLIDATION OR AMALGAMATION OF THE TRUST
The Trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety, to any corporation or other entity, except as
described below or as otherwise described in "--Liquidation Distribution upon
Dissolution." The Trust may, with the consent of a majority of the
Administrative Trustees and without the consent of the holders of the Trust
Securities, the Property Trustee or the Delaware Trustee consolidate,
amalgamate, merge with or into, or be replaced by a trust organized as such
under the laws of any State of the United States; PROVIDED that (i) if the Trust
is not the survivor, such successor entity either (x) expressly assumes all of
the obligations of the Trust under the Trust Securities or (y) substitutes for
the Convertible Preferred Securities other securities having substantially the
same terms as the Convertible Preferred Securities (the "Successor Securities"),
so long as the Successor Securities rank the same as the Convertible Preferred
Securities rank with respect to distributions, assets and payments upon
liquidation or otherwise, (ii) the Company expressly acknowledges a trustee of
such successor entity possessing the same powers and duties as the Property
Trustee as the holder of the Convertible Debentures, (iii) the Convertible
Preferred Securities or any Successor Securities are listed, or any Successor
Securities will be listed upon notification of issuance, on such national
securities exchange or with another organization on which the Convertible
Preferred Securities are then listed or quoted (if any), (iv) such merger,
consolidation, amalgamation or replacement does not cause the Convertible
Preferred Securities (including any Successor Securities) to be downgraded by
any nationally recognized statistical rating organization, (v) such merger,
consolidation, amalgamation or replacement does not adversely affect the rights,
preferences and privileges of the holders of the Convertible Preferred
Securities (including any Successor Securities) in any material respect (other
than with respect to any dilution of the holders' interest in the new entity),
(vi) such successor entity has a purpose substantially identical to that of the
Trust, (vii) the Company guarantees the obligations of such successor entity
under the Successor Securities at least to the same extent as provided by the
Guarantee and (viii) prior to such merger, consolidation, amalgamation or
replacement, the Company has received an opinion of a nationally recognized
independent counsel to the Trust reasonably acceptable to the Property Trustee
experienced in such matters to the effect that: (A) such merger, consolidation,
amalgamation or replacement will not adversely affect the rights, preferences
and privileges of the holders of the Trust Securities (including any Successor
Securities) in any material respect (other than with respect to any dilution of
the holders' interest in the new entity), (B) following such merger,
consolidation, amalgamation or replacement, neither the Trust nor such successor
entity will be required to register as an investment company under the 1940 Act
and (C) following such merger, consolidation, amalgamation or replacement, the
Trust (or such successor trust) will be treated as a grantor trust for United
States federal income tax purposes. Notwithstanding the foregoing, the Trust
shall not, except with the consent of holders of 100% in liquidation amount of
the Common Securities, consolidate, amalgamate, merge with or into, or be
replaced by any other entity or permit any other entity to consolidate,
amalgamate, merge with or into, or replace it, if such consolidation,
amalgamation, merger or replacement would cause the Trust or the successor
entity to be classified as other than a grantor trust for United States federal
income tax purposes.
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DECLARATION EVENTS OF DEFAULT
An event of default under the Indenture (an "Indenture Event of Default")
constitutes an event of default under the Declaration with respect to the Trust
Securities (a "Declaration Event of Default"); PROVIDED that pursuant to the
Declaration, the holder of the Common Securities will be deemed to have waived
any Declaration Event of Default with respect to the Common Securities until all
Declaration Events of Default with respect to the Convertible Preferred
Securities have been cured, waived or otherwise eliminated. Until such
Declaration Events of Default with respect to the Convertible Preferred
Securities have been so cured, waived or otherwise eliminated, the Property
Trustee will be deemed to be acting solely on behalf of the holders of the
Convertible Preferred Securities and only the holders of the Convertible
Preferred Securities will have the right to direct the Property Trustee with
respect to certain matters under the Declaration and, therefore, the Indenture.
The holders of a majority in liquidation amount of the Convertible Preferred
Securities will have the right to direct the exercise of any trust or power
conferred upon the Property Trustee under the Declaration, including the right
to direct the Property Trustee to exercise the remedies available to it as a
holder of the Convertible Debentures. If the Property Trustee fails to enforce
its rights under the Convertible Debentures, a holder of Convertible Preferred
Securities may, to the fullest extent permitted by law, institute a legal
proceeding against the Company to enforce the Property Trustee's rights under
the Convertible Debentures without first instituting any legal proceeding
against the Property Trustee or any other person or entity. Notwithstanding the
foregoing, if a Declaration Event of Default has occurred and is continuing and
such event is attributable to the failure of the Company to pay interest or
principal on the Convertible Debentures on the date such interest or principal
is otherwise payable (or in the case of redemption, the redemption date), then a
holder of Convertible Preferred Securities may directly institute a proceeding
for enforcement of payment to such holder of the principal of or interest on the
Convertible Debentures having a principal amount equal to the aggregate
liquidation amount of the Convertible Preferred Securities of such holder on or
after the respective due date specified in the Convertible Debentures. In
connection with such Direct Action, the Company will be subrogated to the rights
of such holder of Convertible Preferred Securities under the Declaration to the
extent of any payment made by the Company to such holder of Convertible
Preferred Securities in such Direct Action. The holders of Convertible Preferred
Securities will not be able to exercise directly any other remedy available to
the holders of the Convertible Debentures.
Within ten days after the occurrence of any Declaration Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit
notice of such Declaration Event of Default to the holders of the Convertible
Preferred Securities, the Administrative Trustees and the Company, as Depositor,
unless such Declaration Event of Default shall have been cured or waived
provided that, except in the case of default in the payment of the liquidation
amount or distributions on the Preferred Securities, the Trustee shall be
protected in withholding such notice if and so long as a trust committee of
directors and/or Responsible Officers of the Trustee in good faith determine
that the withholding of such notice is in the interests of the holders of the
Preferred Securities. Upon the occurrence of a Declaration Event of Default, the
Property Trustee as the sole holder of the Convertible Debentures will have the
right under the Indenture to declare the principal of and interest on the
Convertible Debentures to be immediately due and payable. The Company and the
Trust are each required to file annually with the Property Trustee an officer's
certificate as to its compliance with all conditions and covenants under the
Declaration.
VOTING RIGHTS
Except as described herein, under the Trust Act, the Trust Indenture Act and
under "Description of the Guarantee--Amendments and Assignment," and as
otherwise required by law and the Declaration, the holders of the Convertible
Preferred Securities will have no voting rights.
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Subject to the requirement of the Property Trustee to obtain a tax opinion
in certain circumstances set forth in the last sentence of this paragraph, the
holders of a majority in liquidation amount of the Convertible Preferred
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Property Trustee, or direct the
exercise of any trust or power conferred upon the Property Trustee under the
Declaration, including the right to direct the Property Trustee, as holder of
the Convertible Debentures, to (i) exercise the remedies available to it under
the Indenture as a holder of the Convertible Debentures, (ii) waive any past
Indenture default or Event of Default and its consequences that are waivable
under the Indenture, (iii) exercise any right to rescind or annul a declaration
that the principal of all the Convertible Debentures shall be due and payable or
(iv) consent to any amendment, modification, or termination of the Indenture or
the Convertible Debentures where such consent shall be required; PROVIDED,
HOWEVER, that where a consent or action under the Indenture would require the
consent or act of the holders of more than a majority of the aggregate principal
amount of Convertible Debentures affected thereby, only the holders of the
percentage of the aggregate stated liquidation amount of the Convertible
Preferred Securities which is at least equal to the percentage required under
the Indenture may direct the Property Trustee to give such consent or take such
action. If the Property Trustee fails to enforce its rights under the
Convertible Debentures after a holder of record of Convertible Preferred
Securities has made a written request, such holder of record of Convertible
Preferred Securities may, to the fullest extent permitted by law, institute a
legal proceeding directly against the Company to enforce the Property Trustee's
rights under the Convertible Debentures without first instituting any legal
proceeding against the Property Trustee or any other person or entity.
Notwithstanding the foregoing, if a Declaration Event of Default has occurred
and is continuing and such event is attributable to the failure of the Company
to pay interest or principal on the Convertible Debentures on the date such
interest or principal is otherwise payable (or in the case of redemption on the
redemption date), then a holder of Convertible Preferred Securities may directly
institute a proceeding for enforcement of payment to such holder of the
principal of or interest on the Convertible Debentures having a principal amount
equal to the aggregate liquidation amount of the Convertible Preferred
Securities of such holder on or after the respective due date specified in the
Convertible Debentures. The Property Trustee shall notify all holders of the
Convertible Preferred Securities of any notice of default received from the
Indenture Trustee with respect to the Convertible Debentures, provided that,
except in the case of default in the payment of the principal of, premium, if
any, or interest on any of the Convertible Debentures, the Property Trustee
shall be protected in withholding such notice if and so long as a trust
committee of directors and/or Responsible Officers of the Property Trustee in
good faith determine that the withholding of such notice is in the interests of
the holders. Such notice shall state that such Indenture Event of Default also
constitutes a Declaration Event of Default. Other than with respect to directing
the time, method and place of conducting any proceeding for any remedy, the
Property Trustee shall be under no obligation to take any of the actions in
accordance with the direction of the holders unless the Property Trustee has
obtained an opinion of independent tax counsel to the effect that as a result of
such action, the Trust will not fail to be classified as a grantor trust for
United States federal income tax purposes and each holder will be treated as
owning an undivided beneficial interest in the Convertible Debentures.
In the event the consent of the Property Trustee, as the holder of the
Convertible Debentures, is required under the Indenture with respect to any
amendment, modification or termination of the Indenture, the Property Trustee
shall request the direction of the holders of the Trust Securities with respect
to such amendment, modification or termination and shall vote with respect to
such amendment, modification or termination as directed by a majority in
liquidation amount of the Trust Securities voting together as a single class;
PROVIDED, HOWEVER, that where a consent under the Indenture would require the
consent of the holders of more than a majority of the aggregate principal amount
of the Convertible Debentures, the Property Trustee may only give such consent
at the direction of the holders of at least the same proportion in aggregate
stated liquidation amount of the Trust Securities. The Property Trustee shall
not take any such action in accordance with the directions of the holders of the
Trust Securities unless the
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Property Trustee has obtained an opinion of tax counsel to the effect that for
the purposes of United States federal income tax the Trust will not be
classified as other than a grantor trust.
A waiver of an Indenture Event of Default will constitute a waiver of the
corresponding Declaration Event of Default.
Any required approval or direction of holders of Convertible Preferred
Securities may be given at a separate meeting of holders of Convertible
Preferred Securities convened for such purpose, at a meeting of all of the
holders of Trust Securities or pursuant to written consent. The Property Trustee
will cause a notice of any meeting at which holders of Convertible Preferred
Securities are entitled to vote, or of any matter upon which action by written
consent of such holders is to be taken, to be mailed to each holder of record of
Convertible Preferred Securities. Each such notice will include a statement
setting forth the following information: (i) the date of such meeting or the
date by which such action is to be taken; (ii) a description of any resolution
proposed for adoption at such meeting on which such holders are entitled to vote
or of such matter upon which written consent is sought; and (iii) instructions
for the delivery of proxies or consents. No vote or consent of the holders of
Convertible Preferred Securities will be required for the Trust to redeem and
cancel Convertible Preferred Securities or distribute Convertible Debentures in
accordance with the Declaration.
Notwithstanding that holders of Convertible Preferred Securities are
entitled to vote or consent under any of the circumstances described above, any
of the Convertible Preferred Securities that are owned at such time by the
Company or any entity directly or indirectly controlling or controlled by, or
under direct or indirect common control with, the Company, shall not be entitled
to vote or consent and shall, for purposes of such vote or consent, be treated
as if such Convertible Preferred Securities were not outstanding.
The procedures by which holders of Convertible Preferred Securities
represented by the Global Certificates may exercise their voting rights are
described below. See "--Form, Denomination and Registration."
Holders of the Convertible Preferred Securities will have no rights to
appoint or remove the Administrative Trustees, who may be appointed, removed or
replaced solely by the Company as the holder of all of the Common Securities.
MODIFICATION OF THE DECLARATION
The Declaration may be modified and amended if approved by the
Administrative Trustees (and in certain circumstances the Property Trustee and
the Delaware Trustee); PROVIDED that if any proposed amendment provides for, or
the Administrative Trustees otherwise propose to effect, (i) any action that
would adversely affect the powers, preferences or special rights of the Trust
Securities in any material respect, whether by way of amendment to the
Declaration or otherwise or (ii) the dissolution, winding-up or termination of
the Trust other than pursuant to the terms of the Declaration, then the holders
of the Trust Securities voting together as a single class will be entitled to
vote on such amendment or proposal and such amendment or proposal shall not be
effective except with the approval of at least a majority in liquidation amount
of the Trust Securities affected thereby; PROVIDED FURTHER, that if any
amendment or proposal referred to in clause (i) above would adversely affect
only the Convertible Preferred Securities or the Common Securities, then only
the affected class will be entitled to vote on such amendment or proposal and
such amendment or proposal shall not be effective except with the approval of a
majority in liquidation amount of such class of Securities.
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Notwithstanding the foregoing, no amendment or modification may be made to
the Declaration if such amendment or modification would (i) cause the Trust to
be classified for purposes of United States federal income taxation as other
than a grantor trust, (ii) reduce or otherwise adversely affect the powers of
the Property Trustee or (iii) cause the Trust to be deemed an "investment
company" which is required to be registered under the 1940 Act.
TRANSFER RESTRICTIONS
The Convertible Preferred Securities (and any Convertible Debentures
distributed to holders of Convertible Preferred Securities) will be subject to
restrictions on transfer and will bear a legend substantially as described in
"Notice to Investors." Shares of Company Common Stock received upon conversion
of Convertible Preferred Securities or Convertible Debentures subject to such
restrictions will also be subject to such restrictions and will bear a
comparable legend.
REGISTRATION RIGHTS
The Company and the Trust entered into a registration rights agreement with
the Initial Purchasers (the "Registration Rights Agreement") pursuant to which
the Company and the Trust will, at the Company's expense, for the benefit of the
holders of the Convertible Preferred Securities, the Guarantee, the Convertible
Debentures and the shares of Company Common Stock issuable upon conversion of
the Convertible Debentures (together, the "Registrable Securities"), (i) file
with the Commission within 90 days after the date of issuance of the Registrable
Securities, a registration statement (the "Shelf Registration Statement")
covering resales of the Registrable Securities, (ii) use their reasonable best
efforts to cause the Shelf Registration Statement to be declared effective under
the Securities Act within 150 days after the date of the issuance of the
Registrable Securities and (iii) use their reasonable best efforts to keep
effective the Shelf Registration Statement until two years after the date it is
declared effective or such earlier date as all Registrable Securities shall have
been disposed of or on which all Registrable Securities held by persons that are
not affiliates of the Company or the Trust may be resold without registration
pursuant to Rule 144(k) under the Securities Act (the "Effectiveness Period").
The Company will provide to each holder of Registrable Securities copies of the
prospectus which is a part of the Shelf Registration Statement, notify each
holder when the Shelf Registration Statement has become effective and take
certain other actions as are required to permit unrestricted resales of the
Registrable Securities. A holder of Registrable Securities that sells such
Registrable Securities pursuant to the Shelf Registration Statement will 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, including
certain indemnification obligations.
In the Registration Rights Agreement, the Trust and the Company agreed to
indemnify the holders of Registrable Securities against certain liabilities
under the Securities Act, subject to certain customary limitations, and each
holder of Registrable Securities included in the Shelf Registration Statement is
obligated to indemnify the Trust, the Company, their directors, trustees, agents
and officers who sign any Shelf Registration Statement and each person, if any,
who controls the Company or the Trust within the meaning of either Section 15 of
the Securities Act or Section 20 of the Exchange Act, against any liability with
respect to information furnished by such holder in writing to the Trust or the
Company (including the information in a Selling Security Holder's Questionnaire)
expressly for use in the Shelf Registration Statement.
If (i) on or prior to 90 days following the date of original issuance of the
Registrable Securities, a Shelf Registration Statement has not been filed with
the Commission, or (ii) on or prior to the 150th day following the issuance of
the Registrable Securities, such Shelf Registration Statement is not declared
effective (each, a "Registration Default"), additional interest ("Liquidated
Damages") will accrue on the Convertible Debentures and, accordingly, additional
distributions will accrue on the Convertible Preferred
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Securities, in each case from and including the day following such Registration
Default. Liquidated Damages will be paid quarterly in arrears, with the first
quarterly payment due on the first interest or distribution payment date, as
applicable, following the date on which such Liquidated Damages begin to accrue,
and will accrue at a rate per annum equal to an additional one-quarter of one
percent (0.25%) of the principal amount or liquidation amount, as applicable, to
and including the 90th day following such Registration Default and one-half of
one percent (0.50%) thereof from and after the 91st day following such
Registration Default. The Company has the right to suspend the Shelf
Registration Statement under certain circumstances for up to 90 consecutive
days. In the event that the Shelf Registration Statement ceases to be effective
during the Effectiveness Period for more than 90 consecutive days or any 120
days, whether or not consecutive, during any 12-month period, then the interest
rate borne by the Convertible Debentures and the distribution rate borne by the
Convertible Preferred Securities will each increase by an additional one quarter
of one percent (0.25%) per annum from such 91st or 121st day, as applicable,
until such time as the Shelf Registration Statement again becomes effective.
The summary herein of certain provisions of the Registration Rights
Agreement is subject to, and is qualified in its entirety by reference to, all
the provisions of the Registration Rights Agreement, a copy of which is
available upon request to the Company.
FORM, DENOMINATION AND REGISTRATION
Convertible Preferred Securities will be issued in fully registered form.
GLOBAL CONVERTIBLE PREFERRED SECURITIES; BOOK-ENTRY FORM.
The description of book-entry procedures in this Offering Memorandum
includes summaries of certain rules and operating procedures of DTC that affect
transfers of interest in the global certificate or certificates issued in
connection with sales of Convertible Preferred Securities to QIBs pursuant to
Rule 144A under the Securities Act. The Convertible Preferred Securities issued
to QIBs will be evidenced by one or more fully registered global Convertible
Preferred Security certificates (the "Global Securities") which will be
deposited with, or on behalf of, DTC and registered in the name of Cede & Co.
(as nominee for DTC), in each case for credit to an account of a direct or
indirect participant in DTC as described below.
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of securities in definitive form. Such laws may impair
the ability to transfer beneficial interests in the global Convertible Preferred
Securities as represented by a Global Security.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Participants in DTC
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. DTC is owned by a number of its
Participants and by the New York Stock Exchange, the American Stock Exchange,
Inc., and the National Association of Securities Dealers, Inc. Access to the DTC
system is also available to others such as securities brokers and dealers, banks
and trust companies that clear through or maintain a custodial relationship with
a Participant, either directly or indirectly ("Indirect Participants"). The
rules applicable to DTC and its Participants are on file with the Commission.
Purchases of Convertible Preferred Securities within the DTC system must be
made by or through Participants, which will receive a credit for the Convertible
Preferred Securities on DTC's records. The
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ownership interest of each actual purchaser of Convertible Preferred Securities
("Beneficial Owner") is in turn to be recorded on the Participants' and Indirect
Participants' records. Beneficial Owners will not receive written confirmation
from DTC of their purchases, but Beneficial Owners are expected to receive
written confirmations providing details of the transactions, as well as periodic
statements of their holdings, from the Participants or Indirect Participants
through which the Beneficial Owners purchased Convertible Preferred Securities.
Transfers of ownership interests in the Convertible Preferred Securities are to
be accomplished by entries made on the books of Participants and Indirect
Participants acting on behalf of Beneficial Owners. Beneficial Owners will not
receive certificates representing their ownership interests in Convertible
Preferred Securities, except in the event that use of the book-entry system for
the Convertible Preferred Securities is discontinued.
To facilitate subsequent transfers, all the Convertible Preferred Securities
deposited by Participants with DTC are registered in the name of DTC's nominee,
Cede & Co. The deposit of Convertible Preferred Securities with DTC and their
registration in the name of Cede & Co. effect no change in beneficial ownership.
DTC has no knowledge of the actual Beneficial Owners of the Convertible
Preferred Securities; DTC's records reflect only the identity of the
Participants to whose accounts such Convertible Preferred Securities are
credited, which may or may not be the Beneficial Owners. The Participants and
Indirect Participants will remain responsible for keeping account of their
holdings on behalf of their customers.
So long as DTC, or its nominee, is the registered owner or holder of a
Global Security, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Convertible Preferred Securities represented thereby
for all purposes under the Declaration and the Convertible Preferred Securities.
No beneficial owner of an interest in a Global Security will be able to transfer
that interest except in accordance with DTC's applicable procedures, in addition
to those provided for under the Declaration.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Convertible Preferred Securities (including the
presentation of Convertible Preferred Securities for exchange as described
below) only at the direction of one or more Participants to whose account the
DTC interests in the Global Securities are credited and only in respect of such
portion of the aggregate liquidation amount of Convertible Preferred Securities
as to which such Participant or Participants has or have given such direction.
However, if there is an Event of Default under the Convertible Preferred
Securities, DTC will exchange the Global Securities for Certificated Securities,
which it will distribute to its Participants.
Conveyance of notices and other communications by DTC to Participants, by
Participants to Indirect Participants, and by Participants and Indirect
Participants to Beneficial Owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
Redemption notices in respect of the Convertible Preferred Securities held
in book-entry form will be sent to Cede & Co. If less than all of the
Convertible Preferred Securities are being redeemed, DTC will determine the
amount of the interest of each Participant to be redeemed in accordance with its
procedures.
Although voting with respect to the Convertible Preferred Securities is
limited, in those cases where a vote is required, neither DTC nor Cede & Co.
will itself consent or vote with respect to Convertible Preferred Securities.
Under its usual procedures, DTC would mail an Omnibus Proxy to the Trust as soon
as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s
consenting or voting rights to those Participants to whose accounts the
Convertible Preferred Securities are credited on the record date (identified in
a listing attached to the Omnibus Proxy).
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Distributions on the Convertible Preferred Securities held in book-entry
form will be made to DTC in immediately available funds. DTC's practice is to
credit Participants' accounts on the relevant payment date in accordance with
their respective holdings shown on DTC's records unless DTC has reason to
believe that it will not receive payments on such payment date. Payments by
Participants and Indirect Participants to Beneficial Owners will be governed by
standing instructions and customary practices and will be the responsibility of
such Participants and Indirect Participants and not of DTC, the Trust or the
Company, subject to any statutory or regulatory requirements as may be in effect
from time to time. Payment of distributions to DTC is the responsibility of the
Trust, disbursement of such payments to Participants is the responsibility of
DTC, and disbursement of such payments to the Beneficial Owners is the
responsibility of Participants and Indirect Participants.
Except as provided herein, a Beneficial Owner of an interest in a Global
Security will not be entitled to receive physical delivery of Convertible
Preferred Securities. Accordingly, each Beneficial Owner must rely on the
procedures of DTC to exercise any rights under the Convertible Preferred
Securities.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Securities among Participants of DTC, DTC
is under no obligation to perform or continue to perform such procedures, and
such procedures may be discontinued at any time. Neither the Company, the Issuer
nor the Trustee will have any responsibility for the performance by DTC or its
Participants or Indirect Participants under the rules and procedures governing
DTC. DTC may discontinue providing its services as securities depository with
respect to the Convertible Preferred Securities at any time by giving notice to
the Trust. Under such circumstances, in the event that a successor securities
depository is not obtained, Convertible Preferred Security certificates are
required to be printed and delivered. Additionally, the Trust (with the consent
of the Company) may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor depository). In that event, certificates
for the Convertible Preferred Securities will be printed and delivered. In each
of the above circumstances, the Company will appoint a paying agent with respect
to the Convertible Preferred Securities.
CERTIFICATED CONVERTIBLE PREFERRED SECURITIES.
Convertible Preferred Securities sold to investors that are not QIBs will be
issued in definitive registered form (each a "Certified Security") and may not
be represented by a Global Security. QIBs may request that any Certificated
Security they hold in definitive registered form be exchanged for interests in
the applicable Global Security. Certificated Securities will be issued in
exchange for Global Securities only under the limited circumstances described
above.
RESTRICTIONS ON TRANSFER; LEGENDS.
The Convertible Preferred Securities will be subject to certain transfer
restrictions as described below under "Notice to Investors" and certificates
evidencing the Convertible Preferred Securities will bear a legend to such
effect.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Trust and the Company believe to be
reliable, but the Trust and the Company take no responsibility for the accuracy
thereof.
PAYMENT AND PAYING AGENCY
Payments in respect of the Convertible Preferred Securities represented by
the Global Certificates shall be made to DTC, which shall credit the relevant
accounts at DTC on the applicable distribution dates or, in the case of
Certificated Securities, such payments shall be made by check mailed to the
address of the holder entitled thereto as such address shall appear on the
Trust's register. The Paying Agent shall initially be The Bank of New York. The
Paying Agent shall be permitted to resign as Paying Agent upon 30 days' written
notice to the Issuer Trustees. In the event The Bank of New York shall no longer
be the
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Paying Agent, the Trustee shall appoint a successor to act as Paying Agent
(which shall be a bank or trust company).
REGISTRAR, TRANSFER AGENT, PAYING AGENT AND CONVERSION AGENT
The Property Trustee will act as Registrar, Transfer Agent, Paying Agent and
Conversion Agent for the Convertible Preferred Securities.
Registration of transfers of Convertible Preferred Securities will be
effected without charge by or on behalf of the Trust, but upon payment (with the
giving of such indemnity as the Trust or the Company may require) in respect of
any tax or other government charges which may be imposed in relation to it.
The Trust will not be required to register or cause to be registered the
transfer of Convertible Preferred Securities after such Convertible Preferred
Securities have been called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Company and certain of its subsidiaries maintain deposit accounts and
conduct other banking transactions with the Property Trustee in the ordinary
course of their businesses. The Property Trustee, prior to the occurrence of a
default with respect to the Trust Securities, undertakes to perform only such
duties as are specifically set forth in the Declaration and, after default,
shall exercise the same degree of care as a prudent individual would exercise in
the conduct of his or her own affairs. Subject to such provisions, the Property
Trustee is under no obligation to exercise any of the powers vested in it by the
Declaration at the request of any holder of Convertible Preferred Securities,
unless offered reasonable indemnity by such holder against the costs, expenses
and liabilities which might be incurred thereby. The holders of Convertible
Preferred Securities will not be required to offer such indemnity in the event
such holders, by exercising their voting rights, direct the Property Trustee to
take any action following a Declaration Event of Default.
GOVERNING LAW
The Declaration and the Convertible Preferred Securities will be governed
by, and construed in accordance with, the internal laws of the State of
Delaware.
MISCELLANEOUS
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate the Trust in such a way that the Trust will not be
deemed to be an "investment company" required to be registered under the 1940
Act or characterized as other than a grantor trust for United States federal
income tax purposes so that the Convertible Debentures will be treated as
indebtedness of the Company for United States federal income tax purposes. In
this connection, the Administrative Trustees are authorized to take any action,
not inconsistent with applicable law, the certificate of trust or the
Declaration that the Administrative Trustees determine in their discretion to be
necessary or desirable for such purposes as long as such action does not
adversely affect the interests of the holders of the Convertible Preferred
Securities.
Holders of the Convertible Preferred Securities have no preemptive rights.
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DESCRIPTION OF THE GUARANTEE
Set forth below is a summary of information concerning the Guarantee which
will be executed and delivered by the Company for the benefit of the holders
from time to time of the Convertible Preferred Securities. The summary does not
purport to be complete and is subject in all respects to the provisions of, and
is qualified in its entirety by reference to, the Guarantee. The Guarantee
incorporates by reference the terms of the Trust Indenture Act. It is expected
that at the time the Shelf Registration Statement becomes effective, the
Guarantee will be qualified under the Trust Indenture Act. The Bank of New York,
as the Guarantee Trustee, will hold the Guarantee for the benefit of the holders
of the Convertible Preferred Securities.
GENERAL
Pursuant to and to the extent set forth in the Guarantee, the Company will
irrevocably and unconditionally agree to pay in full to the holders of the
Convertible Preferred Securities (except to the extent paid by the Trust), as
and when due, regardless of any defense, right of set off or counterclaim which
the Trust may have or assert, the following payments (the "Guarantee Payments"),
without duplication: (i) any accrued and unpaid distributions that are required
to be paid on the Convertible Preferred Securities to the extent the Trust has
funds available therefor, (ii) the Redemption Price, with respect to any
Convertible Preferred Securities called for redemption by the Trust, to the
extent the Trust has funds available therefor and (iii) upon a voluntary or
involuntary dissolution, winding-up or termination of the Trust (other than in
connection with the distribution of Convertible Debentures to the holders of
Convertible Preferred Securities or the redemption of all the Convertible
Preferred Securities), the lesser of (a) the aggregate of the liquidation amount
and all accrued and unpaid distributions on the Convertible Preferred Securities
to the date of payment to the extent the Trust has funds available therefor and
(b) the amount of assets of the Trust remaining available for distribution to
holders of Convertible Preferred Securities upon the liquidation of the Trust.
The holders of a majority in liquidation amount of the Convertible Preferred
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Guarantee Trustee or to direct the
exercise of any trust or power conferred upon the Guarantee Trustee under the
Guarantee. Any holder of Convertible Preferred Securities may directly institute
a legal proceeding against the Company to enforce the obligations of the
Guarantor under the Guarantee without first instituting a legal proceeding
against the Trust, the Guarantee Trustee or any other person or entity. If the
Company were to default on its obligation to pay amounts payable on the
Convertible Debentures, the Trust would lack available funds for the payment of
distributions or amounts payable on redemption of the Convertible Preferred
Securities or otherwise, and in such event holders of the Convertible Preferred
Securities would not be able to rely upon the Guarantee for payment of such
amounts. Instead, a holder of the Convertible Preferred Securities would be
required to rely on the enforcement (1) by the Property Trustee of its rights,
as registered holder of the Convertible Debentures, against the Company pursuant
to the terms of the Convertible Debentures or (2) by such holder of Convertible
Preferred Securities of its right against the Company to enforce payments on
Convertible Debentures. See "Description of the Convertible Debentures." The
Declaration provides that each holder of Convertible Preferred Securities, by
acceptance thereof, agrees to the provisions of the Guarantee, including the
subordination provisions thereof, and the Indenture.
The Guarantee will be a guarantee on a subordinated basis with respect to
the Convertible Preferred Securities from the time of issuance of such
Convertible Preferred Securities but will not apply to any payment of
distributions or Redemption Price, or to payments upon the dissolution,
winding-up or termination of the Trust, except to the extent the Trust shall
have funds available therefor. If the Company does not make interest payments on
the Convertible Debentures, the Trust will not pay distributions on the
Convertible Preferred Securities and will not have funds available therefor. See
"Description of the Convertible Debentures." The Guarantee, when taken together
with the Company's obligations under the Convertible Debentures, and the
Indenture thereto and the Declaration, including its obligations to pay
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costs, expenses, debts and liabilities of the Trust (other than with respect to
the Trust Securities) will provide a full and unconditional guarantee on a
subordinated basis by the Company of payments due on the Convertible Preferred
Securities issued by the Trust.
The Company has also agreed separately to irrevocably and unconditionally
guarantee the obligations of the Trust with respect to the Common Securities
(the "Common Securities Guarantee") to the same extent as the Guarantee, except
that upon the occurrence and during the continuation of a Declaration Event of
Default, holders of Convertible Preferred Securities shall have priority over
holders of Common Securities with respect to distributions and payments on
liquidation, redemption or otherwise.
CERTAIN COVENANTS OF THE COMPANY
In the Guarantee, the Company has covenanted that, so long as any
Convertible Preferred Securities remain outstanding, if (i) the Company has
exercised its option to defer interest payments on the Convertible Debentures by
extending the interest payment period and such extension shall be continuing,
(ii) the Company shall be in default with respect to its payment or other
obligations under the Guarantee or (iii) there shall have occurred and be
continuing any event that, with the giving of notice or the lapse of time or
both, would constitute an Indenture Event of Default, then the Company has
agreed (a) not to declare or pay dividends on, or make distributions with
respect to, or redeem, purchase or acquire, or make a liquidation payment with
respect to, any of its capital stock (other than (i) purchases or acquisitions
of shares of Company Common Stock in connection with the satisfaction by the
Company of its obligations under any employee benefit plans or the satisfaction
by the Company of its obligations pursuant to any contract or security requiring
the Company to purchase shares of Company Common Stock, (ii) as a result of a
reclassification of the Company's capital stock or the exchange or conversion of
one class or series of the Company's capital stock for another class or series
of the Company's capital stock or (iii) the purchase of fractional interests in
shares of the Company's capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security being converted or exchanged
(or make any guarantee payments with respect to the foregoing)), (b) not to make
any payment of interest, principal or premium, if any, on or repay, repurchase
or redeem any debt securities of the Company that rank PARI PASSU with or junior
to the Convertible Debentures (except by conversion into or exchange for shares
of its capital stock), and (c) not to make any guarantee payments with respect
to the foregoing (other than pursuant to the Guarantee).
As part of the Guarantee, the Company will agree that it will honor all
obligations described therein relating to the conversion of the Convertible
Preferred Securities into Company Common Stock as described in "Description of
the Convertible Preferred Securities--Conversion Rights."
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of the
Company to perform any of its payment or other obligations thereunder. The
holders of a majority in aggregate liquidation preference of the Convertible
Preferred Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee in
respect of the Guarantee or to direct the exercise of any trust or power
conferred upon the Guarantee Trustee under the Guarantee.
If the Guarantee Trustee fails to enforce the Guarantee, any holder of the
Convertible Preferred Securities may institute a legal proceeding directly
against the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against the Trust, the Guarantee Trustee or any
other person or entity. In addition, any record holder of Convertible Preferred
Securities shall have the right, which is absolute and unconditional, to proceed
directly against the Company to obtain Guarantee Payments, without first waiting
to determine if the Guarantee Trustee has enforced the Guarantee or instituting
a legal proceeding against the Trust, the Guarantee Trustee or any other person
or entity. The
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Company has waived any right or remedy to require that any action be brought
just against the Trust, or any other person or entity, before proceeding
directly against the Company.
The Company, as guarantor, is required to file annually with the Guarantee
Trustee a certificate as to whether or not the company is in compliance with all
the conditions and covenants applicable to it under the Guarantee.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not materially adversely affect
the rights of holders of Convertible Preferred Securities (in which case no vote
will be required), the Guarantee may be amended only with the prior approval of
the holders of at least a majority in liquidation amount of all the outstanding
Convertible Preferred Securities. The manner of obtaining any such approval of
holders of the Convertible Preferred Securities will be as set forth under
"Description of the Convertible Preferred Securities--Voting Rights." All
guarantees and agreements contained in the Guarantee shall bind the successors,
assigns, receivers, trustees and representatives of the Company and shall inure
to the benefit of the holders of the Convertible Preferred Securities then
outstanding. Except in connection with any permitted merger or consolidation of
the Company with or into another entity or any permitted sale, transfer or lease
of the Company's assets to another entity as described below under "Description
of the Convertible Debentures," the Company may not assign its rights or
delegate its obligations under the Guarantee without the prior approval of the
holders of at least a majority of the aggregate stated liquidation amount of the
Convertible Preferred Securities then outstanding.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate as to each holder of Convertible Preferred
Securities upon (i) full payment of the Redemption Price of all Convertible
Preferred Securities, (ii) distribution of the Convertible Debentures held by
the Trust to the holders of the Convertible Preferred Securities, (iii)
liquidation of the Trust or (iv) the distribution of Company Common Stock to
such holder in respect of the conversion of such holder's Convertible Preferred
Securities into Company Common Stock and will terminate completely upon full
payment of the amounts payable in accordance with the Declaration. The Guarantee
will continue to be effective or will be reinstated, as the case may be, if at
any time any holder of Convertible Preferred Securities must restore payment of
any sum paid under such Convertible Preferred Securities or such Guarantee.
STATUS OF THE GUARANTEE; SUBORDINATION
The Guarantee will constitute an unsecured obligation of the Company and
will rank (i) subordinate and junior to all other liabilities of the Company
except any liabilities that may be PARI PASSU expressly by their terms, (ii)
PARI PASSU with the most senior preferred stock issued from time to time by the
Company and with any guarantee now or hereafter entered into by the Company in
respect of any preferred or preference stock or preferred securities of any
affiliate of the Company and (iii) senior to the Company Common Stock. The terms
of the Convertible Preferred Securities provide that each holder of Convertible
Preferred Securities by acceptance thereof agrees to the subordination
provisions and other terms of the Guarantee.
The Guarantee will constitute a guarantee of payment and not of collection
(that is, the guaranteed party may directly institute a legal proceeding against
the Company to enforce its rights under a Guarantee without instituting a legal
proceeding against any other person or entity).
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, prior to the occurrence of a default with respect to
the Guarantee, undertakes to perform only such duties as are specifically set
forth in the Guarantee and, after default with
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respect to the Guarantee, shall exercise the same degree of care as a prudent
individual would exercise in the conduct of his or her own affairs. Subject to
such provision, the Guarantee Trustee is under no obligation to exercise any of
the powers vested in it by the Guarantee at the request of any holder of
Convertible Preferred Securities unless it is offered reasonable indemnity
against the costs, expenses and liabilities that might be incurred thereby.
GOVERNING LAW
The Guarantee will be governed by, and construed in accordance with, the
laws of the State of New York.
DESCRIPTION OF THE CONVERTIBLE DEBENTURES
Set forth below is a description of the specific terms of the Convertible
Debentures in which the Trust will invest the proceeds from the issuance and
sale of the Trust Securities. The following description does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
the Indenture between the Company and The Bank of New York, as trustee (the
"Indenture Trustee"), a copy of which may be obtained from the Company upon
request, and those to be made a part of the Indenture by the Trust Indenture
Act. Certain capitalized terms used herein are defined in the Indenture. It is
expected that at the time the Shelf Registration Statement becomes effective,
the Indenture will be qualified under the Trust Indenture Act.
Under certain circumstances involving the dissolution of the Trust following
the occurrence of a Special Event, Convertible Debentures may be distributed to
the holders of the Trust Securities in liquidation of the Trust. See
"Description of the Convertible Preferred Securities--Special Event Redemption
or Distribution." If the Convertible Debentures are distributed to the holders
of Convertible Preferred Securities, the Company will use its reasonable best
efforts to have the Convertible Debentures listed on the New York Stock Exchange
or on such other national securities exchange or similar organization on which
the Convertible Preferred Securities are then listed or quoted.
GENERAL
The Convertible Debentures will be issued as subordinated unsecured debt
under the Indenture. The Convertible Debentures will be limited in aggregate
principal amount to approximately $309.3 million (approximately $355.7 million
if the Initial Purchasers' over-allotment option is exercised in full), such
amount being the sum of the aggregate stated liquidation amount of the
Convertible Preferred Securities and the Common Securities.
The Convertible Debentures are not subject to a sinking fund provision. The
entire principal amount of the Convertible Debentures will become due and
payable, together with any accrued and unpaid interest thereon, including
Compounded Interest and Additional Interest (both as defined herein), if any, on
May 1, 2028.
The Convertible Debentures, if distributed to holders of Convertible
Preferred Securities in liquidation of such holder's interest in the Trust, will
initially be issued in the same form as the Convertible Preferred Securities
that such Convertible Debentures replace. See "--Book-Entry and Settlement."
Under certain limited circumstances, Convertible Debentures may be issued in
certificated form in exchange for a Global Security. In the event that
Convertible Debentures are issued in certificated form, such Convertible
Debentures will be in denominations of $25 and integral multiples thereof and
may be transferred or exchanged at the offices described below.
Payments on Convertible Debentures issued as a Global Security will be made
to DTC, a successor depositary or, in the event that no depositary is used, to a
Paying Agent for the Convertible Debentures. In the event Convertible Debentures
are issued in certificated form, principal and interest will be payable, the
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transfer of the Convertible Debentures will be registrable and Convertible
Debentures will be exchangeable for Convertible Debentures of other
denominations of a like aggregate principal amount at the corporate trust office
of the Indenture Trustee in The City of New York; PROVIDED, that unless the
Convertible Debentures are held by the Trust or any successor permissible under
"Description of the Convertible Preferred Securities--Merger, Consolidation or
Amalgamation of the Trust," payment of interest may be made at the option of the
Company by check mailed to the address of the persons entitled thereto.
There are no covenants or provisions in the Indenture that afford holders of
Convertible Debentures protection in the event of a highly leveraged transaction
or other similar transaction involving the Company that may adversely affect
such holders.
INTEREST
Each Convertible Debenture will bear interest at the rate of 7% per annum
from the original date of issuance, payable quarterly in arrears on February 1,
May 1, August 1 and November 1 (each, an "Interest Payment Date"), commencing
August 1, 1998, to the person in whose name such Convertible Debenture is
registered, subject to certain exceptions, at the close of business on the
Business Day next preceding such Interest Payment Date.
The amount of interest payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months. The amount of interest payable for
any period shorter than a full quarterly period for which interest is computed
will be computed on the basis of the actual number of days elapsed. In the event
that any date on which interest is payable on the Convertible Debentures is not
a Business Day, then payment of the interest payable on such date will be made
on the next succeeding day which is a Business Day (without any interest or
other payment in respect of any such delay), except that, if such Business Day
is in the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and effect
as if made on such date.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as no Event of Default under the Indenture has occurred and is
continuing, the Company shall have the right at any time during the term of the
Convertible Debentures to defer interest payments from time to time by extending
the interest payment period for successive periods not exceeding 20 consecutive
quarters for each such period (each an Extension Period); PROVIDED that no
Extension Period may extend beyond the maturity date of the Convertible
Debentures. At the end of each Extension Period, the Company shall pay all
interest then accrued and unpaid (including Additional Interest and Liquidated
Damages, if any) together with interest thereon compounded quarterly at the rate
specified for the Convertible Debentures to the extent permitted by applicable
law ("Compounded Interest"); PROVIDED that during any Extension Period, the
Company has agreed, among other things, (a) not to declare or pay dividends on,
or make distributions with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock (other than (i)
purchases or acquisitions of shares of Company Common Stock in connection with
the satisfaction by the Company of its obligations under any employee benefit
plans or the satisfaction by the Company of its obligations pursuant to any
contract or security requiring the Company to purchase shares of Company Common
Stock, (ii) as a result of a reclassification of the Company's capital stock or
the exchange or conversion of one class or series of the Company's capital stock
for another class or series of the Company's capital stock or (iii) the purchase
of fractional interests in shares of the Company's capital stock pursuant to the
conversion or exchange provisions of such capital stock or the security being
converted or exchanged (or make any guarantee payments with respect to the
foregoing)), (b) not to make any payment of interest, principal or premium, if
any, on or repay, repurchase or redeem, any debt securities issued by the
Company that rank PARI PASSU with or junior to the Convertible Debentures
(except by conversion into or exchange for shares of its capital stock) and (c)
shall not make any guarantee payments with respect to the foregoing (other than
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pursuant to the Guarantee). Prior to the termination of any such Extension
Period, the Company may further extend such Extension Period; PROVIDED that such
Extension Period together with all previous and further extensions thereof may
not exceed 20 consecutive quarters and may not extend beyond the maturity of the
Convertible Debentures. Upon the termination of any Extension Period and the
payment of all amounts then due, the Company may commence a new Extension
Period, subject to the above requirements. No interest during an Extension
Period, except at the end thereof, shall be due and payable. The Company has no
current intention of exercising its right to defer payments of interest by
extending the interest payment period on the Convertible Debentures. If the
Property Trustee shall be the sole holder of the Convertible Debentures at the
time the Company selects an Extension Period, the Company shall give the
Administrative Trustees and the Property Trustee notice of its selection of such
Extension Period at least one Business Day prior to the earlier of (i) the date
the distributions on the Convertible Preferred Securities are payable or (ii)
the date the Trust is required to give notice to the New York Stock Exchange (or
any applicable self-regulatory organization) or to holders of the Convertible
Preferred Securities of the record date or the date such distribution is
payable, but in any event not less than ten Business Days prior to such record
date. The Company shall cause the Trust to give notice of the Company's
selection of such Extension Period to the holders of the Convertible Preferred
Securities. If the Property Trustee shall not be the sole holder of the
Convertible Debentures at the time the Company selects an Extension Period, the
Company shall give the holders of the Convertible Debentures notice of its
selection of such Extension Period at least ten Business Days prior to the
earlier of (i) the Interest Payment Date or (ii) the date the Company is
required to give notice to the New York Stock Exchange (or any applicable
self-regulatory organization) or to holders of the Convertible Debentures on the
record or payment date of such related interest payment, but in any event not
less than two Business Days prior to such record date.
ADDITIONAL INTEREST
If the Trust would be required to pay any taxes, duties, assessments or
governmental charges of whatever nature (other than withholding taxes) imposed
by the United States, or any other taxing authority, then, in any such case, the
Company will pay as additional interest ("Additional Interest") such amounts as
shall be required so that the net amounts received and retained by the Trust
after paying any such taxes, duties, assessments or governmental charges will be
not less than the amounts the Trust would have received had no such taxes,
duties, assessments or governmental charges been imposed.
CONVERSION OF THE CONVERTIBLE DEBENTURES
The Convertible Debentures will be convertible into Company Common Stock at
the option of the holders of the Convertible Debentures at any time after June
28, 1998 on or prior to 5:00 p.m. (New York City time) on the Business Day
immediately preceding the date of repayment of such Convertible Debentures,
whether at maturity or upon redemption (either at the option of the Company or
pursuant to a Tax Event), at the initial conversion price set forth on the cover
page of this Offering Memorandum subject to the conversion price adjustments
described under "Description of the Convertible Preferred Securities--Conversion
Rights." The Trust will covenant not to convert Convertible Debentures held by
it except pursuant to a notice of conversion delivered to the Conversion Agent
by a holder of Convertible Preferred Securities. Upon surrender of a Convertible
Preferred Security to the Conversion Agent for conversion, the Trust will
distribute $25 principal amount of the Convertible Debentures to the Conversion
Agent on behalf of the holder of the Convertible Preferred Securities so
converted, whereupon the Conversion Agent will convert such Convertible
Debentures to Company Common Stock on behalf of such holder. The Company's
delivery to the holders of the Convertible Debentures (through the Conversion
Agent) of the fixed number of shares of Company Common Stock into which the
Convertible Debentures are convertible (together with the cash payment, if any,
in lieu of fractional shares) will be deemed to satisfy the Company's obligation
to pay the principal amount of the Convertible Debentures so converted, and the
accrued and unpaid interest thereon attributable to the period from the last
date to which interest has been paid or duly provided for; PROVIDED,
HOWEVER,that if any Convertible Debenture is converted after a
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record date for payment of interest, the interest payable on the related
interest payment date with respect to such Convertible Debenture shall be paid
to the Trust (which will distribute such interest to the converting holder) or
other converting holder of Convertible Debentures, as the case may be, despite
such conversion.
MANDATORY REDEMPTION
Upon repayment at maturity or as a result of acceleration upon the
occurrence of an Indenture Event of Default, the Company will redeem the
Convertible Debentures, in whole but not in part, at a redemption price equal to
100% of the principal amount thereof, together with any accrued and unpaid
interest thereon. Any payment pursuant to this provision shall be made prior to
12:00 noon, New York City time, on the date of such repayment or acceleration or
at such other time on such earlier date as the parties thereto shall agree. The
Convertible Debentures are not entitled to the benefit of any sinking fund or,
except as set forth above or as a result of acceleration, any other provision
for mandatory prepayment.
OPTIONAL REDEMPTION
The Company shall have the right to redeem the Convertible Debentures, in
whole or in part, at any time or from time to time after May 3, 2001, upon not
less than 30 nor more than 60 days notice, at the optional redemption prices
(expressed as a percentage of the principal amount of Convertible Debentures to
be redeemed) shown in the table below, plus any accrued and unpaid interest,
including Additional Interest, Compounded Interest and Liquidated Damages, if
any, to the redemption date, if redeemed during the 12-month period beginning
May 3,:
<TABLE>
<CAPTION>
OPTIONAL
YEAR REDEMPTION PRICE
- ---------------------------------------------------------------------------- ----------------
<S> <C>
2001........................................................................ 104.000%
2002........................................................................ 103.000
2003........................................................................ 102.000
2004........................................................................ 101.000
2005 and thereafter......................................................... 100.000%
</TABLE>
If the Company has deferred interest payments, all unpaid interest must be paid
in cash prior to any notice of redemption.
Sun shall also have the right to redeem the Convertible Debentures at any
time in certain circumstances upon the occurrence of a Special Event as
described under "Description of the Convertible Preferred Securities--Special
Event Redemption or Distribution" at 100% of the principal amount thereof
together with accrued and unpaid interest (including Additional Interest,
Compounded Interest and Liquidated Damages, if any) to the redemption date.
If a partial redemption of the Convertible Preferred Securities resulting
from a partial redemption of the Convertible Debentures would result in the
delisting of the Convertible Preferred Securities, the Company may only redeem
Convertible Debentures in whole.
REDEMPTION PROCEDURES
Notices of any redemption of the Convertible Debentures and the procedures
for such redemption shall be as provided with respect to the Convertible
Preferred Securities under "Description of the Convertible Preferred
Securities--Redemption Procedures." Notice of any redemption will be mailed at
least 30 days but not more than 60 days before the redemption date to each
holder of Convertible Debentures to be redeemed at its registered address.
Unless the Company defaults in payment of the redemption price, on and after the
redemption date interest shall cease to accrue on such Convertible Debentures or
portions thereof called for redemption.
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DISTRIBUTION OF CONVERTIBLE DEBENTURES
At any time, the Company will have the right to dissolve the Trust and,
after satisfaction of the liabilities of creditors of the Trust as provided by
applicable law, cause the Convertible Debentures to be distributed to the
holders of the Convertible Preferred Securities in dissolution of the Trust. If
distributed to holders of Convertible Preferred Securities in liquidation, the
Convertible Debentures will initially be issued in the same form as the
Convertible Preferred Securities which such Convertible Debentures replace. It
is anticipated that the depositary arrangements for the Convertible Debentures
would be substantially identical to those in effect for the Convertible
Preferred Securities. There can be no assurance as to the market price of any
Convertible Debentures that may be distributed to the holders of Convertible
Preferred Securities. For a description of DTC and the terms of the depositary
matters, see "--Book-Entry and Settlement."
SUBORDINATION
The Indenture provides that the Convertible Debentures are subordinate and
junior in right of payment to all existing and future Senior Indebtedness of the
Company.
No payment (by set-off or otherwise) may be made by or on behalf of Sun, on
account of the principal of, premium, if any, or interest on the Convertible
Debentures (including any repurchases of Convertible Debentures), or on account
of the redemption provisions of the Convertible Debentures, 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
Indebtedness having an aggregate principal amount outstanding in excess of $5
million of Sun by lapse of time, acceleration (unless waived) or otherwise,
unless and until all principal of, premium, if any, and the interest on such
Senior Indebtedness 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 Indebtedness of Sun having an aggregate
principal amount outstanding in excess of $5 million 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 Indebtedness to declare such Senior
Indebtedness 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 Indebtedness which Senior Indebtedness is
designated by Sun ("Designated Senior Indebtedness") 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 under such Designated Senior Indebtedness on
account of the principal of, premium, if any, or interest on the Convertible
Debentures, (including any repurchases of any of the Convertible Debentures), or
on account of the redemption provisions of the Convertible Debentures, in any
such case, other than payments made with Junior Securities or from a Defeasance
Trust. Notwithstanding the foregoing, unless the Designated Senior Indebtedness
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 shall
be required to pay all sums not paid to the Holders of the Convertible
Debentures during the Payment Blockage Period due to the foregoing prohibitions
and to resume all other payments as and when due on the Convertible Debentures.
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
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issue of Senior Indebtedness) 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 upon any dissolution, winding up,
total or partial liquidation or reorganization of Sun, 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 Indebtedness 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 Convertible Debentures (other than
Junior Securities or from a Defeasance Trust) and (ii) any payment or
distribution of assets of Sun 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 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 Indebtedness or their representative to the extent
necessary to make payment in full (or have such payment duly provided for) on
all such Senior Indebtedness remaining unpaid, after giving effect to any
concurrent payment or distribution to the holders of such Senior Indebtedness.
In the event that, notwithstanding the foregoing, any payment or
distribution of assets of Sun (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 Indebtedness, and shall be paid or delivered by the Trustee or such
Holders, as the case may be, to the holders of such Senior Indebtedness
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 Indebtedness may have been
issued, ratably according to the aggregate principal amounts remaining unpaid on
account of such Senior Indebtedness held or represented by each, for application
to the payment of all such Senior Indebtedness remaining unpaid, to the extent
necessary to pay or to provide for the payment of all such Senior Indebtedness
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 Indebtedness.
The subordination provisions of the Indenture and the Convertible Debentures
shall continue to be effective or be reinstated, as the case may be, if at any
time any payment of any of the Senior Indebtedness is rescinded or must
otherwise be returned by any holder of such Senior Indebtedness upon the
insolvency, bankruptcy or reorganization of Sun, or otherwise, all as though
such payment has not been made.
No provision contained in the Indenture or the Convertible Debentures will
affect the obligation of Sun which is absolute and unconditional, to pay, when
due, principal of, premium, if any, and interest on the Convertible Debentures.
The subordination provisions of the Indenture and the Convertible Debentures
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 Convertible Debentures.
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.
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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 subsidiary upon such subsidiary's
liquidation or reorganization (and the consequent right of the Holders of the
Convertible Debentures 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.
The term "Senior Indebtedness" shall mean in respect of the Company: (i) the
principal, premium, if any, and interest in respect of (A) indebtedness of such
obligor for money borrowed and (B) indebtedness evidenced by securities,
debentures, bonds or other similar instruments issued by such obligor,
including, without limitation, in the case of Sun, all indebtedness, and all
obligations of Sun to pay fees and other amounts, under the Senior Credit
Facility or under the indentures with respect to the 9 1/2% Notes and the 2008
Notes, and any refinancing of the Senior Credit Facility in the bank credit
market (including institutional participants therein), including interest
accruing on or after a bankruptcy or other similar event, whether or not an
allowed claim therein, (ii) all capital lease obligations of such obligor, (iii)
all obligations of such obligor issued or assumed as the deferred purchase price
of property, all conditional sale obligations of such obligor and all
obligations of such obligor under any title retention agreement (but excluding
trade accounts payable arising in the ordinary course of business), (iv) all
obligations of such obligor for the reimbursement of any letter of credit,
banker's acceptance, security purchase facility or similar credit transaction,
(v) all obligations of the type referred to in clauses (i) through (iv) above of
other persons for the payment of which such obligor is responsible or liable as
obligor, guarantor or otherwise, and (vi) all obligations of the type referred
to in clauses (i) through (v) above of other persons secured by any lien on any
property or asset of such obligor (whether or not such obligation is assumed by
such obligor), except for (1) any such indebtedness that is by its terms
subordinated to or PARI PASSU with the Convertible Debentures and (2) any
indebtedness between or among such obligor or its affiliates, including all
other debt securities and guarantees in respect of those debt securities issued
to any trust, or trustee of such trust, partnership or other entity affiliated
with the Company that is, directly or indirectly, a financing vehicle of the
Company (a "Financing Entity") in connection with the issuance by such Financing
Entity of Convertible Preferred Securities or other securities that rank PARI
PASSU with, or junior to, the Convertible Preferred Securities, unless otherwise
expressly provided in the terms of such debt securities. Such Senior
Indebtedness shall continue to be Senior Indebtedness and entitled to the
benefits of the subordination provisions irrespective of any amendment,
modification or waiver of any term of such Senior Indebtedness, except as
otherwise provided in the exception clauses above.
The Indenture does not limit the aggregate amount of Senior Indebtedness
that may be issued by Sun. Borrowings pursuant to the Senior Credit Facility,
which provides for facilities aggregating $1.2 billion, would constitute Senior
Indebtedness ($566.4 million after the consummation of the Offerings and use of
the proceeds therefrom as described in "Use of Proceeds"). As of March 31, 1998,
on a pro forma basis after giving effect to the Offerings and the application of
the estimated net proceeds therefrom as described under "Use of Proceeds," the
consolidated indebtedness of Sun would have aggregated approximately $1.4
billion, all of which indebtedness is effectively senior to the Convertible
Debentures. See "Capitalization."
CERTAIN COVENANTS
In the Indenture, the Company has covenanted that, so long as any
Convertible Debentures are outstanding, if (i) there shall have occurred and be
continuing any event that with the giving of notice or the lapse of time or
both, would constitute an Indenture Event of Default, (ii) the Company shall be
in
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default with respect to its payment of any obligations under the Guarantee, or
(iii) the Company has exercised its option to defer interest payments on the
Convertible Debentures by extending the interest payment period and such period,
or any extension thereof, shall be continuing, then the Company has agreed (a)
not to declare or pay dividends on, make distributions with respect to, or
redeem, purchase or acquire, or make a liquidation payment with respect to, any
of its capital stock (other than (i) purchases or acquisitions of shares of
Company Common Stock in connection with the satisfaction by the Company of its
obligations under any employee benefit plans or the satisfaction by the Company
of its obligations pursuant to any contract or security requiring the Company to
purchase shares of Company Common Stock, (ii) as a result of a reclassification
of the Company's capital stock or the exchange or conversion of one class or
series of the Company's capital stock for another class or series of the
Company's capital stock or (iii) the purchase of fractional interests in shares
of the Company's capital stock pursuant to the conversion or exchange provisions
of such capital stock or the security being converted or exchanged (or make any
guarantee payments with respect to the foregoing)), (b) not to make any payment
of interest, principal or premium, if any, on or repay, repurchase or redeem any
debt securities issued by the Company that rank PARI PASSU with or junior to the
Convertible Debentures (except by conversion into or exchange for shares of its
capital stock), and (c) not to make any guarantee payments with respect to the
foregoing (other than pursuant to the Guarantee).
The Company will covenant (i) to directly or indirectly maintain 100%
ownership of the Common Securities of the Trust; PROVIDED, HOWEVER, that any
permitted successor of the Company under the Indenture may succeed to the
Company's ownership of such Common Securities and (ii) to use its reasonable
efforts to cause the Trust (x) to remain a statutory business trust, except in
connection with the distribution of Convertible Debentures to the holders of
Trust Securities in liquidation of the Trust, the redemption of all of the Trust
Securities of the Trust, or certain mergers, consolidations or amalgamations,
each as permitted by the Declaration, and (y) to otherwise continue to be
classified as a grantor trust for United States federal income tax purposes.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Indenture provides that the Company will not consolidate with or merge
into any other corporation or convey, transfer or lease its assets substantially
as an entirety unless (a) if the Company is not the survivor, the successor is a
corporation organized in the United States and expressly assumes the due and
punctual payment of the principal of (and premium, if any) and interest on all
Convertible Debentures issued thereunder and the performance of every other
covenant of the Indenture on the part of the Company and (b) immediately
thereafter no event of default under the Indenture and no event which, after
notice or lapse of time, or both, would become an event of default under the
Indenture, shall have happened and be continuing. Upon any such consolidation,
merger, conveyance or transfer, the successor corporation shall succeed to and
be substituted for the Company under the Indenture and thereafter the
predecessor corporation shall be relieved of all obligations and covenants under
the Indenture and the Convertible Debentures.
BOOK-ENTRY AND SETTLEMENT
If distributed to holders of the Convertible Preferred Securities in
connection with the involuntary or voluntary dissolution, winding-up or
liquidation of the Trust as a result of the occurrence of a Special Event, the
Convertible Debentures will be issued in the same form as the Convertible
Preferred Securities which such Convertible Debentures replace. Any Global
Security will be replaced by one or more global certificates (each a "Global
Security") registered in the name of the depositary or its nominee. Except under
the limited circumstances described below, the Convertible Debentures
represented by the Global Security will not be exchangeable for, and will not
otherwise be issuable as, Convertible Debentures in definitive form. The Global
Securities described above may not be transferred except by the depositary to a
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nominee of the depositary or by a nominee of the depositary to the depositary or
another nominee of the depositary or to a successor depositary or its nominee.
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of such securities in definitive form. Such laws may
impair the ability to transfer beneficial interests in such a Global Security.
Except as provided below, owners of beneficial interests in such a Global
Security will not be entitled to receive physical delivery of Convertible
Debentures in definitive form and will not be considered the holders thereof for
any purpose under the Indenture, and no Global Security representing Convertible
Debentures shall be exchangeable, except for another Global Security of like
denomination and tenor to be registered in the name of the depositary or its
nominee or to a successor depositary or its nominee. Accordingly, each
Beneficial Owner must rely on the procedures of DTC or if such person is not a
participating organization in the Depositary (a "Participant"), on the
procedures of the Participant through which such person owns its interest to
exercise any rights of a holder under the Indenture.
For a description of DTC and the specific terms of the depositary
arrangements, see "Description of the Convertible Preferred Securities--Form,
Denomination and Registration." As of the date of this Offering Memorandum, the
description herein of DTC's book-entry system and DTC's practices as they relate
to purchases, transfers, notices and payments with respect to the Convertible
Preferred Securities apply in all material respects to any debt obligations
represented by one or more Global Securities held by DTC. The Company may
appoint a successor to DTC or any successor depositary in the event DTC or such
successor depositary is unable or unwilling to continue as a depositary for the
Global Securities.
None of the Company, the Trust, the Indenture Trustee, any paying agent and
any other agent of the Company or the Indenture Trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Global Security
for such Convertible Debentures or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
A Global Security shall be exchangeable for Convertible Debentures
registered in the names of persons other than the depositary or its nominee only
if (i) the depositary notifies the Company that it is unwilling or unable to
continue as a depositary for such Global Security and no successor depositary
shall have been appointed, (ii) the depositary, at any time, ceases to be a
clearing agency registered under the Exchange Act at which time the depositary
is required to be so registered to act as such depositary and no successor
depositary shall have been appointed, (iii) the Company, in its sole discretion,
determines that such Global Security shall be so exchangeable or (iv) there
shall have occurred an Event of Default with respect to such Convertible
Debentures. Any Global Security that is exchangeable pursuant to the preceding
sentence shall be exchangeable for Convertible Debentures registered in such
names as the depositary shall direct. It is expected that such instructions will
be based upon directions received by the depositary from its Participants with
respect to ownership of beneficial interests in such Global Security.
PAYMENT AND PAYING AGENTS
Payments on Convertible Debentures represented by a Global Security will be
made to DTC, as the depositary for the Convertible Debentures. In the event
Convertible Debentures are issued in definitive form, principal of and premium,
if any, and any interest on Convertible Debentures will be payable, the transfer
of the Convertible Debentures will be registrable, and the Convertible
Debentures will be exchangeable for Convertible Debentures of other
denominations of a like aggregate principal amount at the corporate office of
the Indenture Trustee in the City of New York or at the office of such Paying
Agent or Paying Agents as the Company may designate, except that at the option
of the Company payment of any interest may be made (i) by check mailed to the
address of the Person entitled thereto as such address shall appear in the
Securities Register or (ii) by wire transfer to an account maintained by the
Person entitled thereto as specified in the Securities Register, provided that
proper transfer instructions have been
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received by the Regular Record Date. Payment of any interest on Convertible
Debentures will be made to the Person in whose name such Convertible Debentures
are registered at the close of business on the Regular Record Date for such
interest, except in the case of defaulted interest. The Regular Record Date for
the interest payable on any Interest Payment Date shall be the fifteenth day
(whether or not a Business Day) next preceding such Interest Payment Date. The
Company may at any time designate additional Paying Agents or rescind the
designation of any Paying Agent.
Any monies deposited with the Indenture Trustee or any Paying Agent, or then
held by the Company in trust, for the payment of the principal of and premium,
if any, or interest on any Convertible Debentures and remaining unclaimed for
two years after such principal and premium, if any, or interest has become due
and payable shall, at the request of the Company, be repaid to the Company and
the holder of such Convertible Debentures shall thereafter look, as a general
unsecured creditor, only to the Company for payment thereof.
EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events, which has occurred and is continuing, constitutes an "Event of Default"
with respect to the Convertible Debentures: (i) failure for 30 days to pay
interest on the Convertible Debentures, including any Additional Interest and
Compounded Interest, in respect thereof, when due provided that a valid
extension of an interest payment period will not constitute a default in the
payment of interest (including any Additional Interest or Compounded Interest,
if any) for this purpose; or (ii) failure to pay principal of or premium, if
any, on the Convertible Debentures when due whether at maturity, upon
redemption, by declaration or otherwise; or (iii) failure by the Company to
deliver shares of Company Common Stock upon an election by a holder of
Convertible Preferred Securities to convert such Convertible Preferred
Securities; or (iv) failure to observe or perform any other covenant contained
in the Indenture for 90 days after notice to the Company by the Trustee or by
the holders of not less than 25% in aggregate outstanding principal amount of
the Convertible Debentures; (v) the dissolution, winding up or termination of
the Trust, except in connection with the distribution of Convertible Debentures
to the holders of Convertible Preferred Securities in liquidation of the Trust
upon the redemption of all outstanding Convertible Preferred Securities and in
connection with certain mergers, consolidations or amalgamations permitted by
the Declaration; or (vi) certain events in bankruptcy, insolvency or
reorganization of the Company.
The Indenture Trustee or the holders of not less than 25% in aggregate
outstanding principal amount of the Convertible Debentures may declare the
principal of and interest on the Convertible Debentures due and payable
immediately on the occurrence of an Event of Default; PROVIDED, HOWEVER, that,
after such acceleration, but before a judgment or decree based on acceleration,
the holders of a majority in aggregate principal amount of outstanding
Convertible Debentures may, under certain circumstances, rescind and annul such
acceleration if all Events of Default, other than the nonpayment of accelerated
principal, have been cured or waived as provided in the Indenture. For
information as to waiver of defaults, see "--Modifications and Amendments of the
Indenture."
Notwithstanding the foregoing, if an Indenture Event of Default has occurred
and is continuing and such event is attributable to the failure of the Company
to pay interest or principal on the Convertible Debentures on the date such
interest or principal is otherwise payable, the Company acknowledges that, in
such event, a holder of Convertible Preferred Securities may institute a Direct
Action for payment on or after the respective due date specified in the
Convertible Debentures. The Company may not amend the Indenture to remove the
foregoing right to bring a Direct Action without the prior written consent of
all the holders of Convertible Preferred Securities. Notwithstanding any payment
made to such holder of Convertible Preferred Securities by the Company in
connection with a Direct Action, the Company shall remain obligated to pay the
principal of or interest on the Convertible Debentures held by the Trust or the
Property Trustee and the Company shall be subrogated to the rights of the holder
of such Convertible Preferred Securities with respect to payments on the
Convertible Preferred Securities to the extent of any
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payments made by the Company to such holder in any Direct Action. The holders of
Convertible Preferred Securities will not be able to exercise directly any other
remedy available to the holders of the Convertible Debentures.
The Holders of not less than a majority in principal amount of the
outstanding Convertible Debentures may on behalf of the holders of all the
Convertible Debentures waive any past defaults except (a) a default in payment
of the principal of (or premium, if any) or interest, if any, on any Convertible
Debentures and (b) a default in respect of a covenant or provision of the
Indenture which cannot be amended or modified without the consent of the holder
of each Convertible Debenture; PROVIDED, HOWEVER, that if the Convertible
Debentures are held by the Trust or a trustee of such Trust, such waiver or
modification to such waiver shall not be effective until the holders of a
majority in liquidation amount of Trust Securities shall have consented to such
waiver or modification to such waiver; PROVIDED, FURTHER, that if the consent of
the holder of each outstanding Convertible Debenture is required, such waiver
shall not be effective until each holder of the Trust Securities shall have
consented to such waiver.
A default under any other indebtedness of the Company or the Trust would not
constitute an Event of Default under the Convertible Debentures.
Subject to the provisions of the Indenture relating to the duties of the
Indenture Trustee in case an Event of Default shall occur and be continuing, the
Indenture Trustee will be under no obligation to exercise any of its rights or
powers under the Indenture at the request or direction of any holders of
Convertible Debentures, unless such holders shall have offered to the Indenture
Trustee reasonable indemnity. Subject to such provisions for the indemnification
of the Indenture Trustee, the holders of a majority in aggregate principal
amount of the Convertible Debentures then outstanding will have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Indenture Trustee, or exercising any trust or power conferred
on the Indenture Trustee with respect to such series.
No holder of any Convertible Debenture will have any right to institute any
proceeding with respect to the Indenture or for any remedy thereunder, unless
(i) such holder shall have previously given to the Indenture Trustee written
notice of a continuing Event of Default, (ii) if the Trust is not the sole
holder of Convertible Debentures, the holders of at least 25% in aggregate
principal amount of the Convertible Debentures then outstanding shall also have
made written request, (iii) such holder has offered reasonable indemnity to the
Indenture Trustee to institute such proceeding as Indenture Trustee, (iv) the
Indenture Trustee shall have failed to institute such proceeding within 60 days
of such notice, and (v) the Indenture Trustee shall not have received from the
holders of a majority in aggregate principal amount of the outstanding
Convertible Debentures a direction inconsistent with such request. However, such
limitations do not apply to a suit instituted by a holder of a Convertible
Debenture for enforcement of payment of the principal of or interest on such
Convertible Debenture on or after the respective due dates expressed in such
Convertible Debenture.
The Company is required to file annually with the Indenture Trustee and the
Property Trustee a certificate as to whether or not the Company is in compliance
with all the conditions and covenants under the Indenture.
MODIFICATIONS AND AMENDMENTS OF THE INDENTURE
The Indenture contains provisions permitting the Company and the Indenture
Trustee, with the consent of the holders of not less than a majority in
aggregate principal amount of the outstanding Convertible Debentures, to modify
the Indenture or the rights of the holders of Convertible Debentures; PROVIDED,
HOWEVER, that no such modification may, without the consent of the holder of
each outstanding Convertible Debenture affected thereby, (i) extend the stated
maturity of the Convertible Debentures or reduce the principal amount thereof,
or reduce the rate or extend the time of payment of interest thereon, or reduce
any premium payable upon the redemption thereof, or adversely affect the right
to convert
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Convertible Debentures or the subordination provisions of the Indenture, or (ii)
reduce the percentage in aggregate principal amount of outstanding Convertible
Debentures, the holders of which are required to consent to any such
supplemental indenture.
In addition, the Company and the Indenture Trustee may execute, without the
consent of any holder of Convertible Debentures, any supplemental indenture to
cure any ambiguities, comply with the Trust Indenture Act and for certain other
customary purposes.
GOVERNING LAW
The Indenture and the Convertible Debentures will be governed by, and
construed in accordance with, the laws of the State of New York.
INFORMATION CONCERNING THE INDENTURE TRUSTEE
The Indenture Trustee, prior to default, undertakes to perform only such
duties as are specifically set forth in the Indenture and, after default, shall
exercise the same degree of care as a prudent individual would exercise in the
conduct of his or her own affairs. Subject to such provision, the Indenture
Trustee is under no obligation to exercise any of the powers vested in it by the
Indenture at the request of any holder of Convertible Debentures, unless offered
reasonable indemnity by such holder against the costs, expenses and liabilities
which might be incurred thereby. The Indenture Trustee is not required to expend
or risk its own funds or otherwise incur personal financial liability in the
performance of its duties if the Indenture Trustee reasonably believes that
repayment or adequate indemnity is not reasonably assured to it.
EFFECT OF OBLIGATIONS UNDER
THE CONVERTIBLE DEBENTURES AND THE GUARANTEE
As set forth in the Declaration, the sole purpose of the Trust is to issue
the Trust Securities evidencing undivided beneficial interests in the assets of
the Trust, and to invest the proceeds from such issuance and sale in the
Convertible Debentures.
As long as payments of interest and other payments are made when due on the
Convertible Debentures, such payments will be sufficient to cover distributions
and payments due on the Trust Securities because of the following factors: (i)
the aggregate principal amount of Convertible Debentures will be equal to the
sum of the aggregate stated liquidation amount of the Trust Securities; (ii) the
interest rate and the interest and other payment dates on the Convertible
Debentures will match the distribution rate and distribution and other payment
dates for the Convertible Preferred Securities; (iii) pursuant to the Indenture,
the Company shall pay, and the Trust shall not be obligated to pay, directly or
indirectly, all costs, expenses, debt and obligations of the Trust (other than
with respect to obligations of the Trust under the Trust Securities); and (iv)
the Declaration further provides that the Issuer Trustees will not cause or
permit the Trust to, among other things, engage in any activity that is not
consistent with the purposes of the Trust.
Payments of distributions (to the extent funds therefor are available) and
other payments due on the Convertible Preferred Securities (to the extent funds
therefor are available) are guaranteed by the Company as set forth under
"Description of the Guarantee." If the Company does not make interest payments
on the Convertible Debentures purchased by the Trust, it is expected that the
Trust will not have sufficient funds to pay distributions on the Convertible
Preferred Securities. The Guarantee is a guarantee on a subordinated basis with
respect to the Convertible Preferred Securities from the time of its issuance
but does not apply to any payment of distributions unless and until the Trust
has sufficient funds for the payment of such distributions.
The Guarantee covers the payment of distributions and other payments on the
Convertible Preferred Securities only if and to the extent that the Company has
made a payment of interest or principal on the
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Convertible Debentures held by the Trust as its sole asset. The Guarantee, when
taken together with the Company's obligations under the Convertible Debentures
and the Indenture and its obligations under the Declaration, including its
obligations to pay costs, expenses, debts and liabilities of the Trust (other
than with respect to the Trust Securities), will provide a full and
unconditional guarantee of amounts on the Convertible Preferred Securities.
If the Company fails to make interest or other payments on the Convertible
Debentures when due (taking account of any Extension Period), the Declaration
provides a mechanism whereby the holders of the Convertible Preferred
Securities, using the procedures described in "Description of the Convertible
Preferred Securities--Form, Denomination and Registration" and "--Voting
Rights," may direct the Property Trustee to enforce its rights under the
Convertible Debentures. If the Property Trustee fails to enforce its rights
under the Convertible Debentures, any holder of Convertible Preferred Securities
may directly institute a legal proceeding against the Company to enforce the
Property Trustee's rights under the Convertible Debentures without first
instituting any legal proceeding against the Property Trustee or any other
person or entity. Notwithstanding the foregoing, if a Declaration Event of
Default has occurred and is continuing and such event is attributable to the
failure of the Company to pay interest or principal on, the Convertible
Debentures on the date such interest or principal is otherwise payable (or in
the case of redemption, on the redemption date), then a holder of Convertible
Preferred Securities may institute a Direct Action for payment on or after the
respective due date specified in the Convertible Debentures. In connection with
such Direct Action, the Company will be subrogated to the rights of such holder
of Convertible Preferred Securities under the Declaration to the extent of any
payment made by the Company to such holder of Convertible Preferred Securities
in such Direct Action. The Company, under the Guarantee, acknowledges that the
Guarantee Trustee shall enforce the Guarantee on behalf of the holders of the
Convertible Preferred Securities. If the Company fails to make payments under
the Guarantee, the Guarantee provides a mechanism whereby the holders of the
Convertible Preferred Securities may direct the Guarantee Trustee to enforce its
rights thereunder. If the Guarantee Trustee fails to enforce the Guarantee, any
holder of Convertible Preferred Securities may directly institute a legal
proceeding against the Company to enforce the Guarantee Trustee's rights under
the Guarantee without first instituting a legal proceeding against the Trust,
the Guarantee Trustee, or any other person or entity.
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DESCRIPTION OF CAPITAL STOCK
Sun's authorized capital stock consists of 150,000,000 shares of Company
Common Stock, par value $.01 per share, and 5,000,000 shares of preferred stock,
par value $.01 per share (the "Company Preferred Stock"). As of May 28, 1998,
49,735,426 shares of Company Common Stock were issued and outstanding, net of
shares of Company Common Stock held in treasury, and no shares of Company
Preferred Stock were issued and outstanding.
COMPANY COMMON STOCK
The holders of shares of Company Common Stock have one vote per share on all
matters to be voted upon by stockholders. Subject to any preferences, voting
powers, qualifications and special or relative rights or privileges of any
holders of preferred stock, holders of Company Common Stock are entitled, among
other things, to dividends if, when and as declared from time to time by the
Board of Directors out of assets legally available therefor after payment of
debts and expenses. Sun's ability to pay dividends is restricted by the terms of
its existing credit facility and agreements governing certain outstanding
indebtedness of Sun. With the exception of the rights issued pursuant to Sun's
Stockholders' Rights Plan, holders of shares of Company Common Stock have no
preemptive or other rights to subscribe for additional shares. The Company
Common Stock is neither redeemable nor convertible, and there are no sinking
fund provisions. Upon the voluntary or involuntary liquidation of Sun, holders
of Company Common Stock are entitled to receive all remaining assets of Sun
available for distribution to stockholders after payment to creditors or of
preference amounts owed to holders of any preferred stock.
All of the outstanding shares of Company Common Stock are fully paid and
nonassessable.
The shares of Company Common Stock do not have cumulative voting rights,
which means that the holders of more than 50% of the shares voting can elect all
the directors if they so choose, and, in such event, the holders of the
remaining shares cannot elect any directors. No stockholder owns more than 50%
of the outstanding Company Common Stock.
COMPANY PREFERRED STOCK
Sun's Certificate of Incorporation (the "Sun Certificate") authorizes the
issuance of up to 5,000,000 shares of Sun Preferred Stock, none of which is
currently outstanding. Of the 5,000,000 shares of Company Preferred Stock, Sun
has reserved for issuance 1,000,000 shares of its Series A Preferred Stock
pursuant to Sun's Stockholders' Rights Plan. The terms of the Series A Preferred
Stock are described in the Form 8-A dated June 5, 1995 as amended by Form
8-A/A-1 dated August 18, 1995. Sun has also reserved for issuance 298,334 shares
of Series B Convertible Preferred Stock in connection with Sun's acquisition of
Retirement Care. Each share of Series B Preferred Stock is convertible into .965
shares of Company Common Stock.
Company Preferred Stock may be issued from time to time in one or more
series, without stockholder approval. Subject to limitations prescribed by law,
the Board of Directors is authorized to determine the voting powers (if any),
designation, preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, for each series
of preferred stock that may be issued, and to fix the number of shares of each
such series. Thus, the Board of Directors, without stockholder approval, could
authorize the issuance of preferred stock with voting, conversion and other
rights that could adversely affect the voting power and other rights of holders
of Company Common Stock or other series of preferred stock or that could have
the effect of delaying, deferring or preventing a change in control of Sun.
Among other things, the Company Preferred Stock may be issued with extraordinary
voting, dividend, redemption or conversion rights.
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CERTAIN PROVISIONS OF THE SUN CERTIFICATE, BYLAWS AND DELAWARE CORPORATE LAW
The Sun Certificate provides for a Board of Directors with three classes
consisting as nearly as possible of one-third of the directors. Each director
serves for a term of three years and until his or her successor is elected and
qualified. Directors may be removed with or without cause by the affirmative
vote of the holders of a majority of the outstanding shares entitled to vote. A
classified board of directors could make it more difficult for stockholders,
including those holding a majority of the outstanding shares, to force an
immediate change in the composition of a majority of the board of directors.
Staggered terms moderate the pace of changes in the board of directors by
extending the minimum time required to elect a majority of directors to two
years.
The Sun Certificate provides that any action required or permitted to be
taken by stockholders shall be taken only at a duly called special or annual
meeting of the stockholders. Stockholders have no authority to take action by
written consent unless approved in advance by Sun's Board of Directors. The Sun
Certificate also provides that special meetings of the common stockholders of
Sun may be called only by the Chairman, President or a majority of Sun's Board
of Directors.
The Sun Certificate 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 Delaware General Corporation Law (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.
Section 203 of the DGCL, which is currently applicable to Sun, prohibits
certain publicly held Delaware corporations from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person or entity became an interested
stockholder, unless, among other exemptions (i) the business combination is
approved by the board of directors prior to the date the interested stockholder
attained such status, and authorized by the holders of two-thirds of the
outstanding voting stock not owned by the interested stockholders or (ii) the
interested stockholder acquired 85% or more of the outstanding voting stock of
Sun in the transaction in which the person or entity became an interested
stockholder. For purposes of Section 203, a "business combination" is defined
broadly to include mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. Subject to certain exceptions,
an "interested stockholder" is a person or entity who, together with affiliates
and associates, owns or within the three years immediately preceding a business
combination did own 15% or more of the corporation's outstanding voting stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company Common Stock is ChaseMellon
Shareholder Services, L.L.C. located in Ridgefield Park, New Jersey.
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UNITED STATES FEDERAL INCOME TAXATION
GENERAL
The following is a summary of certain of the material United States federal
income tax consequences of the purchase, ownership, disposition and conversion
of Convertible Preferred Securities. Unless otherwise stated, this summary deals
only with Convertible Preferred Securities held as capital assets by holders who
purchase the Convertible Preferred Securities upon original issuance. This
summary addresses the United States federal income tax considerations to holders
of Convertible Preferred Securities who 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 political subdivision thereof or
therein, estates, the income of which is subject to United States federal income
taxation regardless of its source, trusts, if a U.S. court is able to exercise
primary supervision over the trust's administration and one or more United
States persons has the authority to control all of the trust's substantial
decisions or other holders who are otherwise subject to United States federal
income taxation on a net income basis with respect to Convertible Preferred
Securities ("U.S. Holders") and does not address the tax consequences to holders
of Convertible Preferred Securities who are not U.S. Holders. This summary does
not deal with special classes of holders such as banks, thrifts, real estate
investment trusts, regulated investment companies, insurance companies, common
trust funds, dealers in securities or currencies, tax-exempt investors, or
persons that will hold the Convertible Preferred Securities as a position in a
"straddle," as part of a "synthetic security" or "hedge," as part of a
"conversion transaction" or other integrated investment or as other than a
capital asset. This summary also does not address the tax consequences to
persons that have a functional currency other than the U.S. Dollar or the tax
consequences to shareholders, partners or beneficiaries of a holder of
Convertible Preferred Securities. Further, it does not include any description
of any alternative minimum tax consequences or the tax laws of any state or
local government or of any foreign government that may be applicable to the
Convertible Preferred Securities. This summary is based on the Internal Revenue
Code of 1986, as amended (the "Code"), Treasury regulations thereunder and
administrative and judicial interpretations thereof, as of the date hereof, all
of which are subject to change, possibly on a retroactive basis.
CLASSIFICATION OF THE CONVERTIBLE DEBENTURES
The Company intends to take the position that the Convertible Debentures
will be classified for United States federal income tax purposes as indebtedness
of the Company under current law, and, by acceptance of a Preferred Security,
each holder covenants to treat the Convertible Debentures as indebtedness and
the Convertible Preferred Securities as evidence of an indirect beneficial
ownership interest in the Convertible Debentures. No assurance can be given,
however, that such position of the Company will not be challenged by the
Internal Revenue Service or, if challenged, that such a challenge will not be
successful. The remainder of this discussion assumes that the Convertible
Debentures will be classified as indebtedness of the Company for United States
federal income tax purposes.
CLASSIFICATION OF THE TRUST
In connection with the issuance of the Convertible Preferred Securities,
Shearman & Sterling, special counsel to the Company and the Trust, rendered its
opinion generally to the effect that, under then current law and assuming full
compliance with the terms of the Declaration and the Indenture (and certain
other documents), and based on certain facts and assumptions contained in such
opinion, the Trust will be classified for United Stated federal income tax
purposes as a grantor trust and not as an association taxable as a corporation.
Accordingly, for United States federal income tax purposes, each holder of
Convertible Preferred Securities generally will be considered the owner of an
undivided interest in the Convertible Debentures, and each holder will be
required to include in its gross income any interest (or OID) with respect to
its allocable share of those Convertible Debentures.
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INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Under Treasury regulations applicable to debt instruments issued on or after
August 13, 1996 (the "Regulations"), a "remote" contingency that stated interest
will not be timely paid will be ignored in determining whether a debt instrument
is issued with OID. The Company believes that the likelihood of its exercising
its option to defer payments is remote within the meaning of the Regulations.
Based on the foregoing, the Company believes that, although the matter is not
free from doubt, the Convertible Debentures will not be considered to be issued
with OID at the time of their original issuance and, accordingly, that a holder
of the Convertible Preferred Securities should include in gross income such
holder's allocable share of interest on the Convertible Debentures in accordance
with such holder's method of tax accounting.
Under the Regulations, if the option to defer any payment of interest was
determined not to be "remote" or if the Company exercised such option, the
Convertible Debentures would be treated as issued with OID at the time of
issuance, or at the time of such exercise, as the case may be, and all stated
interest on the Convertible Debentures would thereafter be treated as OID as
long as the Convertible Debentures remain outstanding. In such event, all of the
holder's taxable interest income with respect to the Convertible Debentures
would constitute OID that would have to be included in income on an economic
accrual basis before the receipt of cash attributable to the interest,
regardless of such holder's method of tax accounting, and actual distributions
of stated interest would not be reported as taxable income.
Consequently, holders of Convertible Preferred Securities would be required
to include in gross income OID even though the Company would not make any actual
cash payments during the extension period.
No rulings or other interpretations have been issued by the Internal Revenue
Service ("IRS") which have addressed the meaning of the term "remote" as used in
the Regulations, and it is possible that the IRS could take a position contrary
to the interpretation herein.
Because income on the Convertible Preferred Securities will constitute
interest or OID, corporate holders of Convertible Preferred Securities will not
be entitled to a dividends-received deduction with respect to any income
recognized with respect to the Convertible Preferred Securities.
RECEIPT OF CONVERTIBLE DEBENTURES OR CASH UPON LIQUIDATION OF THE TRUST
Under certain circumstances, as described under the caption "Description of
the Convertible Preferred Securities--Special Event Redemption or Distribution,"
Convertible Debentures may be distributed to holders in exchange for the
Convertible Preferred Securities and in liquidation of the Trust. Under current
law, such a distribution to holders, for United States federal income tax
purposes, would be treated as a nontaxable event to each holder, and each holder
would receive an aggregate tax basis in the Convertible Debentures equal to such
holder's aggregate tax basis in its Convertible Preferred Securities. A holder's
holding period in the Convertible Debentures so received in liquidation of the
Trust would include the period during which the Convertible Preferred Securities
were held by such holder. If, however, the related Special Event is a Tax Event
which results in the Trust being treated as an association taxable as a
corporation, the distribution would likely constitute a taxable event to holders
of the Convertible Preferred Securities, in which event the Company would
generally be required to redeem the Convertible Debentures and distribute the
resulting cash in liquidation of the Trust.
Under certain circumstances described herein (see "Description of the
Convertible Preferred Securities"), the Convertible Debentures may be redeemed
for cash and the proceeds of such redemption distributed to holders in
redemption of their Convertible Preferred Securities. Under current law, such a
redemption would, for United States federal income tax purposes, constitute a
taxable disposition of the redeemed Convertible Preferred Securities, and a
holder would recognize gain or loss as if it sold such redeemed Convertible
Preferred Securities for cash. See "--Sales of Convertible Preferred
Securities."
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SALES OF CONVERTIBLE PREFERRED SECURITIES
A holder that sells Convertible Preferred Securities will be considered to
have disposed of all or part of his pro rata share of the Convertible Debentures
and will recognize gain or loss equal to the difference between its adjusted tax
basis in the Convertible Preferred Securities and the amount realized on the
sale of such Convertible Preferred Securities. Assuming that the Company does
not exercise its option to defer payment of interest on the Convertible
Debentures and that the Convertible Debentures are not deemed to be issued with
OID, a holder's adjusted tax basis in the Convertible Preferred Securities will
generally be its initial purchase price. If the Convertible Debentures are
deemed to be issued with OID, a holder's tax basis in the Convertible Preferred
Securities generally will be its initial purchase price, increased by OID
previously includible in such holder's taxable income to the date of disposition
and decreased by distributions or other payments received on the Convertible
Preferred Securities since and including the date that the Convertible
Debentures were deemed to be issued with OID. Such gain or loss generally will
be capital gain or loss (except to the extent of any accrued interest with
respect to such holder's pro rata share of the Convertible Preferred Securities
required to be included in income as ordinary income). Under the Taxpayer Relief
Act of 1997, net capital gain (i.e., generally, capital gain in excess of
capital loss) recognized by an individual from the sale of a capital asset that
has been held for more than 18 months will be subject to tax at a rate not to
exceed 20%, capital gain from the sale of an asset held for more than 12 months
but not more than 18 months will be subject to tax at a rate not to exceed 28%,
and capital gain recognized from the sale of a capital asset that has been held
for 12 months or less will be subject to tax at ordinary income tax rates. In
addition, capital gain recognized by a corporate taxpayer will be subject to tax
at the ordinary income tax rates applicable to corporations. If the selling
price is less than the holder's adjusted tax basis, such holder will recognize
tax loss, and subject to certain limited exceptions, capital losses cannot be
applied to offset ordinary income for United State federal income tax purposes.
Should the Company exercise its option to defer any payment of interest on
the Convertible Debentures, the Convertible Preferred Securities may trade at a
price that does not accurately reflect the value of the accrued but unpaid
interest with respect to the underlying Convertible Debentures. In such event, a
holder who disposes of its Convertible Preferred Securities between record dates
for payments of distributions thereon will be required to include in income as
ordinary income accrued but unpaid interest on the Convertible Debentures
through the date of disposition and to add such amount to its adjusted tax basis
in its pro rata share of the underlying Convertible Debentures deemed disposed
of. To the extent that the selling price is less than the holder's adjusted tax
basis (which will include, in the form of OID, all accrued but unpaid interest),
such holder will recognize a capital loss.
ADJUSTMENT OF CONVERSION PRICE
Treasury Regulations promulgated under Section 305 of the Code would treat
holders of Convertible Preferred Securities as having received a constructive
distribution from the Company in the event the conversion ratio of the
Convertible Debentures were adjusted if (i) as a result of such adjustment, the
proportionate interest (measured by the quantum of Company Common Stock into or
for which the Convertible Debentures are convertible or exchangeable) of the
holders of the Convertible Preferred Securities in the assets or earnings and
profits of the Company were increased, and (ii) the adjustment was not made
pursuant to a bona fide, reasonable antidilution formula. An adjustment in the
conversion ratio would not be considered made pursuant to such a formula if the
adjustment was made to compensate for certain taxable distributions with respect
to the Company Common Stock. Thus, under certain circumstances, a reduction in
the conversion price for the holders may result in deemed dividend income to
holders to the extent of the current or accumulated earnings and profits of the
Company. Holders of the Convertible Preferred Securities would be required to
include their allocable share of such deemed dividend income in gross income but
would not receive any cash related thereto.
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INFORMATION REPORTING AND BACKUP WITHHOLDING
Generally, income on the Convertible Preferred Securities will be reported
to holders on Forms 1099, which forms should be mailed to holders of Convertible
Preferred Securities by January 31 following each calendar year.
Payments made on, and proceeds from the sale of, the Convertible Preferred
Securities may be subject to a "backup" withholding tax of 31% unless the holder
complies with certain identification requirements. Any withheld amounts will be
allowed as a credit against the holder's United States federal income tax,
provided the required information is provided to the Internal Revenue Service.
On October 7, 1997, the United States Treasury Department issued final
Treasury regulations governing information reporting and the certification
procedures regarding withholding and backup withholding on certain amounts paid
to non-U.S. Holders after December 31, 1998. Such regulations, among other
things, may change the certification procedures relating to the receipt by
intermediaries of payments on behalf of a beneficial owner of a Preferred
Security. Prospective investors should consult their tax advisors regarding the
effect, if any, of such new regulations on an investment in the Convertible
Preferred Securities.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S
PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO
THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
CONVERTIBLE PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE,
LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED
STATES FEDERAL OR OTHER TAX LAWS.
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SELLING HOLDERS
The Convertible Preferred Securities were originally issued by the Trust and
sold by the Initial Purchasers in a transaction exempt from the registration
requirements of the Securities Act, to persons reasonably believed by such
Initial Purchasers to be "qualified institutional buyers" (as defined in Rule
144A under the Securities Act), or outside the United States to non-U.S. persons
in offshore transactions in reliance on Regulation S under the Securities Act.
The Selling Holders may from time to time offer and sell pursuant to this
Prospectus any or all of the Convertible Preferred Securities and Company Common
Stock issued upon conversion of the Convertible Preferred Securities.
The following table sets forth information with respect to the record
holders of the Convertible Preferred Securities as of July 24, 1998. The term
Selling Holder includes the record holders listed below and the beneficial
owners of the Convertible Preferred Securities and their transferees, pledgees,
donees or other successors.
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED
SELLING HOLDER SECURITIES
---------------------------------------------------------------------------------------- ------------------
<C> <S> <C>
1. Deutsche Bank AG........................................................................ 993,000
2. Bear Stearns Securities Corp............................................................ 350,000
3. Alpine Associates....................................................................... 336,400
4. President and Fellows of Harvard College................................................ 325,000
5. Bear Stearns & Co. Inc.................................................................. 300,000
6. Mainstray Convertible Fund.............................................................. 240,000
7. Chase Manhattan WA, as trustee for IBM Retirement Plan, dated December 18, 1945......... 216,400
8. Providian Life & Health................................................................. 215,000
9. Millennium Trading Co. L.P.............................................................. 175,000
10. Aristeia International Limited.......................................................... 171,868
11. Triton Capital Investments, Ltd......................................................... 160,000
12. JMG Convertible Investments, L.P........................................................ 160,000
13. Donaldson, Lufkin & Jenrette Securities Corporation..................................... 160,000
14. Warburg Dillon Read LLC................................................................. 145,000
15. Bankers Trust, as trustee for Chrysler Corp. Employee #1 Pension Plan, dated April 1, 126,700
1989..................................................................................
16. R(2) Investments........................................................................ 119,500
17. Aristeia Trading LLC.................................................................... 109,132
18. Deeprock & Co........................................................................... 95,000
19. Argent Classic Convertible Arbitrage Fund L.P........................................... 92,500
20. Van Kampen Harbor Fund.................................................................. 92,400
21. Lincoln National Convertible Securities Fund............................................ 84,000
22. The Northwestern Mutual Life Insurance Company.......................................... 75,000
23. Argent Classic Convertible Arbitrage Fund (Bermuda) L.P................................. 75,000
24. UBS AG, London Branch................................................................... 70,000
25. State Street Bank, as custodian for 6E Pension Trust.................................... 67,000
26. McMahan Securities Company, L.P......................................................... 65,000
27. The Class LC Company, Ltd............................................................... 62,500
</TABLE>
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<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED
SELLING HOLDER SECURITIES
---------------------------------------------------------------------------------------- ------------------
28. Carrigaholt Capital (Bermuda) L.P....................................................... 62,500
<C> <S> <C>
29. Ambit & Co.............................................................................. 60,000
30. South Dakota Retirement System.......................................................... 50,000
31. Duckbill & Co........................................................................... 50,000
32. Double Black Diamond Offshore LDC....................................................... 49,375
33. Black Diamond, Ltd...................................................................... 44,145
34. Susquehanna Capital Group............................................................... 40,000
35. Black Diamond Partners, L.P............................................................. 37,295
36. Commonwealth Life Insurance Company (Camden Teamsters Non-Enhanced)..................... 25,000
37. Argent Convertible Arbitrage Fund Ltd................................................... 25,000
38. Argent Offshore Fund L.P................................................................ 25,000
39. Alpine Partners, L.P.................................................................... 23,600
40. Orrington Investments Limited Partnership............................................... 19,500
41. National Steel Corporation.............................................................. 18,140
42. Q Investments, L.P...................................................................... 16,500
43. Van Kampen American Capital Convertible Securities Fund................................. 15,900
44. Highbridge Capital Corporation.......................................................... 14,000
45. Orrington International Fund Ltd........................................................ 10,500
46. Fox Family Portfolio Partnership c/o Forest Investment Management LLC................... 10,000
47. Mainstay Strategic Value Fund........................................................... 10,000
48. Franklin and Marshall College........................................................... 9,900
49. Forest Performance Fund................................................................. 9,000
50. Third Avenue High Yield Fund............................................................ 9,000
51. Forest Global Convertible Fund Series B-5............................................... 8,900
52. Walker Art Center....................................................................... 6,860
53. Worldwide Transactions Ltd.............................................................. 6,480
54. Forest Greyhound c/o Forest Investment Management LLC................................... 4,500
55. Forest Global Convertible Fund Series B-1............................................... 4,500
56. Merrill Lynch International Ltd......................................................... 4,000
57. Forest Global Convertible Fund Series B-3............................................... 3,900
58. Global Series Fund II--Prudential IncomeVertible Funds.................................. 3,200
59. BNP Arbitrage, SNC...................................................................... 3,200
60. Forest Alternative Strategies Fund Series B-3........................................... 3,000
61. Highbridge Capital Corporation.......................................................... 2,785
62. Forest Global Convertible Fund Series B-2............................................... 2,100
63. Harcourt General Retirement Plan........................................................ 1,200
64. Other Selling Holders that may be added by amendment from time to time.................. 8,031,700
------------------
TOTAL 13,800,000
------------------
------------------
</TABLE>
72
<PAGE>
None of the Selling Holders has, or within the past three years has had, any
position, office or other material relationship with the Trust or the Company or
any of their predecessors or affiliates, except as noted above. Because the
Selling Holders may, pursuant to this Prospectus, offer all or some portion of
the Convertible Preferred Securities, the Company Common Stock issuable upon
conversion of the Convertible Preferred Securities, or the Company Common Stock,
no estimate can be given as to the amount of the Convertible Preferred
Securities, Company Common Stock or the Company Common Stock issuable upon
conversion of the Convertible Preferred Securities that will be held by the
Selling Holders upon termination of any such sales. In addition, the Selling
Holders identified above may have sold, transferred or otherwise disposed of all
or a portion of their Convertible Preferred Securities, since the date on which
they provided the information regarding their Convertible Preferred Securities,
in transactions exempt from the registration requirements of the Securities Act.
PLAN OF DISTRIBUTION
The Offered Securities may be sold from time to time to purchasers directly
by the Selling Holders. Alternatively, the Selling Holders may from time to time
offer the Offered Securities to or through underwriters, broker/dealers or
agents, who may receive compensation in the form of underwriting discounts,
concessions or commissions from the Selling Holders or the purchasers of such
securities for whom they may act as agents. The Selling Holders and any
underwriters, broker/dealers or agents that participate in the distribution of
Offered Securities may be deemed to be "underwriters" within the meaning of the
Securities Act and any profit on the sale of such securities and any discounts,
commissions, concessions or other compensation received by any such underwriter,
broken dealer or agent may be deemed to be underwriting discounts and
commissions under the Securities Act.
The Offered Securities may be sold from time to time in one or more
transactions at fixed prices, at prevailing market prices at the time of sale
(at varying prices determined at the time of sale or at negotiated prices. The
sale of the Offered Securities may be effected in transactions (which may
involve crosses or block transactions) (i) on any national securities exchange
or quotation service on which the Offered Securities may be listed or quoted at
the time of sale, (ii) in the over-the-counter market, (iii) in transactions
otherwise than on such exchanges or in the over-the-counter market or (iv)
through the writing of options. At the time a particular offering of the Offered
Securities is made, a Prospectus Supplement, if required, will be distributed
which will set forth the aggregate amount and type of Offered Securities being
offered and the terms of the offering, including the name or names of any
underwriters, broker/dealers or agents, any discounts, commissions and other
terms constituting compensation from the Selling Holders and any discounts,
commissions or concessions allowed or reallowed or paid to broker/ dealers.
To comply with the securities laws of certain jurisdictions, if applicable,
the Offered Securities will be offered or sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
jurisdictions the Offered Securities may not be offered or sold unless they have
been registered or qualified for sale in such jurisdictions or any exemption
from registration or qualification is available and is complied with.
The Selling Holders will be subject to applicable provisions of the Exchange
Act and the rules and regulations thereunder, which provisions may limit the
timing of purchases and sales of any of the Offered Securities by the Selling
Holders. The foregoing may affect the marketability of such securities.
Pursuant to the Registration Rights Agreement, all expenses of the
registration of the Offered Securities will be paid by the Company, including,
without limitation, Commission filing fees and expenses of compliance with state
securities or "blue sky" laws; provided, however, that the Selling Holders will
pay all underwriting discounts and selling commissions, if any. The Selling
Holders will be indemnified by the Company and the Trust, jointly and severally
against certain civil liabilities, including certain liabilities under the
Securities Act, or will be entitled to contribution in connection therewith. The
Company and the
73
<PAGE>
Trust will be indemnified by the Selling Holders severally against certain civil
liabilities, including certain liabilities under the Securities Act, or will be
entitled to contribution in connection therewith.
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 the 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 Anderson 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.
LEGAL MATTERS
The validity of the Convertible Securities offered will be passed upon for
the Company by Shearman & Sterling, San Francisco, California. The validity of
the Convertible Securities will be passed upon for the Sun Trusts by Richards,
Layton & Finger, Wilmington, Delaware.
- ------------------------
* Consent to be filed by amendment.
74
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE TRUST OR ANY OF THEIR AGENTS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THE TRUST SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Special Cautionary Notice Regarding Forward-Looking Statements............ 3
Available Information..................................................... 3
Incorporation of Certain Documents by Reference........................... 4
Risk Factors.............................................................. 5
The Company............................................................... 23
Sun Financing I........................................................... 24
Use of Proceeds........................................................... 25
Price Range of Company Common Stock and Dividend Policy................... 25
Accounting Treatment...................................................... 25
Ratio of Earnings to Fixed Charges (Unaudited)............................ 26
Capitalization............................................................ 27
Description of the Convertible Preferred Securities....................... 28
Description of the Guarantee.............................................. 49
Description of the Convertible Debentures................................. 52
Effect of Obligations Under the Convertible Debentures and the
Guarantee............................................................... 63
Description of Capital Stock.............................................. 65
United States Federal Income Taxation..................................... 67
Selling Holders........................................................... 71
Plan of Distribution...................................................... 73
Experts................................................................... 74
Legal Matters............................................................. 74
</TABLE>
13,800,000 PREFERRED SECURITIES
SUN FINANCING I
7% CONVERTIBLE TRUST ISSUED PREFERRED SECURITIES
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY AND CONVERTIBLE INTO COMMON STOCK
OF
[LOGO]
---------------------
PROSPECTUS
---------------------
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated costs and expenses in
connection with the Offering described in the Registration Statement.
<TABLE>
<S> <C>
Commission Registration Fee....................................... $ 101,775
Transfer Agent and Trustee Fees................................... 25,000
Blue Sky Fees and Expenses........................................ 12,000
Printing and Engraving Fees....................................... 100,000
Legal Fees and Expenses........................................... 75,000
Auditors' Fees and Expenses....................................... 30,000
Miscellaneous..................................................... 6,225
---------
Total......................................................... $ 350,000
---------
---------
</TABLE>
All of the above expenses, other than the SEC registration fee, are
estimates.
The Company has paid substantially all of the expenses of the issuance and
distribution of the securities being registered, other than commissions and
discounts of underwriters, dealers or agents and the fees and expenses of
counsel to the Selling Holders.
ITEM 15. 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 Registration Rights Agreements with certain of the
Selling Stockholders. Such agreements provide for indemnification by such
Selling Holders of the Company and its officers and
II-1
<PAGE>
directors, and by the Company of such Selling Holders, for certain liabilities
arising under the Act or otherwise.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS
- --------------- ---------------------------------------------------------------------------------
<C> <S>
1 Purchase Agreement, dated as of April 28, 1998, by and between Bear, Stearns &
Co., Inc., Donaldson, Lufkin & Jenrette Securities Corporation, J.P. Morgan
Securities, Inc., NationsBanc Montgomery Securities LLC, Schroder & Co. Inc.,
Sun Financing I and Sun Healthcare Group, Inc.
3(a) Certificate of Incorporation of Sun Healthcare Group, Inc. (incorporated herein
by reference from an Exhibit to Sun's Registration Statement on Form S-1 (No.
33-62670)).
3(b) Certificate of Amendment to Certificate of Incorporation dated April 15, 1993
(incorporated by reference from an Exhibit to Sun's Form 10-Q for the quarter
ended March 31, 1996).
3(c) Certificate of Amendment to Certificate of Incorporation dated June 23, 1994
(incorporated by reference from an Exhibit to Sun's Form 10-Q for the quarter
ended September 30, 1994).
3(d) Bylaws of Sun Healthcare Group, Inc., as amended, (incorporated herein by
reference from Exhibits to Sun's Registration Statement on Form S-1 (No.
33-62670) and Sun's Registration Statement on Form S-1 (No. 33-77870)).
3(e) Certificate of Trust of Sun Financing I.
4(a) Indenture, dated as of May 4, 1998, by and between Sun Healthcare Group, Inc. and
The Bank of New York.
4(b) The specimen or specimens of Securities with respect to each particular series of
Securities registered hereunder can be found in Exhibit 4(a).
4(c) Amended and Restated Declaration of Trust of Sun Financing I, dated as of May 4,
1998.
4(d) Convertible Preferred Securities Guarantee Agreement of Sun Healthcare Group,
Inc., dated as of May 4, 1998.
4(e) Registration Rights Agreement, dated as of May 4, 1998, by and among Sun
Financing I, Sun Healthcare Group, Inc., Bear, Stearns & Co., Inc., Donaldson,
Lufkin & Jenrette Securites Corporation, J.P. Morgan Securities, Inc.,
NationsBanc Montgomery Securities LLC and Schroder & Co. Inc.
4(f) Common Securities Purchase Agreement, dated as of May 4, 1998, between Sun
Financing I and Sun Healthcare Group, Inc.
4(g) Common Securities Guarantee Agreement of Sun Healthcare Group, Inc., dated as of
May 4, 1998.
4(h) Form of Rights Agreement dated as of June 2, 1995 between Sun and Boatmen's Trust
Company (incorporated by reference from an Exhibit to Sun's Form 8-A filed June
6, 1995).
4(i) First Amendment to the Rights Agreement dated as of August 11, 1995 between Sun
and Boatmen's Trust Company (incorporated by reference from an Exhibit to Sun's
Form 8-A/1 filed August 17, 1995).
5(a)* Opinion of Richards, Layton & Finger with respect to Sun Financing I.
5(b)* Opinion of Shearman & Sterling.
12 Statement regarding Computation of Ratios of Earnings to Fixed Charges.
23(a) Form of Consent of Independent Public Accountants.
23(b)* Consent of Arthur Andersen LLP.
23(c)* Consent of Richards, Layton & Finger (included in Exhibit 5(a)).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS
- --------------- ---------------------------------------------------------------------------------
<C> <S>
23(d)* Consent of Shearman & Sterling (included in Exhibit 5(b)).
24(a) Powers of Attorney relating to Sun Healthcare Group, Inc. for Andrew L. Turner,
John E. Bingham, Robert D. Woltil, Andrew P. Masetti, William R. Anixter, Lois
E. Silverman, R. James Woolsey, Martin G. Mand, Zev Karkomi, Mark G. Wimer, and
James R. Tolbert (contained on the signature pages hereof).
24(b) Powers of Attorney relating to Sun Financing I for Robert F. Murphy and Robert D.
Woltil (contained on the signature pages hereof).
25(a) Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of The
Bank of New York, as Trustee under the Convertible Subordinated Debentures
Indenture.
25(b) Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of The
Bank of New York, as Trustee under the Amended and Restated Declaration of
Trust of Sun Financing I.
25(c) Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of The
Bank of New York, as Trustee under the Preferred Securities Guarantee of Sun
Healthcare Group, Inc. for the benefit of the holders of Trust Issued Preferred
Securities of Sun Financing I.
</TABLE>
- ------------------------
* To be filed by amendment.
(b) Financial Statement Schedules
The schedules for which provision is made in the applicable accounting
regulations of the Commission are not required under the related
instructions or are inapplicable and, therefore, have been omitted.
ITEM 17. UNDERTAKINGS.
(a) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
PROVIDED, HOWEVER, that paragraphs (a)(i) and (a)(ii) do not apply if
the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the
Registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934, that are incorporated by reference in the
Registration Statement;
II-3
<PAGE>
(b) That for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus 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.
(c) 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 Registrants hereby undertake that, for the purposes of determining any
liability under the Securities Act of 1933, each filing of Sun's annual report
pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of
1934 (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in this Registration Statement shall be deemed to be a
new Registration Statement relating to the securities offered herein, 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
Registrants pursuant to the foregoing provisions or otherwise, the Registrants
have 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
Registrants of expenses is incurred or paid by a director, officer or
controlling person of the Registrants 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 Registrants 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.
2. The undersigned Registrants hereby undertake:
(a) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrants pursuant to Rule 424(b)(1) or
(4) or 497(b) under the Securities Act of 1933 shall be deemed to be part of
this registration statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus 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.
The undersigned Registrants hereby undertake to file an application for the
purpose of determining the eligibility of the Trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under Section 305(b)(2) of the Trust
Indenture Act.
II-4
<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-3 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.
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
Andrew L. Turner Chief Executive Officer
/s/ MARK G. WIMER
- ------------------------------
President, Chief Operating Officer and Director July 31, 1998
Mark G. Wimer
/s/ ROBERT D. WOLTIL
- ------------------------------
Chief Financial Officer and Director (Principal July 31, 1998
Robert D. Woltil Financial Officer)
/s/ ANDREW P. MASETTI
- ------------------------------
Vice President, Finance (Principal Accounting July 31, 1998
Andrew P. Masetti Officer)
/s/ JOHN E. BINGAMAN
- ------------------------------
Director July 31, 1998
John E. Bingaman
- ------------------------------
Director July 31, 1998
Zev Karkomi
/s/ WILLIAM R. ANIXTER
- ------------------------------
Director July 31, 1998
William R. Anixter
/s/ JAMES R. TOLBERT
- ------------------------------
Director July 31, 1998
James R. Tolbert
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------------------------------ ------------------
<C> <S> <C>
/s/ LOIS E. SILVERMAN
- ------------------------------
Director July 31, 1998
Lois E. Silverman
/s/ R. JAMES WOOLSEY
- ------------------------------
Director July 31, 1998
R. James Woolsey
- ------------------------------
Director July 31, 1998
Martin G. Mand
</TABLE>
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Sun Financing I
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement on Form S-3 or amendment thereto to be signed on its behalf by the
undersigned, thereunto duly authorized, in Albuquerque, New Mexico on the 31st
day of July, 1998.
SUN FINANCING I
By: /s/ ROBERT D. WOLTIL
-----------------------------------------
Name: Robert D. Woltil
Title: Regular Trustee
By: /s/ ROBERT F. MURPHY
-----------------------------------------
Name: Robert F. Murphy
Title: Regular Trustee
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS
- --------------- ---------------------------------------------------------------------------------
<C> <S>
1 Purchase Agreement, dated as of April 28, 1998, by and between Bear, Stearns &
Co., Inc., Donaldson, Lufkin & Jenrette Securities Corporation, J.P. Morgan
Securities, Inc., NationsBanc Montgomery Securities LLC, Schroder & Co. Inc.,
Sun Financing I and Sun Healthcare Group, Inc.
3(a) Certificate of Incorporation of Sun Healthcare Group, Inc. (incorporated herein
by reference from an Exhibit to Sun's Registration Statement on Form S-1 (No.
33-62670)).
3(b) Certificate of Amendment to Certificate of Incorporation dated April 15, 1993
(incorporated by reference from an Exhibit to Sun's Form 10-Q for the quarter
ended March 31, 1996).
3(c) Certificate of Amendment to Certificate of Incorporation dated June 23, 1994
(incorporated by reference from an Exhibit to Sun's Form 10-Q for the quarter
ended September 30, 1994).
3(d) Bylaws of Sun Healthcare Group, Inc., as amended, (incorporated herein by
reference from Exhibits to Sun's Registration Statement on Form S-1 (No.
33-62670) and Sun's Registration Statement on Form S-1 (No. 33-77870)).
3(e) Certificate of Trust of Sun Financing I.
4(a) Indenture, dated as of May 4, 1998, by and between Sun Healthcare Group, Inc. and
The Bank of New York.
4(b) The specimen or specimens of Securities with respect to each particular series of
Securities registered hereunder can be found in Exhibit 4(a).
4(c) Amended and Restated Declaration of Trust of Sun Financing I, dated as of May 4,
1998.
4(d) Convertible Preferred Securities Guarantee Agreement of Sun Healthcare Group,
Inc., dated as of May 4, 1998.
4(e) Registration Rights Agreement, dated as of May 4, 1998, by and among Sun
Financing I, Sun Healthcare Group, Inc., Bear, Stearns & Co., Inc., Donaldson,
Lufkin & Jenrette Securities Corporation, J.P. Morgan Securities, Inc.,
NationsBanc Montgomery Securities LLC and Schroder & Co. Inc.
4(f) Common Securities Purchase Agreement, dated as of May 4, 1998, between Sun
Financing I and Sun Healthcare Group, Inc.
4(g) Common Securities Guarantee Agreement of Sun Healthcare Group, Inc., dated as of
May 4, 1998.
4(h) Form of Rights Agreement dated as of June 2, 1995 between Sun and Boatmen's Trust
Company (incorporated by reference from an Exhibit to Sun's Form 8-A filed June
6, 1995).
4(i) First Amendment to the Rights Agreement dated as of August 11, 1995 between Sun
and Boatmen's Trust Company (incorporated by reference from an Exhibit to Sun's
Form 8-A/1 filed August 17, 1995).
5(a)* Opinion of Richards, Layton & Finger with respect to Sun Financing I.
5(b)* Opinion of Shearman & Sterling.
12 Statement regarding Computation of Ratios of Earnings to Fixed Charges.
23(a) Form of Consent of Independent Public Accountants.
23(b)* Consent of Arthur Andersen LLP.
23(c)* Consent of Richards, Layton & Finger (included in Exhibit 5(a)).
23(d)* Consent of Shearman & Sterling (included in Exhibit 5(b)).
24(a) Powers of Attorney relating to Sun Healthcare Group, Inc. for Andrew L. Turner,
John E. Bingham, Robert D. Woltil, Andrew P. Masetti, William R. Anixter, Lois
E. Silverman, R. James Woolsey, Martin G. Hard, Zev Karkomi, Mark G. Wimer and
James R. Tolbert (contained on the signature pages hereof).
24(b) Powers of Attorney relating to Sun Financing I for Robert F. Murphy and Robert D.
Woltil (contained on the signature pages hereof).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS
- --------------- ---------------------------------------------------------------------------------
<C> <S>
25(a) Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of The
Bank of New York, as Trustee under the Convertible Subordinated Debentures
Indenture.
25(b) Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of The
Bank of New York, as Trustee under the Amended and Restated Declaration of
Trust of Sun Financing I.
25(c) Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of The
Bank of New York, as Trustee under the Preferred Securities Guarantee of Sun
Healthcare Group, Inc. for the benefit of the holders of Trust Issued Preferred
Securities of Sun Financing I.
</TABLE>
- ------------------------
* To be filed by amendment.
<PAGE>
12,000,000 Shares of 7% Convertible Trust Issued Preferred Securities
(liquidation amount $25 per security)
SUN FINANCING I
Payment of Principal and Interest Guaranteed by, and
Convertible into, Common Stock of
SUN HEALTHCARE GROUP, INC.
PURCHASE AGREEMENT
April 28, 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 Financing I, a statutory business trust created under the laws of
the State of Delaware (the "TRUST"), and Sun Healthcare Group, Inc. a Delaware
corporation (the "COMPANY"), as depositor of the Trust and as guarantor,
propose, subject to the terms and conditions stated herein, that the Trust 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 $300,000,000 (the
"FIRM SECURITIES") and, at the election of the Initial Purchasers, up to an
additional $45,000,000 (the "OPTIONAL SECURITIES"), of 7% Convertible Trust
Issued Preferred Securities (liquidation amount $25 per security),
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representing undivided beneficial interests in the assets of the Trust,
guaranteed on a subordinated basis by the Company as to the payment of
distributions, and as to payments on liquidation or redemption, to the extent
set forth in a guarantee agreement (the "GUARANTEE") between the Company and The
Bank of New York, as trustee (the "GUARANTEE TRUSTEE"), and convertible into
common stock, $.01 par value per share ("COMPANY COMMON STOCK") of the Company.
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 "PREFERRED SECURITIES." The Trust is to purchase, pursuant to a Debenture
Purchase Agreement between the Trust and the Company (the "DEBENTURE PURCHASE
AGREEMENT") $309,278,375 aggregate principal amount (or $355,670,131.25
aggregate principal amount assuming full exercise by the Initial Purchasers of
the over-allotment option described herein) of 7% Convertible Subordinated
Debentures due May 4, 2028 (the "CONVERTIBLE DEBENTURES") of the Company, to be
issued pursuant to an Indenture (the "INDENTURE") between the Company and The
Bank of New York, as trustee (the "INDENTURE TRUSTEE") and the Company is to
purchase pursuant to a Common Securities Purchase Agreement (the "COMMON
SECURITIES PURCHASE AGREEMENT") between the Trust and the Company, with the
proceeds of the sale of the Preferred Securities up to an aggregate of
$9,278,375 (or $10,670,131.25 assuming full exercise by the Initial Purchasers
of the over-allotment option described herein) of its Common Securities
(liquidation amount $25 per common security) (the "COMMON SECURITIES," and,
collectively with the Preferred Securities, the "TRUST SECURITIES").
The Company will be the holder of 100% of the Common Securities. The
Trust will be subject to the terms of an Amended and Restated Declaration ,
among the Company, as trust sponsor, The Bank of New York, as Property Trustee
("PROPERTY TRUSTEE"), The Bank of New York (Delaware), as Delaware Trustee (the
"DELAWARE TRUSTEE") and three individual trustees (the "ADMINISTRATIVE
TRUSTEES"), and the holders from time to time, of undivided beneficial interests
in the assets of the Trust (the "DECLARATION"). The Property Trustee, the
Delaware Trustee and the Administrative Trustees are collectively referred to
herein as the "TRUSTEES." The Company and the Trust will also enter into a
Registration Rights Agreement (the "REGISTRATION RIGHTS AGREEMENT") among the
Company, the Trust and the Initial Purchasers, which shall set forth the
obligations of the Trust and the Company to file and use their reasonable best
efforts to cause to become effective, a Shelf Registration Statement (as defined
in the Registration Rights Agreement) in respect of the Preferred Securities,
the Guarantee, the Convertible Debentures and the Company Common Stock issuable
upon conversion of the Convertible Debentures and the Preferred Securities.
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Prior to or concurrently with the issuance and sale of the Preferred
Securities, the Company is proposing to issue and sell $125,000,000 aggregate
principal amount of its 93/8% Senior Subordinated Notes due 2008 (the "NOTES")
(plus $25 million aggregate principal amount of Notes subject to an
over-allotment option) to the Initial Purchasers pursuant to a purchase
agreement, to be dated as of the date hereof (the "NOTES PURCHASE AGREEMENT"),
by and among the Company, the guarantors specified therein (the "NOTE
GUARANTORS") and the Initial Purchasers. This Agreement, the Guarantee, the
Indenture, the Declaration, the Registration Rights Agreement, the Debenture
Purchase Agreement, the Common Securities Purchase Agreement and all documents
to which the Company or the Note Guarantors are a party related to the offering
of the Notes (the "NOTES OFFERING") including without limitation the Notes
Purchase Agreement, the Indenture, the Subsidiary Guarantees and the
Registration Rights Agreement (as such terms are defined in the Notes Purchase
Agreement) are collectively referred to herein as the "TRANSACTION DOCUMENTS."
The Company and the Trust have prepared a preliminary offering
memorandum dated April 14, 1998 (the "PRELIMINARY OFFERING MEMORANDUM") and a
final offering memorandum dated April 28, 1998 (the "OFFERING MEMORANDUM") with
respect to the offering of the Preferred Securities contemplated by this
Agreement (the "OFFERING").
The Preferred Securities 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 made to "qualified
institutional buyers" as defined in, and in reliance on, Rule 144A under the
Securities Act and to a limited number of institutional "accredited investors"
as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act
(collectively, "RULE 144A").
1. REPRESENTATIONS AND WARRANTIES OF THE TRUST AND THE COMPANY. As
of the date hereof, each of the Trust and the Company represents and warrants
to, and agrees with, each of the Initial Purchasers that:
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
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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 Trust and 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.
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
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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 Trust or 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 Trust or the Company or any of its subsidiaries and (iii) neither
the Trust nor 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 Preferred Securities 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 Note 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 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
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<PAGE>
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 the Trust, 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 or any of its subsidiaries, (iii)
violate or conflict with 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 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 or assets, 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
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<PAGE>
distribution of the Preferred Securities and Notes by the Initial Purchasers
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 Guarantee, the Convertible Debentures, the Declaration
and the Indenture (collectively, the "GUARANTOR AGREEMENTS") have each been duly
and validly authorized and, when validly executed and delivered by the Company
(assuming the due authorization, execution and delivery thereof by the Trustees,
where applicable), will constitute the valid and binding obligations of the
Company, enforceable in accordance with their respective 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.
l. The Trust has been duly created and is validly existing as a
statutory business trust in good standing under the Business Trust Act of the
State of Delaware (the "DELAWARE BUSINESS TRUST ACT") with the trust power and
authority to own property and conduct its business as described in the Offering
Memorandum, and has conducted and will conduct no business other than the
transactions contemplated by this Agreement and described in the Offering
Memorandum. The Trust is not a party to or bound by any agreement or instrument
other than this Agreement, the Declaration and the agreements and instruments
contemplated by the Declaration and described in the Offering Memorandum. Based
on expected operations and current law, the Trust is and
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will be classified as a grantor trust and is not and will not be classified as
an association taxable as a corporation for United States Federal income tax
purposes; the Trust is not a party to or subject to any action, suit or
proceeding of any nature; and the Trust is and will be treated as a consolidated
subsidiary of the Company pursuant to generally accepted accounting principles.
m. The Preferred Securities have been duly authorized and, when
issued, executed and authenticated in accordance with the provisions of the
Declaration and delivered against payment of the consideration therefor set
forth in this Agreement, will be validly issued, fully paid and non-assessable
undivided beneficial interests in the assets of the Trust and will be entitled
to the benefits of the Declaration; the issuance of the Preferred Securities is
not subject to any preemptive or similar rights; and the holders of the
Preferred Securities will be entitled to the same limitation of liability
extended to stockholders of private corporations for profit under the General
Corporation Law of the State of Delaware.
n. The Common Securities have been duly authorized by the
Declaration and, when issued, executed and delivered in accordance with the
provisions of the Declaration and delivered to the Company against payment of
the consideration therefor set forth in the Common Securities Purchase
Agreement, will be validly issued and (except as provided in Section 9.1 of the
Declaration) fully paid undivided beneficial interests in the assets of the
Trust. The issuance of the Common Securities is not subject to any preemptive
or similar rights. At the Closing Date and any Option Closing Date all of the
issued and outstanding Common Securities will be owned by the Company, directly
or through wholly-owned subsidiaries, free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or equity.
o. The Debenture Purchase Agreement and the Common Securities
Purchase Agreement have been duly authorized by the Company and the Trust and,
at the Closing Date and the Option Closing Date will have been duly executed and
delivered.
p. The Registration Rights Agreement has been duly authorized
by the Trust and the Company. The Registration Rights Agreement, when executed
and delivered by the Trust and 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 Trust and the Company and
will constitute the valid and binding obligation of the Trust and the Company,
enforceable against the Trust and the Company in accordance with its terms,
except (i) as the enforceability thereof may be limited by bankruptcy,
insolvency (including, without
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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 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.
q. Each of the Guarantor Agreements will conform to the
descriptions thereof in the Offering Memorandum.
r. The Trust has full legal right, power and authority to
authorize the offering of the Preferred Securities, to execute, deliver and
perform this Agreement and to sell and deliver the Preferred Securities to the
Initial Purchasers as provided herein.
s. The Company had, at December 31, 1997, an authorized and
outstanding capitalization as set forth in the Offering Memorandum. All of the
outstanding shares of capital stock of the Company have been duly and validly
authorized and issued, are fully paid and nonassessable and were not issued and
are not now in violation of or subject to any preemptive rights; the capital
stock of the Company conforms to the descriptions thereof contained in the
Offering Memorandum.
t. The shares of Company Common Stock issuable upon conversion
of the Preferred Securities have been duly authorized and, when issued in
accordance with the terms of the Preferred Securities and the Declaration, will
be validly issued, fully paid and nonassessable, will not be subject to any
preemptive or similar rights and will conform in all material respects to the
description thereof contained in the Offering Memorandum. The shares of Company
Common Stock issuable on conversion of the Preferred Securities at the initial
conversion price set forth in the Declaration have been reserved for issuance
and no further approval or authority of the stockholders or the Board of
Directors of the Company will be required for such issuance of Company Common
Stock.
u. The Company Common Stock is registered pursuant to Section
12(g) of the Exchange Act and is listed on the New York Stock Exchange (the
"NYSE"), and the Company has taken no action designed to, or likely to have the
effect of, terminating the registration of the Company Common Stock under the
Exchange Act or delisting the Company Common Stock from the NYSE, nor has the
Company
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received any notification that the Commission or the NYSE is contemplating
terminating such registration or listing.
v. The Company is not, and will not become as a result of the
offering and sale of the Trust Securities and the Company Common Stock issuable
upon the conversion of the Preferred Securities and Convertible Debentures, an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940, as amended (the "INVESTMENT
COMPANY ACT").
w. 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.
x. Except as would not have a Material Adverse Effect, (i) the
Trust and 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 or the Trust'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
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environmental investigations of, and has reviewed information regarding, its
business properties and operations and those of other properties within the
vicinity of its business properties and operations; on the basis of such review,
the Trust and the Company have reasonably concluded that such associated costs
and liabilities are not likely to have a Material Adverse Effect.
y. All of the outstanding equity interests of the Note
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.
z. None of the Trust, the Company, any of its 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 Preferred Securities in a manner that would
require registration under the Securities Act.
aa. The Preferred Securities 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 securities exchange registered under section 6 of the
Exchange Act (as hereinafter defined) or quoted in a U.S. automated inter-dealer
quotation system.
bb. 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 Preferred Securities to the Initial
Purchasers in the manner contemplated by this Agreement and the Offering
Memorandum, to register the Preferred Securities under the Securities Act or to
qualify the Indenture, the Declaration or the Guarantee under the Trust
Indenture Act of 1939, as amended.
cc. 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
Preferred Securities 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.
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dd. 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.
ee. 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 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.
ff. 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.
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gg. All indebtedness of the Company and the Note Guarantors that
will be repaid with the proceeds of the issuance and sale of the Convertible
Debentures was incurred, and the indebtedness represented by the Convertible
Debentures is being incurred, for appropriate corporate purposes and in good
faith and each of the Company and the Note 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 Convertible Debentures, and will be on the Closing Date
(after giving effect to the application of the proceeds from the issuance of the
Convertible Debentures) 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 Convertible Debentures and will have on the Closing Date (after giving
effect to the application of the proceeds from the issuance of the Convertible
Debentures) 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 Convertible Debentures, and
will be on the Closing Date (after giving effect to the application of the
proceeds from the issuance of the Convertible Debentures) able to pay their
respective debts as they mature.
hh. 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 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, is in violation
of any Federal "fraud and abuse legislation" or Federal "anti-kickback law."
ii. The lenders have approved the issuance of the Convertible
Debentures, the Preferred Securities, the Common Securities and the Guarantee 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.
jj. Each certificate provided on the Closing Date signed by any
officer of the Company or any representative of the Trust and delivered to the
Initial Purchasers or counsel for the Initial Purchasers shall be deemed to be a
representation and warranty of the Company or the Trust, as the case may be, to
the Initial Purchasers as to the matters covered thereby.
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kk. The Company and the Trust acknowledge 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 Trust
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 PREFERRED SECURITIES. On the
basis of the representations, warranties, covenants and agreements herein
contained, but subject to the terms and conditions herein set forth, the Trust
agrees to sell to the Initial Purchasers, and the Initial Purchasers, severally
and not jointly, agree to purchase from the Trust, the principal amount of the
Preferred Securities set forth opposite their respective names in Schedule I
hereto at a purchase price equal to $25.00 per share. Payment of the purchase
price for, and delivery of, the Preferred Securities 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 Trust and the Company also grant to the Initial Purchasers an
option to purchase, solely for the purpose of covering over-allotments in the
sale of Firm Securities, if any, all or any portion of the Optional Securities
at the purchase price per Preferred Security 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 Trust 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
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the account of each Initial Purchaser, from the Trust, 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 I 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 Trust shall execute and deliver for authentication the Preferred
Securities to be purchased and sold on such date and shall deposit such
Preferred Securities 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 Trust at least two business days
prior to such date. Against delivery of the Preferred Securities 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 Preferred
Securities by wire transfer in same day funds, payable to the order of the
Company. Certificates evidencing the Preferred Securities 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 and any Option
Closing Date, or if not so requested, in the name 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.
At the Closing Date and any Option Closing Date, the Company
hereby agrees to pay to the Initial Purchasers an Initial Purchaser commission
for their services rendered in connection with the transactions contemplated
herein in an amount equal to 3.00% of the aggregate purchase price for the
Preferred Securities sold to the Initial Purchasers on such date as provided in
the first paragraph of this Section 2. The Initial Purchasers shall have the
right to deduct from the purchase price payable to the Trust on the Closing Date
and any Option Closing Date, as applicable, such combined Initial Purchaser
commission.
3. SUBSEQUENT OFFERS AND RESALES OF THE PREFERRED SECURITIES. The
Initial Purchasers, the Trust and the Company hereby establish and agree to
observe the following procedures in connection with the offer and sale of the
Preferred Securities:
a. Each Initial Purchaser has advised the Trust that it will
offer the Preferred Securities for resale (the "EXEMPT RESALES") upon the terms
and
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conditions set forth in this Agreement and the Offering Memorandum. The
Preferred Securities 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 Trust has not taken, any action that would permit a public
offering of the Preferred Securities in any jurisdiction and further agrees
that, with respect to the offer or sale of any Preferred Securities 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 Preferred Securities with a view to any distribution thereof or
with any present intention of offering or selling any of the Preferred
Securities 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 or is an
"accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7)
under the Securities Act 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 Preferred Securities 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
Preferred Securities.
c. Each of the Initial Purchasers acknowledges and agrees that
it has not and will not offer, sell or deliver the Preferred Securities to or
for the account of any person other than (A)(i) institutional buyers that are
reasonably believed to be "qualified institutional buyers" (as defined in Rule
144A) and who, in purchasing the Preferred Securities will be deemed to have
represented that (x) they are purchasing the Preferred Securities 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
Preferred Securities may be relying on the exemption from the provisions of
Section 5 of the Securities Act provided by Rule 144A thereunder and such
Preferred Securities will not have been registered under the Securities Act or
(ii) other "institutional accredited investors" (as defined in Rule 501(a)(1),
(2), (3) or (7) under the Securities Act that, prior to their purchase of the
Convertible Preferred Securities, deliver to the Purchaser a letter to the
effect set forth in Annex C to the Offering Memorandum, (B) to eligible
purchasers who agree (1) that Preferred Securities 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
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Preferred Securities, only (a) to the Company (b) to a "qualified institutional
buyer" in compliance with Rule 144A, (c) to an institutional "accredited
investor" within the meaning of subparagraph (a)(1), (2), (3) or (7) of Rule 501
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 Preferred Securities or an
interest therein is transferred a notice substantially to the effect of the
foregoing.
d. 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 Preferred
Securities 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 Preferred Securities 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 Preferred
Securities 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.
e. Each Initial Purchaser agrees that it will not offer, sell
or deliver any of the Preferred Securities 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 Preferred Securities
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.
f. The Initial Purchasers acknowledge that the Trust and 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 Trust and
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.
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<PAGE>
4. COVENANTS OF THE TRUST AND THE COMPANY. The Trust and the
Company covenant and agree 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 Trust 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.
c. The Trust will endeavor in good faith, in cooperation with
the Initial Purchasers to qualify the Preferred Securities for offering and sale
under the securities and legal investment laws relating to the offering or sale
of the Preferred Securities 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 Trust 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
Preferred Securities in any jurisdiction in which it is not now so subject..
d. The Company and the Trust will apply the proceeds from the
sale of the Preferred Securities as set forth under "Use of Proceeds" in the
Offering Memorandum.
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e. The Trust will cooperate to cause the Preferred Securities
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 Preferred Securities 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 and the Trust will provide to any holder of the
Preferred Securities or to any prospective purchaser of the Preferred Securities
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
Preferred Securities 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 (as defined in the Securities Act) which
will be integrated with the sale of the Preferred Securities in a manner that
would require the registration of the Preferred Securities 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, to its
knowledge, and will not permit any of their "affiliates" (as defined in Rule 144
under the Securities Act) to, resell any of the Preferred Securities that have
been reacquired by them, except for Preferred Securities acquired by the Company
and its subsidiaries or any of their affiliates and resold in a transaction
registered under the Securities Act.
j. The Trust and the Company will cooperate with the Initial
Purchasers in arranging for the Preferred Securities to be accepted for
clearance and settlement through Euroclear, CEDEL and The Depository Trust
Company.
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k. Each of the Preferred Securities 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.
l. The Company, its directors and executive officers will not
offer, issue, sell, contract to sell, grant any option for the sale of, or
otherwise dispose of, directly or indirectly (collectively "dispose") (a) any
trust certificates or other securities of the Trust (other than the Preferred
Securities offered hereby and the Common Securities), (b) any preferred stock or
any other security of the Company substantially similar to the Preferred
Securities, (c) any shares of Company Common Stock (other than the Company's
issuance of Company Common Stock pursuant to employee benefit plans, upon the
exercise of presently outstanding stock options and the conversion of Preferred
Securities, and pursuant to acquisitions or mergers or combinations with other
companies announced prior to the date of the Offering Memorandum) or (d) any
other securities which are convertible into, or exercisable or exchangeable for,
any of (a) through (c) above, without the prior consent of the Representative on
behalf of the Initial Purchasers for a period of 90 days after the date of the
Offering Memorandum; PROVIDED, HOWEVER, that the Company may dispose of up to
$20 million in the aggregate of such securities during such 90-day period if
such securities and the disposition thereof are not registered (although they
may be subject to registration rights agreements) under the Securities Act and
are disposed of in connection with acquisitions by the Company or any of its
direct or indirect subsidiaries.
m. None of the Company, its subsidiaries or 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 intentionally
be or become, at any time prior to the expiration of three years after the
Closing Date or any Option Closing Date an open-end investment company, unit
investment trust, closed-end investment company or face-amount certificate
company that is or is required to be registered under Section 8 of the
Investment Company Act.
n. The Company will use its reasonable best efforts to cause
the Company Common Stock issuable upon conversion of the Preferred Securities to
be listed for quotation on the NYSE or other stock exchange or trading system on
which the Company Common Stock primarily trades on or promptly after the
Effective Time of the Shelf Registration Statement (each as defined under the
Registration Rights Agreement).
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o. The Company will use its reasonable best efforts to issue
the Guarantee concurrently with the issue and sale of the Preferred Securities
as contemplated herein.
p. The Company will use its reasonable best efforts to reserve
and keep available at all times, free of preemptive rights, shares of Company
Common Stock for the purpose of enabling the Company to satisfy any obligations
to issue shares of its Company Common Stock upon conversion of the Preferred
Securities and the Convertible Debentures.
q. The Trust and the Company will use their 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 Preferred Securities.
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 Trust and 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 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 Preferred Securities and/or the Notes (including those supplied to the
Initial Purchasers in quantities provided for herein), (ii) the issuance,
transfer and delivery of the Preferred Securities to the Initial Purchasers,
including any transfer or other taxes payable thereon, (iii) the qualification
of the Preferred Securities 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 Preferred Securities, (v) all expenses and listing fees
in connection with the application for quotation of the Preferred Securities 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 Trust and 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 Preferred Securities, as
provided herein, shall be subject to the accuracy of the representations and
warranties of the Trust
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and 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 Trust or 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 Trust and 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 Convertible Debentures have been duly authorized
by the Company and, assuming that the Convertible Debentures have
been duly executed by the Company and authenticated in accordance
with the provisions of the Indenture and delivered to and paid
for by the Trust in accordance with the terms of this Agreement
which facts have not been determined by an inspection of the
Convertible Debentures, constitutes 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) 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 Indenture Trustee,
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constitutes a valid and binding obligation of the Company,
enforceable against the Company 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 and the Trust, constitutes a valid and binding
obligation of the Trust and the Company, enforceable against the
Trust and the Company in accordance with its terms, except as (w)
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, (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 Guarantee, the Preferred
Securities and the Company Common Stock conform in all material
respects to the statements in the Offering Memorandum relating
thereto under the caption "Description of the Convertible
Debentures," "Description of the Convertible Preferred
Securities," "Description of the Guarantee," and "Description of
Capital Stock;"
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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 except for the filing of
registration statements under the Securities Act or Exchange Act
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 Preferred Securities 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;
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;
xi) no registration under the Securities Act of the
Preferred Securities or qualification of the Indenture or the
Guarantee under the TIA is required for the sale of the Preferred
Securities 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 Trust and
the Company set forth in Sections 1(z) to (ab) and 4(f) to 4(i)
of this Agreement and (iii) that the offer, sale and delivery of
the
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Preferred Securities have been made as contemplated by this
Agreement and the Offering Memorandum;
xii) the Declaration has been duly authorized, executed
and delivered by the Company;
xiii) the shares of Company Common Stock issuable upon
conversion of the Preferred Securities have been duly authorized
by the Company and, when issued and delivered upon such
conversion in accordance with the terms and provisions of the
Indenture, the Preferred Securities and the Declaration (assuming
payment for and delivery of the Preferred Securities in
accordance with this Agreement), will be validly issued, fully
paid and nonassessable; the shares of Company Common Stock
issuable on conversion of the Preferred Securities at the initial
conversion price set forth therein and in the Declaration have
been reserved for issuance and no further approval or authority
of the stockholders or the Board of Directors of the Company will
be required for such issuance of Company Common Stock;
xiv) the Trust will be classified as a grantor trust for
United States Federal income tax purposes and not as an
association subject to tax as a corporation; and
xv) although the discussion set forth in the Offering
Memorandum under the heading "United States Federal Income
Taxation" does not purport to discuss all possible United States
Federal income tax consequences of the purchase, ownership and
disposition of the Preferred Securities, such discussion, and the
discussion set forth under the caption "Risk Factors-Option to
Extend Interest Payment Period" to the extent such information
constitutes matters of law, summaries of legal matters, or legal
conclusions, has been reviewed by such counsel, and fairly
presents in all material respects the principal United States
Federal income tax consequences of an investment in the
Securities.
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
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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 Note Guarantors addressed therein
with regard to the authorization, execution and delivery of documents by such
Note 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
and (v) in giving opinion (v) above as to the Trust, may rely on the opinion of
Richards, Layton & Finger P.A. delivered pursuant to Section 6G hereof.
In addition, such counsel shall state that (a) it has acted as counsel
to the Trust and 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 representatives of the Trust, 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 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 Trust and the Company, substantially to the
effect that:
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i) the Company 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;
ii) the Company has authorized capital stock as set
forth in the Offering Memorandum; all of the outstanding shares
of Company Common Stock are duly and validly authorized and
issued, are fully paid and nonassessable;
iii) 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;
iv) 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;
v) the execution, delivery and performance of this
Agreement and other Transaction Documents and compliance by the
Trust and the Company 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 the Trust is a party
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or by which the Company or the Trust 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,
the Trust or their respective property; and
vi) except as disclosed in the Offering Memorandum and
this Agreement and other than $1,767,100 aggregate principal
amount of convertible notes issued to Portsbridge, Inc., and
$1,200,000 aggregate principal amount of convertible notes issued
to T.M. Mahone, and except for stock options outstanding pursuant
to the Company's existing employee benefit and stock option
plans, there are no outstanding options, warrants or other rights
calling for the issuance of any shares of Company Common Stock or
any security convertible into or exchangeable for Company Common
Stock.
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
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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 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 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, 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
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States Revenue Sources," and "Business--Government Regulation," insofar as such
statements constitute a summary of certain aspects of Title XVIII and XIX of the
Social Security Act and the regulations thereunder, fairly present the
information called for with respect to such statements.
Such counsel may state that such opinions are limited to matters
governed by Title XVIII and XIX of the Social Security Act, 42 U.S.C. Section
1395, et seq. and 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, 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, of Richards,
Layton & Finger P.A., special Delaware counsel to the Trust and the Company,
substantially to the effect that:
i) the Trust has been duly created and is validly
existing in good standing as a business trust under the Delaware
Business Trust Act;
ii) under the Delaware Business Trust Act and the
Declaration, the Trust has the trust power and authority (a) to
own its properties and conduct its business, all as described in
the Offering Memorandum, (b) to execute and deliver the
agreements to which it is a party including this Agreement, the
Registration Rights Agreement, the Debenture Purchase Agreement,
the Common Securities Purchase Agreement and (c) to issue and
perform its obligations under the Preferred Securities and Common
Securities, all as described in the Declaration;
iii) the Declaration, assuming due authorization,
execution and delivery by the parties thereto, constitutes a
valid
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and binding obligation of the Company and the Trustees, and is
enforceable against the Company and the Trustees in accordance
with its terms, subject, as to enforcement, to the effect upon
the Declaration of (i) bankruptcy, insolvency, moratorium,
receivership, reorganization, liquidation, fraudulent conveyance
or transfer and other similar laws relating to or affecting the
rights and remedies of creditors generally, (ii) principles of
equity, including applicable law relating to fiduciary duties
(regardless of whether considered and applied in a proceeding in
equity or at law), and (iii) the effect of applicable public
policy on the enforceability of provisions relating to
indemnification or contribution;
iv) under the Delaware Business Trust Act and the
Declaration, the execution and delivery by the Trust of the
Transaction Documents to which it is a party and the performance
by the Trust of its obligations thereunder, have been duly
authorized by all necessary trust action on the part of the
Trust;
v) the Preferred Securities have been duly authorized
for issuance pursuant to the Declaration and, when duly executed,
authenticated and delivered in accordance with the Declaration
against payment therefor, will represent valid and, subject to
the qualifications set forth in clause (vi) below, fully paid and
non-assessable undivided beneficial interests in the assets of
the Trust;
vi) the holders of the Preferred Securities, as
beneficial owners of the Trust, will be entitled to the same
limitation of personal liability extended to stockholders of
private corporations for profit organized under the General
Corporation Law of the State of Delaware, except that the holders
may be obligated to make payments as set forth in the
Declaration;
vii) under the Delaware Business Trust Act and the
Declaration, the issuance of the Preferred Securities is not
subject to preemptive rights;
viii) no authorization, approval or other action by, and
no notice to or filing with, any governmental authority or
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regulatory body of the State of Delaware is required for the
issuance and sale of the Preferred Securities or the consummation
of the transactions contemplated by the Transaction Documents;
ix) assuming that the Trust is treated as a grantor
trust or partnership for United States Federal income tax
purposes, the holder of Preferred Securities (other than those
holders of Preferred Securities who reside or are domiciled in
the State of Delaware) will have no liability for income taxes
imposed by the State of Delaware solely as a result of their
participation in the Trust, and the Trust will not be liable for
any income tax imposed by the State of Delaware;
x) the purchase of the Convertible Debentures by the
Trust and the distribution of the Convertible Debentures by the
Trust in the circumstances contemplated by the Declaration will
not conflict with or result in a breach or violation of any of
the terms or provisions of the Certificate or the Declaration or
any statute of the State of Delaware or any order, rule or
regulation of any governmental agency or body of the State of
Delaware having jurisdiction over the Trust or any of its
properties;
H. An opinion, dated the Closing Date, of Richards,
Layton & Finger P.A., special Delaware counsel to the Delaware Trustee,
substantially to the effect that:
i) The Bank of New York (Delaware) is a Delaware
banking corporation, validly existing and in good standing under
the laws of the State of Delaware, with all necessary corporate
power and authority to execute and deliver, and to carry out and
perform its obligations under the Declaration;
ii) the Declaration has been duly authorized, executed
and delivered by the Delaware Trustee and constitutes a valid and
binding obligation of the Delaware Trustee, and is enforceable
against the Delaware Trustee in accordance with its terms
subject, as to enforcement, to the effect upon the Declaration of
(i) bankruptcy, insolvency, moratorium, receivership,
reorganization, liquidation, fraudulent conveyance or transfer
and other similar laws relating to or affecting the
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rights and remedies of creditors generally, (ii) principles of
equity, including applicable law relating to fiduciary duties
(regardless of whether considered and applied in a proceeding in
equity or at law), and (iii) the effect of applicable public
policy on the enforceability of provisions relating to
indemnification or contribution;
iii) the execution, delivery and performance of the
Declaration by the Delaware Trustee do not conflict with or
constitute a breach of the charter or by-laws of the Delaware
Trustee; and
iv) no consent, approval or authorization of, or
registration with or notice to, any Federal or Delaware banking
authority is required for the execution, delivery or performance
by the Delaware Trustee of the Declaration.
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 Preferred Securities, the Offering
Memorandum and such other related matters as you may reasonably require, and the
Trust 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.
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 Trust and 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 Preferred Securities shall have
been approved for quotation in the PORTAL market.
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g. The Trust and the Company shall have executed the
Registration Rights Agreement and the Initial Purchasers shall have received an
original copy thereof, duly executed by the Trust and the Company.
h. The Trust and 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 Trust and the Company at or prior to the Closing Date.
i. At the Closing Date, you shall have received from each
person who is a director or executive officer of the Company an agreement to the
effect that such person will not offer, issue, sell, contract to sell, grant any
option for the sale of, or otherwise dispose of, directly or indirectly
(collectively "dispose") (a) any trust certificates or other securities of the
Trust (other than the Preferred Securities offered hereby and the Common
Securities), (b) any preferred stock or any other security of the Company
substantially similar to the Preferred Securities, (c) any shares of Company
Common Stock (other than the Company's issuance of Company Common Stock upon the
exercise of presently outstanding stock options and the conversion of Preferred
Securities, and pursuant to acquisitions or mergers or combinations with other
companies announced prior to the date of the Offering Memorandum) or (d) any
other securities which are convertible into, or exercisable or exchangeable for,
any of (a) through (c) above, without the prior consent of the Representative on
behalf of the Initial Purchasers for a period of 90 days after the date of the
Offering Memorandum.
j. 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 12(c). Notice of such
cancellation shall be given to the Trust in writing, or by telephone, telex or
telegraph, confirmed in writing.
7. INDEMNIFICATION.
a. The Trust and the Company, jointly and severally, 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
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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 Trust and the Company 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 Trust and the Company 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 Trust and the
Company may otherwise have including under this Agreement.
b. Each Initial Purchaser, severally, and not jointly, agrees
to indemnify and hold harmless the Trust and the Company, each of the directors
and trustees of the Company and the Trust, each of the officers of the Company
and the Trust, and each other person, if any, who controls the Company or the
Trust 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 to state therein a material fact required to
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<PAGE>
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 Trust or the Company by or on behalf of any Initial Purchasers 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 Preferred Securities 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 Trust and the Company acknowledge that the statements set forth
in the first sentence of the last paragraph on the cover page, the information
on page viii regarding stabilization and in the ninth paragraph, the eleventh
paragraph, the second sentence of the twelfth paragraph and the thirteenth
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 shall
have reasonably concluded that there may be defenses available to it or them
which are
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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 Trust, the Company 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
Trust or the Company or other Initial Purchasers, as applicable, any
contribution received by the Trust or the Company 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 Trust and the Company, on the one hand, and the Initial
Purchasers on the other hand from the offering of the Preferred Securities 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 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 Trust 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 Trust and (y) the underwriting discounts and commissions
received by the Initial Purchasers respectively. The relative fault of the
Trust, the Company and of the Initial Purchasers shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Trust, the Company or the Initial
Purchasers and the parties' relative intent, knowledge, access to
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information and opportunity to correct or prevent such statement or omission.
The Trust, the Company 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 Preferred Securities 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 and the Trust 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 shall have the same rights to contribution as the Company and the Trust,
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 Preferred Securities which it is obligated to purchase under this Agreement
(the "DEFAULTED PREFERRED SECURITIES"), 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 Preferred Securities 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
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<PAGE>
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
Preferred Securities is not more than one-tenth of the aggregate principal
amount of the Preferred Securities 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 Preferred Securities set
forth opposite its name in Schedule I bears to the aggregate principal amount of
the Preferred Securities 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 Preferred Securities; PROVIDED that in no
event shall the aggregate liquidation amount of the Preferred Securities 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
liquidation amount of the Preferred Securities 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. NO LIABILITY OF PROPERTY TRUSTEE, DELAWARE TRUSTEE OR GUARANTEE
TRUSTEE. It is expressly understood and agreed by the parties hereto that (a)
each of the representations, undertakings and agreements herein made on the part
of the Trust is made and intended not as representations, warranties, covenants,
undertakings and agreements of any Trustee, including, without limitation, The
Bank of New York as Property Trustee or The Bank of New York (Delaware) as
Delaware Trustee, in their individual capacity, but is made and intended for the
purpose of binding only the Trust, and (b) under no circumstances shall any
Trustee, including The Bank of New York as Guarantee Trustee or Property Trustee
or The Bank of New York (Delaware) as Delaware Trustee be personally liable for
any breach of any obligation, representation, warranty, or covenant made or
undertaken by the Trust under this Agreement except, if such breach or failure
is due to any gross negligence (subject to the TIA) or wilful misconduct of the
Trustee.
11. SURVIVAL OF REPRESENTATIONS AND AGREEMENTS. All representations
and warranties, covenants and agreements of the Initial Purchasers, the Trust
and
39
<PAGE>
the Company 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 Trust, the Company, any of the officers, directors, trustees or
any controlling person thereof, of the Company and the Trust and shall survive
delivery of and payment for the Preferred Securities to and by the Initial
Purchasers. The representations contained in Section 1 and the agreements
contained in Sections 5, 7, 8 and 12(c) hereof shall survive the termination of
this Agreement, including termination pursuant to Section 9 or 12 hereof.
12. 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
Preferred Securities 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 Preferred Securities, as the case may be, on the terms
contemplated by the Offering Memorandum.
b. Any notice of termination pursuant to this Section 12 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 12(a)(A), (B), (C) or
(E) hereof, (ii) as a result of the material breach of this Agreement by the
Initial Purchasers
40
<PAGE>
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 Trust 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.
13. NOTICE. All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing and, if sent to any Initial
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 Trust or the
Company, shall be mailed, delivered, or telegraphed and confirmed in writing to
the Sun Financing I or Sun Healthcare Group, Inc., 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.
14. PARTIES. This Agreement shall insure solely to the benefit of,
and shall be binding upon, the Initial Purchasers, the Trust and the Company 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 Preferred Securities from any of the
Initial Purchasers.
15. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF
THE STATE OF NEW YORK.
41
<PAGE>
If the foregoing correctly sets forth the understanding between you, the
Trust 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 FINANCING I
By: /s/ Robert F. Murphy
-----------------------------
Name:Robert F. Murphy
Title: Administrative Trustee
SUN HEALTHCARE GROUP, INC.
By: /s/ Robert D. Woltil
--------------------------------
Name:Robert D. Woltil
Title: Chief Financial Officer
<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
<TABLE>
<CAPTION>
Name of Initial Purchaser Preferred Securities to be Purchased
- ------------------------- ------------------------------------
<S> <C>
Bear, Stearns & Co. Inc. . . . . . . . . . . 6,000,000
Donaldson, Lufkin & Jenrette
Securities Corporation . . . . . . . . . . 1,800,000
J.P. Morgan Securities Inc.. . . . . . . . . 1,800,000
NationsBanc Montgomery Securities LLC . . . 1,800,000
Schroder & Co. Inc.. . . . . . . . . . . . . 600,000
----------
Total. . . . . . . . . . . . . . . . . . . . 12,000,000
</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, Secretary of the Company, pursuant to Section 6(c) of the Purchase
Agreement, dated April 28, 1998, by and among the Company, Sun Financing I, a
statutory business trust organized under the laws of the State of Delaware (the
"Trust"), 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
Trust 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 Trust 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.
(iv) Prior to or simultaneously with the date hereof, approval of
the Lenders under the Credit Facility approving the issuance of the
Convertible
A-1
<PAGE>
Junior Subordinated Debentures, Convertible Trust Issued Preferred
Securities, Trust Issued Common Securities, Convertible Trust Issued
Preferred Securities Guarantee and Trust Issued Common Securities Guarantee
has been obtained.
Capitalized terms used herein without definition shall have the meanings
given such terms in the Purchase Agreement.
Skadden, Arps, Slate, Meagher & Flom LLP, Shearman & Sterling, 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>
CERTIFICATE OF TRUST
The undersigned, the trustees of Sun Financing I, desiring to form a
business trust pursuant to Delaware Business Trust Act, 12 DEL. C. Section
3801, hereby certify as follows:
1. The name of the business trust being formed hereby (the "Trust") is
Sun Financing I.
2. The name and business address of the trustee of the Trust which has
its principal place of business in the State of Delaware is as follows:
The Bank of New York (Delaware)
White Clay Center
Route 273
Newark, Delaware 19711
3. This Certificate of Trust shall be effective as of the date of filing.
Dated: November 7, 1997
/s/ Robert F. Murphy
----------------------------
Name: Robert F. Murphy
Title: Regular Trustee
/s/ Robert D. Woltil
----------------------------
Name: Robert D. Woltil
Title: Regular Trustee
The Bank of New York (Delaware),
as Delaware Trustee
By: Frederick W. Clark
-------------------------
Name: FREDERICK W. CLARK
Title: Authorized Signatory
<PAGE>
Sun Healthcare Group, Inc., as Issuer
and
The Bank of New York, as Trustee
________________
Indenture
Dated as of May 4, 1998
$355,670,131.25
7% Convertible Junior Subordinated Debentures Due 2028
________________
<PAGE>
Certain Sections of this Indenture relating to
Sections 310 through 318 of the
Trust Indenture Act of 1939:
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
- --------------- -----------
<S> <C>
Section 310(a)(1) . . . . . . . . . . . . . . . . . . 609
(a)(2) . . . . . . . . . . . . . . . . . . 609
(a)(3) . . . . . . . . . . . . . . . . . . Not Applicable
(a)(4) . . . . . . . . . . . . . . . . . . Not Applicable
(b) . . . . . . . . . . . . . . . . . . 608, 610
Section 311(a) . . . . . . . . . . . . . . . . . . 613
(b) . . . . . . . . . . . . . . . . . . 613
Section 312(a) . . . . . . . . . . . . . . . . . . 701
Section 312(a) . . . . . . . . . . . . . . . . . . 702(a)
(b) . . . . . . . . . . . . . . . . . . 702(b)
(c) . . . . . . . . . . . . . . . . . . 702(c)
Section 313(a) . . . . . . . . . . . . . . . . . . 703(a)
(b) . . . . . . . . . . . . . . . . . . 703(a)
(c) . . . . . . . . . . . . . . . . . . 703(a)
(d) . . . . . . . . . . . . . . . . . . 703(b)
Section 314(a) . . . . . . . . . . . . . . . . . . 704, 102
(b) . . . . . . . . . . . . . . . . . . Not Applicable
(c)(1) . . . . . . . . . . . . . . . . . . 102
(c)(2) . . . . . . . . . . . . . . . . . . 102
(c)(3) . . . . . . . . . . . . . . . . . . Not Applicable
(d) . . . . . . . . . . . . . . . . . . Not Applicable
(e) . . . . . . . . . . . . . . . . . . 102
Section 315(a) . . . . . . . . . . . . . . . . . . 601
(b) . . . . . . . . . . . . . . . . . . 602
(c) . . . . . . . . . . . . . . . . . . 601
(d) . . . . . . . . . . . . . . . . . . 601
(e) . . . . . . . . . . . . . . . . . . 514
Section 316(a)(1)(A) . . . . . . . . . . . . . . . . . . 502, 512
(a)(1)(B) . . . . . . . . . . . . . . . . . . 513
(a)(2) . . . . . . . . . . . . . . . . . . Not Applicable
(b) . . . . . . . . . . . . . . . . . . 508
(c) . . . . . . . . . . . . . . . . . . 104(c)
Section 317(a)(1) . . . . . . . . . . . . . . . . . . 503
(a)(2) . . . . . . . . . . . . . . . . . . 504
(b) . . . . . . . . . . . . . . . . . . 1003
Section 318(a) . . . . . . . . . . . . . . . . . . 107
</TABLE>
______________
Note: This reconciliation and tie shall not, for any purpose, be deemed to
be a part of the Indenture.
- i -
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
<S> <C>
Definitions and Other Provisions
of General Application . . . . . . . . . . . . . . . . . . . . . . . . . .- 2 -
SECTION 101. Definitions. . . . . . . . . . . . . . . . . . . . . .- 2 -
SECTION 102. Compliance Certificates and Opinions . . . . . . . . - 14 -
SECTION 103. Form of Documents Delivered to Trustee . . . . . . . - 14 -
SECTION 104. Acts of Holders; Record Dates. . . . . . . . . . . . - 15 -
SECTION 105. Notices, Etc., to Trustee and the Company. . . . . . - 16 -
SECTION 106. Notice to Holders; Waiver. . . . . . . . . . . . . . - 17 -
SECTION 107. Conflict with Trust Indenture Act. . . . . . . . . . - 17 -
SECTION 108. Effect of Headings and Table of Contents . . . . . . - 17 -
SECTION 109. Successors and Assigns . . . . . . . . . . . . . . . - 18 -
SECTION 110. Separability Clause. . . . . . . . . . . . . . . . . - 18 -
SECTION 111. Benefits of Indenture. . . . . . . . . . . . . . . . - 18 -
SECTION 112. Governing Law. . . . . . . . . . . . . . . . . . . . - 18 -
SECTION 113. Legal Holidays . . . . . . . . . . . . . . . . . . . - 18 -
ARTICLE II
Convertible Debenture Forms . . . . . . . . . . . . . . . . . . . . - 19 -
SECTION 201. Forms Generally. . . . . . . . . . . . . . . . . . . - 19 -
SECTION 202. Initial Issuance to Property Trustee . . . . . . . . - 19 -
ARTICLE III
The Convertible Debentures. . . . . . . . . . . . . . . . . . . . . - 21 -
SECTION 301. Title and Terms. . . . . . . . . . . . . . . . . . . - 21 -
SECTION 302. Denominations. . . . . . . . . . . . . . . . . . . . - 22 -
SECTION 303. Execution, Authentication, Delivery and Dating . . . - 23 -
SECTION 304. Temporary Convertible Debentures . . . . . . . . . . - 23 -
SECTION 305. Registration, Registration of
Transfer and Exchange. . . . . . . . . . . . . . . . - 24 -
SECTION 306. Mutilated, Destroyed, Lost and Stolen
Convertible Debentures . . . . . . . . . . . . . . . - 25 -
SECTION 307. Payment of Interest; Interest Rights Preserved . . . - 26 -
SECTION 308. Persons Deemed Owners. . . . . . . . . . . . . . . . - 28 -
SECTION 309. Cancellation . . . . . . . . . . . . . . . . . . . . - 28 -
SECTION 310. Right of Set Off . . . . . . . . . . . . . . . . . . - 29 -
SECTION 311. CUSIP Numbers. . . . . . . . . . . . . . . . . . . . - 29 -
</TABLE>
- ii -
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 312. Option to Extend Interest Payment Period . . . . . . - 29 -
SECTION 313. Paying Agent, Security Registrar and
Conversion Agent . . . . . . . . . . . . . . . . . . - 31 -
SECTION 314. Global Security. . . . . . . . . . . . . . . . . . . - 31 -
ARTICLE IV
Satisfaction and Discharge. . . . . . . . . . . . . . . . . . . . . - 34 -
SECTION 401. Satisfaction and Discharge of Indenture. . . . . . . - 34 -
SECTION 402. Application of Trust Money . . . . . . . . . . . . . - 35 -
ARTICLE V
Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 35 -
SECTION 501. Events of Default. . . . . . . . . . . . . . . . . . - 35 -
SECTION 502. Acceleration of Maturity; Rescission and
Annulment. . . . . . . . . . . . . . . . . . . . . . - 37 -
SECTION 503. Collection of Indebtedness and Suits for
Enforcement by Trustee . . . . . . . . . . . . . . . - 38 -
SECTION 504. Trustee May File Proofs of Claim . . . . . . . . . . - 39 -
SECTION 505. Trustee May Enforce Claims Without Possession of
Convertible Debentures . . . . . . . . . . . . . . . - 39 -
SECTION 506. Application of Money Collected . . . . . . . . . . . - 40 -
SECTION 507. Limitation on Suits. . . . . . . . . . . . . . . . . - 40 -
SECTION 508. Unconditional Right of Holders to Receive
Principal and Interest and Convert . . . . . . . . . - 41 -
SECTION 509. Restoration of Rights and Remedies . . . . . . . . . - 41 -
SECTION 510. Rights and Remedies Cumulative . . . . . . . . . . . - 42 -
SECTION 511. Delay or Omission Not Waiver . . . . . . . . . . . . - 42 -
SECTION 512. Control by Holders . . . . . . . . . . . . . . . . . - 42 -
SECTION 513. Waiver of Past Defaults. . . . . . . . . . . . . . . - 42 -
SECTION 514. Undertaking for Costs. . . . . . . . . . . . . . . . - 43 -
SECTION 515. Waiver of Stay or Extension Laws . . . . . . . . . . - 43 -
SECTION 516. Enforcement by Holders of Convertible
Preferred Securities . . . . . . . . . . . . . . . . - 44 -
ARTICLE VI
The Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 44 -
SECTION 601. Certain Duties and Responsibilities. . . . . . . . . - 44 -
SECTION 602. Notice of Defaults . . . . . . . . . . . . . . . . . - 45 -
</TABLE>
- iii -
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 603. Certain Rights of Trustee. . . . . . . . . . . . . . - 45 -
SECTION 604. Not Responsible for Recitals or Issuance of
Convertible Debentures . . . . . . . . . . . . . . . - 46 -
SECTION 605. May Hold Convertible Debentures. . . . . . . . . . . - 46 -
SECTION 606. Money Held in Trust. . . . . . . . . . . . . . . . . - 47 -
SECTION 607. Compensation and Reimbursement . . . . . . . . . . . - 47 -
SECTION 608. Disqualification; Conflicting Interests. . . . . . . - 48 -
SECTION 609. Corporate Trustee Required; Eligibility. . . . . . . - 48 -
SECTION 610. Resignation and Removal; Appointment of
Successor. . . . . . . . . . . . . . . . . . . . . . - 48 -
SECTION 611. Acceptance of Appointment by Successor . . . . . . . - 50 -
SECTION 612. Merger, Conversion, Consolidation or
Succession to Business . . . . . . . . . . . . . . . - 50 -
SECTION 613. Preferential Collection of Claims
Against Company. . . . . . . . . . . . . . . . . . . - 50 -
ARTICLE VII
Holders' Lists and Reports by Trustee and Company . . . . . . . . . - 51 -
SECTION 701. Company to Furnish Trustee Names and
Addresses of Holders . . . . . . . . . . . . . . . . - 51 -
SECTION 702. Preservation of Information; Communications to
Holders. . . . . . . . . . . . . . . . . . . . . . . - 51 -
SECTION 703. Reports by Trustee . . . . . . . . . . . . . . . . . - 52 -
SECTION 704. Reports by Company . . . . . . . . . . . . . . . . . - 52 -
ARTICLE VIII
Consolidation, Merger, Conveyance, Transfer or Lease. . . . . . . . - 53 -
SECTION 801. Company May Consolidate, Etc., Only on
Certain Terms. . . . . . . . . . . . . . . . . . . . - 53 -
SECTION 802. Successor Substituted. . . . . . . . . . . . . . . . - 54 -
ARTICLE IX
Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . - 54 -
SECTION 901. Supplemental Indentures Without Consent of Holders . - 54 -
SECTION 902. Supplemental Indentures with Consent of Holders. . . - 55 -
SECTION 903. Execution of Supplemental Indentures . . . . . . . . - 56 -
SECTION 904. Effect of Supplemental Indentures. . . . . . . . . . - 57 -
SECTION 905. Conformity with Trust Indenture Act. . . . . . . . . - 57 -
SECTION 906. Reference in Convertible Debentures to
Supplemental Indentures. . . . . . . . . . . . . . . - 57 -
</TABLE>
- iv -
<PAGE>
<TABLE>
<CAPTION>
Page
----
ARTICLE X
<S> <C>
Covenants; Representations and Warranties . . . . . . . . . . . . . - 57 -
SECTION 1001. Payment of Principal and Interest. . . . . . . . . . - 57 -
SECTION 1002. Maintenance of Office or Agency. . . . . . . . . . . - 57 -
SECTION 1003. Money for Convertible Debenture Payments to Be
Held in Trust. . . . . . . . . . . . . . . . . . . . - 58 -
SECTION 1004. Statement by Officers as to Default. . . . . . . . . - 59 -
SECTION 1005. Limitation on Dividends; Covenants as to the Trust . - 59 -
SECTION 1006. Payment of Expenses of the Trust . . . . . . . . . . - 60 -
SECTION 1007. Registration Rights. . . . . . . . . . . . . . . . . - 61 -
ARTICLE XI
Redemption of Convertible Debentures . . . . . . . . . . . . . . . . . . - 61 -
SECTION 1101. Optional Redemption. . . . . . . . . . . . . . . . . - 61 -
SECTION 1102. Tax Event Optional Redemption. . . . . . . . . . . . - 62 -
SECTION 1103. Applicability of Article . . . . . . . . . . . . . . - 63 -
SECTION 1104. Election to Redeem; Notice to Trustee. . . . . . . . - 63 -
SECTION 1105. Selection by Trustee of Convertible Debentures to Be
Redeemed . . . . . . . . . . . . . . . . . . . . . . - 63 -
SECTION 1106. Notice of Redemption . . . . . . . . . . . . . . . . - 64 -
SECTION 1107. Deposit and Payment of Redemption Price. . . . . . . - 64 -
SECTION 1108. Convertible Debentures Payable on Redemption
Date . . . . . . . . . . . . . . . . . . . . . . . . - 65 -
SECTION 1109. Convertible Debentures Redeemed in Part. . . . . . . - 65 -
SECTION 1110. No Sinking Fund. . . . . . . . . . . . . . . . . . . - 66 -
SECTION 1111. Mandatory Redemption . . . . . . . . . . . . . . . . - 66 -
SECTION 1112. Exchange of Trust Securities for Convertible
Debentures . . . . . . . . . . . . . . . . . . . . . - 66 -
ARTICLE XII
Subordination of Convertible Debentures . . . . . . . . . . . . . . - 67 -
SECTION 1201. Agreement to Subordinate . . . . . . . . . . . . . . - 67 -
SECTION 1202. Default on Senior Indebtedness . . . . . . . . . . . - 67 -
SECTION 1203. Liquidation; Dissolution; Bankruptcy . . . . . . . . - 69 -
SECTION 1204. Subrogation. . . . . . . . . . . . . . . . . . . . . - 70 -
SECTION 1205. Trustee to Effectuate Subordination. . . . . . . . . - 70 -
SECTION 1206. Notice by the Company. . . . . . . . . . . . . . . . - 70 -
SECTION 1207. Rights of the Trustee; Holders of Senior
Indebtedness . . . . . . . . . . . . . . . . . . . . - 71 -
</TABLE>
- v -
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1208. Subordination May Not Be Impaired. . . . . . . . . . - 72 -
ARTICLE XIII
Conversion of Convertible Debentures. . . . . . . . . . . . . . . . - 73 -
SECTION 1301. Conversion Rights. . . . . . . . . . . . . . . . . . - 73 -
SECTION 1302. Conversion Procedures. . . . . . . . . . . . . . . . - 73 -
SECTION 1303. Conversion Price Adjustments . . . . . . . . . . . . - 76 -
SECTION 1304. Fundamental Change.. . . . . . . . . . . . . . . . . - 81 -
SECTION 1305. Notice of Adjustments of Conversion Price. . . . . . - 83 -
SECTION 1306. Prior Notice of Certain Events . . . . . . . . . . . - 84 -
SECTION 1307. Certain Defined Terms. . . . . . . . . . . . . . . . - 85 -
SECTION 1308. Dividend or Interest Reinvestment Plans. . . . . . . - 85 -
SECTION 1309. Certain Additional Rights. . . . . . . . . . . . . . - 86 -
SECTION 1310. Restrictions on Sun Common Stock Issuable
Upon Conversion. . . . . . . . . . . . . . . . . . . - 86 -
SECTION 1311. Trustee Not Responsible for Determining Conversion
Price or Adjustments . . . . . . . . . . . . . . . . - 88 -
ARTICLE XIV
Immunity of Incorporators, Stockholders,
Officers and Directors. . . . . . . . . . . . . . . . . . . . . . . - 88 -
SECTION 1401. No Recourse. . . . . . . . . . . . . . . . . . . . . - 88 -
</TABLE>
- vi -
<PAGE>
Page
----
EXHIBIT AND ANNEX
EXHIBIT A Form of Convertible Debenture
ANNEX A Amended and Restated Declaration of Trust among the Company, as
trust sponsor, The Bank of New York, as Property Trustee, The Bank
of New York (Delaware), as Delaware Trustee and Robert D. Woltil,
Robert F. Murphy and William C. Warrick as Administrative Trustees,
dated as of May 4, 1998.
______________
Note: This table of contents shall not, for any purpose, be deemed to be
a part of the Indenture.
- vii -
<PAGE>
INDENTURE, dated as of May 4, 1998, between Sun Healthcare Group,
Inc., a corporation duly organized and existing under the laws of the State of
Delaware (herein called the "Company"), having its principal office at 101 Sun
Avenue, N.E., Albuquerque, New Mexico 87109, and The Bank of New York, as
Trustee (herein called the "Trustee").
RECITALS OF THE COMPANY
WHEREAS, Sun Financing I, a Delaware business trust (the "Trust"),
formed under the Amended and Restated Declaration of Trust among the Company, as
trust sponsor, The Bank of New York, as property trustee (the "Property
Trustee"), The Bank of New York (Delaware), as Delaware trustee (the "Delaware
Trustee"), and Robert D. Woltil, Robert F. Murphy and William C. Warrick, as
administrative trustees (the "Administrative Trustees"), dated as of May 4, 1998
(the "Declaration"), pursuant to the Purchase Agreement (the "Purchase
Agreement") dated April 28, 1998, among the Company and the initial purchasers
named therein, will issue and sell up to 13,800,000 of its 7% Convertible Trust
Issued Preferred Securities (the "Convertible Preferred Securities") with a
liquidation amount of $25 per Preferred Security, having an aggregate
liquidation amount with respect to the assets of the Trust of 345,000,000;
WHEREAS, the trustees of the Trust, on behalf of the Trust, will
execute and deliver to the Company 7% Convertible Common Securities (the
"Common Securities") of the Trust, registered in the name of the Company, in an
aggregate amount equal to three percent of the capitalization of the Trust,
equivalent to 426,805.25 Common Securities, with a liquidation amount of $25 per
Common Security, having an aggregate liquidation amount with respect to the
assets of the Trust of $10,670,131.25) (the "Common Securities");
WHEREAS, the Trust will use the proceeds from the sale of the
Convertible Preferred Securities and the Common Securities to purchase from the
Company 7% Convertible Junior Subordinated Debentures Due 2028 (the "Convertible
Debentures") of the Company in an aggregate principal amount of $355,670,131.25;
WHEREAS, the Company is guaranteeing the payment of distributions on
the Convertible Preferred Securities, and payment of the Redemption Price and
payments on liquidation with respect to the Convertible Preferred Securities, to
the extent provided in the Preferred Securities Guarantee Agreement (the
"Guarantee") dated May 4, 1998 between the Company and The Bank of New York, as
guarantee trustee, for the benefit of the holders of the Convertible Preferred
Securities from time to time;
<PAGE>
WHEREAS, the Company has duly authorized the creation of the
Convertible Debentures of the tenor and amount herein set forth and to provide
therefor the Company has duly authorized the execution and delivery of this
Indenture;
WHEREAS, so long as the Trust is a Holder of Convertible Debentures,
and any Convertible Preferred Securities are outstanding, the Trust Agreement
provides that the holders of Convertible Preferred Securities may cause the
Conversion Agent to (a) exchange such Convertible Preferred Securities for
Convertible Debentures held by the Trust and (b) immediately convert such
Convertible Debentures into Common Stock of the Company; and
WHEREAS, all things necessary to make the Convertible Debentures, when
executed by the Company and authenticated and delivered hereunder and duly
issued by the Company, the valid obligations of the Company, and to make this
Indenture a valid agreement of the Company, in accordance with their and its
terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Convertible Debentures by the Holders thereof, it is mutually agreed, for the
equal and proportionate benefit of all Holders of the Convertible Debentures, as
follows:
ARTICLE II
Definitions and Other Provisions
of General Application
SECTION 201. DEFINITIONS.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned
to them in this Article and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles; and
- 2 -
<PAGE>
(4) the words "herein", "hereof" and "hereunder" and other words
of similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
"ACT", when used with respect to any Holder, has the meaning specified
in Section 104.
"ADDITIONAL INTEREST" has the meaning specified in Section 301.
"ADDITIONAL PAYMENTS" means Compounded Interest, Liquidated Damages,
if any, and Additional Interest, if any.
"ADMINISTRATIVE TRUSTEES" has the meaning specified in the Recitals of
this instrument.
"AFFILIATE" has the same meaning as given to that term in Rule 405 of
the Securities Act or any successor rule thereunder.
"AGENT" means any Registrar, Paying Agent, Conversion Agent or
co-registrar.
"APPLICABLE PRICE" means (i) in the case of a Non-Stock Fundamental
Change in which the holders of Sun Common Stock receive only cash, the amount of
cash received by the holder of one share of Sun Common Stock and (ii) in the
event of any other Non-Stock Fundamental Change or any Common Stock Fundamental
Change, the average of the Closing Prices for the Sun Common Stock during the
ten trading days prior to the record date for the determination of the holders
of Sun Common Stock entitled to receive such securities, cash, or other property
in connection with such Non-Stock Fundamental Change or Common Stock Fundamental
Change or, if there is no such record date, the date upon which the holders of
the Sun Common Stock shall have the right to receive such securities, cash, or
other property (such record date or distribution date being hereinafter referred
to as the "Entitlement Date"), in each case as adjusted in good faith by the
Company to appropriately reflect any of the events referred to in Section 1303.
"BOARD OF DIRECTORS" means either the board of directors of the
Company or any duly authorized committee of that board.
"BOARD RESOLUTION" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
- 3 -
<PAGE>
"BUSINESS DAY" means any day other than a day on which banking
institutions in The City of New York or in Wilmington, Delaware are authorized
or required by law to close.
"CLOSING PRICE" has the meaning specified in Section 1307.
"COMMISSION" means the Securities and Exchange Commission, as from
time to time constituted, created under the Exchange Act, or, if at any time
after the execution of this instrument such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then the
body performing such duties at such time.
"COMMON SECURITIES" has the meaning specified in the recitals to this
Instrument.
"COMMON SECURITIES GUARANTEE" means any guarantee that the Company may
enter into that operate directly or indirectly for the benefit of holders of
Common Securities of the Trust.
"COMMON STOCK FUNDAMENTAL CHANGE" means any Fundamental Change in
which more than 50% of the value (as determined in good faith by the Board of
Directors of the Company) of the consideration received by holders of Sun Common
Stock consists of common stock that for each of the ten consecutive trading days
prior to the Entitlement Date has been admitted for listing or admitted for
listing subject to notice of issuance on a national securities exchange or
quoted on the Nasdaq National Market; provided, however, that a Fundamental
Change shall not be a Common Stock Fundamental Change unless either (i) the
Company continues to exist after the occurrence of such Fundamental Change and
the outstanding Convertible Preferred Securities continue to exist as
outstanding Convertible Preferred Securities or (ii) not later than the
occurrence of such Fundamental Change, the outstanding Convertible Preferred
Securities are converted into or exchanged for shares of convertible preferred
stock or debentures of an entity succeeding to the business of the Company or a
subsidiary thereof, which convertible preferred stock (or debentures, as the
case may be) has powers, preferences, and relative, participating, optional, or
other rights, and qualifications, limitations, and restrictions, substantially
similar to those of the Convertible Preferred Securities.
"COMPANY" means the Person named as the "Company" in the first
paragraph of this instrument until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
- 4 -
<PAGE>
"COMPANY REQUEST" or "COMPANY ORDER" means a written request or order
signed in the name of the Company by its Chairman of the Board, its Vice
Chairman of the Board, its President, its Chief Financial Officer, or a Vice
President, and by its Treasurer, an Assistant Treasurer, its Controller, its
Secretary or an Assistant Secretary, and delivered to the Trustee.
"COMPOUNDED INTEREST" has the meaning specified in Section 312.
"CONVERSION AGENT" means the Person appointed to act on behalf of the
holders of Convertible Preferred Securities in effecting the conversion of
Convertible Preferred Securities as and in the manner set forth in the Trust
Agreement and Section 1302 hereof.
"CONVERSION DATE" has the meaning specified in Section 1302.
"CONVERSION PRICE" has the meaning specified in Section 1301.
"CONVERTIBLE DEBENTURES" has the meaning specified in the Recitals to
this instrument.
"CONVERTIBLE PREFERRED SECURITIES" has the meaning specified in the
Recitals to this instrument.
"CORPORATE TRUST OFFICE" means the principal office of the Trustee in
New York, New York, at which at any particular time its corporate trust business
shall be administered and which at the date of this Indenture is 101 Barclay
Street, 21 West, New York, New York 10286, Attention: Corporate Trust Trustee
Administration.
"DECLARATION" has the meaning specified in the Recitals of this
instrument.
"DEFEASANCE TRUST" means a trust related to defeasance of
indebtedness.
"DEFAULTED INTEREST" has the meaning specified in Section 307.
"DELAWARE TRUSTEE" has the meaning given it in the Recitals of this
instrument.
"DEPOSITARY" means, with respect to any Convertible Debentures issued
in the form of one or more Global Security, a clearing agency registered under
the Exchange Act that is dedicated to act as Depositary for the Convertible
Debentures, and will initially be the Depository Trust Company.
- 5 -
<PAGE>
"DESIGNATED SENIOR INDEBTEDNESS" has the meaning specified in Section
1202.
"DIRECT ACTION" means a proceeding directly instituted by a holder of
Convertible Preferred Securities for enforcement of payment to such holder of
the principal of or interest on the Convertible Debentures having a principal
amount equal to the aggregate liquidation amount of the Convertible Preferred
Securities of such holder on or after the respective due date specified in the
Convertible Debentures, if an Event of Default under the Trust Agreement has
occurred and is continuing and such event is attributable to the failure of the
Company to pay interest or principal on the Convertible Debentures on the date
such interest or principal is otherwise payable (or in the case of redemption,
on the redemption date.)
"DISSOLUTION EVENT" means that, as a result of the occurrence and
continuation of a Special Event, the Trust is to be dissolved in accordance with
the Declaration and the Convertible Debentures held by the Property Trustee are
to be distributed to the holders of Trust Securities issued by the Trust PRO
RATA in accordance with the Declaration.
"DISSOLUTION TAX OPINION" has the meaning specified in the
Declaration.
"EVENT OF DEFAULT" has the meaning specified in Section 501.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, and the rules and regulations promulgated thereunder, or any
successor legislation.
"EXTENSION PERIOD" has the meaning specified in Section 312.
"FUNDAMENTAL CHANGE" means the occurrence of any Transaction or event
in connection with a plan pursuant to which all or substantially all of the Sun
Common Stock shall be exchanged for, converted into, acquired for, or constitute
solely the right to receive securities, cash, or other property (whether by
means of an exchange offer, liquidation, tender offer, consolidation, merger,
combination, reclassification, recapitalization, or otherwise), provided, that,
in the case of a plan involving more than one such Transaction or event, for
purposes of adjustment of the conversion price, such Fundamental Change shall be
deemed to have occurred when substantially all of the Sun Common Stock shall be
exchanged for, converted into, or acquired for or constitute solely the right to
receive securities, cash, or other property, but the adjustment shall be based
upon the consideration that a holder of the Sun Common Stock received in such
Transaction or event as a result of which more than 50% of the Sun Common Stock
shall have been exchanged for, converted into, or acquired for or constitute
solely the right to receive securities, cash, or other property. The term
"Non-Stock
- 6 -
<PAGE>
Fundamental Change" means any Fundamental Change other than a Common Stock
Fundamental Change.
"GLOBAL SECURITY" has the meaning specified in Section 314.
"GUARANTEE" has the meaning specified in the Recitals to this
instrument.
"HOLDER" means a Person in whose name a Convertible Debenture is
registered in the Security Register.
"INDENTURE" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
including, for all purposes of this instrument and any such supplemental
indenture, the provisions of the Trust Indenture Act that are deemed to be a
part of and govern this instrument and any such supplemental indenture,
respectively.
"INITIAL PURCHASERS" means Bear, Stearns & Co. Inc., Donaldson, Lufkin
& Jenrette Securities Corporation, J.P. Morgan Securities Inc., NationsBank
Montgomery Securities LLC and Schroder & Co. Inc., as initial purchasers under
the Purchase Agreement.
"INTEREST PAYMENT DATE" has the meaning specified in Section 301.
"INVESTMENT COMPANY EVENT" has the meaning specified in Annex I to the
Declaration.
"LIQUIDATED DAMAGES" has the meaning specified on the reverse side of
the form of debenture set forth in Exhibit A to this agreement
"MATURITY", when used with respect to any Convertible Debenture, means
the date on which the principal of such Convertible Debenture becomes due and
payable as therein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, call for redemption or otherwise.
"MINISTERIAL ACTION" has the meaning specified in Section 1102.
"90-DAY PERIOD" has the meaning specified in Section 1102.
"NO RECOGNITION OPINION" has the meaning specified in Annex I to the
Declaration.
- 7 -
<PAGE>
"NON BOOK-ENTRY PREFERRED SECURITIES" has the meaning specified in
section 314.
"NON-STOCK FUNDAMENTAL CHANGE" means any Fundamental Change other than
a Common Stock Fundamental Change.
"NOTICE OF CONVERSION" means the notice to be given by a holder of
Convertible Preferred Securities to the Conversion Agent directing the
Conversion Agent to exchange such Convertible Preferred Securities for
Convertible Debentures and to convert such Convertible Debentures into Sun
Common Stock on behalf of such holder.
"OFFICERS' CERTIFICATE" means a certificate signed by the Chairman of
the Board, the Vice Chairman of the Board, the Chief Executive Officer, the
President, Chief Financial Officer or a Vice President, and by the Treasurer,
the Controller, an Assistant Treasurer, the Secretary or an Assistant Secretary,
of the Company, and delivered to the Trustee. One of the officers signing an
Officers' Certificate given pursuant to Section 1004 shall be the principal
executive, financial or accounting officer of the Company.
"OPINION OF COUNSEL" means a written opinion of counsel, who may be
counsel for the Company.
"OUTSTANDING", when used with respect to Convertible Debentures,
means, as of the date of determination, all Convertible Debentures theretofore
authenticated and delivered under this Indenture, EXCEPT: (i) Convertible
Debentures theretofore cancelled by the Trustee or delivered to the Trustee for
cancellation; (ii) Convertible Debentures for whose payment or redemption money
in the necessary amount has been theretofore deposited with the Trustee or any
Paying Agent (other than the Company) in trust or set aside and segregated in
trust by the Company (if the Company shall act as its own Paying Agent) for the
Holders of such Convertible Debentures; PROVIDED, that if such Convertible
Debentures are to be redeemed, notice of such redemption has been duly given
pursuant to this Indenture or provision therefor satisfactory to the Trustee has
been made; and (iii) Convertible Debentures that have been paid pursuant to
Section 307, converted into Sun Common Stock pursuant to Section 1301, or in
exchange for or in lieu of which other Convertible Debentures have been
authenticated and delivered pursuant to this Indenture, other than any such
Convertible Debentures in respect of which there shall have been presented to
the Trustee proof satisfactory to it that such Convertible Debentures are held
by a bona fide purchaser in whose hands such Convertible Debentures are valid
obligations of the Company, PROVIDED, HOWEVER, that in determining whether the
Holders of the requisite principal amount of the Outstanding Convertible
Debentures have given any request, demand, authorization, direction, notice,
consent or waiver hereunder, Convertible Debentures owned by the Company or any
other
- 8 -
<PAGE>
obligor upon the Convertible Debentures or any Affiliate of the Company or of
such other obligor shall be disregarded and deemed not to be outstanding, except
that, in determining whether the Trustee shall be protected in relying upon any
such request, demand, authorization, direction, notice, consent or waiver, only
Convertible Debentures which the Trustee knows to be so owned shall be so
disregarded. Convertible Debentures so owned which have been pledged in good
faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Trustee the pledgee's right so to act with respect to such
Convertible Debentures and that the pledgee is not the Company or any other
obligor upon the Convertible Debentures or any Affiliate of the Company or of
such other obligor.
"PAYING AGENT" means any Person authorized by the Company to pay the
principal of or interest on any Convertible Debentures on behalf of the Company.
"PERSON" means any legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, unincorporated organization or
government or any agency or political subdivision thereof, or any other entity
of whatever nature.
"PREDECESSOR SECURITY" of any particular Convertible Debenture means
every previous Convertible Debenture evidencing all or a portion of the same
debt as that evidenced by such particular Convertible Debenture; and, for the
purposes of this definition, any Convertible Debenture authenticated and
delivered under Section 306 in exchange for or in lieu of a mutilated,
destroyed, lost or stolen Convertible Debenture shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Convertible Debenture.
"PROPERTY TRUSTEE" has the meaning specified in the Recitals of this
instrument.
"PURCHASE AGREEMENT" has the meaning specified in the Recitals to this
instrument.
"PURCHASED SHARES" has the meaning specified in Section 1303(e).
"PURCHASER STOCK PRICE" means, with respect to any Common Stock
Fundamental Change, the average of the Closing Prices for the common stock
received in such Common Stock Fundamental Change for the ten consecutive trading
days prior to and including the Entitlement Date, as adjusted in good faith by
the Company to appropriately reflect any of the events referred to in Section
1303.
"REDEMPTION DATE", when used with respect to any Convertible Debenture
to be redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
- 9 -
<PAGE>
"REDEMPTION PRICE", when used with respect to any Convertible
Debenture to be redeemed, means the price at which it is to be redeemed pursuant
to this Indenture.
"REDEMPTION TAX OPINION" has the meaning set forth in Annex I to the
Declaration.
"REFERENCE DATE" has the meaning specified in Section 1303(c).
"REFERENCE MARKET PRICE" shall initially mean $11.00 (which is an
amount equal to 66 2/3% of the reported last sales price for Sun Common Stock
on the New York Stock Exchange Consolidated Transactions Tape on April 28,
1998) and in the event of any adjustment of the conversion price other than
as a result of a Non-Stock Fundamental Change, the Reference Market Price
shall also be adjusted so that the ratio of the Reference Market Price to the
conversion price after giving effect to any such adjustment shall always be
the same as the ratio of the initial Reference Market Price to the initial
conversion price of the Convertible Preferred Securities.
"REGULAR RECORD DATE" has the meaning specified in Section 301.
"RESPONSIBLE OFFICER", when used with respect to the Trustee, means
any vice-president, any assistant vice-president, the treasurer, any assistant
treasurer, any trust officer or assistant trust officer or any other officer in
the Corporate Trust Department of the Trustee customarily performing functions
similar to those performed by any of the above designated officers and also
means, with respect to a particular corporate trust matter, any other officer to
whom such matter is referred because of that officer's knowledge of and
familiarity with the particular subject.
"RESTRICTED CONVERTIBLE PREFERRED SECURITIES" means all Convertible
Preferred Securities required to bear any restricted securities legend pursuant
to the Declaration.
"RESTRICTED SECURITIES" means all the Convertible Debentures required
pursuant to Section 202 to bear the Restricted Securities Legend.
"RESTRICTED SECURITIES LEGEND" has the meaning specified in Section
202.
"SECURITY REGISTER" and "SECURITY REGISTRAR" have the respective
meanings specified in Section 305.
"SENIOR CREDIT FACILITY" means that certain Credit Agreement, dated as
of October 8, 1997 as amended by the First Amendment thereto dated November 12,
1997
- 10 -
<PAGE>
and the Second Amendment thereto dated March 27, 1998, by and among the Company
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 the Company 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.
"SENIOR INDEBTEDNESS" means in respect of the Company: (i) the
principal, premium, if any, and interest in respect of (A) indebtedness of such
obligor for money borrowed and (B) indebtedness evidenced by securities,
debentures, bonds or other similar instruments issued by such obligor,
including, without limitation, in the case of Sun, all indebtedness, and all
obligations of Sun to pay fees and other amounts, under the Senior Credit
Facility or under the indentures with respect to the Company's outstanding 91/2%
Senior Subordinated Notes due 2007 (the "2007 Notes") and the Company's 93/8%
Senior Subordinated Notes due 2008, and any refinancing of the Senior Credit
Facility in the bank credit market (including institutional participants
therein), including interest accruing on or after a bankruptcy or other similar
event, whether or not an allowed claim therein, (ii) all capital lease
obligations of such obligor, (iii) all obligations of such obligor issued or
assumed as the deferred purchase price of property, all conditional sale
obligations of such obligor and all obligations of such obligor under any title
retention agreement (but excluding trade accounts payable arising in the
ordinary course of business), (iv) all obligations of such obligor for the
reimbursement of any letter of credit, banker's acceptance, security purchase
facility or similar credit transaction, (v) all obligations of the type referred
to in clauses (i) through (iv) above of other Persons for the payment of which
such obligor is responsible or liable as obligor, guarantor or otherwise, and
(vi) all obligations of the type referred to in clauses (i) through (v) above of
other Persons secured by any lien on any property or asset of such obligor
(whether or not such obligation is assumed by such obligor), except for (1) any
such indebtedness that is by its terms subordinated to or PARI PASSU with the
Convertible Debentures and (2) any indebtedness between or among such obligor or
its affiliates, including all other debt securities and guarantees in respect of
those debt securities issued to any other trust, or a trustee of such trust,
partnership, or other entity affiliated with the Company that is, directly or
indirectly, a financing vehicle of the Company (a "Financing Entity") in
connection with the issuance by such Financing Entity of Convertible Preferred
Securities or other securities which rank PARI PASSU with, or junior to, the
Convertible Preferred Securities, unless otherwise provided in the terms of such
debt securities. Such Senior Indebtedness shall continue to be Senior
Indebtedness and entitled to the benefits of the subordination provisions
- 11 -
<PAGE>
irrespective of any amendment, modification or waiver of any term of such Senior
Indebtedness, except as otherwise provided in the exception clauses above.
"SPECIAL EVENT" has the meaning specified in Annex I to the
Declaration.
"SPECIAL RECORD DATE" for the payment of any Defaulted Interest means
a date fixed by the Trustee pursuant to Section 307.
"STATED MATURITY", when used with respect to any Convertible Debenture
or any installment of interest thereon, means the date specified in such
Convertible Debenture as the fixed date on which the principal, together with
any accrued and unpaid interest (including Compounded Interest), of such
Convertible Debenture or such installment of interest is due and payable.
"SUBSIDIARY" of any Person means (i) a corporation more than 50% of
the outstanding Voting Stock of which is owned, directly or indirectly, by such
Person or by one or more other Subsidiaries of such Person or by such Person and
one or more Subsidiaries thereof or (ii) any other Person (other than a
corporation) in which such Person, or one or more other Subsidiaries of such
Person or such Person and one or more other Subsidiaries thereof, directly or
indirectly, has at least a majority ownership and power to direct the policies,
management and affairs thereof.
"SUN COMMON STOCK" includes any stock of any class of the Company
which has no preference in respect of dividends or of amounts payable in the
event of any voluntary or involuntary liquidation, dissolution or winding up of
the Company and which is not subject to redemption by the Company. However,
subject to the provisions of Article Thirteen, shares issuable on conversion of
Convertible Debentures shall include only shares of the class designated as Sun
Common Stock of the Company at the date of this instrument or shares of any
class or classes resulting from any reclassification or reclassifications
thereof and which have no preference in respect of dividends or of amounts
payable in the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company and which are not subject to redemption by the
Company; PROVIDED, that if at any time there shall be more than one such
resulting class, the shares of each such class then so issuable on conversion
shall be substantially in the proportion which the total number of shares of
such class resulting from all such reclassifications bears to the total number
of shares of all such classes resulting from all such reclassifications.
"TAX EVENT" has the meaning specified in Annex I to the Declaration.
"TRADING DAY" has the meaning specified in Section 1307.
- 12 -
<PAGE>
"TRANSACTION" has the meaning specified in Section 1304.
"TRUST" has the meaning specified in the Recitals to this instrument.
"TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, as
amended from time to time, and the rules and regulations promulgated thereunder,
or any successor legislation.
"TRUST SECURITIES" means Common Securities and Convertible Preferred
Securities.
"TRUSTEE" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"VICE PRESIDENT," when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president".
"VOTING STOCK" of any Person means capital stock of such Person which
ordinarily has voting power for the election of directors (or Persons performing
similar functions) of such Person, whether at all times or only so long as no
senior class of Convertible Debentures has such voting power by reason of any
contingency.
SECTION 202. COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish to
the Trustee such certificates and opinions as may be required under the Trust
Indenture Act or reasonably requested by the Trustee in connection with such
application or request. Each such certificate or opinion shall be given in the
form of an Officers' Certificate, if to be given by an officer of the Company,
or an Opinion of Counsel, if to be given by counsel, and shall comply with the
applicable requirements of the Trust Indenture Act and any other applicable
requirement set forth in this Indenture.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(a) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein relating
thereto;
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(b) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has been
complied with; and
(d) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 203. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or opinion of counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 204. ACTS OF HOLDERS; RECORD DATES.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in
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and evidenced by one or more instruments of substantially similar tenor signed
by such Holders in person or by an Agent duly appointed in writing; and, except
as herein otherwise expressly provided, such action shall become effective when
such instrument or instruments are delivered to the Trustee and, where it is
hereby expressly required, to the Company. Such instrument or instruments (and
the action embodied therein and evidenced thereby) are herein sometimes referred
to as the "Act" of the Holders signing such instrument or instruments. Proof of
execution of any such instrument or of a writing appointing any such Agent shall
be sufficient for any purpose of this Indenture and (subject to Section 601)
conclusive in favor of the Trustee and the Company, if made in the manner
provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where
such execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee or the Company, as the case may be, deems
sufficient.
(c) The Company may, in the circumstances permitted by the Trust
Indenture Act, fix any day as the record date for the purpose of determining the
Holders of Outstanding Convertible Debentures entitled to give, make or take any
request, demand, authorization, direction, notice, consent, waiver or other
action, or to vote on any action, authorized or permitted to be given or taken
by Holders. If not set by the Company prior to the first solicitation of a
Holder made by any Person in respect of any such action, or, in the case of any
such vote, prior to such vote, the record date for any such action or vote shall
be the 30th day (or, if later, the date of the most recent list of Holders
required to be provided pursuant to Section 701) prior to such first
solicitation or vote, as the case may be. With regard to any record date, only
the Holders on such date (or their duly designated proxies) shall be entitled to
give or take, or vote on, the relevant action.
(d) The ownership of Convertible Debentures shall be proved by the
Security Register.
(e) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Convertible Debenture shall bind every
future Holder of the same Convertible Debenture and the Holder of every
Convertible Debenture issued upon the registration of transfer thereof or in
exchange therefor or in lieu thereof in respect of anything
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done, omitted or suffered to be done by the Trustee or the Company in reliance
thereon, whether or not notation of such action is made upon such Convertible
Debenture.
Without limiting the foregoing, a Holder entitled hereunder to give or take any
such action with regard to any particular Convertible Debenture may do so with
regard to all or any part of the principal amount of such Convertible Debenture
or by one or more duly appointed agents each of which may do so pursuant to such
appointment with regard to all or any different part of such principal amount.
SECTION 205. NOTICES, ETC., TO TRUSTEE AND THE COMPANY.
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with,
(a) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder if made, given, furnished or filed in writing to or
with the Trustee at its Corporate Trust Office, Attention: Corporate Trust &
Agency Department, or
(b) the Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided) if in
writing and mailed, first-class postage prepaid, to the Company addressed to it
at the address of its principal office specified in the first paragraph of this
instrument (Attention: Chief Financial Officer) or at any other address
previously furnished in writing to the Trustee by the Company.
SECTION 206. NOTICE TO HOLDERS; WAIVER.
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at such Holder's address as it appears in the Security Register,
not later than the latest date (if any), and not earlier than the earliest date
(if any), prescribed for the giving of such notice. In any case where notice to
Holders is given by mail, neither the failure to mail such notice, nor any
defect in any notice so mailed, to any particular Holder shall affect the
sufficiency of such notice with respect to other Holders. Any notice when
mailed to a Holder in the aforesaid manner shall be conclusively deemed to have
been received by such Holder whether or not actually received by such Holder.
Where this Indenture provides for notice in any manner, such notice may be
waived in writing by the Person entitled to receive such notice, either before
or after the event, and such waiver shall be the equivalent of such notice.
Waivers of notice by Holders
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shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by mail,
then such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.
SECTION 207. CONFLICT WITH TRUST INDENTURE ACT.
If any provision hereof limits, qualifies or conflicts with a
provision of the Trust Indenture Act that is required under such Act to be a
part of and govern this Indenture, the latter provision shall control. If any
provision of this Indenture modifies or excludes any provision of the Trust
Indenture Act that may be so modified or excluded, the latter provision shall be
deemed to apply to this Indenture as so modified or to be excluded, as the case
may be.
SECTION 208. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 209. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
SECTION 210. SEPARABILITY CLAUSE.
In case any provision in this Indenture or in the Convertible
Debentures shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
SECTION 211. BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Convertible Debentures, express or
implied, shall give to any Person, other than the parties hereto and their
successors hereunder, the holders of Senior Indebtedness, the holders of
Convertible Preferred Securities (to the extent provided herein) and the Holders
of Convertible Debentures, any benefit or any legal or equitable right, remedy
or claim under this Indenture.
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SECTION 212. GOVERNING LAW.
THIS INDENTURE AND THE CONVERTIBLE DEBENTURES SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO ITS PRINCIPLES OF CONFLICTS OF LAWS.
SECTION 213. LEGAL HOLIDAYS.
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Convertible Debenture or the last date on which a Holder has the
right to convert his Convertible Debentures shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Convertible
Debentures) payment of interest or principal or conversion of the Convertible
Debentures need not be made on such date, but may be made on the next succeeding
Business Day (except that, if such Business Day is in the next succeeding
calendar year, such Interest Payment Date, Redemption Date or Stated Maturity,
as the case may be, shall be the immediately preceding Business Day) with the
same force and effect as if made on the Interest Payment Date or Redemption
Date, or at the Stated Maturity or on such last day for conversion, PROVIDED,
that no interest shall accrue for the period from and after such Interest
Payment Date, Redemption Date or Stated Maturity, as the case may be.
ARTICLE IV
Convertible Debenture Forms
SECTION 401. FORMS GENERALLY.
The Convertible Debentures and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit A, which is hereby
incorporated in and expressly made a part of this Indenture. The Convertible
Debentures may have letters, numbers, notations or other marks of identification
or designation and such legends or endorsements required by law, stock exchange
rule, agreements to which the Company is subject, if any, or usage (provided
that any such notation, legend or endorsement is in a form acceptable to the
Company). The Company shall furnish any such legend not contained in Exhibit A
to the Trustee in writing. Each Convertible Debenture shall be dated the date
of its authentication. The terms and provisions of the Convertible Debentures
set forth in Exhibit A are part of the terms of this Indenture and to the extent
applicable, the Company and the Trustee, by their execution and delivery of this
Indenture, expressly agree to such terms and provisions and to be bound thereby.
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The definitive Convertible Debentures shall be typewritten or printed,
lithographed or engraved or produced by any combination of these methods on
steel engraved borders or may be produced in any other manner permitted by the
rules of any securities exchange on which the Convertible Debentures may be
listed, all as determined by the officers executing such Convertible Debentures,
as evidenced by their execution thereof.
SECTION 402. INITIAL ISSUANCE TO PROPERTY TRUSTEE.
The Convertible Debentures initially issued to the Property Trustee of
the Trust shall be in the form of one or more individual certificates in
definitive, fully registered form without coupons and shall bear the following
legend (the "Restricted Securities Legend") unless the Company determines
otherwise in accordance with applicable law.
THIS SECURITY AND ANY COMMON STOCK ISSUED ON CONVERSION HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS SECURITY BY ITS
ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY,
PRIOR TO THE DATE WHICH IS AFTER THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE
TO SALES THEREOF UNDER RULE 144(k) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR
RULE) (THE "RESALE RESTRICTION TERMINATION DATE") ONLY (A) TO SUN HEALTHCARE
GROUP, INC., (THE "COMPANY") (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR
RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON
IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE
144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A, (D) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE
MEANING OF SUBPARAGRAPH (a)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES
ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF
SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT
WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN
VIOLATION OF THE SECURITIES
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ACT, OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRANSFER
AGENT'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT TO CLAUSES
(D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION
AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (ii) IN EACH OF THE
FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM APPEARING
ON THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRANSFER
AGENT, THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF A HOLDER AFTER THE RESALE
RESTRICTION TERMINATION DATE.
ARTICLE V
The Convertible Debentures
SECTION 601. TITLE AND TERMS.
The aggregate principal amount of Convertible Debentures that may be
authenticated and delivered under this Indenture is limited to $355,670,131.25,
except for Convertible Debentures authenticated and delivered upon registration
of transfer of, or in exchange for, or in lieu of, other Convertible Debentures
pursuant to Section 304, 305, 306, 906, 1109 or 1301.
The Convertible Debentures shall be known and designated as the "7%
Convertible Junior Subordinated Debentures Due 2028" of the Company. Their
Stated Maturity shall be May 1, 2028, and they shall bear interest at the rate
of 7% per annum, from May 4, 1998 or from the most recent Interest Payment Date
to which interest has been paid or duly provided for, as the case may be,
payable quarterly (subject to deferral as set forth herein), in arrears, on
February 1, May 1, August 1 and November 1 (each an "Interest Payment Date") of
each year, commencing August 1, 1998, until the principal thereof is paid or
made available for payment, and they shall be paid to the Person in whose name
the Convertible Debenture is registered at 5:00 p.m. (New York City time) on the
regular record date for such interest installment, which shall be the close of
business on the Business Day next preceding such interest payment date (the
"Regular Record Date"); provided, however, in the event the Convertible
Debentures are held by any entity other than the Trust, the Company may set
other record dates. Interest will compound quarterly and will accrue at the
rate of 7% per annum on any interest installment in arrears for more than one
quarter or during an extension of an interest payment period as set forth in
Section 312 hereof.
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The amount of interest payable for any period will be computed on the
basis of a 360-day year of twelve 30-day months. Except as provided in the
following sentence, the amount of interest payable for any period shorter than a
full quarterly period for which interest is computed, will be computed on the
basis of the actual number of days elapsed per 90-day quarter. In the event
that any date on which interest is payable on the Convertible Debentures is not
a Business Day, then payment of interest payable on such date will be made on
the next succeeding day which is a Business Day (and without any interest or
other payment in respect of any such delay), except that, if such Business Day
is in the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and effect
as if made on such date.
If at any time while the Property Trustee is the Holder of any
Convertible Debentures, the Trust or the Property Trustee is required to pay any
taxes, duties, assessments or governmental charges of whatever nature (other
than withholding taxes) imposed by the United States, or any other taxing
authority, then, in any such case, the Company will pay as additional interest
("Additional Interest") on the Convertible Debentures held by the Property
Trustee, such amounts as shall be required so that the net amounts received and
retained by the Trust and the Property Trustee after paying any such taxes,
duties, assessments or other governmental charges will be not less than the
amounts the Trust and the Property Trustee would have received had no such
taxes, duties, assessments or other governmental charges been imposed.
The principal of and interest on the Convertible Debentures shall be
payable at the office or agency of the Company in the United States maintained
for such purpose and at any other office or agency maintained by the Company for
such purpose in such coin or currency of the United States of America as at the
time of payment is legal tender for payment of public and private debts;
PROVIDED, HOWEVER, that unless the Convertible Debentures are held by the Trust
or any successor permissible under Section 612 of this Indenture, at the option
of the Company payment of interest may be made by check mailed to the address of
the Person entitled thereto as such address shall appear in the Security
Register.
The Convertible Debentures shall be redeemable as provided in Article
Eleven hereof.
The Convertible Debentures shall be subordinated in right of payment
to Senior Indebtedness as provided in Article Twelve hereof.
The Convertible Debentures shall be convertible as provided in Article
Thirteen hereof.
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SECTION 602. DENOMINATIONS.
The Convertible Debentures shall be issuable only in registered form
without coupons.
SECTION 603. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
The Convertible Debentures shall be executed on behalf of the Company
by its Chairman of the Board, its Vice Chairman of the Board, its Chief
Executive Officer, its President, its Chief Financial Officer, or one of its
Vice Presidents, and if the Company so chooses, under its corporate seal
reproduced thereon attested by its Secretary or one of its Assistant
Secretaries. The signature of any of these officers on the Convertible
Debentures may be manual or facsimile.
Convertible Debentures bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Convertible
Debentures or did not hold such offices at the date of such Convertible
Debentures.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Convertible Debentures executed by the
Company to the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Convertible Debentures; and the Trustee in
accordance with such Company Order shall authenticate and make available for
delivery such Convertible Debentures as in this Indenture provided and not
otherwise.
The Convertible Debentures shall be dated the date of authentication.
No Convertible Debenture shall be entitled to any benefit under this
Indenture or be valid or obligatory for any purpose unless there appears on such
Convertible Debenture a certificate of authentication substantially in the form
provided for herein executed by the Trustee by manual signature, and such
certificate upon any Convertible Debenture shall be conclusive evidence, and the
only evidence, that such Convertible Debenture has been duly authenticated and
delivered hereunder.
SECTION 604. TEMPORARY CONVERTIBLE DEBENTURES.
Pending the preparation of definitive Convertible Debentures, the
Company may execute, and upon Company Order the Trustee shall authenticate and
deliver, temporary
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Convertible Debentures which are typewritten, printed, lithographed or otherwise
produced, in any authorized denomination, substantially of the tenor of the
definitive Convertible Debentures in lieu of which they are issued and with such
appropriate insertions, omissions, substitutions and other variations as the
officers executing such Convertible Debentures may determine, as evidenced by
their execution of such Convertible Debentures.
If temporary Convertible Debentures are issued, the Company will cause
definitive Convertible Debentures to be prepared without unreasonable delay.
After the preparation of definitive Convertible Debentures, the temporary
Convertible Debentures shall be exchangeable for definitive Convertible
Debentures upon surrender of the temporary Convertible Debentures at any office
or agency of the Company designated pursuant to Section 1002, without charge to
the Holder. Upon surrender for cancellation of any one or more temporary
Convertible Debentures the Company shall execute and the Trustee shall
authenticate and make available for delivery in exchange therefor a like
principal amount of definitive Convertible Debentures of authorized
denominations. Until so exchanged the temporary Convertible Debentures shall in
all respects be entitled to the same benefits under this Indenture as definitive
Convertible Debentures.
SECTION 605. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE.
The Company shall cause to be kept at the Corporate Trust Office of
the Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 1002 being herein sometimes
collectively referred to as the "Security Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Convertible Debentures and of transfers of Convertible
Debentures. The Trustee is hereby appointed "Security Registrar" for the purpose
of registering Convertible Debentures and transfers of Convertible Debentures as
herein provided.
Upon surrender for registration of transfer of any Convertible
Debenture at an office or agency of the Company designated pursuant to
Section 1002 for such purpose, the Company shall execute, and the Trustee shall
authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Convertible Debentures of any authorized
denominations and of a like aggregate principal amount.
At the option of the Holder, Convertible Debentures may be exchanged
for other Convertible Debentures of any authorized denominations and of a like
aggregate principal amount, upon surrender of the Convertible Debentures to be
exchanged at such office or agency. Whenever any Convertible Debentures are so
surrendered for exchange, the
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Company shall execute, and the Trustee shall authenticate and make available for
delivery, the Convertible Debentures which the Holder making the exchange is
entitled to receive.
All Convertible Debentures issued upon any registration of transfer or
exchange of Convertible Debentures shall be the valid obligations of the
Company, evidencing the same debt, and entitled to the same benefits under this
Indenture, as the Convertible Debentures surrendered upon such registration of
transfer or exchange.
Every Convertible Debenture presented or surrendered for registration
of transfer or for exchange shall (if so required by the Company or the Trustee)
be duly endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed, by the
Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Convertible Debentures, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Convertible
Debentures, other than exchanges pursuant to Section 304, 906, 1109 or 1301 not
involving any transfer.
The Company shall not be required (i) in the case of a partial
redemption of the Securities, to issue, register the transfer of or exchange any
Convertible Debenture during a period beginning at the opening of business 15
days before the day of the mailing of a notice of redemption of Convertible
Debenture selected for redemption under the Section 1105 and ending at the close
of business on the day of such mailing, or (ii) to register the transfer of or
exchange any Convertible Debenture so selected for redemption in whole or in
part, except the unredeemed portion of any Convertible Debenture being redeemed
in part.
SECTION 606. MUTILATED, DESTROYED, LOST AND STOLEN CONVERTIBLE DEBENTURES.
If any mutilated Convertible Debenture is surrendered to the Trustee,
the Company shall execute and the Trustee shall authenticate and deliver in
exchange therefor a new Convertible Debenture of like tenor and principal amount
and bearing a number not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee
(i) evidence to their satisfaction of the destruction, loss or theft of any
Convertible Debenture and (ii) such Convertible Debenture or indemnity as may be
required by them to save each of them and any Agent of either of them harmless,
then, in the absence of notice to the Company or the Trustee that such
Convertible Debenture has been acquired by a bona fide purchaser, the
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Company shall execute and the Trustee shall authenticate and deliver, in lieu of
any such destroyed, lost or stolen Convertible Debenture, a new Convertible
Debenture of like tenor and principal amount and bearing a number not
contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Convertible
Debenture has become or is about to become due and payable, the Company in its
discretion may, instead of issuing a new Convertible Debenture, pay such
Convertible Debenture.
Upon the issuance of any new Convertible Debenture under this Section,
the Company may require the payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Convertible Debenture issued pursuant to this Section in
lieu of any destroyed, lost or stolen Convertible Debenture shall constitute an
original additional contractual obligation of the Company, whether or not the
destroyed, lost or stolen Convertible Debenture shall be at any time enforceable
by anyone, and shall be entitled to all the benefits of this Indenture equally
and proportionately with any and all other Convertible Debentures duly issued
hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Convertible Debentures.
SECTION 607. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED.
Interest on any Convertible Debenture which is payable, and is
punctually paid or duly provided for, on any Interest Payment Date shall be paid
to the Person in whose name that Convertible Debenture (or one or more
Predecessor Securities) is registered at 5:00 p.m. (New York City time) on the
Regular Record Date.
Any interest on any Convertible Debenture which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date (herein
called "Defaulted Interest") shall forthwith cease to be payable to the Holder
on the relevant Regular Record Date by virtue of having been such Holder, and
such Defaulted Interest may be paid by the Company, at its election in each
case, as provided in Clause (a) or (b) below:
(a) The Company may elect to make payment of any Defaulted Interest
to the Persons in whose names the Convertible Debentures (or their respective
Predecessor Securities) are registered at 5:00 p.m. (New York City time) on a
Special Record Date for the
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payment of such Defaulted Interest, which shall be fixed in the following
manner. The Company shall notify the Trustee in writing of the amount of
Defaulted Interest proposed to be paid on each Convertible Debenture and the
date of the proposed payment, and at the same time the Company shall deposit
with the Trustee an amount of money equal to the aggregate amount proposed to
be paid in respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date of the
proposed payment, such money when deposited to be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as in this Clause
(a) provided. Thereupon the Trustee shall fix a Special Record Date for the
payment of such Defaulted Interest which shall be not more than 15 days and
not less than 10 days prior to the date of the proposed payment and not less
than 10 days after the receipt by the Trustee of the notice of the proposed
payment. The Trustee shall promptly notify the Company of such Special Record
Date and, in the name and at the expense of the Company, shall cause notice
of the proposed payment of such Defaulted Interest and the Special Record
Date therefor to be mailed, first-class postage prepaid, to each Holder at
his address as it appears in the Security Register, not less than 10 days
prior to such Special Record Date. Notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor having been so
mailed, such Defaulted Interest shall be paid to the Persons in whose names
the Convertible Debentures (or their respective Predecessor Securities) are
registered at 5:00 p.m. (New York City time) on such Special Record Date and
shall no longer be payable pursuant to the following Clause (b).
(b) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any securities
exchange on which the Convertible Debentures may be listed, and, if so listed,
upon such notice as may be required by such exchange, if, after notice given by
the Company to the Trustee of the proposed payment pursuant to this Clause (B),
such manner of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section 307, each
Convertible Debenture delivered under this Indenture upon registration of
transfer of or in exchange for or in lieu of any other Convertible Debenture
shall carry the rights to interest accrued and unpaid, and to accrue (including
in each such case Additional Payments, if any), which were carried by such other
Convertible Debenture.
In the case of any Convertible Debenture which is converted after any
Regular Record Date and on or prior to the next succeeding Interest Payment Date
(other than any Convertible Debenture whose Maturity is prior to such Interest
Payment Date), interest whose Stated Maturity is on such Interest Payment Date
shall be payable on such Interest Payment Date notwithstanding such conversion,
and such interest (whether or not punctually paid or duly provided for) shall be
paid to the Person in whose name that Convertible Debenture (or
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one or more Predecessor Securities) is registered at 5:00 p.m. (New York City
time) on such Regular Record Date. Except as otherwise expressly provided in
the immediately preceding sentence, in the case of any Convertible Debenture
that is converted prior to any Regular Record Date, interest whose Stated
Maturity is after the date of conversion of such Convertible Debenture shall not
be payable, and the Company shall not make nor be required to make any other
payment, adjustment or allowance with respect to accrued but unpaid interest
(including Additional Payments, if any) on the Convertible Debentures being
converted, which shall be deemed to be paid in full. Subject to any right of
the Holder of such Convertible Debenture or any Predecessor Security to receive
interest as provided in this paragraph and the second paragraph of Clause (a) of
Section 1302, the Company's delivery upon conversion of the fixed number of
shares of Sun Common Stock into which the Convertible Debentures are convertible
(together with the cash payment, if any, in lieu of fractional shares) shall be
deemed to satisfy the Company's obligation to pay the principal amount at
Maturity of the portion of Convertible Debentures so converted and any unpaid
interest (including Additional Payments, if any) accrued on such Convertible
Debentures at the time of such conversion. If any Convertible Debenture called
for redemption is converted, any money deposited with the Trustee or with any
Paying Agent or so segregated and held in trust for the redemption of such
Convertible Debenture shall (subject to any right of the Holder of such
Convertible Debenture or any Predecessor Security to receive interest as
provided in this paragraph) be paid to the Company upon Company Request or, if
then held by the Company, shall be discharged from such trust.
SECTION 608. PERSONS DEEMED OWNERS.
Prior to due presentment of a Convertible Debenture for registration
of transfer, the Company, the Trustee and any Agent of the Company or the
Trustee may treat the Person in whose name such Convertible Debenture is
registered as the owner of such Convertible Debenture for the purpose of
receiving payment of principal of and (subject to Section 307) interest
(including Additional Payments, if any) on such Convertible Debenture and for
all other purposes whatsoever, whether or not such Convertible Debenture be
overdue, and neither the Company, the Trustee nor any Agent of the Company or
the Trustee shall be affected by notice to the contrary.
SECTION 609. CANCELLATION.
All Convertible Debentures surrendered for payment, redemption,
registration of transfer or exchange or conversion shall, if surrendered to any
Person other than the Trustee, be delivered to the Trustee and shall be promptly
cancelled by it. The Company may at any time deliver to the Trustee for
cancellation any Convertible Debentures previously authenticated and delivered
hereunder which the Company may have acquired in any manner
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whatsoever, and all Convertible Debentures so delivered shall be promptly
cancelled by the Trustee. No Convertible Debentures shall be authenticated in
lieu of or in exchange for any Convertible Debentures cancelled as provided in
this Section, except as expressly permitted by this Indenture. All cancelled
Convertible Debentures held by the Trustee shall be disposed of as directed by a
Company Order; PROVIDED, HOWEVER, that the Trustee shall not be required to
destroy the certificates representing such cancelled Convertible Debentures.
SECTION 610. RIGHT OF SET OFF.
Notwithstanding anything to the contrary in this Indenture, the
Company shall have the right to set off any payment it is otherwise required to
make hereunder to the extent the Company has theretofore made, or is
concurrently on the date of such payment making, a payment under the Guarantee.
SECTION 611. CUSIP NUMBERS.
The Company in issuing the Convertible Debentures may use "CUSIP"
numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP"
numbers in notices of redemption as a convenience to Holders; PROVIDED, that any
such notice may state that no representation is made as to the correctness of
such numbers either as printed on the Convertible Debentures or as contained in
any notice of a redemption and that reliance may be placed only on the other
identification numbers printed on the Convertible Debentures, and any such
redemption shall not be affected by any defect in or omission of such numbers.
SECTION 612. OPTION TO EXTEND INTEREST PAYMENT PERIOD.
(a) So long as no Event of Default has occurred and is continuing,
the Company shall have the right at any time during the term of the Convertible
Debentures to defer interest payments (including Additional Payments) from time
to time by extending the interest payment period for successive periods (each,
an "Extension Period") not exceeding 20 consecutive quarters for each such
period; PROVIDED that no Extension Period may extend beyond the maturity date of
the Convertible Debentures. At the end of each Extension Period, the Company
shall pay all interest then accrued and unpaid (including Additional Interest
and Liquidated Damages) together with interest thereon compounded quarterly at
the rate specified for the Convertible Debentures to the extent permitted by
applicable law ("Compounded Interest"); PROVIDED that during any Extension
Period, the Company shall (i) not declare or pay dividends on, or make a
distribution with respect to, or redeem or purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock (other than (A)
purchases or acquisitions of shares of Sun Common Stock in connection with the
satisfaction by the Company of its obligations under any employee benefit plans
or the
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satisfaction by the Company of its obligations pursuant to any contract or
security requiring the Company to purchase shares of Sun Common Stock, (B) as a
result of a reclassification of the Company's capital stock or the exchange or
conversion of one class or series of the Company's capital stock for another
class or series of the Company's capital stock or (C) the purchase of fractional
interests in shares of the Company's capital stock pursuant to the conversion or
exchange provisions of such capital stock or the security being converted or
exchanged (or make any guarantee payments with respect to the foregoing), (ii)
not make any payment of interest, principal or premium, if any, on or repay,
repurchase or redeem any debt securities (including guarantees) issued by the
Company that rank PARI PASSU with or junior to the Convertible Debentures
(except by conversion into or exchange for shares of its capital stock) and
(iii) not make any guarantee payments with respect to the foregoing (other than
pursuant to the Guarantee). Prior to the termination of any such Extension
Period, the Company may further extend such Extension Period; PROVIDED that such
Extension Period, together with all such previous and further extensions
thereof, may not exceed 20 consecutive quarters or extend beyond the maturity
date of the Convertible Debentures. Upon the termination of any Extension
Period and the payment of all amounts then due, the Company may commence a new
Extension Period, subject to the above requirements. No interest during an
Extension Period, except at the end thereof, shall be due and payable.
(b) If the Property Trustee is the sole Holder of the Convertible
Debentures at the time the Company selects an Extension Period, the Company
shall give written notice to the Administrative Trustees and the Property
Trustee of its selection of such Extension Period at least one Business Day
prior to the earlier of (i) the date the distributions on the Convertible
Preferred Securities are payable or (ii) if the Convertible Preferred Securities
are listed on the New York Stock Exchange or other stock exchange or quotation
system, the date the Trust is required to give notice to the New York Stock
Exchange or other applicable self-regulatory organization or to holders of the
Convertible Preferred Securities of the record date or the date such
distributions are payable, but in any event not less than 10 Business Days prior
to such record date. The Company shall cause the Trust to give notice of the
Company's selection of such Extension Period to the holders of the Convertible
Preferred Securities.
(c) If the Property Trustee is not the sole holder of the Convertible
Debentures at the time the Company selects an Extension Period, the Company
shall give the Holders of the Convertible Debentures and the Trustee written
notice of its selection of such Extension Period at least 10 Business Days prior
to the earlier of (i) the next succeeding Interest Payment Date or (ii) if the
Convertible Preferred Securities are listed on the New York Stock Exchange or
other stock exchange or quotation system, the date the Company is required to
give notice to the New York Stock Exchange or other applicable self-regulatory
organization or to holders of the Convertible Debentures on the record or
payment
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date of such related interest payment, but in any event not less than two
Business Days prior to such record date.
(d) The quarter in which any notice is given pursuant to paragraphs
(b) and (c) hereof shall be counted as one of the 20 quarters permitted in the
maximum Extension Period permitted under paragraph (a) hereof.
SECTION 613. PAYING AGENT, SECURITY REGISTRAR AND CONVERSION AGENT.
The Trustee will initially act as Paying Agent, Security Registrar and
Conversion Agent. The Company may change any Paying Agent, Security Registrar,
co-registrar or Conversion Agent without prior notice. The Company or any of
its Affiliates may act in any such capacity. The Trustee is entitled to the
protections of Article VI in its capacity as Paying Agent, Registrar and
Conversion Agent.
SECTION 614. GLOBAL SECURITY.
(a) In connection with a Dissolution Event,
(1) the Convertible Debentures in book-entry certificated form
may be presented to the Trustee by the Property Trustee in exchange for a global
Convertible Debenture in an aggregate principal amount equal to the aggregate
principal amount of all outstanding Convertible Debentures (a "Global
Security"), to be registered in the name of the Depositary, or its nominee, and
delivered by the Trustee to the Depositary for crediting to the accounts of its
participants pursuant to the instructions of the Administrative Trustees. The
Company upon any such presentation shall execute a Global Security in such
aggregate principal amount and deliver the same to the Trustee for
authentication and delivery in accordance with this Indenture. Payments on the
Convertible Debentures issued as a Global Security will be made to the
Depositary; and
(2) if any Convertible Preferred Securities are held in non
book-entry certificated form, the Convertible Debentures in certificated form
may be presented to the Trustee by the Property Trustee and any Preferred
Security Certificate which represents Convertible Preferred Securities other
than Convertible Preferred Securities held by the Depositary or its nominee
("Non Book-Entry Preferred Securities") will be deemed to represent beneficial
interests in Convertible Debentures presented to the Trustee by the Property
Trustee having an aggregate principal amount equal to the aggregate liquidation
amount of the Non Book-Entry Preferred Securities until such Preferred Security
Certificates are presented to the Security Registrar for transfer or reissuance
at which time such Convertible Preferred Security Certificates will be cancelled
and a Convertible Debenture,
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registered in the name of the holder of the Convertible Preferred Security
Certificate or the transferee of the holder of such Preferred Security
Certificate, as the case may be, with an aggregate principal amount equal to the
aggregate liquidation amount of the Convertible Preferred Security Certificate
cancelled, will be executed by the Company and delivered to the Trustee for
authentication and delivery in accordance with this Indenture. On issue of such
Convertible Debentures, Convertible Debentures with an equivalent aggregate
principal amount that were presented by the Property Trustee to the Trustee will
be deemed to have been cancelled.
(b) A Global Security may be transferred, in whole but not in part,
only to another nominee of the Depositary, or to a nominee of such successor
Depositary.
(c) If (i) the Depositary notifies the Company that it is unwilling
or unable to continue as a depositary for such Global Security and no successor
depositary shall have been appointed, (ii) the Depositary, at any time, ceases
to be a clearing agency registered under the Exchange Act at which time the
Depositary is required to be so registered to act as such depositary and no
successor depositary shall have been appointed, (iii) the Company, in its sole
discretion, determines that such Global Security shall be so exchangeable or
(iv) there shall have occurred an Event of Default with respect to such
Convertible Debentures, as the case may be, the Company will execute, and,
subject to Article Three of this Indenture, the Trustee, upon written notice
from the Company and receipt of a Company Order, will authenticate and deliver
the Convertible Debentures in definitive registered form without coupons, in
authorized denominations, and in an aggregate principal amount equal to the
principal amount of the Global Security in exchange for such Global Security.
In addition, upon an Event of Default or if the Company may at any time
determine that the Convertible Debentures shall no longer be represented by a
Global Security, in such event the Company will execute, and subject to Section
305 of this Indenture, the Trustee, upon receipt of an Officers' Certificate
evidencing such determination by the Company, will authenticate and make
available for delivery the Convertible Debentures in definitive registered form
without coupons, in authorized denominations, and in an aggregate principal
amount equal to the principal amount of the Global Security in exchange for such
Global Security. Upon the exchange of the Global Security for such Convertible
Debentures in definitive registered form without coupons, in authorized
denominations, the Global Security shall be cancelled by the Trustee. Such
Convertible Debentures in definitive registered form issued in exchange for the
Global Security shall be registered in such names and in such authorized
denominations as the Depositary, pursuant to instructions from its direct or
indirect participants or otherwise, shall instruct the Trustee. The Trustee
shall deliver such Convertible Debentures to the Depositary for delivery to the
Persons in whose names such Convertible Debentures are so registered.
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(d) Every Global Security authenticated and delivered hereunder shall
bear a legend in substantially the following form, in capital letters and
bold-face type:
THIS CONVERTIBLE DEBENTURE IS A GLOBAL SECURITY WITHIN THE MEANING OF
THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF
A DEPOSITARY OR A NOMINEE THEREOF. THIS CONVERTIBLE DEBENTURE MAY NOT
BE EXCHANGED IN WHOLE OR IN PART FOR A CONVERTIBLE DEBENTURE
REGISTERED, AND NO TRANSFER OF THIS CONVERTIBLE DEBENTURE IN WHOLE OR
IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH
DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES
DESCRIBED IN THE INDENTURE.
(e) If the Depositary is The Depository Trust Company, the Global
Security authenticated and delivered hereunder shall also bear a legend in
substantially the following form, in capital letters and bold-face type:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED SIGNATORY OF THE
DEPOSITORY TRUST COMPANY ("DTC") TO THE COMPANY OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
(f) The Convertible Debentures may not be transferred except in
compliance with the Restricted Securities Legend unless otherwise determined by
the Company in accordance with applicable law. Upon any distribution of the
Convertible Debentures to the holders of the Convertible Preferred Securities in
accordance with the Declaration, the Company and the Trustee shall enter into a
supplemental indenture pursuant to Section 901(f) to provide for transfer
procedures and restrictions with respect to the Convertible Debentures
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substantially similar to those contained in the Declaration to the extent
applicable in the circumstances existing at the time of such distribution.
ARTICLE VIII
Satisfaction and Discharge
SECTION 801. SATISFACTION AND DISCHARGE OF INDENTURE.
This Indenture shall cease to be of further effect (except as to any
surviving rights of conversion, registration of transfer or exchange of
Convertible Debentures herein expressly provided for), and the Trustee, on
demand of and at the expense of the Company, shall execute proper instruments
acknowledging satisfaction and discharge of this Indenture, when
(a) either
(i) all Convertible Debentures theretofore authenticated
and delivered (other than (A) Convertible Debentures which have been
destroyed, lost or stolen and which have been replaced or paid as
provided in Section 306 and (B) Convertible Debentures for whose
payment money has theretofore been deposited in trust or segregated
and held in trust by the Company and thereafter repaid to the Company
or discharged from such trust, as provided in Section 1003) have been
delivered to the Trustee for cancellation; or
(ii) all such Convertible Debentures not theretofore
delivered to the Trustee for cancellation have become due and payable,
and the Company has deposited or caused to be deposited with the
Trustee as trust funds in trust for the purpose an amount sufficient
to pay and discharge the entire indebtedness on such Convertible
Debentures not theretofore delivered to the Trustee for cancellation,
for principal and interest (including Additional Payments, if any) to
the date of such deposit (in the case of Convertible Debentures which
have become due and payable) or to the Stated Maturity or Redemption
Date, as the case may be, along with, if requested by the Trustee, an
accountant's (or investment or commercial bank's) certificate stating
such funds are sufficient to pay principal and interest on the
Convertible Debentures when and as due;
(b) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
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(c) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture have
been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 607 and, if money shall
have been deposited with the Trustee pursuant to subclause (ii) of Clause (a) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003 shall survive.
SECTION 802. APPLICATION OF TRUST MONEY.
Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Trustee pursuant to Section 401 shall be held in trust
and applied by it, in accordance with the provisions of the Convertible
Debentures and this Indenture, to the payment, either directly or through any
Paying Agent (including the Company acting as its own Paying Agent) as the
Trustee may determine, to the Persons entitled thereto, of the principal and
interest for whose payment such money has been deposited with the Trustee. All
moneys deposited with the Trustee pursuant to Section 401 (and held by it or any
Paying Agent) for the payment of Convertible Debentures subsequently converted
shall be returned to the Company upon Company Request.
ARTICLE X
Remedies
SECTION 1001. EVENTS OF DEFAULT.
"Event of Default," wherever used herein, means any one of the
following events that has occurred and is continuing (whatever the reason for
such Event of Default and whether it shall be occasioned by the provisions of
Article Twelve or be voluntary or involuntary or be effected by operation of law
or pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(a) failure for 30 days to pay interest on the Convertible
Debentures, including any Additional Interest and Compounded Interest, in
respect thereof, when due; PROVIDED that a valid extension of an interest
payment period will not constitute a default in the payment of interest
(including Additional Interest or Compounded Interest, if any) for this purpose;
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(b) failure to pay principal of or premium, if any, on the
Convertible Debentures when due, whether at maturity, upon redemption, by
Declaration or otherwise;
(c) failure by the Company to deliver shares of Sun Common Stock upon
an election by a holder of Convertible Preferred Securities to convert such
Convertible Preferred Securities;
(d) failure to observe or perform any other covenant contained in the
Indenture for 90 days after notice to the Company by the Trustee or by the
holders of not less than 25% in aggregate outstanding principal amount of the
Convertible Debentures;
(e) entry by a court having jurisdiction in the premises of (i) a
decree or order for relief in respect of the Company in an involuntary case or
proceeding under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or (ii) a decree or order adjudging the
Company a bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjustment or composition of or in respect
of the Company under any applicable federal or state law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or of substantially all of the property of the
Company, or ordering the winding up or liquidation of its affairs, and the
continuance of any such decree or order for relief or any such other decree or
order unstayed and in effect for a period of 60 consecutive days;
(f) the commencement by the Company of a voluntary case or proceeding
under any applicable federal or state bankruptcy, insolvency, reorganization or
other similar law or of any other case or proceeding to be adjudicated a
bankrupt or insolvent, or the consent by the Company or to the entry of a decree
or order for relief in respect of itself in an involuntary case or proceeding
under any applicable federal or state bankruptcy, insolvency, reorganization or
other similar law or to the commencement of any bankruptcy or insolvency case or
proceeding against the Company, or the filing by the Company of a petition or
answer or consent seeking reorganization or relief under any applicable federal
or state law, or the consent by the Company to the filing of such petition or to
the appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator or other similar official of the Company or of
substantially all of the property of the Company, or the making by the Company
of an assignment for the benefit of creditors, or the admission by the Company
in writing of its inability to pay its debts generally as they become due, or
the taking of corporate action by the Company in furtherance of any such action;
or
(g) the voluntary or involuntary dissolution, winding up or
termination of the Trust, except in connection with (i) the distribution of
Convertible Debentures to holders of Convertible Preferred Securities in
liquidation of the Trust upon the redemption of all of the
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outstanding Convertible Preferred Securities of the Trust or (ii) certain
mergers, consolidations or amalgamations, each as permitted by the Declaration.
SECTION 1002. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
If an Event of Default occurs and is continuing, then and in every
such case the Trustee or the Holders of not less than 25% in principal amount of
the Outstanding Convertible Debentures may declare the principal of all the
Convertible Debentures and any other amounts payable hereunder to be due and
payable immediately, by a notice in writing to the Company (and to the Trustee
if given by Holders), and upon any such declaration such principal and all
accrued interest shall become immediately due and payable.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as provided in this Article, the Holders of a majority in aggregate
principal amount of the Outstanding Convertible Debentures, by written notice to
the Company and the Trustee, may rescind and annul such declaration and its
consequences if:
(a) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(i) all overdue interest (including Additional Payments, if
any) on all Convertible Debentures,
(ii) the principal of any Convertible Debentures which have
become due otherwise than by such declaration of acceleration and
interest thereon at the rate borne by the Convertible Debentures, and
(iii) all sums paid or advanced by the Trustee hereunder
and the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel;
and
(b) all Events of Default, other than the non-payment of the
principal of Convertible Debentures which have become due solely by such
declaration of acceleration, have been cured or waived as provided in
Section 513.
No such rescission shall affect any subsequent default or impair any
right consequent thereon.
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SECTION 1003. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE.
The Company covenants that if:
(a) default is made in the payment of any interest (including
Additional Interest and Compounded Interest, if any) on any Convertible
Debenture when such interest becomes due and payable and such default continues
for a period of 30 days, or
(b) default is made in the payment of the principal of any
Convertible Debenture at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Convertible Debentures, the whole amount then due and payable on
such Convertible Debentures for principal and interest (including Additional
Interest and Compounded Interest, if any) and, to the extent that payment
thereof shall be legally enforceable, interest on any overdue principal and on
any overdue interest (including Additional Interest and Compounded Interest, if
any), at the rate borne by the Convertible Debentures, and, in addition thereto,
such further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 1004. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of any judicial proceeding relative to the Company (or any
other obligor upon the Convertible Debentures), its property or its creditors,
the Trustee shall be entitled and empowered, by intervention in such proceeding
or otherwise, to take any and all actions authorized under the Trust Indenture
Act in order to have claims of the Holders and the Trustee allowed in any such
proceeding. In particular, the Trustee shall be authorized to collect and
receive any moneys or other property payable or deliverable on any such claims
and to distribute the same; and any custodian, receiver, assignee, trustee,
liquidator, sequestrator or other similar official in any such judicial
proceeding is hereby authorized by each Holder to make such payments to the
Trustee and, in the event that the Trustee shall consent to the making of such
payments directly to the Holders, to pay to the Trustee any
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amount due it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 607.
No provision of this Indenture shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Convertible Debentures or the rights of any Holder thereof or to authorize the
Trustee to vote in respect of the claim of any Holder in any such proceeding.
SECTION 1005. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF CONVERTIBLE
DEBENTURES.
All rights of action and claims under this Indenture or the
Convertible Debentures may be prosecuted and enforced by the Trustee without the
possession of any of the Convertible Debentures or the production thereof in any
proceeding relating thereto, and any such proceeding instituted by the Trustee
shall be brought in its own name as trustee of an express trust, and any
recovery of judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, be for the ratable benefit of the Holders of the Convertible
Debentures in respect of which such judgment has been recovered.
SECTION 1006. APPLICATION OF MONEY COLLECTED.
Subject to Article Twelve, any money collected by the Trustee pursuant
to this Article shall be applied in the following order, at the date or dates
fixed by the Trustee and, in case of the distribution of such money on account
of principal or interest (including Additional Payments, if any), upon
presentation of the Convertible Debentures and the notation thereon of the
payment if only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 607;
SECOND: To the payment of all Senior Indebtedness of the
Company to the extent required by Article Twelve;
THIRD: To the payment of the amounts then due and unpaid for
principal of and interest (including Additional Payments, if any) on
the Convertible Debentures in respect of which or for the benefit of
which such money has been collected, ratably, without preference or
priority of any kind,
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according to the amounts due and payable on such Convertible Debentures for
principal and interest (including Additional Payments, if any),
respectively; and
FOURTH: To the payment of the remainder, if any, to the
Company.
SECTION 1007. LIMITATION ON SUITS.
Subject to Section 516, no Holder of any Convertible Debenture shall
have any right to institute any proceeding, judicial or otherwise, with respect
to this Indenture, or for the appointment of a receiver or trustee, or for any
other remedy hereunder, unless
(a) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;
(b) if the Trust is not the sole holder of Convertible Debentures,
the Holders of not less than 25% in aggregate principal amount of the
Outstanding Convertible Debentures shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default in its own
name as Trustee hereunder;
(c) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(d) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(e) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a majority in
principal amount of the Outstanding Convertible Debentures;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 1008. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL AND INTEREST
AND CONVERT.
Notwithstanding any other provision in this Indenture, the Holder of
any Convertible Debenture shall have the right, which is absolute and
unconditional, to receive
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payment of the principal of and (subject to Section 307) interest (including
Additional Payments, if any) on such Convertible Debenture on the respective
Stated Maturities expressed in such Convertible Debenture (or, in the case of
redemption, on the Redemption Date) and to convert such Convertible Debenture in
accordance with Article Thirteen and to institute suit for the enforcement of
any such payment and right to convert, and such rights shall not be impaired
without the consent of such Holder.
SECTION 1009. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
SECTION 1010. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Convertible Debentures in the
last paragraph of Section 306, no right or remedy herein conferred upon or
reserved to the Trustee or to the Holders is intended to be exclusive of any
other right or remedy, and every right and remedy shall, to the extent permitted
by law, be cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy.
SECTION 1011. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder of any
Convertible Debenture to exercise any right or remedy accruing upon any Event of
Default shall impair any such right or remedy or constitute a waiver of any such
Event of Default or an acquiescence therein. Every right and remedy given by
this Article or by law to the Trustee or to the Holders may be exercised from
time to time, and as often as may be deemed expedient, by the Trustee or by the
Holders, as the case may be.
SECTION 1012. CONTROL BY HOLDERS.
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The Holders of a majority in principal amount of the Outstanding
Convertible Debentures shall have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee; PROVIDED, that
(a) such direction shall not be in conflict with any rule of law or
with this Indenture; and
(b) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
SECTION 1013. WAIVER OF PAST DEFAULTS.
Subject to Sections 502 and 902 hereof, the Holders of not less than a
majority in principal amount of the Outstanding Convertible Debentures may on
behalf of the Holders of all the Convertible Debentures waive any past default
hereunder and its consequences, except a default
(a) in the payment of the principal of, premium, if any, or interest
(including Additional Payments, if any) on any Convertible Debenture (unless
such default has been cured and a sum sufficient to pay all matured installments
of interest and principal due otherwise than by acceleration has been deposited
with the Trustee); or
(b) in respect of a covenant or provision hereof that under Article
Nine cannot be modified or amended without the consent of the Holder of each
Outstanding Security affected; PROVIDED, HOWEVER, that if the Convertible
Debentures are held by the Trust or a trustee of the Trust, such waiver shall
not be effective until the holders of a majority in liquidation amount of Trust
Securities shall have consented to such waiver; PROVIDED, FURTHER, that if the
consent of the Holder of each outstanding Convertible Debenture is required,
such waiver shall not be effective until each holder of the Trust Securities
shall have consented to such waiver.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
SECTION 1014. UNDERTAKING FOR COSTS.
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In any suit for the enforcement of any right or remedy under this
Indenture, or in any suit against the Trustee for any action taken, suffered or
omitted by it as Trustee, a court may require any party litigant in such suit to
file an undertaking to pay the costs of such suit, and may assess costs against
any such party litigant, in the manner and to the extent provided in the Trust
Indenture Act; PROVIDED, that neither this Section nor the Trust Indenture Act
shall be deemed to authorize any court to require such an undertaking or to make
such an assessment in any suit instituted by the Company or the Trustee or in
any suit for the enforcement of the right to receive the principal of and
interest (including Additional Payments, if any) on any Convertible Debenture or
to convert any Convertible Debenture in accordance with Article Thirteen.
SECTION 1015. WAIVER OF STAY OR EXTENSION LAWS.
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
SECTION 1016. ENFORCEMENT BY HOLDERS OF CONVERTIBLE PREFERRED SECURITIES.
Notwithstanding the foregoing, if an Event of Default has occurred and
is continuing and such event is attributable to the failure of the Company to
pay interest or principal on the Convertible Debentures on the date such
interest or principal is otherwise payable, the Company acknowledges that, in
such event, a holder of Convertible Preferred Securities may institute a Direct
Action for payment on or after the respective due date specified in the
Convertible Debentures. The Company may not amend this Indenture to remove the
foregoing right to bring a Direct Action without the prior written consent of
all the holders of Convertible Preferred Securities. Notwithstanding any
payment made to such holder of Convertible Preferred Securities by the Company
in connection with a Direct Action, the Company shall remain obligated to pay
the principal of and interest on the Convertible Debentures (including
Additional Payments, if any) held by the Trust or the Property Trustee and the
Company shall be subrogated to the rights of the holder of such Convertible
Preferred Securities with respect to payments on the Convertible Preferred
Securities to the extent of any payments made by the Company to such holder in
any Direct Action. The holders of Convertible Preferred Securities will not be
able to exercise directly any other remedy available to the Holders of the
Convertible Debentures.
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ARTICLE XII
The Trustee
SECTION 1201. CERTAIN DUTIES AND RESPONSIBILITIES.
The duties and responsibilities of the Trustee shall be as provided by
the Trust Indenture Act. Notwithstanding the foregoing, no provision of this
Indenture shall require the Trustee to expend or risk its own funds or otherwise
incur personal financial liability in the performance of any of its duties or in
the exercise of any of its rights or powers, if it shall have reasonable grounds
for believing that the repayment of such funds or liability is not reasonably
assured to it under the terms of this Indenture or indemnity reasonably
satisfactory to the Trustee against such risk or liability is not reasonably
assured to it. Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of this
Section 601.
SECTION 1202. NOTICE OF DEFAULTS.
The Trustee shall give the Holders notice of any Event of Default
hereunder as and to the extent provided by the Trust Indenture Act; PROVIDED,
HOWEVER, that in the case of any default of the character specified in
Section 501(d), no such notice to Holders shall be given until at least 30 days
after the occurrence thereof. For all purposes hereof, the Trustee shall not be
deemed to have notice or knowledge of any default described in Section 501(e),
(f) or (g) unless a Responsible Officer assigned to and working in the Corporate
Trust Office has actual knowledge thereof or unless written notice thereof is
received at the Corporate Trust Office.
SECTION 1203. CERTAIN RIGHTS OF TRUSTEE.
Subject to the provisions of Section 601:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document believed by it
to be genuine and to have been signed or presented by the proper party or
parties;
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(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any resolution
of the Board of Directors may be sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its part,
rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel of its choice and the advice
of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by it hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders pursuant to this Indenture, unless such Holders shall have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in compliance with such
request or direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit, and, if the Trustee shall determine to
make such further inquiry or investigation, it shall be entitled to reasonable
examination of the books, records and premises of the Company, personally or by
Agent or attorney;
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any Agent or attorney appointed with due care by it
hereunder; and
(h) the Trustee shall not be liable for any action taken, suffered,
or omitted to be taken by it in good faith, without gross negligence or wilful
misconduct, and reasonably believed by it to be authorized or within the
discretion or rights or powers conferred upon it by this Indenture.
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SECTION 1204. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF CONVERTIBLE
DEBENTURES.
The recitals contained herein and in the Convertible Debentures,
except the Trustee's certificates of authentication, shall be taken as the
statements of the Company, and the Trustee assumes no responsibility for their
correctness. The Trustee makes no representations as to the validity or
sufficiency of this Indenture or of the Convertible Debentures. The Trustee
shall not be accountable for the use or application by the Company of the
Convertible Debentures or the proceeds thereof.
SECTION 1205. MAY HOLD CONVERTIBLE DEBENTURES.
The Trustee, any Paying Agent, any Security Registrar or any other
Agent of the Company, in its individual or any other capacity, may become the
owner or pledgee of Convertible Debentures and, subject to Sections 608 and 613,
may otherwise deal with the Company with the same rights it would have if it
were not Trustee, Paying Agent, Security Registrar, or such other Agent.
SECTION 1206. MONEY HELD IN TRUST.
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except as
otherwise agreed with the Company.
SECTION 1207. COMPENSATION AND REIMBURSEMENT.
The Company agrees
(a) to pay to the Trustee from time to time such reasonable
compensation as the Company and the Trustee shall from time to time agree in
writing for all services rendered by it hereunder;
(b) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, fees, disbursements and
advances incurred or made by the Trustee in accordance with any provision of
this Indenture (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense, disbursement
or advance as may be attributable to its negligence or bad faith; and
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(c) to indemnify the Trustee and any predecessor Trustee for, and to
hold it harmless against, any loss, liability or expense incurred without
negligence or bad faith on its part, arising out of or in connection with the
acceptance or administration of this trust, including the costs and expenses of
defending itself against any claim or liability in connection with the exercise
or performance of any of its powers or duties hereunder.
When the Trustee incurs expenses or renders services in connection
with an Event of Default specified in Section 501(f) or Section 501(g), the
expenses (including the reasonable charges and expenses of its counsel) and the
compensation for the services are intended to constitute expenses of
administration under any applicable federal or state bankruptcy, insolvency or
other similar law.
The provisions of this Section shall survive the termination of this
Indenture.
SECTION 1208. DISQUALIFICATION; CONFLICTING INTERESTS.
If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and this Indenture.
SECTION 1209. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be a Trustee hereunder which shall be a
Person that is eligible pursuant to the Trust Indenture Act to act as such and
has a combined capital and surplus of at least $25,000,000 as set forth in its
most recent published annual report of conditions and has its Corporate Trust
Office in New York, New York. If such Person publishes reports of condition at
least annually, pursuant to law or to the requirements of said supervising or
examining authority, then for the purposes of this Section, the combined capital
and surplus of such Person shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect hereinafter specified in this Article.
SECTION 1210. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 611.
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(b) The Trustee may resign at any time by giving written notice
thereof to the Company. If an instrument of acceptance by a successor Trustee
shall not have been delivered to the Trustee within 30 days after the giving of
such notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of a
majority in principal amount of the Outstanding Convertible Debentures,
delivered to the Trustee and to the Company. If an instrument of acceptance by
a successor Trustee shall not have been delivered to the Trustee within 30 days
after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
(d) If at any time:
(i) the Trustee shall fail to comply with Section 608 after
written request therefor by the Company or by any Holder who has been
a bona fide Holder of a Convertible Debenture for at least six months,
or
(ii) the Trustee shall cease to be eligible under
Section 609 and shall fail to resign after written request therefor by
the Company or by any such Holder, or
(iii) the Trustee shall become incapable of acting or shall
be adjudged a bankrupt or insolvent or a receiver of the Trustee or of
its property shall be appointed or any public officer shall take
charge or control of the Trustee or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation,
then, in any such case, (A) the Company by Board Resolution may remove the
Trustee, or (B) subject to Section 514, any Holder who has been a bona fide
Holder of a Convertible Debenture for at least six months may, on behalf of
himself and all others similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding
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Convertible Debentures delivered to the Company and the retiring Trustee, the
successor Trustee so appointed shall, forthwith upon its acceptance of such
appointment, become the successor Trustee and supersede the successor Trustee
appointed by the Company. If no successor Trustee shall have been so appointed
by the Company or the Holders and accepted appointment in the manner hereinafter
provided, any Holder who has been a bona fide Holder of a Convertible Debenture
for at least six months may, on behalf of himself and all others similarly
situated, petition any court of competent jurisdiction for the appointment of a
successor Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee to all
Holders in the manner provided in Section 106. Each notice shall include the
name of the successor Trustee and the address of its Corporate Trust Office.
SECTION 1211. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee; PROVIDED, that on request of the Company or
the successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder. Upon request of any such successor Trustee,
the Company shall execute any and all instruments required to more fully and
certainly vest in and confirm to such successor Trustee all such rights, powers
and trusts.
No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 1212. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any
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of the parties hereto. In case any Convertible Debentures shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Convertible Debentures so authenticated with
the same effect as if such successor Trustee had itself authenticated such
Convertible Debentures.
SECTION 1213. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
If and when the Trustee shall be or become a creditor of the Company
(or any other obligor upon the Convertible Debentures), the Trustee shall be
subject to the provisions of the Trust Indenture Act regarding the collection of
claims against the Company (or any such other obligor).
ARTICLE XIV
Holders' Lists and Reports by Trustee and Company
SECTION 1401. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS.
The Company will furnish or cause to be furnished to the Trustee
(a) semiannually, not later than February 15 and August 15 in each
year, a list, in such form as the Trustee may reasonably require, of the names
and addresses of the Holders as of a date not more than 15 days prior to the
delivery thereof to the extent such list is not already held by the Trustee, and
(b) at such other times as the Trustee may request in writing, within
30 days after the receipt by the Company of any such request, a list of similar
form and content as of a date not more than 15 days prior to the time such list
is furnished;
EXCLUDING from any such list names and addresses received by the Trustee in its
capacity as Security Registrar.
SECTION 1402. PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 701 and the names and
addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 701 upon receipt of a new list so furnished.
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(b) The rights of Holders to communicate with other Holders with
respect to their rights under this Indenture or under the Convertible
Debentures, and the corresponding rights and duties of the Trustee, shall be as
provided by the Trust Indenture Act.
(c) Every Holder of Convertible Debentures, by receiving and holding
the same, agrees with the Company and the Trustee that neither the Company nor
the Trustee nor any Agent of either of them shall be held accountable by reason
of any disclosure of information as to names and addresses of Holders made
pursuant to the Trust Indenture Act.
SECTION 1403. REPORTS BY TRUSTEE.
(a) Within 60 days after May 15 of each year, commencing May 15, 1999
(unless a report is required to be transmitted before such date by the TIA, in
which case before such date so as to comply with the TIA), the Trustee shall
transmit by mail to Holders such reports concerning the Trustee and its actions
under this Indenture as may be required pursuant to the Trust Indenture Act in
the manner provided pursuant thereto.
(b) A copy of each such report shall, at the time of such
transmission to Holders, be filed by the Trustee with each stock exchange upon
which the Convertible Debentures are listed, with the Commission and with the
Company. The Company will notify the Trustee when the Convertible Debentures
are listed on any stock exchange.
SECTION 1404. REPORTS BY COMPANY.
The Company shall file with the Trustee and the Commission, and
transmit to Holders, such information, documents and other reports, and such
summaries thereof, as may be required pursuant to the Trust Indenture Act at the
times and in the manner provided pursuant to such Act; PROVIDED, that any such
information, documents or reports required to be filed with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act shall be filed with the
Trustee within 15 days after the same is so required to be filed with the
Commission.
Delivery of such reports, information and documents to the Trustee is
for informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
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The Company shall also provide to the Trustee on a timely basis such
information as the Trustee requires to enable the Trustee to prepare and file
any form required to be submitted by the Company with the Internal Revenue
Service and the Holders of the Convertible Debentures relating to original issue
discount, if any, including, without limitation, Form 1099-OID or any successor
form.
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ARTICLE XVI
Consolidation, Merger, Conveyance, Transfer or Lease
SECTION 1601. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.
The Company shall not consolidate with or merge with or into any other
Person or, directly or indirectly, convey, transfer or lease all or
substantially all of its properties and assets on a consolidated basis to any
Person, unless:
(a) the Person formed by such consolidation or into which the Company
is merged or the Person which acquires by conveyance, transfer or lease, all or
substantially all of the properties and assets of the Company on a consolidated
basis shall be a corporation, partnership or trust, shall be organized and
validly existing under the laws of the United States of America, any State
thereof or the District of Columbia and shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Trustee, in form reasonably
satisfactory to the Trustee, the due and punctual payment of the principal of
(and premium, if any) and interest (including Additional Payments, if any) on
all the Convertible Debentures and the performance or observance of every
covenant of this Indenture on the part of the Company to be performed or
observed and shall have provided for conversion rights in accordance with
Article Thirteen;
(b) immediately after giving effect to such transaction and treating
any indebtedness which becomes an obligation of the Company or a Subsidiary as a
result of such transaction as having been incurred by the Company or such
Subsidiary at the time of such transaction, no Event of Default, and no event
which, after notice or lapse of time or both, would become an Event of Default,
shall have happened and be continuing; and
(c) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger,
conveyance, transfer or lease and, if a supplemental indenture is required in
connection with such transaction, such supplemental indenture, comply with this
Article and that all conditions precedent herein provided for relating to such
transaction have been complied with.
This Section shall only apply to a merger or consolidation in which
the Company is not the surviving corporation and to conveyances, leases and
transfers by the Company as transferor or lessor.
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SECTION 1602. SUCCESSOR SUBSTITUTED.
Upon any consolidation of the Company with, or merger of the Company
into, any other Person or any conveyance, transfer or lease of all or
substantially all the properties and assets of the Company on a consolidated
basis in accordance with Section 801, the successor Person formed by such
consolidation or into which the Company is merged or to which such conveyance,
transfer or lease is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture with the
same effect as if such successor Person had been named as the Company herein,
and thereafter the predecessor Person shall be relieved of all obligations and
covenants under this Indenture and the Convertible Debentures.
ARTICLE XVIII
Supplemental Indentures
SECTION 1801. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS.
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
(a) to evidence the succession of another Person to the Company and
the assumption by any such successor of the covenants of the Company herein and
in the Convertible Debentures; or
(b) to add to the covenants of the Company for the benefit of the
Holders, or to surrender any right or power herein conferred upon the Company;
or
(c) to make provision with respect to the conversion rights of
Holders pursuant to the requirements of Article Thirteen; or
(d) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein, or to make any
other provisions with respect to matters or questions arising under this
Indenture which shall not be inconsistent with the provisions of this Indenture;
PROVIDED, that such action pursuant to this Clause (d) shall not adversely
affect in any material respect the interests of the Holders of the Convertible
Debentures or, so long as any of the Convertible Preferred Securities shall
remain outstanding, the holders of the Convertible Preferred Securities; or
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(e) to comply with the requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the Trust Indenture
Act; or
(f) to make provision for transfer procedures, certification,
book-entry provisions, the form of restricted securities legends, if any, to be
placed on Convertible Debentures, and all other matters required pursuant to
Sections 305 and 314 or otherwise necessary, desirable or appropriate in
connection with the issuance of Convertible Debentures to holders of Convertible
Preferred Securities in the event of a distribution of Convertible Debentures by
the Trust if a Special Event occurs and is continuing.
SECTION 1802. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.
With the consent of the Holders of not less than a majority in
principal amount of the Outstanding Convertible Debentures, by Act of said
Holders delivered to the Company and the Trustee, the Company, when authorized
by a Board Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders under this Indenture;
PROVIDED, HOWEVER, that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Security affected thereby,
(a) extend the Stated Maturity of the principal of, or any
installment of interest (including Additional Payments, if any) on, any
Convertible Debenture, or reduce the principal amount thereof, or reduce the
rate or extend the time for payment of interest thereon (other than pursuant to
terms hereof on the date of the first issuance of the Convertible Debentures
hereunder), or extend the Extension Period, or reduce any premium payable upon
the redemption thereof, or change the place of payment to a location outside the
United States where, or the coin or currency in which, any Convertible Debenture
or interest thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Stated Maturity thereof (or, in
the case of redemption, on or after the Redemption Date), or adversely affect
the right to convert any Convertible Debenture as provided in Article Thirteen
(except as permitted by Section 901(c) and (f)), or modify the provisions of
this Indenture with respect to the subordination of the Convertible Debentures
in a manner adverse to the Holders, or
(b) reduce the percentage in principal amount of the Outstanding
Convertible Debentures, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for any
waiver (of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences) provided
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for in this Indenture, or modify any of the provisions of this Section or
Section 513, except to increase any such percentage or to provide that certain
other provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each Outstanding Security affected thereby;
PROVIDED that if the Convertible Debentures are held by the Trust or a trustee
of the Trust, such supplemental indenture shall not be effective until the
holders of a majority in liquidation amount of Trust Securities shall have
consented to such supplemental indenture; PROVIDED, FURTHER, that if the consent
of the Holder of each Outstanding Security is required, such supplemental
indenture shall not be effective until each holder of the Trust Securities of
the Trust shall have consented to such supplemental indenture.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Persons entitled to consent to any indenture
supplemental hereto. If a record date is fixed, the Holders on such record
date, or their duly designated proxies, and only such Persons, shall be entitled
to consent to such supplemental indenture, whether or not such Holders remain
Holders after such record date; PROVIDED that unless such consent shall have
become effective by virtue of the requisite percentage having been obtained
prior to the date which is 90 days after such record date, any such consent
previously given shall automatically and without further action by any Holder be
cancelled and of no further effect.
SECTION 1803. EXECUTION OF SUPPLEMENTAL INDENTURES.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 601) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
SECTION 1804. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Convertible Debentures
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theretofore or thereafter authenticated and delivered hereunder shall be bound
thereby. No such supplemental indenture shall directly or indirectly modify the
provisions of Article Twelve in any manner which might terminate or impair the
rights of the Senior Indebtedness pursuant to such subordination provisions.
SECTION 1805. CONFORMITY WITH TRUST INDENTURE ACT.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act.
SECTION 1806. REFERENCE IN CONVERTIBLE DEBENTURES TO SUPPLEMENTAL INDENTURES.
Convertible Debentures authenticated and delivered after the execution
of any supplemental indenture pursuant to this Article may, and shall if
required by the Trustee, bear a notation in form approved by the Trustee as to
any matter provided for in such supplemental indenture. If the Company shall so
determine, new Convertible Debentures so modified as to conform, in the opinion
of the Trustee and the Company, to any such supplemental indenture may be
prepared and executed by the Company and authenticated and delivered by the
Trustee in exchange for Outstanding Convertible Debentures.
ARTICLE XX
Covenants; Representations and Warranties
SECTION 2001. PAYMENT OF PRINCIPAL AND INTEREST.
The Company will duly and punctually pay the principal of and interest
on the Convertible Debentures and Additional Payments, if any, in accordance
with the terms of the Convertible Debentures and this Indenture.
SECTION 2002. MAINTENANCE OF OFFICE OR AGENCY.
The Company will maintain in the United States an office or agency
where Convertible Debentures may be presented or surrendered for payment, where
Convertible Debentures may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Company in respect of the
Convertible Debentures and this Indenture may be served. The Company will give
prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served
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at the Corporate Trust Office of the Trustee, and the Company hereby appoints
the Trustee as its Agent to receive all such presentations, surrenders, notices
and demands.
The Company may also from time to time designate one or more other
offices or agencies (in the United States) where the Convertible Debentures may
be presented or surrendered for any or all such purposes and may from time to
time rescind such designations; PROVIDED, HOWEVER, that no such designation or
rescission shall in any manner relieve the Company of its obligation to maintain
an office or agency in the United States for such purposes. The Company will
give prompt written notice to the Trustee of any such designation or rescission
and of any change in the location of any such other office or agency.
SECTION 2003. MONEY FOR CONVERTIBLE DEBENTURE PAYMENTS TO BE HELD IN TRUST.
If the Company shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal of or interest on any of the
Convertible Debentures, segregate and hold in trust for the benefit of the
Persons entitled thereto a sum sufficient to pay the principal or interest so
becoming due until such sums shall be paid to such Persons or otherwise disposed
of as herein provided and will promptly notify the Trustee of its action or
failure so to act.
Whenever the Company shall have one or more Paying Agents, it will,
prior to each due date of the principal of or interest on any Convertible
Debentures, deposit with a Paying Agent a sum sufficient to pay such amount,
such sum to be held as provided by the Trust Indenture Act, and (unless such
Paying Agent is the Trustee) the Company will promptly notify the Trustee of its
action or failure so to act.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will (i) comply with the provisions of the Trust Indenture Act
applicable to it as a Paying Agent and (ii) during the continuance of any
default by the Company (or any other obligor upon the Convertible Debentures) in
the making of any payment in respect of the Convertible Debentures, upon the
written request of the Trustee, forthwith pay to the Trustee all sums held in
trust by such Paying Agent as such.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any
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Paying Agent to the Trustee, such Paying Agent shall be released from all
further liability with respect to such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of or interest on
(including Additional Payments, if any) any Convertible Debenture and remaining
unclaimed for two years after such principal or interest has become due and
payable shall be paid to the Company on Company Request, or (if then held by the
Company) shall be discharged from such trust; and the Holder of any such
Convertible Debenture shall thereafter, as an unsecured general creditor, look
only to the Company for payment thereof, and all liability of the Trustee or
such Paying Agent with respect to such trust money, and all liability of the
Company as trustee thereof, shall thereupon cease.
SECTION 2004. STATEMENT BY OFFICERS AS TO DEFAULT.
The Company will deliver to the Trustee, within 120 days after the end
of each fiscal year of the Company ending after the date hereof, an Officers'
Certificate, stating whether or not to the best knowledge of the signers thereof
the Company is in default in the performance and observance of any of the
material terms, provisions and conditions of this Indenture (without regard to
any period of grace or requirement of notice provided hereunder) and, if the
Company shall be in default, specifying all such defaults and the nature and
status thereof of which they may have knowledge.
SECTION 2005. LIMITATION ON DIVIDENDS; COVENANTS AS TO THE TRUST.
(a) The Company covenants that so long as the Convertible Debentures
are outstanding, if (i) there shall have occurred and be continuing any event
that with the giving of notice or the lapse of time or both, would constitute an
Event of Default, (ii) the Company shall be in default with respect to its
payment of any obligations under the Guarantee, or (iii) the Company has
exercised its option to defer interest payments on the Convertible Debentures by
extending the interest payment period and such period, or any extension thereof,
shall be continuing, then the Company shall (A) not declare or pay dividends on,
or make a distribution with respect to, or redeem or purchase or acquire, or
make a liquidation payment with respect to, any of its capital stock (other than
(x) purchases or acquisitions of shares of Sun Common Stock in connection with
the satisfaction by the Company of its obligations under any employee benefit
plans or the satisfaction by the Company of its obligations pursuant to any
contract or security requiring the Company to purchase shares of Sun Common
Stock, (y) as a result of a reclassification of the Company's capital stock or
the exchange or conversion of one class or series of the Company's capital stock
for another class or series of the Company's capital stock or (z) the purchase
of fractional interests in shares
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of the Company's capital stock pursuant to the conversion or exchange provisions
of such capital stock or the security being converted or exchanged (or make any
guarantee payments with respect to the foregoing), (B) not make any payment of
interest, principal or premium, if any, on or repay, repurchase or redeem any
debt securities (including guarantees) issued by the Company that rank PARI
PASSU with or junior to the Convertible Debentures (except by conversion into or
exchange for shares of its capital stock) and (C) not make any guarantee
payments with respect to the foregoing (other than pursuant to the Guarantee).
(b) The Company also covenants and agrees (i) that it shall directly
or indirectly maintain 100% ownership of the Common Securities of the
Trust; PROVIDED, HOWEVER, that any permitted successor of the Company hereunder
may succeed to the Company's ownership of such Common Securities and (ii) that
it shall use its reasonable efforts, consistent with the terms and provisions of
the Declaration, to cause the Trust (x) to remain a statutory business trust,
except in connection with the distribution of the Convertible Debentures to the
holders of Trust Securities in liquidation of the Trust, the redemption of all
of the Trust Securities of the Trust, or certain mergers, consolidations or
amalgamations, each as permitted by the Declaration, and (y) to otherwise
continue to be classified as a grantor trust for United States Federal income
tax purposes.
SECTION 2006. PAYMENT OF EXPENSES OF THE TRUST.
In connection with the offering, sale and issuance of the Convertible
Debentures to the Property Trustee in connection with the sale of the Trust
Securities by the Trust, the Company shall:
(a) pay for all costs, fees and expenses relating to the offering,
sale and issuance of the Convertible Debentures, including commissions,
discounts and expenses payable pursuant to the Purchase Agreement and
compensation of the Trustee under the Indenture in accordance with the
provisions of Section 607 of the Indenture;
(b) be responsible for and pay for all debts and obligations (other
than with respect to the Trust Securities) of the Trust, pay for all costs and
expenses of the Trust (including, but not limited to, costs and expenses
relating to the organization of the Trust, the offering, sale and issuance of
the Trust Securities (including commissions, discounts and expenses in
connection therewith), the fees and expenses of the Property Trustee and the
Delaware Trustee, the costs and expenses relating to the operation of the Trust,
including without limitation, costs and expenses of accountants, attorneys,
statistical or bookkeeping services, expenses for printing and engraving and
computing or accounting equipment, paying Agent(s), registrar(s), transfer
Agent(s), duplicating, travel and telephone and other
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telecommunications expenses and costs and expenses incurred in connection with
the acquisition, financing, and disposition of Trust assets); and
pay any and all taxes (other than United States withholding taxes attributable
to the Trust or its assets) and all liabilities, costs and expenses with respect
to such taxes of the Trust.
SECTION 2007. REGISTRATION RIGHTS.
The holders of the Convertible Preferred Securities, the Holders of
Convertible Debentures, the holders of the Guarantee and the shares of Sun
Common Stock issuable upon conversion of the Convertible Debentures are entitled
to the benefits of the Registration Rights Agreement as of May 4, 1998 between
the Company and the Initial Purchasers (the "REGISTRATION RIGHTS AGREEMENT").
ARTICLE XXII
Redemption of Convertible Debentures
SECTION 2201. OPTIONAL REDEMPTION.
(a) The Company shall have the right to redeem the Convertible
Debentures, in whole or in part, at any time or from time to time after May 3,
2001 upon not less than 30 nor more than 60 days notice, at the optional
redemption prices (expressed as a percentage of the principal amount of
Convertible Debentures to be redeemed) shown below, plus any accrued and unpaid
interest (including Additional Payments, if any) to the Redemption Date, if
redeemed during the 12-month period beginning May 3:
<TABLE>
<CAPTION>
Percentage of
Principal
Year Amount
---- -------------
<S> <C>
2001 . . . . . . . . . . . . . . . . 104.000%
2002 . . . . . . . . . . . . . . . . 103.000%
2003 . . . . . . . . . . . . . . . . 102.000%
2004 . . . . . . . . . . . . . . . . 101.000%
2005 and thereafter. . . . . . . . . 100.000%
</TABLE>
If the Company has deferred interest payments, all unpaid interest must be paid
in cash prior to any notice of redemption. Any redemption pursuant to this
Section 1101 shall be made pursuant to the provisions of Sections 1103 through
1108 hereof.
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(b) If a partial redemption of the Convertible Debentures would
result in the delisting of the Convertible Preferred Securities issued by the
Trust from any national securities exchange or other organization on which the
Convertible Preferred Securities are listed, the Company shall not be permitted
to effect such partial redemption and may only redeem the Convertible Debentures
in whole.
SECTION 2202. TAX EVENT OPTIONAL REDEMPTION.
If a Tax Event has occurred and is continuing and:
(a) the Company has received a Redemption Tax Opinion; or
(b) after receiving a Dissolution Tax Opinion, the Administrative
Trustees shall have been informed by tax counsel rendering the Dissolution Tax
Opinion that a No Recognition Opinion cannot be delivered to the Trust, then,
notwithstanding Section 1101(a) but subject to Section 1101(b), the Company
shall have the right upon not less than 30 days nor more than 60 days notice to
the Holders of the Convertible Debentures to redeem the Convertible Debentures
in whole (but not in part) for cash at a redemption price equal to 100% of the
principal amount of the Convertible Debentures plus accrued and unpaid interest
(including Additional Payments) if any, within 90 days following the occurrence
of such Tax Event (the "90-Day Period"); PROVIDED, HOWEVER, that if, at the time
there is available to the Company or the Trust the opportunity to eliminate
within the 90-Day Period, the Tax Event by taking some ministerial action
("Ministerial Action"), such as filing a form or making an election, or pursuing
some other similar reasonable measure which, in the sole judgment of the
Company, has or will cause no adverse effect on the Company, the Trust or the
Holders of the Trust Securities and will involve no material cost, the Company
or the Trust shall pursue such Ministerial Action or other measure in lieu of
redemption, and PROVIDED, FURTHER, that the Company shall have no right to
redeem the Convertible Debentures while the Trust is pursuing any Ministerial
Action or other similar measure pursuant to its obligations under the
Declaration.
SECTION 2203. APPLICABILITY OF ARTICLE.
Redemption of Convertible Debentures at the election of the Company,
as permitted by Sections 1101 and 1102, shall be made in accordance with such
provision and this Article.
SECTION 2204. ELECTION TO REDEEM; NOTICE TO TRUSTEE.
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The election of the Company to redeem Convertible Debentures pursuant
to Section 1101 or 1102 shall be evidenced by a Board Resolution. In case of
any redemption at the election of the Company, the Company shall, at least 45
days and no more than 90 days prior to the Redemption Date fixed by the Company,
notify the Trustee in writing of such Redemption Date and of the principal
amount of Convertible Debentures to be redeemed and provide a copy of the notice
of redemption given to Holders of Convertible Debentures to be redeemed pursuant
to Section 1105.
SECTION 2205. SELECTION BY TRUSTEE OF CONVERTIBLE DEBENTURES TO BE REDEEMED.
If less than all the Convertible Debentures are to be redeemed (unless
such redemption affects only a single Convertible Debenture), the particular
Convertible Debentures to be redeemed shall be selected not more than 60 days
prior to the Redemption Date by the Trustee, from the Outstanding Convertible
Debentures not previously called for redemption, by such method as the Trustee
shall deem fair and appropriate and which may provide for the selection for
redemption of portions (equal to $25 or any integral multiple thereof) of the
principal amount of the Convertible Debentures.
The Trustee shall promptly notify the Company in writing of the
Convertible Debentures selected for redemption as aforesaid and, in case of any
Convertible Debentures selected for partial redemption as aforesaid, the
principal amount thereof to be redeemed.
The provisions of the two preceding paragraphs shall not apply with
respect to any redemption affecting only a single Convertible Debenture, whether
such Convertible Debenture is to be redeemed in whole or in part. In the case
of any such redemption in part, the unredeemed portion of the principal amount
of the Convertible Debenture shall be in an authorized denomination (which shall
not be less than the minimum authorized denomination) for such Convertible
Debenture.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Convertible Debentures
shall relate, in the case of any Convertible Debentures redeemed or to be
redeemed only in part, to the portion of the principal amount of such
Convertible Debentures which has been or is to be redeemed.
SECTION 2206. NOTICE OF REDEMPTION.
Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption
Date, to each Holder of Convertible Debentures to be redeemed, at such Holder's
address appearing in the Security Register.
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All notices of redemption shall identify the Convertible Debentures to
be redeemed (including, if relevant, CUSIP number or ISIN) and shall state:
(a) the Redemption Date,
(b) the Redemption Price,
(c) that on the Redemption Date the Redemption Price will become due
and payable upon each such Convertible Debenture to be redeemed and that
interest thereon will cease to accrue on and after said date, and
(d) the place or places where such Convertible Debentures are to be
surrendered for payment of the Redemption Price.
Notice of redemption of Convertible Debentures to be redeemed at the
election of the Company shall be given by the Company or, at the Company's
request, by the Trustee in the name and at the expense of the Company.
SECTION 2207. DEPOSIT AND PAYMENT OF REDEMPTION PRICE.
Prior to 10:30 a.m. (New York City time) on the Redemption Date, the
Company shall deposit with the Trustee or with a Paying Agent (or, if the
Company is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 1003) an amount of money sufficient to pay the Redemption
Price of, plus (except if the Redemption Date shall be an Interest Payment Date)
accrued and unpaid interest (including Additional Payments, if any) on all the
Convertible Debentures which are to be redeemed on that date. If the
Convertible Debentures or the Convertible Preferred Securities are held by a
Depository, such redemption payment shall be made to the Holders prior to 12:00
noon (New York City time) on the Redemption Date or such earlier time as the
Company determines.
If any Convertible Debenture called for redemption is converted, any
money deposited with the Trustee or with any Paying Agent or so segregated and
held in trust for the redemption of such Convertible Debenture shall (subject to
any right of the Holder of such Convertible Debenture or any Predecessor
Security to receive interest as provided in the last paragraph of Section 307)
be paid to the Company upon Company Request or, if then held by the Company,
shall be discharged from such trust.
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SECTION 2208. CONVERTIBLE DEBENTURES PAYABLE ON REDEMPTION DATE.
Notice of redemption having been given as aforesaid, the Convertible
Debentures so to be redeemed shall, on the Redemption Date, become due and
payable at the Redemption Price therein specified, and from and after such date
(unless the Company shall default in the payment of the Redemption Price and
accrued and unpaid interest, including Additional Payments, if any) such
Convertible Debentures shall cease to bear interest. Upon surrender of any such
Convertible Debenture for redemption in accordance with said notice, such
Convertible Debenture shall be paid by the Company at the Redemption Price,
together with accrued and unpaid interest (including Additional Payments, if
any) to the Redemption Date; PROVIDED, HOWEVER, that installments of interest
whose Stated Maturity is on or prior to the Redemption Date shall be payable to
the Holders of such Convertible Debentures, or one or more Predecessor
Convertible Debentures, registered as such at 5:00 p.m. (New York City time) on
the relevant Record Dates according to the terms and the provisions of Section
307.
If any Convertible Debenture called for redemption shall not be so
paid upon surrender thereof for redemption, the principal shall, until paid,
bear interest from the Redemption Date at the rate borne by the Convertible
Debenture.
SECTION 2209. CONVERTIBLE DEBENTURES REDEEMED IN PART.
In the event of any redemption in part, the Company shall not be
required to (i) issue, register the transfer of or exchange any Convertible
Debenture during a period beginning at 9:00 a.m. (New York City time) 15
Business Days before any selection for redemption of Convertible Debentures and
ending 5:00 p.m. (New York City time) on the earliest date in which the relevant
notice of redemption is deemed to have been given to all holders of Convertible
Debentures to be so redeemed or (ii) register the transfer of or exchange any
Convertible Debentures so selected for redemption, in whole or in part, except
for the unredeemed portion of any Convertible Debentures being redeemed in part.
Any Convertible Debenture which is to be redeemed only in part shall
be surrendered at a place of payment therefor (with, if the Company or the
Trustee so requires, due endorsement by, or a written instrument of transfer in
form satisfactory to the Company and the Trustee duly executed by, the Holder
thereof or his attorney duly authorized in writing), and the Company shall
execute, and the Trustee shall authenticate and make available for delivery to
the Holder of such Convertible Debenture without service charge, a new
Convertible Debenture or Convertible Debentures, of any authorized denomination
as requested by such Holder, in aggregate principal amount equal to and in
exchange for the unredeemed portion of the principal of the Convertible
Debenture so surrendered.
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SECTION 2210. NO SINKING FUND.
The Convertible Debentures are not entitled to the benefit of any
sinking fund.
SECTION 2211. MANDATORY REDEMPTION.
Upon (i) repayment at maturity or (ii) as a result of acceleration
upon the occurrence and continuation of an Event of Default, the Company shall
redeem the Outstanding Convertible Debentures in whole but not in part, at a
redemption price equal to 100% of the principal amount of such Convertible
Debentures plus any accrued and unpaid interest, including any Additional
Payments, to the date fixed for redemption. Any payment pursuant to this
section shall be made prior to 12:00 noon, New York City time, on the date of
such repayment or acceleration or at such other time on such earlier date as the
parties thereto shall agree.
SECTION 2212. EXCHANGE OF TRUST SECURITIES FOR CONVERTIBLE DEBENTURES.
At any time, the Company shall have the right to dissolve the Trust
and cause the Convertible Debentures to be distributed to the holders of the
Convertible Preferred Securities in dissolution of the Trust after satisfaction
of liabilities to creditors of the Trust in accordance with Section 314 and as
provided by applicable law.
ARTICLE XXIV
Subordination of Convertible Debentures
SECTION 2401. AGREEMENT TO SUBORDINATE.
The Company covenants and agrees, and each Holder of Convertible
Debentures by such Holder's acceptance thereof likewise covenants and agrees,
that all Convertible Debentures shall be issued subject to the provisions of
this Article Twelve; and each Holder of a Convertible Debenture, whether upon
original issue or upon transfer or assignment thereof, accepts and agrees to be
bound by such provisions. The payment by the Company of the principal of,
premium, if any, and interest (including Additional Payments, if any) on all
Convertible Debentures issued hereunder shall, to the extent and in the manner
hereinafter set forth, be subordinated and junior in right of payment to the
prior payment in full of all existing and future Senior Indebtedness, whether
outstanding at the date of this Indenture or thereafter incurred; PROVIDED
HOWEVER, that no provision of this Article Twelve shall prevent the occurrence
of any default or Event of Default hereunder.
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SECTION 2402. DEFAULT ON SENIOR INDEBTEDNESS.
(a) No payment (by set-off or otherwise) shall be made by or on
behalf of the Company on account of the principal of, premium, if any, or
interest on the Convertible Debentures (including any repurchases of Convertible
Debentures), or on account of the redemption provisions of the Convertible
Debentures, for cash or property (other than Junior Convertible Debentures or
from a Defeasance Trust), (i) upon the maturity of any Senior Indebtedness of
the Company by lapse of time, acceleration (unless waived) or otherwise, unless
and until all principal of, premium, if any, and the interest on such Senior
Indebtedness 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 Indebtedness of the Company having an aggregate principal
amount outstanding in excess of $5.0 million 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.
(b) Upon (i) the happening of an event of default (other than a
Payment Default) that permits the holder of Senior Indebtedness to declare such
Senior Indebtedness to be due and payable and (ii) written notice of such event
of default given to the Company 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 Indebtedness, which Senior
Indebtedness is designated by the Company ("Designated Senior Indebtedness") 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 the Company which is an
obligor under such Designated Senior Indebtedness on account of the principal
of, premium, if any, or interest on the Convertible Debentures (including any
repurchases of any of the Convertible Debentures), or on account of the
redemption provisions of the Convertible Debentures, in any such case, other
than payments made with Junior Convertible Debentures or from a Defeasance
Trust. Notwithstanding the foregoing, unless the Designated Senior Indebtedness
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, the
Company shall be required to pay all sums not paid to the Holders of the
Convertible Debentures during the Payment Blockage Period due to the foregoing
prohibitions and to resume all other payments as and when due on the Convertible
Debentures. 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
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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 Indebtedness) 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.
(c) Upon any distribution of assets of the Company upon any
dissolution, winding up, total or partial liquidation or reorganization of the
Company, 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, the provisions of Section
1203 of this Indenture shall apply.
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 Senior
Indebtedness is rescinded or must otherwise be returned by any holder of such
Senior Indebtedness upon the insolvency, bankruptcy or reorganization of the
Company or otherwise, all as though such payment has not been made.
SECTION 2403. LIQUIDATION; DISSOLUTION; BANKRUPTCY.
Upon any distribution of assets of the Company or upon any
dissolution, winding up, total or partial liquidation or reorganization of the
Company, 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:
(a) the holders of all Senior Indebtedness of the Company, 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 the principal of, premium, if any, and interest on the
Convertible Debentures or any Obligation in respect of the Convertible
Debentures (other than Junior Convertible Debentures or from a Defeasance
Trust);
(b) any payment or distribution of assets of the Company of any kind
or character from any source, whether in cash, property or securities (other
than Junior Convertible Debentures or from a Defeasance Trust) to which the
Holders or the Trustee on behalf of the Holders would be entitled (by set-off or
otherwise), except for the provisions of this Article Twelve, shall be paid by
the liquidating trustee or Agent or other person making such a payment or
distribution directly to the holders of such Senior Indebtedness or their
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representative to the extent necessary to make payment in full (or have such
payment duly provided for) on all such Senior Indebtedness remaining unpaid,
after giving effect to any concurrent payment or distribution to the holders of
such Senior Indebtedness; and
(c) in the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company (other than Junior Convertible Debentures
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 Indebtedness, and shall be paid or delivered by
the Trustee or such Holders, as the case may be, to the holders of such Senior
Indebtedness 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 Indebtedness may have been
issued, ratably according to the aggregate principal amounts remaining unpaid on
account of such Senior Indebtedness held or represented by each, for application
to the payment of all such Senior Indebtedness remaining unpaid, to the extent
necessary to pay all such Senior Indebtedness 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
Indebtedness.
SECTION 2404. SUBROGATION.
Subject to the payment in full in cash or Cash Equivalents of all
Senior Indebtedness of the Company as provided herein, the Holders of
Convertible Debentures shall be subrogated to the rights of the holders of such
Senior Indebtedness to receive payments or distributions of assets of the
Company applicable to the Senior Indebtedness until all amounts owing on the
Convertible Debentures shall be paid in full, and for the purpose of such
subrogation no such payments or distributions to the holders of such Senior
Indebtedness by or on behalf of the Company, or by or on behalf of the Holders
by virtue of this Article Twelve, which otherwise would have been made to the
Holders shall, as between the Company and the Holders, be deemed to be payment
by the Company or on account of such Senior Indebtedness, it being understood
that the provisions of this Article Twelve are and are intended solely for the
purpose of defining the relative rights of the Holders, on the one hand, and the
holders of such Senior Indebtedness, on the other hand.
If any payment or distribution to which the Holders would otherwise
have been entitled but for the provisions of this Article Twelve shall have been
applied, pursuant to the provisions of this Article Twelve, to the payment of
amounts payable under Senior
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Indebtedness of the Company, then the Holders shall be entitled to receive from
the holders of such Senior Indebtedness any payments or distributions received
by such holders of Senior Indebtedness in excess of the amount sufficient to pay
all amounts payable under or in respect of such Senior Indebtedness in full in
cash or Cash Equivalents.
SECTION 2405. TRUSTEE TO EFFECTUATE SUBORDINATION.
Each Holder of Convertible Debentures by such Holder's acceptance
thereof authorizes and directs the Trustee on such Holder's behalf to take such
action as may be necessary or appropriate to effectuate the subordination
provided in this Article Twelve and appoints the Trustee as such Holder's
attorney-in-fact for any and all such purposes.
SECTION 2406. NOTICE BY THE COMPANY.
The Company shall give prompt written notice to a Responsible Officer
of the Trustee of any fact known to the Company which would prohibit the making
of any payment of monies to or by the Trustee in respect of the Convertible
Debentures pursuant to the provisions of this Article Twelve. Notwithstanding
the provisions of this Article Twelve or any other provision of this Indenture,
the Trustee shall not be charged with knowledge of the existence of any facts
which would prohibit the making of any payment of monies to or by the Trustee in
respect of the Convertible Debentures pursuant to the provision of this Article
Twelve, unless and until a Responsible Officer of the Trustee shall have
received written notice thereof at the Corporate Trust Office of the Trustee
from the Company or a holder or holders of Senior Indebtedness or from any
trustee therefor; and before the receipt of any such written notice, the
Trustee, subject to the provisions of Section 603 hereof, shall be entitled in
all respects to assume that no such facts exist; PROVIDED, HOWEVER, that if the
Trustee shall not have received the notice provided for in this Section 1206 at
least two Business Days prior to the date upon which by the terms hereof any
money may become payable for any purpose (including, without limitation, the
payment of the principal of (and premium, if any) or interest (including
Additional Payments, if any) on any Convertible Debenture), then, anything
herein contained to the contrary notwithstanding, the Trustee shall have full
power and authority to receive such money and to apply the same to the purposes
for which they were received, and shall not be affected by any notice to the
contrary which may be received by it within two Business Days prior to such
date.
The Trustee, subject to the provisions of Section 603, shall be
entitled to rely on the delivery to it of a written notice by a Person
representing himself to be a holder of Senior Indebtedness (or a trustee on
behalf of such holder) to establish that such notice has been given by a holder
of such Senior Indebtedness or a trustee on behalf of any such holder or
holders. In the event that the Trustee determines in good faith that further
evidence is
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required with respect to the right of any Person as a holder of Senior
Indebtedness to participate in any payment or distribution pursuant to this
Article Twelve, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
held by such Person, the extent to which such Person is entitled to participate
in such payment or distribution and any other facts pertinent to the right of
such Person under this Article Twelve, and, if such evidence is not furnished,
the Trustee may defer any payment to such Person pending judicial determination
as to the right of such Person to receive such payment.
SECTION 2407. RIGHTS OF THE TRUSTEE; HOLDERS OF SENIOR INDEBTEDNESS.
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article Twelve in respect of any Senior Indebtedness at
any time held by it, to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of
its rights as such holder.
With respect to the holders of Senior Indebtedness of the Company, the
Trustee undertakes to perform or to observe only such of its covenants and
obligations as are set forth in this Article Twelve, and no implied covenants or
obligations with respect to the holders of such Senior Indebtedness shall be
read into this Indenture against the Trustee. The Trustee shall not be deemed
to owe any fiduciary duty to the holders of such Senior Indebtedness and,
subject to the provisions of Section 603, the Trustee shall not be liable to any
holder of such Senior Indebtedness if it shall pay over or deliver to Holders of
Convertible Debentures, the Company or any other Person money or assets to which
any holder of such Senior Indebtedness shall be entitled by virtue of this
Article Twelve or otherwise. With respect to the holders of Senior
Indebtedness, the Trustee undertakes to perform or to observe only such of its
covenants or obligations as are specifically set forth in this Article Twelve
and no implied covenants or obligations with respect to holders of Senior
Indebtedness shall be read into this Indenture against the Trustee.
SECTION 2408. SUBORDINATION MAY NOT BE IMPAIRED.
No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof which any such holder may have or
otherwise be charged with.
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Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Indebtedness may, at any time and from time to time,
without the consent of or notice to the Trustee or the Holders of the
Convertible Debentures, without incurring responsibility to the holders of the
Convertible Debentures and without impairing or releasing the subordination
provided in this Article Twelve or the obligations hereunder of the Holders of
the Convertible Debentures to the holders of Senior Indebtedness, do any one or
more of the following: (i) change the manner, place or terms of payment or
extend the time of payment of, or renew or alter, such Senior Indebtedness, or
otherwise amend or supplement in any manner such Senior Indebtedness or any
instrument evidencing the same or any agreement under which such Senior
Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with
any property pledged, mortgaged or otherwise securing such Senior Indebtedness;
(iii) release any Person liable in any manner for the collection of such Senior
Indebtedness; and (iv) exercise or refrain from exercising any rights against
the Company and any other Person.
ARTICLE XXVI
Conversion of Convertible Debentures
SECTION 2601. CONVERSION RIGHTS.
Subject to and upon compliance with the provisions of this Article,
the Convertible Debentures are convertible, at the option of the Holder, at any
time after June 28, 1998 and on or prior to 5:00 p.m. (New York City time) on
the Business Day immediately preceding the date of repayment of such Convertible
Debentures, whether at maturity or upon redemption (either at the option of the
Company or pursuant to a Tax Event), into fully paid and nonassessable shares of
Sun Common Stock of the Company at an initial conversion rate of 1.2419 shares
of Sun Common Stock for each $25 in aggregate principal amount of Convertible
Debentures (equal to a conversion price of $20.13 per share of Sun Common
Stock), subject to adjustment as described in this Article Thirteen. A Holder
of Convertible Debentures may convert any portion of the principal amount of the
Convertible Debentures into that number of fully paid and nonassessable shares
of Sun Common Stock (calculated as to each conversion to the nearest 1/100th of
a share) obtained by dividing the principal amount of the Convertible Debentures
to be converted by such conversion price. In case a Convertible Debenture or
portion thereof is called for redemption, such conversion right in respect of
the Convertible Debenture or portion so called shall expire at 5:00 p.m. (New
York City time) on the Business Day immediately preceding the corresponding
Redemption Date, unless the Company defaults in making the payment due upon
redemption.
SECTION 2602. CONVERSION PROCEDURES.
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(a) In order to convert all or a portion of the Convertible
Debentures, the Holder thereof shall deliver to the Conversion Agent an
irrevocable Notice of Conversion setting forth the principal amount of
Convertible Debentures to be converted, together with the name or names, if
other than the Holder, in which the shares of Sun Common Stock should be issued
upon conversion and, if such Convertible Debentures are definitive Convertible
Debentures, surrender to the Conversion Agent the Convertible Debentures to be
converted, duly endorsed or assigned to the Company or in blank. In addition, a
holder of Convertible Preferred Securities may exercise its right under the
Declaration to convert such Convertible Preferred Securities into Sun Common
Stock by delivering to the Conversion Agent an irrevocable Notice of Conversion
setting forth the information called for by the preceding sentence and directing
the Conversion Agent (i) to exchange such Convertible Preferred Security for a
portion of the Convertible Debentures held by the Trust (at an exchange rate of
$25 liquidation amount of Convertible Debentures for each Convertible Preferred
Security) and (ii) to immediately convert such Convertible Debentures, on behalf
of such holder, into Sun Common Stock of the Company pursuant to this Article
Thirteen and, if such Convertible Preferred Securities are in definitive form,
surrendering such Convertible Preferred Securities, duly endorsed or assigned to
the Company or in blank. So long as any Convertible Preferred Securities are
outstanding, the Trust shall not convert any Convertible Debentures except
pursuant to a Notice of Conversion delivered to the Conversion Agent by a holder
of Convertible Preferred Securities.
If a Notice of Conversion is delivered on or after the Regular Record
Date and prior to the subsequent Interest Payment Date, the Holder will be
entitled to receive the interest payable on the subsequent Interest Payment Date
on the portion of Convertible Debentures to be converted notwithstanding the
conversion thereof prior to such Interest Payment Date. Except as otherwise
provided in the immediately preceding sentence, in the case of any Convertible
Debenture which is converted, interest whose Stated Maturity is after the date
of conversion of such Convertible Debenture shall not be payable, and the
Company shall not make nor be required to make any other payment, adjustment or
allowance with respect to accrued but unpaid interest (including Additional
Payments, if any) on the Convertible Debentures being converted, which shall be
deemed to be paid in full. If any Convertible Debenture called for redemption
is converted, any money deposited with the Trustee or with any Paying Agent or
so segregated and held in trust for the redemption of such Convertible Debenture
shall (subject to any right of the Holder of such Convertible Debenture or any
Predecessor Security to receive interest as provided in the last paragraph of
Section 307 and this paragraph) be paid to the Company upon Company Request or,
if then held by the Company, shall be discharged from such trust.
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Each conversion shall be deemed to have been effected immediately
prior to 5:00 p.m. (New York City time) on the day on which the Notice of
Conversion was received (the "Conversion Date") by the Conversion Agent from the
Holder or from a holder of the Convertible Preferred Securities effecting a
conversion thereof pursuant to its conversion rights under the Declaration, as
the case may be. The Person or Persons entitled to receive the Sun Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such Sun Common Stock as of the Conversion Date. As
promptly as practicable on or after the Conversion Date, the Company shall issue
and deliver at the office of the Conversion Agent, unless otherwise directed by
the Holder in the Notice of Conversion, a certificate or certificates for the
number of full shares of Sun Common Stock issuable upon such conversion,
together with the cash payment, if any, in lieu of any fraction of any share to
the Person or Persons entitled to receive the same. The Conversion Agent shall
deliver such certificate or certificates to such Person or Persons.
(b) Subject to any right of the Holder of such Convertible Debenture
or any Predecessor Security to receive interest as provided in the last
paragraph of Section 307 and the second paragraph of Clause (a) of Section 1302,
the Company's delivery upon conversion of the fixed number of shares of Sun
Common Stock into which the Convertible Debentures are convertible (together
with the cash payment, if any, in lieu of fractional shares) shall be deemed to
satisfy the Company's obligation to pay the principal amount at Maturity of the
portion of Convertible Debentures so converted and any unpaid interest
(including Additional Payments, if any) accrued on such Convertible Debentures
at the time of such conversion.
(c) No fractional shares of Sun Common Stock will be issued as a
result of conversion, but in lieu thereof, the Company shall pay to the
Conversion Agent a cash adjustment in an amount equal to the same fraction of
the last reported sale price of such fractional interest on the date on which
the Convertible Debentures or Convertible Preferred Securities, as the case may
be, were duly surrendered to the Conversion Agent for conversion, or, if such
day is not a Trading Day, on the next Trading Day, and the Conversion Agent in
turn will make such payment, if any, to the Holder of the Convertible Debentures
or the holder of the Convertible Preferred Securities so converted.
(d) In the event of the conversion of any Convertible Debenture in
part only, a new Convertible Debenture or Convertible Debentures for the
unconverted portion thereof will be issued in the name of the Holder thereof
upon the cancellation thereof in accordance with Section 305.
(e) In effecting the conversion transactions described in this
Section, the Conversion Agent is acting as Agent of the holders of Convertible
Preferred Securities (in the exchange of Convertible Preferred Securities for
Convertible Debentures) and as Agent of the
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Holders of Convertible Debentures (in the conversion of Convertible Debentures
into Sun Common Stock), as the case may be, directing it to effect such
conversion transactions. The Conversion Agent is hereby authorized (i) to
exchange Convertible Debentures held by the Trust from time to time for
Convertible Preferred Securities in connection with the conversion of such
Convertible Preferred Securities in accordance with this Article Thirteen and
(ii) to convert all or a portion of the Convertible Debentures into Sun Common
Stock and thereupon to deliver such shares of Sun Common Stock in accordance
with the provisions of this Article Thirteen and to deliver to the Trust a new
Convertible Debenture or Convertible Debentures for any resulting unconverted
principal amount.
(f) Except as provided in Section 202, all shares of Sun Common Stock
delivered upon any conversion of Restricted Securities shall bear a Restrictive
Securities Legend substantially in the form of the legend required to be set
forth on such Convertible Debentures and shall be subject to the restrictions on
transfer provided in such legend and in Section 314 hereof. Neither the Trustee
nor the Conversion Agent shall have any responsibility for the inclusion or
content of any such Restrictive Securities Legend on such Sun Common Stock;
PROVIDED, HOWEVER, that the Trustee or the Conversion Agent shall have provided
to the Company or to the Company's transfer Agent for such Sun Common Stock,
prior to or concurrently with a request to the Company to deliver to such
Conversion Agent certificates for such Sun Common Stock, written notice that the
Convertible Debentures delivered for conversion are Restricted Securities.
SECTION 2603. CONVERSION PRICE ADJUSTMENTS.
The conversion price shall be subject to adjustment (without
duplication) from time to time as follows:
(a) In case the Company shall, while any of the Convertible
Debentures are outstanding, (i) pay a dividend or make a distribution with
respect to its Sun Common Stock in shares of Sun Common Stock, (ii) subdivide
its outstanding shares of Sun Common Stock, (iii) combine its outstanding shares
of Sun Common Stock into a smaller number of shares or (iv) issue by
reclassification of its shares of Sun Common Stock any shares of capital stock
of the Company, the conversion price in effect immediately prior to such action
shall be adjusted so that the Holder of any Convertible Debentures thereafter
surrendered for conversion shall be entitled to receive the number of shares of
capital stock of the Company which he would have owned immediately following
such action had such Convertible Debentures been converted immediately prior
thereto. An adjustment made pursuant to this Section 1303(a) shall become
effective immediately after the record date in the case of a dividend or other
distribution and shall become effective immediately after the effective date in
case of a subdivision, combination or reclassification (or immediately after the
record date
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if a record date shall have been established for such event). If, as a result
of an adjustment made pursuant to this Section 1303(a), the Holder of any
Convertible Debenture thereafter surrendered for conversion shall become
entitled to receive shares of two or more classes or series of capital stock of
the Company, the Board of Directors (whose determination shall be conclusive and
shall be described in a Board Resolution filed with the Trustee) shall determine
the allocation of the adjusted conversion price between or among shares of such
classes or series of capital stock.
(b) In case the Company shall, while any of the Convertible
Debentures are outstanding, issue rights or warrants to all holders of its Sun
Common Stock entitling them (for a period expiring within 45 days after the
record date mentioned in this Section 1303(b)) to subscribe for or purchase
shares of Sun Common Stock at a price per share less than the current market
price per share of Sun Common Stock (as determined pursuant to 1303(f) below) on
such record date, the conversion price for the Convertible Debentures shall be
adjusted so that the same shall equal the price determined by multiplying the
conversion price in effect immediately prior to the date of issuance of such
rights or warrants by a fraction of which the numerator shall be the number of
shares of Sun Common Stock outstanding on the date of issuance of such rights or
warrants plus the number of shares which the aggregate offering price of the
total number of shares so offered for subscription or purchase would purchase at
such current market price, and of which the denominator shall be the number of
shares of Sun Common Stock outstanding on the date of issuance of such rights or
warrants plus the number of additional shares of Sun Common Stock offered for
subscription or purchase. Such adjustment shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such rights or warrants. For the purposes of this subsection, the number of
shares of Sun Common Stock at any time outstanding shall not include shares held
in the treasury of the Company. The Company shall not issue any rights or
warrants in respect of shares of Sun Common Stock held in the treasury of the
Company. In case any rights or warrants referred to in this subsection in
respect of which an adjustment shall have been made shall expire unexercised
within 45 days after the same shall have been distributed or issued by the
Company, the conversion price shall be readjusted at the time of such expiration
to the conversion price that would have been in effect if no adjustment had been
made on account of the distribution or issuance of such expired rights or
warrants. In determining whether any rights, options or warrants entitle the
holder to subscribe for or purchase Sun Common Stock at less than the Current
Market Price, and in determining the aggregate offering price of such shares of
Sun Common Stock, there shall be taken into account any consideration received
for such rights, options or warrants, the value of such consideration, if other
than cash, to be determined by the Board of Directors. Notwithstanding this
Article XIII, no adjustment will be made pursuant to this Article if the Company
makes proper provision for each Holder of Convertible Preferred Securities who
converts a Convertible Preferred Security to receive, in addition to the Sun
Common Stock
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issuable upon such conversion, the kind and amount of assets (including
securities) if such Holder had been a holder of the Common Stock at the time of
the distribution of such assets or securities. Rights, options or warrants
distributed by the Company to all holders of the Sun Common Stock that entitle
the holders thereof to purchase shares of the Company's capital stock and that,
until the occurrence of an event (a "Triggering Event"), (i) are deemed to be
transferred with the Sun Common Stock, (ii) are not exercisable and (iii) are
also issued in respect of future issuances of Sun Common Stock, shall not be
deemed to be distributed until the occurrence of the Triggering Event.
(c) Subject to the last sentence of this Section 1303(c), in case
the Company shall, by dividend or otherwise, distribute to all holders of its
Sun Common Stock evidences of its indebtedness, shares of any class or series
of capital stock, cash or assets (including securities, but excluding any
rights or warrants referred to in Section 1303(b) and dividends and
distributions in connection with the liquidation, dissolution or winding up
of the Company and dividends and distributions paid exclusively in cash and
any dividend or distribution referred to in Section 1303(a)), the conversion
price shall be reduced so that the same shall equal the price determined by
multiplying the conversion price in effect immediately prior to the
effectiveness of the conversion price reduction contemplated by this Section
1303(c) by a fraction of which the numerator shall be the current market
price per share (determined as provided in Section 1303(f)) of Sun Common
Stock on the date fixed for the payment of such distribution (the "Reference
Date") less the fair market value (as determined in good faith by the Board
of Directors, whose determination shall be conclusive and described in a
resolution of the Board of Directors), on the Reference Date, of the portion
of the evidences of indebtedness, shares of capital stock, cash and assets so
distributed applicable to one share of Sun Common Stock and the denominator
shall be such current market price per share of the Sun Common Stock, such
reduction to become effective immediately prior to the opening of business on
the day following the Reference Date. In the event that such dividend or
distribution is not so paid or made, the conversion price shall again be
adjusted to be the conversion price which would then be in effect if such
dividend or distribution had not occurred. If the Board of Directors
determines the fair market value of any distribution for purposes of this
Section 1303(c) by reference to the actual or when issued trading market for
any securities comprising such distribution, it must in doing so consider the
prices in such market over the same period used in computing the current
market price per share of Sun Common Stock (determined as provided in Section
1303(f)). For purposes of this Section 1303(c), any dividend or distribution
that includes shares of Sun Common Stock or rights or warrants to subscribe
for or purchase shares of Sun Common Stock shall be deemed instead to be (1)
a dividend or distribution of the evidences of indebtedness, shares of
capital stock, cash or assets other than such shares of Sun Common Stock or
such rightsor warrants (making any conversion price reduction required by
this Section 1303(c)) immediately followed by (2) a dividend or distribution
of such shares of Sun Common Stock or such rights
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or warrants (making any further conversion price reduction required by
Section 1303(a) or 1303(b)), except (A) the Reference Date of such dividend
or distribution as defined in this 1303(c) shall be substituted as (a) "the
record date in the case of a dividend or other distribution," and (b) "the
record date for the determination of stockholders entitled to receive such
rights or warrants" and (c) "the date fixed for such determination" within
the meaning of Sections 1303(a) and 1303(b) and (B) any shares of Sun Common
Stock included in such dividend or distribution shall not be deemed
outstanding for purposes of computing any adjustment of the conversion price
in Section 1303(a).
(d) In case the Company shall pay or make a dividend or other
distribution on its Sun Common Stock exclusively in cash (excluding any cash
portion of distributions referred to in Section 1303(c) or in connection with a
consolidation, merger or sale of assets of the Company as referred to in Section
1304(c)), excluding cash dividends if such dividends (and other distributions)
together with all other such all-cash dividends and distributions made within
the preceding 12 months in respect of which no adjustment has been made do not
exceed 20% of the Company's current capitalization (being the product of the
then current market price per share determined as provided in Section 1303(f) of
Sun Common Stock times the number of shares of Sun Common Stock then
outstanding) on the Trading Day immediately preceding the date of declaration of
such dividend, the conversion price shall be reduced so that the same shall
equal the price determined by multiplying the conversion price in effect
immediately prior to the effectiveness of the conversion price reduction
contemplated by this Section 1303(d) by a fraction of which the numerator shall
be the current market price per share (determined as provided in Section
1303(f)) of the Sun Common Stock on the date fixed for the payment of such
distribution less the amount of cash so distributed and not excluded as provided
applicable to one share of Sun Common Stock and the denominator shall be such
current market price per share of the Sun Common Stock, such reduction to become
effective immediately prior to the opening of business on the day following the
date fixed for the payment of such distribution; PROVIDED, HOWEVER, that in the
event the portion of the cash so distributed applicable to one share of Sun
Common Stock is equal to or greater than the current market price per share (as
defined in Section 1303(f)) of the Sun Common Stock on the record date mentioned
above, in lieu of the foregoing adjustment, adequate provision shall be made so
that each Holder of Convertible Debentures shall have the right to receive upon
conversion the amount of cash such Holder would have received had such Holder
converted each Convertible Debenture immediately prior to the record date for
the distribution of the cash. In the event that such dividend or distribution
is not so paid or made, the conversion price shall again be adjusted to be the
conversion price which would then be in effect if such record date had not been
fixed.
(e) In case a tender or exchange offer (other than an odd-lot offer)
made by the Company or any Subsidiary of the Company for all or any portion of
the Sun Common
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Stock shall expire and such tender or exchange offer shall involve the payment
by the Company or such Subsidiary of consideration per share of Sun Common Stock
having a fair market value (as determined in good faith by the Board of
Directors, whose determination shall be conclusive and described in a resolution
of the Board of Directors) at the last time (the "Expiration Time") tenders or
exchanges may be made pursuant to such tender or exchange offer (as it shall
have been amended) that exceeds 110% of the current market price per share
(determined as provided in Section 1303(f)) of the Sun Common Stock on the
Trading Day next succeeding the Expiration Time, the conversion price shall be
reduced so that the same shall equal the price determined by multiplying the
conversion price in effect immediately prior to the effectiveness of the
conversion price reduction contemplated by this Section 1303(e) by a fraction of
which the numerator shall be the number of shares of Sun Common Stock
outstanding (including any tendered or exchanged shares) at the Expiration Time
multiplied by the current market price per share (determined as provided in
Section 1303(f)) of the Sun Common Stock on the Trading Day next succeeding the
Expiration Time and the denominator shall be the sum of (x) the fair market
value (determined as aforesaid) of the aggregate consideration payable to
stockholders based on the acceptance (up to any maximum specified in the terms
of the tender or exchange offer) of all shares validly tendered or exchanged and
not withdrawn as of the Expiration Time (the shares deemed so accepted, up to
any such maximum, being referred to as the "Purchased Shares") and (y) the
product of the number of shares of Sun Common Stock outstanding (less any
Purchased Shares) at the Expiration Time and the current market price per share
(determined as provided in Section 1303(f)) of the Sun Common Stock on the
Trading Day next succeeding the Expiration Time, such reduction to become
effective immediately prior to the opening of business on the day following the
Expiration Time.
(f) For the purpose of any computation under Section 1303(b),
1303(c), 1303(d) or 1303(e), the current market price per share of Sun Common
Stock on any date in question shall be deemed to be the average of the daily
Closing Prices for the five consecutive Trading Days selected by the Company
commencing not more than 20 Trading Days before, and ending not later than, the
earlier of the day in question or, if applicable, the day before the "ex" date
with respect to the issuance or distribution requiring such computation;
PROVIDED, HOWEVER, that if another event occurs that would require an adjustment
pursuant to Section 1303(a) through (e), inclusive, the Board of Directors may
make such adjustments to the Closing Prices during such five Trading Day period
as it deems appropriate to effectuate the intent of the adjustments in this
Section 1303, in which case any such determination by the Board of Directors
shall be set forth in a Board Resolution and shall be conclusive. For purposes
of this paragraph, the term "ex" date, (i) when used with respect to any
issuance or distribution, means the first date on which the Sun Common Stock
trades regular way on the New York Stock Exchange or on such successor
securities exchange as the Sun Common Stock may be listed or in the relevant
market from which the Closing Prices
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were obtained without the right to receive such issuance or distribution, and
(ii) when used with respect to any tender or exchange offer, means the first
date on which the Sun Common Stock trades regular way on such securities
exchange or in such market after the Expiration Time of such offer.
(g) The Company may make such reductions in the conversion price, in
addition to those required by Sections 1303 (a) through (e), as it considers to
be advisable to avoid or diminish any income tax to holders of Sun Common Stock
or rights to purchase Sun Common Stock resulting from any dividend or
distribution of stock (or rights to acquire stock) or from any event treated as
such for income tax purposes. The Company from time to time may reduce the
conversion price by any amount for any period of time if the period is at least
20 days, the reduction is irrevocable during the period, and the Board of
Directors of the Company shall have made a determination that such reduction
would be in the best interest of the Company, which determination shall be
conclusive. Whenever the conversion price is reduced pursuant to the preceding
sentence, the Company shall mail to holders of record of the Convertible
Debentures a notice of the reduction at least 15 days prior to the date the
reduced conversion price takes effect, and such notice shall state the reduced
conversion price and the period it will be in effect.
(h) No adjustment in the conversion price shall be required unless
such adjustment would require an increase or decrease of at least 1% in the
conversion price; PROVIDED, HOWEVER, that any adjustments which by reason of
this Section 1303(h) are not required to be made shall be carried forward and
taken into account in determining whether any subsequent adjustment shall be
required.
(i) If any action would require adjustment of the conversion price
pursuant to more than one of the provisions described above, only one adjustment
shall be made and such adjustment shall be the amount of adjustment that has the
highest absolute value to the Holder of the Convertible Debentures.
(j) Except as stated above, the conversion price will not be adjusted
for the issuance of Sun Common Stock or any securities convertible into or
exchangeable into Sun Common Stock or carrying the right to purchase any of the
foregoing.
SECTION 2604. FUNDAMENTAL CHANGE.
(a) In the event that the Company is party to any transaction
(including, without limitation, a merger other than a merger that does not
result in a reclassification, conversion, exchange or cancellation of Sun Common
Stock), consolidation, sale of all or substantially all of the assets of the
Company, recapitalization or reclassification of Sun
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<PAGE>
Common Stock (other than a change in par value, or from par value to no par
value, or from no par value to par value or as a result of a subdivision or
combination of Sun Common Stock) or any compulsory share exchange (each of the
foregoing being referred to as a "Transaction"), in each case, as a result of
which shares of Sun Common Stock shall be converted into the right to receive,
or shall be exchanged for, (i) in the case of any Transaction other than a
Transaction involving a Common Stock Fundamental Change (and subject to funds
being legally available for such purpose under applicable law at the time of
such conversion), securities, cash or other property, each Convertible Preferred
Security shall thereafter be convertible into the kind and, in the case of a
Transaction which does not involve a Fundamental Change, amount of securities,
cash and other property receivable upon the consummation of such Transaction by
a holder of that number of shares of Sun Common Stock into which a Convertible
Preferred Security was convertible immediately prior to such Transaction, or
(ii) in the case of a Transaction involving a Common Stock Fundamental Change,
common stock, each Convertible Preferred Security shall thereafter be
convertible (in the manner described therein) into common stock of the kind
received by holders of Sun Common Stock (but in each case after giving effect to
any adjustment discussed below relating to a Fundamental Change if such
Transaction constitutes a Fundamental Change). The holders of Convertible
Preferred Securities will have no voting rights with respect to any Transaction.
(b) If any Fundamental Change occurs, then the conversion price in
effect will be adjusted immediately after such Fundamental Change as described
below. In addition, in the event of a Common Stock Fundamental Change, each
Convertible Preferred Security shall be convertible solely into common stock of
the kind received by holders of Sun Common Stock as a result of such Common
Stock Fundamental Change.
(c) The conversion price in the case of any Transaction involving a
Fundamental Change will be adjusted immediately after such Fundamental Change:
(i) in the case of a Non-Stock Fundamental Change, the
conversion price of the Convertible Preferred Securities will
thereupon become the lower of (A) the conversion price in effect
immediately prior to such Non-Stock Fundamental Change, but after
giving effect to any other prior adjustments effected pursuant to the
preceding paragraphs, and (B) the greater of the Applicable Price or
the then applicable Reference Market Price plus any then-accrued and
unpaid distributions on one Convertible Preferred Security; and
(ii) in the case of a Common Stock Fundamental Change, the
conversion price of the Convertible Preferred Securities in effect
immediately prior to such Common Stock Fundamental Change, but after
giving effect to
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any other prior adjustments effected pursuant to the preceding
paragraphs, will thereupon be adjusted by multiplying such conversion
price by a fraction of which the numerator will be the Purchaser Stock
Price and the denominator will be the Applicable Price; provided,
however, that in the event of a Common Stock Fundamental Change in
which (A) 100% of the value of the consideration received by a holder
of Sun Common Stock is common stock of the successor, acquirer, or
other third party (and cash, if any, is paid only with respect to any
fractional interests in such common stock resulting from such Common
Stock Fundamental Change) and (B) all Sun Common Stock will be have
been exchanged for, converted into, or acquired for common stock (and
cash with respect to fractional interests) of the successor, acquirer,
or other third party, the conversion price of the Convertible
Preferred Securities in effect immediately prior to such Common Stock
Fundamental Change will thereupon be adjusted by multiplying such
conversion price by a fraction of which the numerator will be one and
the denominator will be the number of shares of common stock of the
successor, acquirer, or other third party received by a holder of one
share of Sun Common Stock as a result of such Common Stock Fundamental
Change.
The Company or the Person formed by such consolidation or resulting
from such merger or which acquired such assets or which acquires the Company's
shares, as the case may be, shall make provision in its certificate or articles
of incorporation or other constituent document to establish such right. Such
certificate or articles of incorporation or other constituent document shall
provide for adjustments which, for events subsequent to the effective date of
such certificate or articles of incorporation or other constituent document,
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Article Thirteen. The above provisions shall similarly apply to
successive transactions of the foregoing type.
SECTION 2605. NOTICE OF ADJUSTMENTS OF CONVERSION PRICE.
Whenever the conversion price is adjusted as herein provided:
(a) the Company shall compute the adjusted Conversion Price and shall
prepare a certificate signed by the Chief Financial Officer or the Treasurer of
the Company setting forth the adjusted Conversion Price and showing in
reasonable detail the facts upon which such adjustment is based, and such
certificate shall forthwith be filed with the Trustee, the Conversion Agent and
the transfer Agent for the Convertible Preferred Securities and the Convertible
Debentures; and
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<PAGE>
(b) a notice stating the Conversion Price has been adjusted and
setting forth the adjusted Conversion Price shall as soon as practicable be
mailed by the Company to all record holders of Convertible Preferred Securities
and the Convertible Debentures at their last addresses as they appear upon the
stock transfer books of the Company and the Trust.
SECTION 2606. PRIOR NOTICE OF CERTAIN EVENTS.
In case:
(a) the Company shall (i) declare any dividend (or any other
distribution) on its Sun Common Stock, other than (A) a dividend payable in
shares of Sun Common Stock or (B) a dividend payable in cash that would not
require an adjustment pursuant to Section 1303(c) or 1303(d), or (ii) authorize
a tender or exchange offer that would require an adjustment pursuant to Section
1303(e);
(b) the Company shall authorize the granting to all holders of Sun
Common Stock of rights or warrants to subscribe for or purchase any shares of
stock of any class or series or of any other rights or warrants;
(c) of any reclassification of Sun Common Stock (other than a
subdivision or combination of the outstanding Sun Common Stock, or a change in
par value, or from par value to no par value, or from no par value to par
value), or of any consolidation or merger to which the Company is a party and
for which approval of any stockholders of the Company shall be required, or of
the sale or transfer of all or substantially all of the assets of the Company or
of any compulsory share exchange whereby the Sun Common Stock is converted into
other securities, cash or other property; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company;
then the Company shall (1) if any Convertible Preferred Securities are
outstanding, cause to be filed with the transfer Agent for the Convertible
Preferred Securities, and shall cause to be mailed to the holders of record of
the Convertible Preferred Securities, at their last addresses as they shall
appear upon the stock transfer books the Trust or (2) shall cause to be mailed
to all Holders at their last addresses as they shall appear in the Security
Register, at least 15 days prior to the applicable record or effective date
hereinafter specified, a notice stating (x) the date on which a record (if any)
is to be taken for the purpose of such dividend, distribution, rights or
warrants or, if a record is not to be taken, the date as of which the holders of
Sun Common Stock of record to be entitled to such dividend, distribution, rights
or warrants are to be determined or (y) the date on which such reclassification,
consolidation,
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<PAGE>
merger, sale, transfer, share exchange, dissolution, liquidation or winding up
is expected to become effective, and the date as of which it is expected that
holders of Sun Common Stock of record shall be entitled to exchange their shares
of Sun Common Stock for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer, share exchange,
dissolution, liquidation or winding up (but no failure to mail such notice or
any defect therein or in the mailing thereof shall affect the validity of the
corporate action required to be specified in such notice).
SECTION 2607. CERTAIN DEFINED TERMS.
The following definitions shall apply to terms used in this Article
Thirteen:
(a) "CLOSING PRICE" of any Sun Common Stock on any day shall mean the
reported last sale price on such day or in case no sale takes place on such day,
the average of the reported closing bid and asked prices in each case on the New
York Stock Exchange Consolidated Transactions Tape or, if the stock is not
listed or admitted to trading on the New York Stock Exchange, on the principal
national securities exchange on which such stock is listed or admitted to
trading or, if not listed or admitted to trading on any national securities
exchange, the average of the closing bid and asked prices as furnished by any
New York Stock Exchange member firm, selected by the Debenture Trustee for that
purpose.
(b) "TRADING DAY" shall mean a day on which securities are traded on
the national securities exchange or quotation system used to determine the
Closing Price.
SECTION 2608. DIVIDEND OR INTEREST REINVESTMENT PLANS.
Notwithstanding the foregoing provisions, the issuance of any shares
of Sun Common Stock pursuant to any plan providing for the reinvestment of
dividends or interest payable on securities of the Company and the investment of
additional optional amounts in shares of Sun Common Stock under any such plan,
and the issuance of any shares of Sun Common Stock or options or rights to
purchase such shares pursuant to any employee benefit plan or program of the
Company or pursuant to any option, warrant, right or exercisable, exchangeable
or convertible security outstanding as of the date the Convertible Debentures
were first issued, shall not be deemed to constitute an issuance of Sun Common
Stock or exercisable, exchangeable or convertible securities by the Company to
which any of the adjustment provisions described above applies. There shall
also be no adjustment of the conversion price in case of the issuance of any
stock (or securities convertible into or exchangeable for stock) of the Company
except as specifically described in this Article Thirteen.
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<PAGE>
SECTION 2609. CERTAIN ADDITIONAL RIGHTS.
In case the Company shall, by dividend or otherwise, declare or make a
distribution on its Sun Common Stock referred to in Section 1303(c) or 1303(d)
(including, without limitation, dividends or distributions referred to in the
last sentence of Section 1303(c)), the Holder of the Convertible Debentures,
upon the conversion thereof subsequent to 5:00 p.m. (New York City time) on the
date fixed for the determination of stockholders entitled to receive such
distribution and prior to the effectiveness of the conversion price adjustment
in respect of such distribution, shall also be entitled to receive for each
share of Sun Common Stock into which the Convertible Debentures are converted,
the portion of the shares of Sun Common Stock, rights, warrants, evidences of
indebtedness, shares of capital stock, cash and assets so distributed applicable
to one share of Sun Common Stock; PROVIDED, HOWEVER, that, at the election of
the Company (whose election shall be evidenced by a resolution of the Board of
Directors) with respect to all Holders so converting, the Company may, in lieu
of distributing to such Holder any portion of such distribution not consisting
of cash or securities of the Company, pay such Holder an amount in cash equal to
the fair market value thereof (as determined in good faith by the Board of
Directors, whose determination shall be conclusive and described in a resolution
of the Board of Directors). If any conversion of Convertible Debentures
described in the immediately preceding sentence occurs prior to the payment date
for a distribution to holders of Sun Common Stock which the Holder of
Convertible Debentures so converted is entitled to receive in accordance with
the immediately preceding sentence, the Company may elect (such election to be
evidenced by a resolution of the Board of Directors) to distribute to such
Holder a due bill for the shares of Sun Common Stock, rights, warrants,
evidences of indebtedness, shares of capital stock, cash or assets to which such
Holder is so entitled, PROVIDED, that such due bill (i) meets any applicable
requirements of the principal national securities exchange or other market on
which the Sun Common Stock is then traded and (ii) requires payment or delivery
of such shares of Sun Common Stock, rights, warrants, evidences of indebtedness,
shares of capital stock, cash or assets no later than the date of payment or
delivery thereof to holders of shares of Sun Common Stock receiving such
distribution.
SECTION 2610. RESTRICTIONS ON SUN COMMON STOCK ISSUABLE UPON CONVERSION.
(a) Shares of Sun Common Stock to be issued upon conversion of a
Convertible Debenture in respect of Restricted Convertible Preferred Securities
shall bear the following legend (the "Restricted Common Stock Legend") unless
the Company determines otherwise in accordance with applicable law.
THE COMMON STOCK EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
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<PAGE>
OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS SECURITY BY ITS
ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY,
PRIOR TO THE DATE WHICH IS AFTER THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE
TO SALES THEREOF UNDER RULE 144(k) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR
RULE) (THE "RESALE RESTRICTION TERMINATION DATE") ONLY (A) TO SUN HEALTHCARE
GROUP, INC. (THE "COMPANY") (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT, (C) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN
THE MEANING OF SUBPARAGRAPH (a)(1), (2), (3) OR (7) OF RULE 501 UNDER THE
SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE
ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES
AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY
DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (D) PURSUANT TO ANOTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT,
SUBJECT TO THE COMPANY'S AND THE TRANSFER AGENT'S RIGHT PRIOR TO ANY SUCH OFFER,
SALE OR TRANSFER (i) PURSUANT TO CLAUSES (C) OR (D) TO REQUIRE THE DELIVERY OF
AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO
EACH OF THEM, AND (ii) IN EACH OF THE FOREGOING CASES TO REQUIRE THAT A
CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THIS SECURITY IS COMPLETED AND
DELIVERED BY THE TRANSFEROR TO THE TRANSFER AGENT. THIS LEGEND WILL BE REMOVED
UPON THE REQUEST OF A HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.
(b) If shares of Sun Common Stock to be issued upon conversion of a
Convertible Debenture in respect of Restricted Convertible Preferred Securities
are to be registered in a name other than that of the Holder of such Convertible
Preferred Security, then the Person in whose name such shares of Sun Common
Stock are to be registered must deliver to the Conversion Agent a certificate
satisfactory to the Company and signed by such Person, as to compliance with the
restrictions on transfer applicable to such Convertible Preferred Security.
Neither the Trustee nor any Conversion Agent or Registrar shall be required to
register in a name other than that of the Holder shares of Sun Common Stock
issued upon conversion of any such Convertible Debenture in respect of such
Convertible Preferred Securities not so accompanied by a properly completed
certificate.
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<PAGE>
SECTION 2611. TRUSTEE NOT RESPONSIBLE FOR DETERMINING CONVERSION PRICE OR
ADJUSTMENTS.
Neither the Trustee nor any Conversion Agent shall at any time be
under any duty or responsibility to any Holder of any Convertible Debenture to
determine whether any facts exist which may require any adjustment of the
conversion price, or with respect to the nature or extent of any such adjustment
when made, or with respect to the method employed, or herein or in any
supplemental indenture provided to be employed, in making the same. Neither the
Trustee nor any Conversion Agent shall be accountable with respect to the
validity or value (or the kind of account) of any shares of Sun Common Stock or
of any securities or property, which may at any time be issued or delivered upon
the conversion of any Convertible Debenture; and neither the Trustee nor any
Conversion Agent makes any representation with respect thereto. Neither the
Trustee nor any Conversion Agent shall be responsible for any failure of the
Company to make any cash payment or to issue, transfer or deliver any shares of
Sun Common Stock or stock certificates or other securities or property upon the
surrender of any Convertible Debenture for the purpose of conversion, or, except
as expressly herein provided, to comply with any of the covenants of the Company
contained in Article Ten or this Article Thirteen.
ARTICLE XXVIII
Immunity of Incorporators, Stockholders,
Officers and Directors
SECTION 2801. NO RECOURSE.
No recourse under or upon any obligation, covenant or agreement of
this Indenture, or of any Convertible Debenture, or for any claim based thereon
or otherwise in respect thereof, shall be had against any incorporator,
stockholder, officer or director, past, present or future as such, of the
Company or of any predecessor or successor corporation, either directly or
through the Company or any such predecessor or successor corporation, whether by
virtue of any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise; it being expressly understood that this
Indenture and the obligations issued hereunder are solely corporate obligations,
and that no such personal liability whatever shall attach to, or is or shall be
incurred by, the incorporators, stockholders, officers or directors as such, of
the Company or of any predecessor or successor corporation, or any of them,
because of the creation of the indebtedness hereby authorized, or under or by
reason of the obligations, covenants or agreements contained in this Indenture
or in any of the Convertible Debentures or implied therefrom; and that any and
all such personal liability of
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every name and nature, either at common law or in equity or by constitution or
statute, of, and any and all such rights and claims against, every such
incorporator, stockholder, officer or director as such, because of the creation
of the indebtedness hereby authorized, or under or by reason of the obligations,
covenants or agreements contained in this Indenture or in any of the Convertible
Debentures or implied therefrom, are hereby expressly waived and released as a
condition of, and as a consideration for, the execution of this Indenture and
the issuance of such Convertible Debentures.
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the day and year first above written.
SUN HEALTHCARE GROUP, INC.,
as Issuer
By: /s/ Robert D. Woltil
---------------------------------------
Name: Robert D. Woltil
Title: Chief Financial Officer
THE BANK OF NEW YORK,
as Trustee
By: /s/ Mary Legumina
---------------------------------------
Name: Mary LeGumina
Title: Assistant Vice President
<PAGE>
EXHIBIT A
FORM OF CONVERTIBLE DEBENTURE
[FACE OF CONVERTIBLE DEBENTURE]
[Include if Convertible Debenture is in global form:
THIS CONVERTIBLE DEBENTURE IS A GLOBAL CERTIFICATE WITHIN THE MEANING
OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME
OF A DEPOSITARY OR A NOMINEE THEREOF. THIS CONVERTIBLE DEBENTURE MAY
NOT BE EXCHANGED IN WHOLE OR IN PART FOR A CONVERTIBLE DEBENTURE
REGISTERED, AND NO TRANSFER OF THIS CONVERTIBLE DEBENTURE IN WHOLE OR
IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH
DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES
DESCRIBED IN THE INDENTURE.]
[Include if Convertible Debenture is in global form and The Depository
Trust Company is the Depositary:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED SIGNATORY OF THE
DEPOSITORY TRUST COMPANY ("DTC") TO THE TRUST OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN. ]
THIS SECURITY AND ANY COMMON STOCK ISSUED ON CONVERSION HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS
<PAGE>
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR
NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE
HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR
OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE WHICH IS AFTER THE
EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES THEREOF UNDER RULE
144(k) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR RULE) (THE "RESALE
RESTRICTION TERMINATION DATE") ONLY (A) TO SUN HEALTHCARE GROUP, INC., (THE
"COMPANY") (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON
IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN
RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144A, (D) TO AN INSTITUTIONAL "ACCREDITED
INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (a)(1), (2), (3) OR (7) OF
RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS
OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED
INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR
SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES
ACT, OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE
TRANSFER AGENT'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i)
PURSUANT TO CLAUSES (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF
COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF
THEM, AND (ii) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A
CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON
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<PAGE>
THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRANSFER
AGENT, THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF A HOLDER AFTER THE
RESALE RESTRICTION TERMINATION DATE.
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<PAGE>
7% Convertible Junior Subordinated Debenture Due 2028
No. 1
$_______
Sun Healthcare Group, Inc., a corporation duly organized and existing
under the laws of the State of Delaware (herein called the "Company", which term
includes any successor Person under the Indenture hereinafter referred to), for
value received, hereby promises to pay to Sun Financing I, or registered
assigns, the principal sum of_______________________________________________
_____________________ Dollars ($ __________) on May 1, 2028 and to pay interest
thereon from May 4, 1998 or from the most recent Interest Payment Date to which
interest has been paid or duly provided for, as the case may be, payable
quarterly (subject to deferral as set forth in the Indenture), in arrears, on
February 1, May 1, August 1 and November 1 (each an "Interest Payment Date") of
each year, commencing August 1, 1998, until the principal thereof is paid or
made available for payment, and they shall be paid to the Person in whose name
the Convertible Debenture is registered at 5:00 p.m. (New York City time) on the
regular record date for such interest installment, which shall be the close of
business on the Business Day next preceding such Interest Payment Date (provided
that the Company has not set a new record date pursuant to the Indenture) (the
"Regular Record Date").
Reference is hereby made to the further provisions of this Convertible
Debenture set forth on the reverse hereof, which further provisions shall for
all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this
Convertible Debenture shall not be entitled to any benefit under the Indenture
or be valid or obligatory for any purpose.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated: May 4, 1998
SUN HEALTHCARE GROUP, INC.
By:
----------------------------------
Name: Robert D. Woltil
Title: Chief Financial Officer
[Seal]
Attest:
--------------------------------
Name: Robert F. Murphy
Title: Secretary
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<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Convertible Debentures referred to in the
within-mentioned Indenture.
Dated:
THE BANK OF NEW YORK, as Trustee
By:
---------------------------
Authorized Signatory
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<PAGE>
[FORM OF REVERSE OF CONVERTIBLE DEBENTURE]
This Convertible Debenture is one of a duly authorized issue of
securities of the Company designated as its 7% Convertible Junior Subordinated
Debenture Due 2028 (herein called the "Convertible Debentures"), in aggregate
principal amount of $355,670,131.25, issued and to be issued under an Indenture,
dated as of May 4, 1998 (herein called the "Indenture"), between the Company and
The Bank of New York, as Trustee (herein called the "Trustee", which term
includes any successor trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights, limitations of rights, duties and immunities thereunder of
the Trustee, the Company and the Holders of the Convertible Debentures, and of
the terms upon which the Convertible Debentures are, and are to be,
authenticated and delivered. The terms of the Convertible Debentures include
those stated in the Indenture and those made part of the Indenture by the Trust
Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) ("TIA") as in effect on
the date of the Indenture. The Convertible Debentures are subject to, and
qualified by, all such terms, certain of which are summarized hereon, and
holders are referred to the Indenture and the TIA for a statement of such terms.
No reference herein to the Indenture and no provision of this Convertible
Debenture or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and
interest on this Convertible Debenture at the times, place and rate, and in the
coin or currency, herein prescribed or to convert this Convertible Debenture as
provided in the Indenture. All terms used in this Convertible Debenture which
are defined in the Indenture shall have the meanings assigned to them in the
Indenture. The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture.
(1) INTEREST. The Convertible Debentures shall bear interest at the
rate of 7% per annum, from May 4, 1998 or from the most recent Interest Payment
Date to which interest has been paid or duly provided for, as the case may be,
payable quarterly (subject to deferral as set forth herein), in arrears, on
February 1, May 1, August 1 and November 1 (each an "Interest Payment Date") of
each year, commencing August 1, 1998, until the principal thereof is paid or
made available for payment, and they shall be paid to the Person in whose name
the Convertible Debenture is registered at 5:00 p.m. (New York City time) on the
regular record date for such interest installment, which shall be the close of
business on the Business Day next preceding such Interest Payment Date (provided
that the Company has not set a new record date pursuant to the Indenture) (the
"Regular Record Date"). Interest will compound quarterly and will accrue at the
rate of 7% per annum on any interest installment in arrears for more than one
quarter or during an extension of an interest payment period as set forth below.
The amount of interest payable for any period will be computed on the
basis of a 360-day year of twelve 30-day months. Except as provided in the
following sentence, the
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<PAGE>
amount of interest payable for any period shorter than a full quarterly period
for which interest in computed, will be computed on the basis of the actual
number of days elapsed per 90-day quarter. In the event that any date on which
interest is payable on the Convertible Debentures is not a Business Day, then
payment of interest payable on such date will be made on the next succeeding day
which is a Business Day (and without any interest or other payment in respect of
any such delay), except that, if such Business Day is in the next succeeding
calendar year, such payment shall be made on the immediately preceding Business
Day, in each case with the same force and effect as if made on such date.
If at any time while the Property Trustee is the Holder of any
Convertible Debentures, the Trust or the Property Trustee is required to pay any
taxes, duties, assessments or governmental charges of whatever nature (other
than withholding taxes) imposed by the United States, or any other taxing
authority, then, in any such case, the Company shall pay as additional interest
("Additional Interest") on the Convertible Debentures held by the Property
Trustee, such amounts as shall be required so that the net amounts received and
retained by the Trust and the Property Trustee after paying any such taxes,
duties, assessments or other governmental charges will be not less than the
amounts the Trust and the Property Trustee would have received had no such
taxes, duties, assessments or other governmental charges been imposed.
The principal of and interest on the Convertible Debentures shall be
payable [insert, if global security is issued to the Depositary Trust Company or
its nominee] [insert, if securities in definitive form are issued at the
corporate office of the Indenture Trustee in the City of New York or at the
office or agency of the Paying Agent in the United States maintained for such
purpose] in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts; PROVIDED,
HOWEVER, that at the option of the Company payment of interest may be made by
(i) check mailed to the address of the Person entitled thereto as such address
shall appear in the Security Register, or (ii) by wire transfer to an account
maintained by the Person entitled thereto as specified in the Securities
Register, provided that proper transfer instructions have been received by the
Regular Record Date.
(2) OPTION TO EXTEND INTEREST PAYMENT PERIOD. The Company shall have
the right at any time during the term of the Convertible Debentures to defer
interest payments (including Additional Payments) from time to time by extending
the interest payment period for successive periods (each, an "Extension Period")
not exceeding 20 consecutive quarters for each such period; PROVIDED, no
Extension Period may extend beyond the maturity date of the Convertible
Debentures. At the end of each Extension Period, the Company shall pay all
interest then accrued and unpaid (including Additional Interest) together with
interest thereon compounded quarterly at the rate specified for the Convertible
Debentures to the extent
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<PAGE>
permitted by applicable law ("Compounded Interest"); PROVIDED, that during any
Extension Period, the Company shall (i) not declare or pay dividends on, or make
a distribution with respect to, or redeem or purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock (other than (A)
purchases or acquisitions of shares of Sun Common Stock in connection with the
satisfaction by the Company of its obligations under any employee benefit plans
or the satisfaction by the Company of its obligations pursuant to any contract
or security requiring the Company to purchase shares of Sun Common Stock, (B) as
a result of a reclassification of the Company's capital stock or the exchange or
conversion of one class or series of the Company's capital stock for another
class or series of the Company's capital stock or (C) the purchase of fractional
interests in shares of the Company's capital stock pursuant to the conversion or
exchange provisions of such capital stock or the security being converted or
exchanged) or make any guarantee payments with respect to the foregoing, (ii)
not make any payment of interest, principal or premium, if any, on or repay,
repurchase or redeem any debt securities (including guarantees) issued by the
Company that rank PARI PASSU with or junior to the Convertible Debentures
(except by conversion into or exchange for shares of its capital stock) and
(iii) not make any guarantee payments with respect to the foregoing (other than
pursuant to the Guarantee). Prior to the termination of any such Extension
Period, the Company may further extend such Extension Period; PROVIDED, that
such Extension Period, together with all such previous and further extensions
thereof, may not exceed 20 consecutive quarters or extend beyond the maturity
date of the Convertible Debentures. Upon the termination of any Extension
Period and the payment of all amounts then due, the Company may commence a new
Extension Period, subject to the above requirements. No interest during an
Extension Period shall be due and payable. Notwithstanding anything to the
contrary, the Company shall not have the right at any time to defer any
Additional Interest, including by extending the interest payment period.
If the Property Trustee is the sole Holder of the Convertible
Debentures at the time the Company selects an Extension Period, the Company
shall give written notice to the Administrative Trustees, the Property Trustee
and the Trustee of its selection of such Extension Period at least one Business
Day prior to the earlier of (i) the date the distributions on the Convertible
Preferred Securities are payable or (ii) if the Convertible Preferred Securities
are listed on the New York Stock Exchange or other stock exchange or quotation
system, the date the Trust is required to give notice to the New York Stock
Exchange or other applicable self-regulatory organization or to holders of the
Convertible Preferred Securities of the record date or the date such
distributions are payable, but in any event not less than 10 Business Days prior
to such record date.
If the Property Trustee is not the sole holder of the Convertible
Debentures at the time the Company selects an Extension Period, the Company
shall give the Holders of the Convertible Debentures and the Trustee written
notice of its selection of such Extension Period
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<PAGE>
at least ten Business Days prior to the earlier of (i) the next succeeding
Interest Payment Date or (ii) if the Convertible Preferred Securities are listed
on the New York Stock Exchange or other stock exchange or quotation system, the
date the Company is required to give notice to the New York Stock Exchange or
other applicable self-regulatory organization or to holders of the Convertible
Debentures on the record or payment date of such related interest payment, but
in any event not less than two Business Days prior to such record date.
The quarter in which any notice is given pursuant to paragraphs second
and third of this Section 2 shall be counted as one of the 20 quarters permitted
in the maximum Extension Period permitted under paragraph one of this Section 2.
(3) PAYING AGENT AND SECURITY REGISTRAR. The Trustee will act as
Paying Agent, Security Registrar and Conversion Agent. The Company may change
any Paying Agent, Security Registrar, co-registrar or Conversion Agent without
prior notice. The Company or any of its Affiliates may act in any such
capacity.
(4) REDEMPTION. The Company shall have the right to redeem the
Convertible Debentures, in whole or in part, at any time or from time to time
after May 3, 2001 upon not less than 30 nor more than 60 days' notice, at the
optional redemption prices (expressed as a percentage of the principal amount of
Convertible Debentures to be redeemed) shown below, plus any accrued and unpaid
interest (including Additional Payments, if any) to the Redemption Date, if
redeemed during the 12-month period beginning May 3,:
<TABLE>
<CAPTION>
Percentage of
Principal
Year Amount
---- -------------
<S> <C>
2001 . . . . . . . . . . . . . . 104.000%
2002 . . . . . . . . . . . . . . 103.000%
2003 . . . . . . . . . . . . . . 102.000%
2004 . . . . . . . . . . . . . . 101.000%
2005 and thereafter . . . . . . . 100.000%
</TABLE>
If the Company has deferred interest payments, all unpaid interest
must be paid in cash prior to redemption. Any redemption pursuant to this
Section 1101 shall be made pursuant to the provisions of Sections 1103 through
1108 hereof.
The Convertible Debentures are subject to redemption in whole (but not
in part), at any time within 90 days, if a Tax Event (as defined in the
Declaration) shall occur and be continuing, at a redemption price equal to 100%
of the principal amount thereof plus accrued
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<PAGE>
but unpaid interest (including Additional Payments, if any) to the Redemption
Date. On and after the Redemption Date, interest ceases to accrue on the
Convertible Debentures or portions of them called for redemption.
Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption
Date, to each Holder of Convertible Debentures to be redeemed, at such Holder's
address appearing in the Security Register. The Convertible Debentures in
denominations larger than $25 may be redeemed in part but only in integral
multiples of $25. In the event of a redemption of less than all of the
Convertible Debentures, the Convertible Debentures will be chosen for redemption
by the Trustee in accordance with the Indenture.
If this Convertible Debenture is redeemed subsequent to a Regular
Record Date with respect to any Interest Payment Date specified above and on or
prior to such Interest Payment Date, then any accrued interest will be paid to
the person in whose name this Convertible Debenture is registered at the close
of business on such record date.
(5) SINKING FUND. The Convertible Debentures are not entitled to
the benefit of any sinking fund.
(6) SUBORDINATION. The payment of the principal of, premium, if
any, and interest (including Additional Payments, if any) on all Convertible
Debentures is subordinated and junior in right of payment to the prior
payment in full of all existing and future Senior Indebtedness, whether
outstanding at the date of this Indenture or thereafter incurred. Each
holder, by accepting a Convertible Debenture, agrees to such subordination
and authorizes and directs the Trustee on its behalf to take such action as
may be necessary or appropriate to effectuate the subordination so provided
and appoints the Trustee as its attorney-in-fact for such purpose.
"SENIOR CREDIT FACILITY" means that certain Credit Agreement, dated as
of October 8, 1997, as amended by the First Amendment thereto dated November 12,
1997 and the Second Amendment thereto dated March 27, 1998, by and among the
Company 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 the
Company 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.
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<PAGE>
"SENIOR INDEBTEDNESS" means in respect of the Company: (i) the
principal, premium, if any, and interest in respect of (A) indebtedness of such
obligor for money borrowed and (B) indebtedness evidenced by securities,
debentures, bonds or other similar instruments issued by such obligor,
including, without limitation, in the case of Sun, all indebtedness, and all
obligations of Sun to pay fees and other amounts, under the Senior Credit
Facility or under the indentures with respect to the Company's outstanding 91/2%
notes due 2007 (the "2007 Notes") and the Company's 9 3/8% Senior Subordinated
Notes due 2008, and any refinancing of the Senior Credit Facility in the bank
credit market (including institutional participants therein), including interest
accruing on or after a bankruptcy or other similar event, whether or not an
allowed claim therein, (ii) all capital lease obligations of such obligor,
(iii) all obligations of such obligor issued or assumed as the deferred purchase
price of property, all conditional sale obligations of such obligor and all
obligations of such obligor under any title retention agreement (but excluding
trade accounts payable arising in the ordinary course of business), (iv) all
obligations of such obligor for the reimbursement of any letter of credit,
banker's acceptance, security purchase facility or similar credit transaction,
(v) all obligations of the type referred to in clauses (i) through (iv) above of
other Persons for the payment of which such obligor is responsible or liable as
obligor, guarantor or otherwise, and (vi) all obligations of the type referred
to in clauses (i) through (v) above of other Persons secured by any lien on any
property or asset of such obligor (whether or not such obligation is assumed by
such obligor), except for (1) any such indebtedness that is by its terms
subordinated to or PARI PASSU with the Convertible Debentures and (2) any
indebtedness between or among such obligor or its affiliates, including all
other debt securities and guarantees in respect of those debt securities issued
to any trust, or a trustee of such trust, partnership, or other entity
affiliated with the Company that is, directly or indirectly, a financing vehicle
of the Company (a "Financing Entity") in connection with the issuance by such
Financing Entity of Convertible Preferred Securities or other securities which
rank PARI PASSU with, or junior to, the Convertible Preferred Securities, unless
otherwise provided in the terms of such debt securities. Such Senior
Indebtedness shall continue to be Senior Indebtedness and entitled to the
benefits of the subordination provisions irrespective of any amendment,
modification or waiver of any term of such Senior Indebtedness, except as
otherwise provided in the exception clauses above.
(7) CONVERSION. The Holder of any Convertible Debenture has the
right, exercisable at any time on or before 5:00 p.m. (New York City time) on
the Business Day immediately preceding the date of repayment of such Convertible
Debentures, whether at maturity or upon redemption (either at the option of the
Company or pursuant to a Tax Event), to convert the principal amount thereof (or
any portion thereof that is an integral multiple of $25) into fully paid and
nonassessable shares of Sun Common Stock of the Company at an initial conversion
rate of 1.2419 shares of Sun Common Stock for each $25 in aggregate principal
amount of Convertible Debentures (equal to a conversion price of $20.13 per
share of Sun Common Stock), subject to adjustment under certain circumstances as
set forth in
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<PAGE>
Section 1303 and 1304. The number of shares issuable upon conversion of a
Convertible Debenture is determined by dividing the principal amount of the
Convertible Debenture converted by the conversion price in effect on the
Conversion Date. No fractional shares will be issued upon conversion but a cash
adjustment will be made for any fractional interest. The outstanding principal
amount of any Convertible Debenture shall be reduced by the portion of the
principal amount thereof converted into shares of Sun Common Stock.
To convert a Convertible Debenture, a Holder must (i) complete and
sign a conversion notice substantially in the form attached hereto, (ii)
surrender the Convertible Debenture to a Conversion Agent, (iii) furnish
appropriate endorsements or transfer documents if required by the Security
Registrar or Conversion Agent and (iv) pay any transfer or similar tax, if
required. If a Notice of Conversion is delivered on or after the Regular Record
Date and prior to the subsequent Interest Payment Date, the Holder will be
entitled to receive the interest payable on the subsequent Interest Payment Date
on the portion of Convertible Debentures to be converted notwithstanding the
conversion thereof prior to such Interest Payment Date. Except as otherwise
provided in the immediately preceding sentence, in the case of any Convertible
Debenture which is converted, interest whose Stated Maturity is after the date
of conversion of such Convertible Debenture shall not be payable, and the
Company shall not make nor be required to make any other payment, adjustment or
allowance with respect to accrued but unpaid interest (including Additional
Payments, if any) on the Convertible Debentures being converted, which shall be
deemed to be paid in full. If any Convertible Debenture called for redemption
is converted, any money deposited with the Trustee or with any Paying Agent or
so segregated and held in trust for the redemption of such Convertible Debenture
shall (subject to any right of the Holder of such Convertible Debenture or any
Predecessor Security to receive interest as provided in the last paragraph of
Section 307 and this paragraph) be paid to the Company upon Company Request or,
if then held by the Company, shall be discharged from such trust.
(8) REGISTRATION RIGHTS. The holders of the Convertible Preferred
Securities, the Convertible Debentures issuable in respect of the Convertible
Preferred Securities, the shares of Sun Common Stock issuable upon conversion of
the Convertible Preferred Securities and the Convertible Debentures, and the
Guarantee (collectively, the "REGISTRABLE SECURITIES") are entitled to the
benefits of a Registration Rights Agreement, dated as of May 4, 1998, between
the Company and the Initial Purchasers (the "REGISTRATION RIGHTS AGREEMENT").
Pursuant to the Registration Rights Agreement, the Company has agreed for the
benefit of the holders of Registrable Securities that (i) it will, at its cost,
use its reasonable best efforts within 90 days after the date of original
issuance of the Registrable Securities, to file a shelf registration statement
(the "SHELF REGISTRATION STATEMENT") with the Commission with respect to the
resales of the Registrable Securities, (ii) it will use its reasonable best
efforts to cause such Shelf Registration Statement to be declared effective by
the Commission within 150 days after the
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<PAGE>
date of issuance of the Registrable Securities and (iii) it will use its
reasonable best efforts to maintain such Shelf Registration Statement
continuously effective under the Securities Act until two years after the date
of original issuance of the Convertible Preferred Securities (or such earlier
date as the holders of Registrable Securities are able to sell all Registrable
Securities immediately without restriction, whether pursuant to Rule 144(k)
under the Securities Act or any successor rule thereto or otherwise) (the
"EFFECTIVENESS PERIOD") or such holders have sold all such Registrable
Securities pursuant to an effective Registration Statement. The Trust and the
Company will be permitted to suspend the use of the prospectus (which is a part
of the Shelf Registration Statement) in connection with sales of Registrable
Securities by holders during certain periods of time under certain circumstances
relating to pending corporate developments relating to the Company and public
filings with the Commission and similar events.
If (i) on or prior to 90 days following the date of original issuance
of the Registrable Securities, a Shelf Registration Statement has not
been filed with the Commission or (ii) on or prior to the 150th day
following the original issuance of the Registrable Securities, such
Shelf Registration Statement has not been declared effective (each
such event a "REGISTRATION DEFAULT"), additional interest ("LIQUIDATED
DAMAGES") will accrue on the Convertible Debentures and, accordingly,
additional distributions will accrue on the Convertible Preferred
Securities, from and including the day following such Registration
Default until such time as such Shelf Registration Statement is filed
or such Shelf Registration Statement is declared effective, as the
case may be. Liquidated Damages will be paid quarterly in arrears
(subject to the Company's ability to defer payment of Liquidated
Damages during any Extension Period), with the first quarterly payment
due on the first Interest Payment Date following the date on which
such Liquidated Damages begin to accrue, and will accrue at a rate per
annum equal to an additional 0.25% of the principal amount or
liquidation amount, as applicable, to and including the 90th day
following such Registration Default and 0.50% thereof from and after
the 91st day following such Registration Default. The curing of any
Registration Default will reset the rate at which Liquidated Damages
begin to accrue for any subsequent new Registration Default to a rate
per annum equal to an additional one-quarter of one percent (0.25%) of
the principal amount or liquidation amount, as applicable, to and
including the 90th day following such Registration Default and
one-half of one percent (0.50%) thereof from and after the 91st day
following such new Registration Default. The Guarantor shall have the
right to suspend the Shelf Registration Statement under certain
circumstances for up to 90 consecutive days. In the event that during
the Effectiveness Period the Shelf Registration Statement ceases to be
effective for more than 90 consecutive days or any 120 days, whether
or not
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<PAGE>
consecutive, during any 12-month period then the interest rate borne
by the Debentures and the distribution rate borne by the Convertible
Preferred Securities will each increase by an additional 0.25% per
annum from such 91st or 121st day, as applicable, of the applicable
12-month period such Shelf Registration Statement ceases to be
effective until the earlier of such time as (i) the Shelf Registration
Statement again becomes effective or (ii) the Effectiveness Period
expires.
The summary of certain provisions of the Registration Rights Agreement
in this Section 8 is subject to, and is qualified in its entirety, by reference
to the Registration Rights Agreement.
(9) REGISTRATION, TRANSFER, EXCHANGE AND DENOMINATIONS. As provided
in the Indenture and subject to certain limitations therein set forth, the
transfer of this Convertible Debenture is registrable in the Security Register,
upon surrender of this Convertible Debenture for registration of transfer at the
office or agency of the Company in New York, New York, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by, the Holder hereof or his
attorney duly authorized in writing, and thereupon one or more new Convertible
Debentures, of authorized denominations and for the same aggregate principal
amount, will be issued to the designated transferee or transferees.
The Convertible Debentures are issuable only in registered form
without coupons in denominations of $25 and integral multiples thereof. No
service charge shall be made for any such registration of transfer or exchange,
but the Company may require payment of a sum sufficient to cover any tax or
other governmental charge payable in connection therewith. Prior to due
presentment of this Convertible Debenture for registration of transfer, the
Company, the Trustee and any Agent of the Company or the Trustee may treat the
Person in whose name this Convertible Debenture is registered as the owner
hereof for all purposes, whether or not this Convertible Debenture be overdue,
and neither the Company, the Trustee nor any such Agent shall be affected by
notice to the contrary. In the event of redemption or conversion of this
Convertible Debenture in part only, a new Convertible Debenture or Convertible
Debentures for the unredeemed or unconverted portion hereof will be issued in
the name of the Holder hereof upon the cancellation hereof.
(10) PERSONS DEEMED OWNERS. Except as provided in the Indenture, the
registered Holder of a Convertible Debenture may be treated as its owner for all
purposes.
(11) UNCLAIMED MONEY. If money for the payment of principal or
interest remains unclaimed for two years, the Trustee and the Paying Agent shall
pay the money back to the Company at its written request. After that, Holders
of Convertible Debentures entitled
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<PAGE>
to the money must look to the Company for payment unless an abandoned property
law designates another Person and all liability of the Trustee and such Paying
Agent with respect to such money shall cease.
(12) DEFAULTS AND REMEDIES. The Convertible Debentures shall have the
Events of Default as set forth in Section 501 of the Indenture. Subject to
certain limitations in the Indenture, if an Event of Default occurs and is
continuing, the Trustee by notice to the Company or the Holders of at least 25%
in aggregate principal amount of the then outstanding Convertible Debentures by
notice to the Company and the Trustee may declare all the Convertible Debentures
to be due and payable immediately.
The Holders of a majority in principal amount of the Convertible
Debentures then outstanding by written notice to the Trustee may rescind an
acceleration and its consequences if the rescission would not conflict with any
judgment or decree and if all existing Events of Default have been cured or
waived except nonpayment of principal or interest that has become due solely
because of the acceleration. Holders may not enforce the Indenture or the
Convertible Debentures except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
Convertible Debentures issued under the Indenture may direct the Trustee in its
exercise of any trust or power. The Convertible Debentures are unsecured
general obligations of the Company. The Company must furnish annually
compliance certificates to the Trustee. The above description of Events of
Default and remedies is qualified by reference to, and subject in its entirety
by, the more complete description thereof contained in the Indenture.
(13) AMENDMENTS, SUPPLEMENTS AND WAIVERS. The Indenture permits, with
certain exceptions as therein provided, the amendment thereof and the
modification of the rights and obligations of the Company and the rights of the
Holders of the Convertible Debentures under the Indenture at any time by the
Company and the Trustee with the consent of the Holders of a majority in
aggregate principal amount of the Convertible Debentures at the time
Outstanding. The Indenture also contains provisions permitting the Holders of
specified percentages in aggregate principal amount of the Convertible
Debentures at the time Outstanding, on behalf of the Holders of all the
Convertible Debentures, to waive compliance by the Company with certain
provisions of the Indenture and certain past defaults under the Indenture and
their consequences. Any such consent or waiver by the Holder of this
Convertible Debenture shall be conclusive and binding upon such Holder and upon
all future Holders of this Convertible Debenture and of any Convertible
Debenture issued upon the registration of transfer hereof or in exchange herefor
or in lieu hereof, whether or not notation of such consent or waiver is made
upon this Convertible Debenture.
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<PAGE>
(14) TRUSTEE DEALINGS WITH THE COMPANY. The Trustee, in its
individual or any other capacity may become the owner or pledgee of the
Convertible Debentures and may otherwise deal with the Company or an Affiliate
with the same rights it would have, as if it were not Trustee, subject to
certain limitations provided for in the Indenture and in the TIA. Any Agent may
do the same with like rights.
(15) NO RECOURSE AGAINST OTHERS. A director, officer, employee or
stockholder, as such, of the Company shall not have any liability for any
obligations of the Company under the Convertible Debentures or the Indenture or
for any claim based on, in respect of or by reason of such obligations or their
creation. Each Holder of the Convertible Debentures by accepting a Convertible
Debenture waives and releases all such liability. The waiver and release are
part of the consideration for the issue of the Convertible Debentures.
(16) GOVERNING LAW. THE INTERNAL LAWS OF THE STATE OF NEW YORK SHALL
GOVERN THE INDENTURE AND THE CONVERTIBLE DEBENTURES WITHOUT REGARD TO CONFLICT
OF LAW PROVISIONS THEREOF.
(17) AUTHENTICATION. The Convertible Debentures shall not be valid
until authenticated by the manual signature of an authorized officer of the
Trustee or an authenticating Agent.
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<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Convertible
Debenture to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax identification number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert address and zip code of assignee)
and irrevocably appoints
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Agent to transfer this Convertible Debenture on the books of the Company. The
Agent may substitute another to act for him or her.
Date:
-----------------------
- ------------------------------------------
(Sign exactly as your name appears on the
other side of this Convertible Debenture)
Signature Guarantee:*
---------------------
_______________________
* Signature must be guaranteed by an "eligible guarantor institution" that
is, a bank, stockbroker, savings and loan association or credit union
meeting the requirements of the Registrar, which requirements include
membership or participation in the Securities Transfer Agents Medallion
Program ("STAMP") or such other "signature guarantee program" as may be
determined by the Registrar in addition to, or in substitution for, STAMP,
all in accordance with the Securities Exchange Act of 1934, as amended.
- 18 -
<PAGE>
[Include the following if the Convertible Debenture bears a Restricted
Securities Legend -
In connection with any transfer of any of the Convertible Debentures evidenced
by this certificate, the undersigned confirms that such Convertible Debentures
are being:
CHECK ONE BOX BELOW
(1) [ ] exchanged for the undersigned's own account without transfer; or
(2) [ ] transferred to a "qualified institutional buyer" pursuant to and
in compliance with Rule 144A under the Securities Act; or
(3) [ ] transferred to an institutional "accredited investor"; or
(4) [ ] transferred pursuant to another available exemption from the
registration requirements of the Securities Act; or
(5) [ ] transferred pursuant to an effective Registration Statement under
the Securities Act.
Unless one of the boxes is checked, the Trustee will refuse to register any of
the Convertible Debentures evidenced by this certificate in the name of any
person other than the registered Holder thereof; PROVIDED, HOWEVER, that if box
(2), (3) or (4) is checked, the Trustee may require, prior to registering any
such transfer of the Convertible Debentures such legal opinions, certifications
and other information as the Company has reasonably requested in writing and
directed the Trustee to require confirmation that such transfer is being made
pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act, such as the exemption provided
by Rule 144 under such Act; PROVIDED, FURTHER, that after the date that a Shelf
Registration Statement under the Securities Act has been filed and so long as
such Shelf Registration Statement continues to be effective, the Trustee may
only permit transfers for which box (5) has been checked.
----------------------
Signature
Signature Guarantee:*
________________________
Stock Exchange Medallion Program (SEMP); or (iv) in such other
guarantee programs acceptable to the Trustee.
* Signature must be guaranteed by an "eligible guarantor institution" that
is, a bank, stockbroker, savings and loan association or credit union
meeting the requirements of the Registrar, which requirements include
membership or participation in the Securities Transfer Agents Medallion
Program ("STAMP") or such other "signature guarantee program" as may be
determined by the Registrar in addition to, or in substitution for, STAMP,
all in accordance with the Securities Exchange Act of 1934, as amended.
- 19 -
<PAGE>
- ---------------------------------- ----------------------------------
Signature must be guaranteed Signature
- --------------------------------------------------------------------------------
[TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Convertible Debenture for its own account or an account with respect to which it
exercises sole investment discretion and that it and any such account is a
"qualified institutional buyer" within the meaning of Rule 144A under the
Securities Act, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated:
---------------------------- ----------------------------------
NOTICE: To be executed by an executive
officer]
[TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Convertible Debenture for its own account or an account with respect to which it
exercises sole investment discretion and that it and any such account is an
institutional "accredited investor" within the meaning of subparagraph (a)(1),
(2), (3) or (7) of Rule 501 under the Securities Act.
Dated:
---------------------------- ----------------------------------
NOTICE: To be executed by an executive
officer]
- 20 -
<PAGE>
NOTICE OF CONVERSION
To:
The undersigned owner of this Convertible Debenture hereby irrevocably
exercises the option to convert this Convertible Debenture, or the portion below
designated, into common stock of Sun Healthcare Group, Inc., a Delaware
corporation (the "Company") (the "Sun Common Stock") in accordance with the
terms of the Indenture, between the Company and The Bank of New York as
Trustee, and directs that the shares issuable and deliverable upon conversion,
together with any check in payment for fractional shares, be issued in the name
of and delivered to the undersigned, unless a different name has been indicated
in the assignment below. If shares are to be issued in the name of a person
other than the undersigned, the undersigned will pay all transfer taxes payable
with respect thereto.
Any Holder, upon the exercise of its conversion rights in accordance
with the terms of the Indenture and the Convertible Debenture, agrees to be
bound by the terms of the Registration Rights Agreement relating to the Sun
Common Stock issuable upon conversion of the Convertible Debenture.
Date: ________________
Number of Convertible Debentures to be converted ($25 or integral
multiples thereof): ___________________
If a name or names other than the undersigned, please indicate in the spaces
below the name or names in which the shares of Sun Common Stock are to be
issued, along with the address or addresses of such person or persons.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------
(Sign exactly as your name appears on the
the Convertible Debenture) (for conversion only)
Please Print or Typewrite Name and Address,
Including Zip Code, and Social Security or
Other Identifying Number.
- -------------------------------------------
- -------------------------------------------
- -------------------------------------------
- -------------------------------------------
Signature Guarantee:*
--------------------
* Signature must be guaranteed by an "eligible guarantor institution"
that is, a bank, stockbroker, savings and loan association or credit
union meeting the requirements of the Registrar, which requirements
include membership
(footnote continued on next page...)
- 21 -
<PAGE>
(...footnote continued from preceding page)
or participation in the Securities Transfer Agents Medallion Program
("STAMP") or such other "signature guarantee program" as may be
determined by the Registrar in addition to, or in substitution for,
STAMP, all in accordance with the Securities Exchange Act of 1934, as
amended.
- 22 -
<PAGE>
------------------------------------
------------------------------------
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
SUN FINANCING I
DATED AS OF MAY 4, 1998
------------------------------------
------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
INTERPRETATION AND DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
TRUST INDENTURE ACT; REPORTS, NOTICES AND COMPLIANCE
CERTIFICATES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
SECTION 2.1 Trust Indenture Act; Application . . . . . . . . . . . . .13
SECTION 2.2 Lists of Holders of Trust Securities . . . . . . . . . . .14
SECTION 2.3 Reports by the Property Trustee. . . . . . . . . . . . . .14
SECTION 2.4 Periodic Reports to Property Trustee . . . . . . . . . . .15
SECTION 2.5 Evidence of Compliance with Conditions Precedent . . . . .15
SECTION 2.6 Events of Default; Waiver. . . . . . . . . . . . . . . . .15
SECTION 2.7 Event of Default; Notice . . . . . . . . . . . . . . . . .17
ARTICLE III
ORGANIZATION OF TRUST. . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
SECTION 3.1 Name . . . . . . . . . . . . . . . . . . . . . . . . . . .18
SECTION 3.2 Office . . . . . . . . . . . . . . . . . . . . . . . . . .18
SECTION 3.3 Purpose. . . . . . . . . . . . . . . . . . . . . . . . . .18
SECTION 3.4 Prohibition of Actions by the Trust and the Issuer
Trustees . . . . . . . . . . . . . . . . . . . . . . . . .19
SECTION 3.5 General Authority of the Issuer Trustees . . . . . . . . .20
SECTION 3.6 Title to Property of the Trust . . . . . . . . . . . . . .20
SECTION 3.7 Not Responsible for Recitals or Issuance of Trust
Securities . . . . . . . . . . . . . . . . . . . . . . . .20
SECTION 3.8 Duration of Trust. . . . . . . . . . . . . . . . . . . . .20
SECTION 3.9 Mergers. . . . . . . . . . . . . . . . . . . . . . . . . .20
SECTION 3.10 Termination of Trust . . . . . . . . . . . . . . . . . . .22
ARTICLE IV
SPONSOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
SECTION 4.1 Sponsor's Purchase of Common Securities. . . . . . . . . .23
SECTION 4.2 Responsibilities of the Sponsor. . . . . . . . . . . . . .24
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE V
ISSUER TRUSTEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
SECTION 5.1 Number of Issuer Trustees. . . . . . . . . . . . . . . . .25
SECTION 5.2 Delaware Trustee; Eligibility. . . . . . . . . . . . . . .25
SECTION 5.3 Property Trustee; Eligibility. . . . . . . . . . . . . . .26
SECTION 5.4 Qualifications of Administrative Trustees and
Trustee Generally. . . . . . . . . . . . . . . . . . . . .27
SECTION 5.5 Initial Trustees . . . . . . . . . . . . . . . . . . . . .27
SECTION 5.6 Appointment, Removal and Resignation of Trustees . . . . .27
SECTION 5.7 Vacancies among Trustees . . . . . . . . . . . . . . . . .29
SECTION 5.8 Merger, Conversion, Consolidation or
Succession to Business of an Issuer Trustee. . . . . . . .29
SECTION 5.9 Authority, Powers and Duties of the Administrative
Trustees . . . . . . . . . . . . . . . . . . . . . . . . .30
SECTION 5.10 Delegation of Powers and Duties of the
Administrative Trustees. . . . . . . . . . . . . . . . . .34
SECTION 5.11 Powers and Duties of the Property Trustee. . . . . . . . .34
SECTION 5.12 Certain Duties and Responsibilities of the Property
Trustee. . . . . . . . . . . . . . . . . . . . . . . . . .37
SECTION 5.13 Certain Rights of Property Trustee . . . . . . . . . . . .38
SECTION 5.14 Delaware Trustee . . . . . . . . . . . . . . . . . . . . .41
SECTION 5.15 Meetings . . . . . . . . . . . . . . . . . . . . . . . . .42
ARTICLE VI
DISTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
SECTION 6.1 Distributions. . . . . . . . . . . . . . . . . . . . . . .43
ARTICLE VII
THE TRUST SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
SECTION 7.1 Title and Terms. . . . . . . . . . . . . . . . . . . . . .43
SECTION 7.2 General Provisions Regarding the Trust
Securities . . . . . . . . . . . . . . . . . . . . . . . .44
SECTION 7.3 General Form of Certificates . . . . . . . . . . . . . . .44
SECTION 7.4 Form of Convertible Preferred Securities
Certificates; Global Certificates. . . . . . . . . . . . .44
SECTION 7.5 Execution and Dating of Certificates . . . . . . . . . . .46
SECTION 7.6 Global Securities; Non-Global Securities; Common
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Securities Certificate . . . . . . . . . . . . . . . . . .46
SECTION 7.7 Definitive Convertible Preferred Security
Certificates . . . . . . . . . . . . . . . . . . . . . . .48
SECTION 7.8 Restrictive Legends. . . . . . . . . . . . . . . . . . . .49
SECTION 7.9 Temporary Certificates . . . . . . . . . . . . . . . . . .50
SECTION 7.10 Registrar, Paying Agent and Conversion Agent . . . . . . .51
SECTION 7.11 Paying Agent to Hold Money in Trust. . . . . . . . . . . .51
SECTION 7.12 Outstanding Convertible Preferred Securities . . . . . . .52
SECTION 7.13 Convertible Preferred Securities in Treasury . . . . . . .52
SECTION 7.14 Notices to Clearing Agency . . . . . . . . . . . . . . . .53
SECTION 7.15 Appointment of Successor Clearing Agency . . . . . . . . .53
SECTION 7.16 Deemed Security Holders. . . . . . . . . . . . . . . . . .53
ARTICLE VIII
TRANSFERS, EXCHANGES AND CANCELLATIONS
OF TRUST SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53
SECTION 8.1 General. . . . . . . . . . . . . . . . . . . . . . . . . .53
SECTION 8.2 Certain Transfers and Exchanges. . . . . . . . . . . . . .55
SECTION 8.3 Mutilated, Destroyed, Lost or Stolen Certificates;
Replacement Securities . . . . . . . . . . . . . . . . . .60
SECTION 8.4 Cancellation of Convertible Preferred Security
Certificates . . . . . . . . . . . . . . . . . . . . . . .60
ARTICLE IX
LIMITATION OF LIABILITY OF
HOLDERS OF TRUST SECURITIES, TRUSTEES AND OTHERS . . . . . . . . . . . . . . .61
SECTION 9.1 Liability. . . . . . . . . . . . . . . . . . . . . . . . .61
SECTION 9.2 Exculpation. . . . . . . . . . . . . . . . . . . . . . . .61
SECTION 9.3 Fiduciary Duty . . . . . . . . . . . . . . . . . . . . . .62
SECTION 9.4 Indemnification. . . . . . . . . . . . . . . . . . . . . .63
SECTION 9.5 Outside Businesses . . . . . . . . . . . . . . . . . . . .66
ARTICLE X
ACCOUNTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .67
SECTION 10.1 Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . .67
SECTION 10.2 Certain Accounting Matters . . . . . . . . . . . . . . . .67
SECTION 10.3 Banking. . . . . . . . . . . . . . . . . . . . . . . . . .68
SECTION 10.4 Withholding. . . . . . . . . . . . . . . . . . . . . . . .68
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE XI
AMENDMENTS AND MEETINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . .69
SECTION 11.1 Amendments . . . . . . . . . . . . . . . . . . . . . . . .69
SECTION 11.2 Meetings of the Holders of Trust Securities; Action by
Written Consent. . . . . . . . . . . . . . . . . . . . . .71
ARTICLE XII
REPRESENTATIONS OF PROPERTY TRUSTEE AND DELAWARE TRUSTEE . . . . . . . . . . .72
SECTION 12.1 Representations and Warranties of Property Trustee . . . .72
SECTION 12.2 Representations and Warranties of Delaware Trustee . . . .73
ARTICLE XIII
CONVERSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .74
SECTION 13.1 Conversion Rights. . . . . . . . . . . . . . . . . . . . .74
SECTION 13.2 Conversion Procedures. . . . . . . . . . . . . . . . . . .75
SECTION 13.3 Conversion Price Adjustments . . . . . . . . . . . . . . .78
SECTION 13.4 Fundamental Change . . . . . . . . . . . . . . . . . . . .83
SECTION 13.5 Notice of Adjustments of Conversion Price. . . . . . . . .85
SECTION 13.6 Prior Notice of Certain Events . . . . . . . . . . . . . .86
SECTION 13.7 Certain Defined Terms. . . . . . . . . . . . . . . . . . .87
SECTION 13.8 Dividend or Interest Reinvestment Plans. . . . . . . . . .87
SECTION 13.9 Certain Additional Rights. . . . . . . . . . . . . . . . .88
SECTION 13.10 Restrictions on Sun Common Stock Issuable Upon
Conversion . . . . . . . . . . . . . . . . . . . . . . . .88
SECTION 13.11 Trustee Not Responsible for Determining Conversion
Price or Adjustments . . . . . . . . . . . . . . . . . . .90
ARTICLE XIV
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .90
SECTION 14.1 Notices. . . . . . . . . . . . . . . . . . . . . . . . . .90
SECTION 14.2 Governing Law. . . . . . . . . . . . . . . . . . . . . . .92
SECTION 14.3 Intention of the Parties . . . . . . . . . . . . . . . . .92
SECTION 14.4 Headings . . . . . . . . . . . . . . . . . . . . . . . . .92
SECTION 14.5 Successors and Assigns . . . . . . . . . . . . . . . . . .92
SECTION 14.6 Partial Enforceability . . . . . . . . . . . . . . . . . .93
SECTION 14.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . .93
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE XV
REGISTRATION RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .93
SECTION 15.1 Registration Rights. . . . . . . . . . . . . . . . . . . .93
</TABLE>
ANNEX I Terms of 7% Convertible Preferred Securities and 7%
Convertible Common Securities
Exhibit A-1 Form of Preferred Security
Exhibit A-2 Form of Common Security
Exhibit B Form of Unrestricted Securities Certificate
v
<PAGE>
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Section of
Trust Indenture Act Section of
Of 1939, as amended Trust Agreement
- ------------------- ---------------
<S> <C>
310(a) . . . . . . . . . . . . . . . . . . . . . . . . . 5.3(a)
310(b) . . . . . . . . . . . . . . . . . . . . . . . . . 5.3(c)
311(c) . . . . . . . . . . . . . . . . . . . . . . . . . Inapplicable
310 - 317. . . . . . . . . . . . . . . . . . . . . . . . 2.1(c)
311(a) . . . . . . . . . . . . . . . . . . . . . . . . . 2.2(b)
311(b) . . . . . . . . . . . . . . . . . . . . . . . . . 2.2(b)
312(b) . . . . . . . . . . . . . . . . . . . . . . . . . 2.2(b)
313. . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3
314(a) . . . . . . . . . . . . . . . . . . . . . . . . . 2.4, 5.9(d)(xiii)
314(b) . . . . . . . . . . . . . . . . . . . . . . . . . Inapplicable
314(c) . . . . . . . . . . . . . . . . . . . . . . . . . 2.5
314(d) . . . . . . . . . . . . . . . . . . . . . . . . . Inapplicable
314(f) . . . . . . . . . . . . . . . . . . . . . . . . . Inapplicable
315(a) . . . . . . . . . . . . . . . . . . . . . . . . . 5.12(b)-(e)
315(c) . . . . . . . . . . . . . . . . . . . . . . . . . 5.12(a)
315(d) . . . . . . . . . . . . . . . . . . . . . . . . . 5.12(a)
316(a) . . . . . . . . . . . . . . . . . . . . . . . . . 2.6, Annex I
316(c) . . . . . . . . . . . . . . . . . . . . . . . . . 5.9(d)(v)
- ------------------
</TABLE>
* This Cross-Reference Table does not constitute part of the Trust Agreement and
shall not affect the interpretation of any of its terms or provisions.
vi
<PAGE>
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
SUN FINANCING I
MAY 4, 1998
AMENDED AND RESTATED DECLARATION OF TRUST ("Declaration") dated and
effective as of May 4, 1998, by the undersigned trustees (together with all
other Persons from time to time duly appointed and serving as trustees in
accordance with the provisions of this Declaration, the "Trustees"), Sun
Healthcare Group, Inc., a corporation, as trust sponsor (the "Sponsor"), and by
the holders, from time to time, of undivided beneficial interests in the assets
of the Trust issued pursuant to this Declaration;
WHEREAS, certain of the Trustees and the Sponsor established Sun
Financing I (the "Trust"), a trust under the Business Trust Act (as defined
herein) pursuant to a Declaration of Trust, dated as of November 7, 1997, as
amended by an Amended and Restated Declaration of Trust, dated as of April 27,
1998, (the "Original Declaration") and a Certificate of Trust filed with the
Secretary of State of the State of Delaware on November 7, 1997 for the sole
purpose of issuing and selling certain securities representing undivided
beneficial interests in the assets of the Trust and investing the proceeds
thereof in certain Convertible Debentures (as defined herein) of the Company (as
defined herein);
WHEREAS, as of the date hereof, no interests in the Trust have been
issued; and
WHEREAS, all of the Trustees and the Sponsor, by this Declaration,
amend and restate each and every term and provision of the Original Declaration;
NOW, THEREFORE, it being the intention of the parties hereto to
continue the Trust as a business trust under the Business Trust Act and that
this Declaration constitutes the governing instrument of such business trust,
the Trustees declare that all assets contributed to the Trust will be held in
trust for the benefit of the holders, from time to time, of the securities
representing undivided beneficial interests in the assets of the Trust issued
hereunder, subject to the provisions of this Declaration.
<PAGE>
ARTICLE I
INTERPRETATION AND DEFINITIONS
SECTION 1.1 DEFINITIONS.
Unless the context otherwise requires:
(a) Capitalized terms used in this Declaration but not defined in the
preamble above have the respective meanings assigned to them in this Section
1.1;
(b) a term defined anywhere in this Declaration has the same meaning
throughout;
(c) all references to "the Declaration" or "this Declaration" are to
this Declaration as modified, supplemented or amended from time to time;
(d) all references in this Declaration to Articles and Sections and
Annexes and Exhibits are to Articles and Sections and Annexes and Exhibits to
this Declaration unless otherwise specified;
(e) a term defined in the Trust Indenture Act has the same meaning
when used in this Declaration unless otherwise defined in this Declaration or
unless the context otherwise requires;
(f) a reference to the singular includes the plural and vice versa;
and
(g) a reference to the masculine includes the feminine and vice versa.
"ADDITIONAL INTEREST" means if the Trust is required to pay any taxes,
duties, assessments or governmental charges of whatever nature (other than
withholding taxes) imposed by the United States or any other taxing authority,
such amounts as shall be required so that the net amounts received and retained
by the Trust after paying such taxes, duties, assessments and governmental
charges will not be less than the amounts the Trust would have received had no
such taxes, duties, assessments or governmental charges been imposed.
"ADMINISTRATIVE TRUSTEE" means any Trustee other than the Property
Trustee and the Delaware Trustee.
2
<PAGE>
"AFFILIATE" has the same meaning as given to that term in Rule 405 of
the Securities Act or any successor rule thereunder.
"AGENT" means any Registrar, Paying Agent, Conversion Agent or
co-registrar.
"APPLICABLE PRICE" means (i) in the case of a Non-Stock Fundamental
Change in which the holders of the Sun Common Stock receive only cash, the
amount of cash received by the holder of one share of Sun Common Stock and (ii)
in the event of any other Non-Stock Fundamental Change or any Common Stock
Fundamental Change, the average of the Closing Prices for the Sun Common Stock
during the ten trading days prior to the record date for the determination of
the holders of Sun Common Stock entitled to receive such securities, cash, or
other property in connection with such Non-Stock Fundamental Change or Common
Stock Fundamental Change or, if there is no such record date, the date upon
which the holders of the Sun Common Stock shall have the right to receive such
securities, cash, or other property (such record date or distribution date being
hereinafter referred to as the "Entitlement Date").
"APPLICABLE PROCEDURES" means, with respect to any transfer or
transaction involving a Global Certificate or beneficial interest therein, the
rules and procedures of Euroclear and Cedel, and of the Clearing Agency for such
security, in each case to the extent applicable to such transaction and as in
effect from time to time.
"AUTHORIZED OFFICER" of a Person means any Person that is authorized
to bind such Person.
"BOARD OF DIRECTORS" means either the board of directors of the
Company or any duly authorized committee of that board.
"BOARD RESOLUTION" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"BOOK ENTRY INTEREST" means a beneficial interest in a Global
Certificate, ownership and transfers of which shall be maintained and made
through book entries by a Clearing Agency as described in Section 8.2.
"BUSINESS DAY" means any day other than a day on which banking
institutions in the City of New York or in Wilmington, Delaware are authorized
or required by law to close.
3
<PAGE>
"BUSINESS TRUST ACT" means Chapter 38 of Title 12 of the Delaware
Code, 12 DEL. CODE Section 3801 ET SEQ., as it may be amended from time to time,
or any successor legislation.
"CERTIFICATE" means a certificate in global or definitive form
representing a Common Security or a Convertible Preferred Security.
"CERTIFICATE DEPOSITORY AGREEMENT" means the agreement among the
Trust, the Sponsor and The Depositary Trust Company, as the initial Clearing
Agency, dated as of the Closing Date, relating to the global Convertible
Preferred Security Certificates, substantially in the form attached as Exhibit
D, as the same may be amended and supplemented from time to time.
"CLEARING AGENCY" means an organization registered as a "Clearing
Agency" pursuant to Section 17A of the Exchange Act that is acting as depositary
for the Convertible Preferred Securities and in whose name or in the name of a
nominee of that organization shall be registered a Global Certificate and which
shall undertake to effect book entry transfers and pledges of the Convertible
Preferred Securities.
"CLOSING DATE" means May 4, 1998.
"CLOSING PRICE" has the meaning specified in Section 13.7.
"CODE" means the Internal Revenue Code of 1986, as amended from time
to time, or any successor legislation.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON SECURITIES" has the meaning specified in Section 7.1.
"COMMON SECURITIES GUARANTEE" means the guarantee agreement dated as
of May 4, 1998, of the Sponsor in respect of the Common Securities.
"COMMON SECURITY PURCHASE AGREEMENT" means the purchase agreement
relating to the Common Securities dated as of May 4, 1998, by and between the
Trust and the Sponsor.
"COMMON SECURITY CERTIFICATE" means a definitive certificate in fully
registered form representing a Common Security substantially in the form of
Exhibit A-2.
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"COMMON STOCK FUNDAMENTAL CHANGE" means any Fundamental Change in
which more than 50% of the value (as determined in good faith by the Board of
Directors of the Company) of the consideration received by holders of Sun Common
Stock consists of common stock that for each of the ten consecutive trading days
prior to the Entitlement Date has been admitted for listing or admitted for
listing subject to notice of issuance on a national securities exchange or
quoted on the NASDAQ National Market; provided, however, that a Fundamental
Change shall not be a Common Stock Fundamental Change unless either (i) the
Company continues to exist after the occurrence of such Fundamental Change and
the outstanding Convertible Preferred Securities continue to exist as
outstanding Convertible Preferred Securities or (ii) not later than the
occurrence of such Fundamental Change, the outstanding Convertible Preferred
Securities are converted into or exchanged for shares of convertible preferred
stock or debentures of an entity succeeding to the business of the Company or a
subsidiary thereof, which convertible preferred stock (or debentures, as the
case may be) has powers, preferences, and relative, participating, optional, or
other rights, and qualifications, limitations, and restrictions, substantially
similar to those of the Convertible Preferred Securities.
"COMPANY" means the Sponsor in its capacity as issuer of the
Convertible Debentures.
"COMPANY INDEMNIFIED PERSON" means (i) any Administrative Trustee;
(ii) any Affiliate of any Administrative Trustee; (iii) any officer, director,
shareholder, member, partner, employee, representative or agent of any
Administrative Trustee; or (iv) any officer, employee or agent of the Trust or
its Affiliates.
"COMPOUNDED INTEREST" means interest compounded quarterly at the rate
specified for the Convertible Debentures to the extent permitted by applicable
law upon interest accrued and unpaid (including Additional Interest) at the end
of each Extension Period.
"CONVERSION AGENT" has the meaning set forth in Section 7.10.
"CONVERSION NOTICE" has the meaning set forth in Section 13.2.
"CONVERSION PRICE" has the meaning set forth in Section 13.1.
"CONVERTIBLE DEBENTURE PURCHASE AGREEMENT" means the purchase
agreement relating to the Convertible Debentures dated as of May 4, 1998 by and
between the Company and the Trust.
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"COVERED PERSON" means (a) any officer, director, stockholder,
partner, member, representative, employee or agent of (i) the Trust or (ii) the
Trust's Affiliates; and (b) any Holder of Trust Securities.
"CONVERTIBLE DEBENTURES" means the Convertible Debentures to be issued
by the Company under the Indenture and to be held by the Property Trustee.
"CONVERTIBLE PREFERRED SECURITIES" has the meaning specified in
Section 7.1.
"CONVERTIBLE PREFERRED SECURITY CERTIFICATE" means a certificate
representing a Convertible Preferred Security substantially in the form of
Exhibit A-1.
"CONVERTIBLE PREFERRED SECURITIES GUARANTEE" means the Guarantee
Agreement dated as of May 4, 1998 of the Sponsor in respect of the Convertible
Preferred Securities.
"CONVERTIBLE PREFERRED SECURITY BENEFICIAL OWNER" means, with respect
to a Book Entry Interest, a Person who is the beneficial owner of such Book
Entry Interest, as reflected on the books of the Depositary, or on the books of
a Person maintaining an account with such Depositary (directly as a participant
or as an indirect participant, in each case in accordance with the rules of such
Depositary).
"DEFINITIVE CONVERTIBLE PREFERRED SECURITY CERTIFICATES" has the
meaning set forth in Section 7.4(a).
"DELAWARE TRUSTEE" has the meaning set forth in Section 5.2.
"DEPOSITARY" means The Depository Trust Company, the initial Clearing
Agency, until a successor shall be appointed pursuant to Section 7.15, and
thereafter means such successor Depositary.
"DISTRIBUTION" means a distribution payable to Holders of Trust
Securities in accordance with Section 6.1.
"EVENT OF DEFAULT" in respect of the Trust Securities means an Event
of Default (as defined in the Indenture) has occurred and is continuing in
respect of the Convertible Debentures.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, and the rules and regulations promulgated thereunder, or any
successor legislation.
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"EXTENSION PERIOD" has the meaning set forth in Annex I hereto.
"FIDUCIARY INDEMNIFIED PERSON" has the meaning set forth in Section
9.4(b).
"FUNDAMENTAL CHANGE" means the occurrence of any Transaction or event
in connection with a plan pursuant to which all or substantially all of the Sun
Common Stock shall be exchanged for, converted into, acquired for, or constitute
solely the right to receive securities, cash, or other property (whether by
means of an exchange offer, liquidation, tender offer, consolidation, merger,
combination, reclassification, recapitalization, or otherwise), provided, that,
in the case of a plan involving more than one such Transaction or event, for
purposes of adjustment of the conversion price, such Fundamental Change shall be
deemed to have occurred when substantially all of the Sun Common Stock shall be
exchanged for, converted into, or acquired for or constitute solely the right to
receive securities, cash, or other property, but the adjustment shall be based
upon the consideration that a holder of Sun Common Stock received in such
Transaction or event as a result of which more than 50% of the Sun Common Stock
shall have been exchanged for, converted into, or acquired for or constitute
solely the right to receive securities, cash, or other property.
"GLOBAL CERTIFICATE" has the meaning set forth in Section 8.2(a).
"HOLDER" means a Person in whose name a Certificate representing a
Trust Security is registered, such Person being a beneficial owner within the
meaning of the Business Trust Act.
"INDEMNIFIED PERSON" means a Company Indemnified Person or a Fiduciary
Indemnified Person.
"INDENTURE" means the Indenture dated as of May 4, 1998, between the
Company and the Indenture Trustee, as it may be amended from time to time.
"INDENTURE TRUSTEE" means The Bank of New York, a New York banking
corporation, as trustee under the Indenture until a successor is appointed
thereunder, and thereafter means such successor trustee.
"INVESTMENT COMPANY" means an investment company as defined in the
Investment Company Act.
"INVESTMENT COMPANY ACT" means the Investment Company Act of 1940, as
amended from time to time, and the rules and regulations promulgated thereunder,
or any successor legislation.
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"ISSUER TRUSTEE" or "ISSUER TRUSTEES" means each Person who has signed
this Declaration as a trustee, so long as such Person shall continue in office
in accordance with the terms hereof, and all other Persons who may from time to
time be duly appointed, qualified and serving as Issuer Trustees in accordance
with the provisions hereof, and references herein to a Issuer Trustee or the
Issuer Trustees shall refer to such Person or Persons solely in their capacity
as trustees hereunder.
"LEGAL ACTION" has the meaning set forth in Section 5.9(d)(x).
"LIQUIDATED DAMAGES" has the meaning specified in the Indenture.
"MAJORITY IN LIQUIDATION AMOUNT OF THE COMMON SECURITIES" means,
except as provided in the terms of the Common Securities or by the Trust
Indenture Act, Holders of outstanding Common Securities voting together as a
single class who are the record owners of more than 50% of the aggregate
liquidation amount (including the stated amount that would be paid on
redemption, liquidation or otherwise, plus accrued and unpaid Distributions to
the date upon which the voting percentages are determined) of all outstanding
Common Securities of the relevant class.
"MAJORITY IN LIQUIDATION AMOUNT OF THE TRUST SECURITIES" means, except
as provided in the terms of the Convertible Preferred Securities or by the Trust
Indenture Act, Holders of outstanding Trust Securities voting together as a
single class or, as the context may require, Holders of outstanding Convertible
Preferred Securities or Holders of outstanding Common Securities voting
separately as a class, who are the record owners of more than 50% of the
aggregate liquidation amount (including the stated amount that would be paid on
redemption, liquidation or otherwise, plus accrued and unpaid Distributions to
the date upon which the voting percentages are determined) of all outstanding
Trust Securities of the relevant class.
"MINISTERIAL ACTION" has the meaning set forth in the terms of the
Trust Securities as set forth in Annex I hereto.
"NON-STOCK FUNDAMENTAL CHANGE" means any Fundamental Change other than
a Common Stock Fundamental Change.
"NYSE" means the New York Stock Exchange.
"OFFICERS' CERTIFICATE" means, with respect to any Person, a
certificate signed by two Authorized Officers of such Person. Any Officers'
Certificate delivered with respect to compliance with a condition or covenant
provided for in this Declaration shall include:
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(i) a statement that each officer signing the Officers'
Certificate has read the covenant or condition and the
definitions relating thereto;
(ii) a brief statement of the nature and scope of the examination
or investigation undertaken by each officer in rendering the
Officers' Certificate;
(iii) a statement that each such officer has made such examination
or investigation as, in such officer's opinion, is necessary
to enable such officer to express an informed opinion as to
whether or not such covenant or condition has been complied
with; and
(iv) a statement as to whether, in the opinion of each such
officer, such condition or covenant has been complied with.
"OFFERING MEMORANDUM" means the final offering memorandum issued by
the Company, dated as of April 29,1998.
"PAYING AGENT" has the meaning specified in Section 7.10.
"PERSON" means any legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, unincorporated organization or
government or any agency or political subdivision thereof, or any other entity
of whatever nature.
"PROPERTY TRUSTEE" means the Issuer Trustee meeting the eligibility
requirements set forth in Section 5.3.
"PROPERTY ACCOUNT" has the meaning set forth in Section 5.11(c).
"PURCHASE AGREEMENT" means the Purchase Agreement dated as of April
, 1998, between the Sponsor and the initial purchasers named therein, relating
to the Convertible Preferred Securities.
"PURCHASER STOCK PRICE" means, with respect to any Common Stock
Fundamental Change, the average of the Closing Prices for the common stock
received in such Common Stock Fundamental Change for the ten consecutive trading
days prior to and including the Entitlement Date.
"QUORUM" means a majority of the Administrative Trustees.
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"REFERENCE MARKET PRICE" shall initially mean $11.00 (which is an
amount equal to 66 2/3% of the reported last sales price for Sun Common Stock on
the NYSE Consolidated Transactions Tape on April 28, 1998) and in the event of
any adjustment of the conversion price other than as a result of a Non-Stock
Fundamental Change, the Reference Market Price shall also be adjusted so that
the ratio of the Reference Market Price to the conversion price after giving
effect to any such adjustment shall always be the same as the ratio of the
initial Reference Market Price to the initial conversion price of the
Convertible Preferred Securities.
"REGISTRAR" has the meaning set forth in Section 7.10.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated May 4, 1998, among the Sponsor, the Trust, and the initial
purchasers named in the Purchase Agreement.
"RELATED PARTY" means, with respect to the Sponsor, any direct or
indirect wholly owned subsidiary of the Sponsor or any other Person that owns,
directly or indirectly, 100% of the outstanding voting securities of the
Sponsor.
"RESPONSIBLE OFFICER" means, with respect to the Property Trustee, any
vice-president, any assistant vice-president, the treasurer, any assistant
treasurer, any trust officer or assistant trust officer or any other officer in
the Corporate Trust Department of the Property Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also means, with respect to a particular corporate trust matter, any other
officer to whom such matter is referred because of that officer's knowledge of
and familiarity with the particular subject.
"RESTRICTED GLOBAL CERTIFICATE" has the meaning set forth in Section
7.4(a).
"RESTRICTED SECURITIES" means all Convertible Preferred Securities
required pursuant to Section 7.8 to bear any Restricted Securities Legend. Such
term includes the Restricted Global Certificate.
"RESTRICTED SECURITIES CERTIFICATE" means a certificate substantially
in the form set forth in Exhibit B.
"RESTRICTED SECURITIES LEGEND" has the meaning specified in Section
7.8.
"RULE 3a-5" means Rule 3a-5 under the Investment Company Act.
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"SECURITIES ACT" means the Securities Act of 1933, as amended from
time to time, and the rules and regulations promulgated thereunder, or any
successor legislation.
"SECURITIES ACT LEGEND" means a Restricted Securities Legend.
"SECURITIES GUARANTEE" means the Common Securities Guarantee and the
Convertible Preferred Securities Guarantee.
"SHELF REGISTRATION STATEMENT" means the Registration Statement
including any amendments thereto relating to, among other securities, the
Convertible Preferred Securities, as defined in the Registration Rights
Agreement.
"SPECIAL EVENT" has the meaning set forth in Annex I hereto.
"SPONSOR" means Sun Healthcare Group, Inc., a Delaware corporation, or
any successor entity in a merger, consolidation or amalgamation, in its capacity
as sponsor of the Trust.
"SUCCESSOR ENTITY" has the meaning set forth in Section 3.9(b)(i).
"SUCCESSOR SECURITIES" has the meaning set forth in Section
3.9(b)(i)(B).
"SUN COMMON STOCK" includes any stock of any class of the Company
which has no preference in respect of dividends or of amounts payable in the
event of any voluntary or involuntary liquidation, dissolution or winding up of
the Company and which is not subject to redemption by the Company. However,
subject to the provisions of Annex 1, shares issuable on conversion of Trust
Securities shall include only shares of the class designated as Sun Common Stock
of the Company at the date of this instrument or shares of any class or classes
resulting from any reclassification or reclassifications thereof and which have
no preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the Company
and which are not subject to redemption by the Company; PROVIDED, that if at any
time there shall be more than one such resulting class, the shares of each such
class then so issuable on conversion shall be substantially in the proportion
which the total number of shares of such class resulting from all such
reclassifications bears to the total number of shares of all such classes
resulting from all such reclassifications.
"SUPER MAJORITY" has the meaning set forth in Section 2.6(a)(ii).
"TAX EVENT" has the meaning set forth in Annex I hereto.
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"10% IN LIQUIDATION AMOUNT OF THE TRUST SECURITIES" means, except as
provided in the terms of the Convertible Preferred Securities or by the Trust
Indenture Act, Holders of outstanding Trust Securities voting together as a
single class or, as the context may require, Holders of outstanding Convertible
Preferred Securities or Holders of outstanding Common Securities, voting
separately as a class, who are the record owners of 10% or more of the aggregate
liquidation amount (including the stated amount that would be paid on
redemption, liquidation or otherwise, plus accrued and unpaid Distributions to
the date upon which the voting percentages are determined) of all outstanding
Trust Securities of the relevant class.
"TRADING DAY" has the meaning set forth in Section 13.7.
"TRANSACTION" has the meaning set forth in Section 13.4.
"TREASURY REGULATIONS" means the income tax regulations, including
temporary and proposed regulations, promulgated under the Code by the United
States Treasury, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"TRUST SECURITIES" means the Common Securities and the Convertible
Preferred Securities.
"TRUST SECURITIES CERTIFICATE" means any one of the Common Securities
Certificates, the Global Certificates or the Convertible Preferred Securities
Certificates.
"TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, as
amended from time to time, and the rules and regulations promulgated thereunder,
or any successor legislation.
"UNRESTRICTED SECURITIES CERTIFICATE" means a certificate
substantially in the form set forth in Exhibit C.
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ARTICLE II
TRUST INDENTURE ACT; REPORTS, NOTICES AND COMPLIANCE CERTIFICATES
SECTION 2.1 TRUST INDENTURE ACT; APPLICATION.
(a) This Declaration is subject to the provisions of the Trust
Indenture Act that are required to be part of this Declaration, which are
incorporated by reference in and made part of this Declaration and shall, to the
extent applicable, be governed by such provisions.
(b) The Property Trustee shall be the only Issuer Trustee that is
a Trustee for the purposes of the Trust Indenture Act.
(c) If and to the extent that any provision of this Declaration
limits, qualifies or conflicts with the duties imposed by Sections 310 to 317,
inclusive, of the Trust Indenture Act, such imposed duties shall control.
(d) The application of the Trust Indenture Act to this Declaration
shall not affect the nature of the Trust Securities as equity securities
representing undivided beneficial interests in the assets of the Trust.
SECTION 2.2 LISTS OF HOLDERS OF TRUST SECURITIES.
(a) Each of the Sponsor and the Administrative Trustees on behalf
of the Trust shall provide the Property Trustee (i) within 14 days after each
record date for payment of Distributions, a list, in such form as the Property
Trustee may reasonably require, of the names and addresses of the Holders of the
Trust Securities ("List of Holders") as of such record date, PROVIDED that
neither the Sponsor nor the Administrative Trustees on behalf of the Trust shall
be obligated to provide such List of Holders at any time the List of Holders
does not differ from the most recent List of Holders given to the Property
Trustee (or otherwise held by it) by the Sponsor and the Administrative Trustees
on behalf of the Trust, and (ii) at any other time, within 30 days of receipt by
the Trust of a written request for a List of Holders as of a date no more than
14 days before such List of Holders is given to the Property Trustee. The
Property Trustee shall preserve, in as current a form as is reasonably
practicable, all information contained in any List of Holders given to or held
by it or which it receives in the capacity as Paying Agent (if acting in such
capacity), PROVIDED that the Property Trustee may destroy any List of Holders
previously given to it on receipt of a new List of Holders.
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(b) The Property Trustee shall comply with its obligations under
Sections 311(a), 311(b) and 312(b) of the Trust Indenture Act.
SECTION 2.3 REPORTS BY THE PROPERTY TRUSTEE.
(a) Within 30 days after May 15 of each year, commencing May 15,
1999 (unless a report is required to be transmitted before such date by the TIA,
in which case before such date so as to comply with the TIA), the Property
Trustee shall transmit by mail to Holders such reports concerning the Property
Trustee and its actions under this Declaration as may be required pursuant to
the Trust Indenture Act in the manner provided pursuant thereto.
(b) A copy of each such report shall, at the time of such
transmission to Holders, be filed by the Property Trustee with each stock
exchange upon which the Trust Securities are listed, with the Commission and
with the Company. The Trust will notify the Property Trustee when the Trust
Securities are listed on any stock exchange.
SECTION 2.4 PERIODIC REPORTS TO PROPERTY TRUSTEE.
Each of the Sponsor and the Trust shall file with the Property Trustee
and the Commission, and transmit to Holders, such information, documents and
other reports, and such summaries thereof, as may be required pursuant to the
Trust Indenture Act (including Section 3.14 thereof) at the times and in the
manner provided pursuant to such Act; PROVIDED, that any such information,
documents or reports required to be filed with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act shall be filed with the Property Trustee
within 15 days after the same is so required to be filed with the Commission.
Delivery of such reports, information and documents to the Property
Trustee is for informational purposes only and the Property Trustee's receipt of
such shall not constitute constructive notice of any information contained
therein or determinable from information contained therein, including the
Trust's compliance with any of its covenants hereunder (as to which the Property
Trustee is entitled to rely exclusively on Officers' Certificates).
Each of the Sponsor and the Trust shall also provide to the Property
Trustee on a timely basis such information as the Property Trustee requires to
enable the Property Trustee to prepare and file any form required to be
submitted by the Company with the Internal Revenue Service and the Holders of
the Trust Securities relating to original issue discount, if any, including,
without limitation, Form 1099-OID or any successor form.
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SECTION 2.5 EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT.
Each of the Sponsor and the Administrative Trustees on behalf of the
Trust shall provide to the Property Trustee such evidence of compliance with any
conditions precedent, if any, provided for in this Declaration that relate to
any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any
certificate or opinion required to be given by an officer pursuant to Section
314(c)(1) may be given in the form of an Officers' Certificate.
SECTION 2.6 EVENTS OF DEFAULT; WAIVER.
(a) The Holders of a Majority in Liquidation Amount of Convertible
Preferred Securities may, by vote, on behalf of the Holders of all of the
Convertible Preferred Securities, waive any past Event of Default in respect of
the Convertible Preferred Securities and its consequences, PROVIDED that, if the
underlying Event of Default under the Indenture:
(i) is not waivable under the Indenture, the Event of
Default under the Declaration shall also not be waivable; or
(ii) requires the consent or vote of greater than a majority
in principal amount of the holders of the Convertible Debentures (a "Super
Majority") to be waived under the Indenture, the Event of Default under the
Declaration may only be waived by the vote of the Holders of at least the
proportion in liquidation amount of the Convertible Preferred Securities
that the relevant Super Majority represents of the aggregate principal
amount of the Convertible Debentures outstanding.
The foregoing provisions of this Section 2.6(a) shall be in lieu of
Section 316(a)(1)(B) of the Trust Indenture Act and such Section 316(a)(1)(B)
of the Trust Indenture Act is hereby expressly excluded from this Declaration
and the Trust Securities, as permitted by the Trust Indenture Act. Upon such
waiver, any such default shall cease to exist, and any Event of Default with
respect to the Convertible Preferred Securities arising therefrom shall be
deemed to have been cured, for every purpose of this Declaration, but no such
waiver shall extend to any subsequent or other default or an Event of Default
with respect to the Convertible Preferred Securities or impair any right
consequent thereon. Any waiver by the Holders of the Convertible Preferred
Securities of an Event of Default with respect to the Convertible Preferred
Securities shall also be deemed to constitute a waiver by the Holders of the
Common Securities of any such Event of Default with respect to the Common
Securities for all purposes of this Declaration without any further act, vote,
or consent of the Holders of the Common Securities.
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(b) The Holders of a Majority in Liquidation Amount of the Common
Securities may, by vote, on behalf of the Holders of all of the Common
Securities, waive any past Event of Default with respect to the Common
Securities and its consequences, PROVIDED that, if the underlying Event of
Default under the Indenture:
(i) is not waivable under the Indenture, except where the
Holders of the Common Securities are deemed to have waived such Event of
Default under the Declaration as provided below in this Section 2.6(b), the
Event of Default under the Declaration shall also not be waivable; or
(ii) requires the consent or vote of a Super Majority to be
waived, except where the Holders of the Common Securities are deemed to
have waived such Event of Default under the Declaration as provided below
in this Section 2.6(b), the Event of Default under the Declaration may only
be waived by the vote of the Holders of at least the proportion in
liquidation amount of the Common Securities that the relevant Super
Majority represents of the aggregate principal amount of the Convertible
Debentures outstanding;
PROVIDED FURTHER, that each Holder of Common Securities will be deemed to have
waived any such Event of Default and all Events of Default with respect to the
Common Securities and its consequences until all Events of Default with respect
to the Convertible Preferred Securities have been cured, waived or otherwise
eliminated, and until such Events of Default have been so cured, waived or
otherwise eliminated, the Property Trustee will be deemed to be acting solely on
behalf of the Holders of the Convertible Preferred Securities and only the
Holders of the Convertible Preferred Securities will have the right to direct
the Property Trustee in accordance with the terms of the Convertible Preferred
Securities. The foregoing provisions of this Section 2.6(b) shall be in lieu of
Sections 316(a)(1)(A) and 316(a)(1)(B) of the Trust Indenture Act and such
Sections 316(a)(1)(A) and 316(a)(1)(B) of the Trust Indenture Act are hereby
expressly excluded from this Declaration and the Trust Securities, as permitted
by the Trust Indenture Act. Subject to the foregoing provisions of this Section
2.6(b), upon such waiver, any such default shall cease to exist and any Event of
Default with respect to the Common Securities arising therefrom shall be deemed
to have been cured for every purpose of this Declaration, but no such waiver
shall extend to any subsequent or other default or Event of Default with respect
to the Common Securities or impair any right consequent thereon.
(c) A waiver of an Event of Default under the Indenture by the
Property Trustee at the direction of the Holders of the Convertible Preferred
Securities, constitutes a waiver of the corresponding Event of Default under
this Declaration. The foregoing provisions of this Section 2.6(c) shall be in
lieu of Section 316(a)(1)(B) of the Trust Indenture Act
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and such Section 316(a)(1)(B) of the Trust Indenture Act is hereby expressly
excluded from this Declaration and the Trust Securities, as permitted by the
Trust Indenture Act.
SECTION 2.7 EVENT OF DEFAULT; NOTICE.
(a) The Property Trustee shall, within 90 days after the
occurrence of an Event of Default, transmit by mail, first class postage
prepaid, to the Holders of the Trust Securities, the Administrative Trustees and
the Sponsor, notices of all Events of Default with respect to the Trust
Securities actually known to a Responsible Officer of the Property Trustee,
unless such defaults have been cured or waived before the giving of such notice;
PROVIDED that, except in the case of default in the payment of the principal of,
premium, if any, or interest on any of the Convertible Debentures or Convertible
Preferred Securities, the Property Trustee shall be protected in withholding
such notice if and so long as a trust committee of directors and/or Responsible
Officers of the Property Trustee in good faith determine that the withholding of
such notice is in the interests of the Holders.
(b) The Property Trustee shall not be deemed to have knowledge of
any default except:
(i) a default under Sections 501(1) and 501(2) of the
Indenture; or
(ii) any default as to which the Property Trustee shall have
received written notice or of which a Responsible Officer of the Property
Trustee charged with the administration of the Declaration shall have
actual knowledge.
ARTICLE III
ORGANIZATION OF TRUST
SECTION 3.1 NAME.
The Trust is named "Sun Financing I," as such name may be modified
from time to time by the Administrative Trustees following 10 Business Days
written notice to the Holders of Trust Securities. The Trust's activities may
be conducted under the name of the Trust or any other name deemed advisable by
the Administrative Trustees.
SECTION 3.2 OFFICE.
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The address of the principal office of the Trust is c/o Sun Healthcare
Group, Inc., 101 Sun Avenue NE, Albuquerque, New Mexico 87109, Attention: Robert
F. Murphy, Esq., Senior Vice President, General Counsel and Secretary. On 10
Business Days written notice to the Holders of Trust Securities, the
Administrative Trustees may designate another principal office.
SECTION 3.3 PURPOSE.
The exclusive purposes and functions of the Trust are (a) to issue and
sell Trust Securities and use the proceeds from such sale to acquire the
Convertible Debentures, and (b) except as otherwise limited herein, to engage in
only those other activities necessary or incidental thereto. The Trust shall
not borrow money, issue debt or reinvest proceeds derived from investments,
pledge any of its assets, or otherwise undertake (or permit to be undertaken)
any activity that would cause the Trust not to be classified for United States
federal income tax purposes as a grantor trust.
SECTION 3.4 PROHIBITION OF ACTIONS BY THE TRUST AND THE ISSUER TRUSTEES.
The Trust shall not, and the Issuer Trustees (including the Property
Trustee) shall not, engage in any activity other than as required or authorized
by this Declaration. In particular, the Trust shall not and the Issuer Trustees
(including the Property Trustee) shall not cause the Trust to:
(a) invest any proceeds received by the Trust from holding the
Convertible Debentures, but shall distribute all such proceeds to Holders of
Trust Securities pursuant to the terms of this Declaration and of the Trust
Securities;
(b) acquire any assets other than as expressly provided herein;
(c) possess Trust property for other than a Trust purpose;
(d) make any loans or incur any indebtedness other than loans
represented by the Convertible Debentures;
(e) possess any power or otherwise act in such a way as to vary
the Trust assets or the terms of the Trust Securities in any way whatsoever
(other than pursuant to Article XI hereto);
(f) issue any securities or other evidences of beneficial
ownership of, or beneficial interest in, the Trust other than the Trust
Securities; or
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(g) other than as provided in this Declaration or Annex I hereto,
(a) direct the time, method and place of exercising any trust or power conferred
upon the Indenture Trustee with respect to the Convertible Debentures, (b) waive
any past default that is waivable under the Indenture, (c) exercise any right to
rescind or annul any declaration that the principal of all the Convertible
Debentures shall be due and payable, or (d) consent to any amendment,
modification or termination of the Indenture or the Convertible Debentures where
such consent shall be required unless the Trust shall have received an opinion
of counsel to the effect that such amendment or modification will not cause more
than an insubstantial risk that (i) the Trust will be deemed an Investment
Company required to be registered under the Investment Company Act, or (ii) for
United States federal income tax purposes the Trust will not be classified as a
grantor trust.
SECTION 3.5 GENERAL AUTHORITY OF THE ISSUER TRUSTEES.
In dealing with the Issuer Trustees acting on behalf of the Trust, no
person shall be required to inquire into the authority of the Issuer Trustees to
bind the Trust. Persons dealing with the Trust are entitled to rely
conclusively on the power and authority of the Issuer Trustees as set forth in
this Declaration.
SECTION 3.6 TITLE TO PROPERTY OF THE TRUST.
Except as provided in Section 5.11 with respect to the Convertible
Debentures and the Property Account or as otherwise provided in this
Declaration, legal title to all assets of the Trust shall be vested in the
Trust. The Holders shall not have legal title to any part of the assets of the
Trust, but shall have an undivided beneficial interest in the assets of the
Trust.
SECTION 3.7 NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF TRUST SECURITIES.
The recitals contained in this Declaration and the Trust Securities
shall be taken as the statements of the Sponsor, and the Issuer Trustees do not
assume any responsibility for their correctness. The Issuer Trustees make no
representations as to the value or condition of the property of the Trust or any
part thereof. The Issuer Trustees make no representations as to the validity or
sufficiency of this Declaration or the Trust Securities.
SECTION 3.8 DURATION OF TRUST.
The Trust, unless dissolved pursuant to the provisions of Section 3.10
hereof, shall exist until November 7, 2052.
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SECTION 3.9 MERGERS.
(a) The Trust may not consolidate, amalgamate, merge with or into,
or be replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety, to any Person, except as described in Sections
3.9(b) and 3.9(c) of this Declaration or in Annex I.
(b) The Trust may, with the consent of the majority of the
Administrative Trustees, and without the consent of the Holders of the Trust
Securities, the Delaware Trustee or the Property Trustee, consolidate,
amalgamate, merge with or into, or be replaced by a trust organized as such
under the laws of any state of the United States; PROVIDED that:
(i) if the Trust is not the survivor, such successor entity
(the "Successor Entity") either:
(A) expressly assumes all of the obligations of the
Trust under the Trust Securities; or
(B) substitutes for the Convertible Preferred
Securities other securities having substantially the same
terms as the Convertible Preferred Securities (the "Successor
Securities") so long as the Successor Securities rank the same
as the Convertible Preferred Securities with respect to
Distributions, assets and payments upon liquidation or
otherwise;
(ii) the Company expressly acknowledges a trustee of the
Successor Entity that possesses the same powers and duties as the Property
Trustee as the holder of the Convertible Debentures;
(iii) the Convertible Preferred Securities or any Successor
Securities are listed, or any Successor Securities will be listed upon
notification of issuance, on any national securities exchange or with
another organization on which the Convertible Preferred Securities are then
listed or quoted (if any);
(iv) such merger, consolidation, amalgamation or replacement
does not cause the Convertible Preferred Securities (including any
Successor Securities) to be downgraded by any nationally recognized
statistical rating organization;
(v) such merger, consolidation, amalgamation or replacement
does not adversely affect the rights, preferences and privileges of the
Holders of the
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Convertible Preferred Securities (including any Successor Securities) in
any material respect (other than with respect to any dilution of the
Holders' interest in the new entity);
(vi) such Successor Entity has a purpose substantially
identical to that of the Trust;
(vii) the Sponsor guarantees the obligations of such
Successor Entity under the Successor Securities at least to the extent
provided by the Convertible Preferred Securities Guarantee; and
(viii) prior to such merger, consolidation, amalgamation or
replacement, the Sponsor has received an opinion of a nationally recognized
independent counsel to the Trust reasonably acceptable to the Property
Trustee and experienced in such matters to the effect that:
(A) such merger, consolidation, amalgamation or
replacement will not adversely affect the rights, preferences and
privileges of the Holders of the Trust Securities (including any
Successor Securities) in any material respect (other than with respect
to any dilution of the Holders' interest in the new entity);
(B) following such merger, consolidation, amalgamation
or replacement, neither the Trust nor the Successor Entity will be
required to register as an Investment Company; and
(C) following such merger, consolidation, amalgamation
or replacement, the Trust (or the Successor Entity) will be treated as
a grantor trust for United States federal income tax purposes.
(c) Notwithstanding Section 3.9(b), the Trust shall not, except
with the consent of Holders of 100% in liquidation amount of the Common
Securities, consolidate, amalgamate, merge with or into, or be replaced by any
other entity or permit any other entity to consolidate, amalgamate, merge with
or into, or replace it if such consolidation, amalgamation, merger or
replacement would cause the Trust or Successor Entity to be classified as other
than a grantor trust for United States federal income tax purposes.
SECTION 3.10 TERMINATION OF TRUST.
(a) The Trust shall dissolve:
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(i) upon the bankruptcy of the Sponsor;
(ii) upon the filing of a certificate of dissolution or its
equivalent with respect to the Sponsor, or upon the consent of at least a
Majority in Liquidation Amount of the Trust Securities, voting together as
a single class, to dissolve the Trust, or the revocation of the Certificate
of Incorporation of the Sponsor and the expiration of 90 days after the
date of revocation without a reinstatement thereof;
(iii) upon the entry of a decree of judicial dissolution of
the Sponsor or the Trust;
(iv) upon the redemption, conversion or exchange of all of
the Trust Securities and the amounts necessary for redemption, conversion
or exchange thereof, including any Additional Interest, Liquidated Damages,
if any, and Compounded Interest, shall have been paid to the Holders in
accordance with the terms of the Trust Securities;
(v) upon the distribution of all of the Convertible
Debentures upon the occurrence of a Special Event, except in the case of a
Tax Event that has occurred and is continuing following which the Sponsor
has elected to pay any additional sums such that the net amount received by
holders of Convertible Preferred Securities in respect of Distributions is
not reduced as a result of such Tax Event and the Sponsor has not revoked
any such election or failed to make such payments; or
(vi) the expiration of the term of the Trust on November 7,
2052.
(b) As soon as is practicable after the occurrence of an event
referred to in Section 3.10(a), the Administrative Trustees shall pay (or make
provision for the payment of) all claims against the Trust and, after winding up
the affairs of the Trust, and shall execute and file a certificate of
cancellation with the Secretary of State of the State of Delaware.
(c) The provisions of Article IX shall survive the termination of
the Trust.
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ARTICLE IV
SPONSOR
SECTION 4.1 SPONSOR'S PURCHASE OF COMMON SECURITIES.
On the Closing Date and on any other date Convertible Preferred
Securities and Common Securities are sold pursuant to the over-allotment option
granted in the Purchase Agreement, the Sponsor will purchase all of the Common
Securities issued by the Trust, in an aggregate amount equal to at least 3% of
the capital of the Trust, at the same time as the Convertible Preferred
Securities are sold.
SECTION 4.2 RESPONSIBILITIES OF THE SPONSOR.
In connection with the issue and sale of the Convertible Preferred
Securities, the Sponsor shall have the exclusive right and responsibility to
engage in the following activities:
(a) to prepare and execute, if necessary, an Offering Memorandum
(the "Offering Memorandum") in preliminary and final form in relation to the
offering and sale of Convertible Preferred Securities to qualified institutional
buyers in reliance on Rule 144A and to Institutional "Accredited Investors"
within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act
and to prepare for filing with the Commission, any shelf registration statement,
including, in each case, any amendments thereto required to be filed in
connection with the Registration Rights Agreement;
(b) to determine the states and foreign jurisdictions, if any, in
which to take appropriate action to qualify or register for sale all or part of
the Convertible Preferred Securities and to do any and all such acts, other than
actions that must be taken by the Trust, and advise the Trust of actions it must
take, and prepare for execution and filing any documents to be executed and
filed by the Trust, as the Sponsor deems necessary or advisable in order to
comply with the applicable laws of any such states and foreign jurisdictions;
(c) to prepare for filing by the Trust with the Commission a
registration statement on Form 8-A relating to the registration of the
Convertible Preferred Securities under Section 12(b) of the Exchange Act,
including any amendments thereto in connection with the requirements of the
Registration Rights Agreement;
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(d) to negotiate the terms of the Purchase Agreement, Registration
Rights Agreement and other agreements, documents and instruments providing for
the sale of the Convertible Preferred Securities;
(e) prepare an application to permit the Convertible Preferred
Securities to trade or be quoted or listed in or on the Private Offerings,
Resales and Trading through Automated Linkages (the "PORTAL Market") PORTAL
Market or any other securities exchange quotation system or the Nasdaq Stock
Market's National Market; and
(f) prepare letters, documents or instruments to be delivered to
The Depository Trust Company and other clearing agencies relating to the
Preferred Securities;
ARTICLE V
ISSUER TRUSTEES
SECTION 5.1 NUMBER OF ISSUER TRUSTEES.
The initial number of Issuer Trustees shall be 5, and:
(a) at any time before the issuance of any Trust Securities, the
Sponsor may, by written instrument, increase or decrease the number of Issuer
Trustees; and
(b) after the issuance of any Trust Securities, the number of
Issuer Trustees may be increased or decreased by vote of the Holders of a
Majority in Liquidation Amount of the Common Securities voting as a class at a
meeting of the Holders of the Common Securities;
PROVIDED, HOWEVER, that the number of Issuer Trustees shall in no event be less
than three; PROVIDED FURTHER that (i) there shall be at least two Administrative
Trustees who are employees or officers of, or are affiliated with the Sponsor
and (ii) one Issuer Trustee shall be the Property Trustee for so long as this
Declaration is required to qualify as an indenture under the Trust Indenture
Act, and such Issuer Trustee may also serve as Delaware Trustee if it meets the
applicable requirements.
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SECTION 5.2 DELAWARE TRUSTEE; ELIGIBILITY.
If required by the Business Trust Act, one Issuer Trustee (the
"Delaware Trustee") shall be:
(a) a natural person who is resident of the State of Delaware; or
(b) if not a natural person, an entity that has its principal
place of business in the State of Delaware, and otherwise meets the requirements
of applicable law,
PROVIDED that, if the Property Trustee has its principal place of business in
the State of Delaware and otherwise meets the requirements of applicable law,
then the Property Trustee may also be the Delaware Trustee and Section 5.14
shall have no application.
SECTION 5.3 PROPERTY TRUSTEE; ELIGIBILITY.
(a) There shall at all times be one Issuer Trustee which shall act
as Property Trustee and shall:
(i) not be an Affiliate of the Sponsor;
(ii) be a corporation organized and doing business under the
laws of the United States of America or any state or territory thereof or
of the District of Columbia, or a Person permitted by the Commission to act
as an institutional trustee under the Trust Indenture Act, authorized under
such laws to exercise corporate trust powers, having a combined capital and
surplus of at least $50,000,000, and subject to supervision or examination
by federal, state, territorial or District of Columbia authority. If such
corporation publishes reports of condition at least annually, pursuant to
law or to the requirements of the supervising or examining authority
referred to above, then for the purposes of this Section 5.3(a)(ii), the
combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of
condition so published; and
(iii) if the Trust is excluded from the definition of an
Investment Company solely by means of Rule 3a-5 and to the extent the
Investment Company Act or Trust Indenture Act requires a trustee having
certain qualifications to hold title to the "eligible assets" of the Trust,
the Property Trustee shall possess those qualifications.
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(b) If at any time the Property Trustee shall cease to be eligible
to so act under Section 5.3(a), the Property Trustee shall immediately resign in
the manner and with the effect set forth in Section 5.6(d).
(c) If the Property Trustee has or shall acquire any "conflicting
interest" within the meaning of Section 310(b) of the Trust Indenture Act, the
Property Trustee and the Holder of the Common Securities (as if it were the
obligor referred to in Section 310(b) of the Trust Indenture Act) shall in all
respects comply with the provisions of Section 310(b) of the Trust Indenture
Act.
(d) The Convertible Preferred Securities Guarantee shall be deemed
to be specifically described in this Declaration for purposes of clause (i) of
the first provision contained in Section 310(b) of the Trust Indenture Act.
SECTION 5.4 QUALIFICATIONS OF ADMINISTRATIVE TRUSTEES AND TRUSTEE
GENERALLY.
Each Administrative Trustee and the Delaware Trustee (unless the
Property Trustee also acts as Delaware Trustee) shall be either a natural person
who is at least 21 years of age or a legal entity that shall act through one or
more Authorized Officers.
SECTION 5.5 INITIAL TRUSTEES.
The initial Administrative Trustees are:
Robert D. Woltil
William C. Warrick
Robert F. Murphy
The initial Delaware Trustee is:
The Bank of New York (Delaware)
The initial Property Trustee is:
The Bank of New York
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SECTION 5.6 APPOINTMENT, REMOVAL AND RESIGNATION OF TRUSTEES.
(a) Subject to Sections 5.6(b) and 5.6(c), Trustees may be
appointed or removed without cause at any time:
(i) until the issuance of any Trust Securities, by written
instrument executed by the Sponsor; and
(ii) after the issuance of any Trust Securities, by vote of
the Holders of a Majority in Liquidation Amount of the Common Securities
voting as a class.
(b) The Issuer Trustee that acts as Property Trustee shall not be
removed in accordance with Section 5.6(a) until a successor possessing the
qualifications to act as a Property Trustee under Section 5.3 (a "SUCCESSOR
PROPERTY TRUSTEE") has been appointed and has accepted such appointment by
instrument executed by such Successor Property Trustee and delivered to the
Trust, the Sponsor and the removed Property Trustee.
(c) The Issuer Trustee that acts as Delaware Trustee shall not be
removed in accordance with Section 5.6(a) until a successor possessing the
qualifications to act as Delaware Trustee under Sections 5.2 and 5.4 (a
"SUCCESSOR DELAWARE TRUSTEE") has been appointed and has accepted such
appointment by instrument executed by such Successor Delaware Trustee and
delivered to the Trust, the Sponsor and the removed Delaware Trustee.
(d) An Issuer Trustee appointed to office shall hold office until
his, hers or its successor shall have been appointed or until his, her or its
death, removal, resignation, dissolution or liquidation. Any Issuer Trustee may
resign from office (without need for prior or subsequent accounting) by an
instrument in writing signed by the Issuer Trustee and delivered to the Sponsor
and the Trust, which resignation shall take effect upon such delivery or upon
such later date as is specified therein; PROVIDED, HOWEVER, that:
(i) No such resignation of the Issuer Trustee that acts as
the Property Trustee shall be effective:
(A) until a Successor Property Trustee has been
appointed and has accepted such appointment by instrument
executed by such Successor Property Trustee and delivered to
the Trust, the Sponsor and the resigning Property Trustee; or
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(B) until the assets of the Trust have been completely
liquidated and the proceeds thereof distributed to the Holders
of the Trust Securities; and
(ii) no such resignation of the Issuer Trustee that acts as
the Delaware Trustee shall be effective until a Successor Delaware Trustee
has been appointed and has accepted such appointment by instrument executed
by such Successor Delaware Trustee and delivered to the Trust, the Sponsor
and the resigning Delaware Trustee.
(e) The Holders of the Common Securities shall use their best
efforts to promptly appoint a Successor Property Trustee or Successor Delaware
Trustee, as the case may be, if the Property Trustee or the Delaware Trustee
delivers an instrument of resignation in accordance with Section 5.6(d).
(f) If no Successor Property Trustee or Successor Delaware Trustee
shall have been appointed and accepted appointment as provided in this Section
5.6 within 60 days after delivery pursuant to this Section 5.6 of an instrument
of resignation or removal, the Property Trustee or Delaware Trustee resigning or
being removed, as applicable, may petition any court of competent jurisdiction
for appointment of a Successor Property Trustee or Successor Delaware Trustee.
Such court may thereupon, after prescribing such notice, if any, as it may deem
proper and prescribe, appoint a Successor Property Trustee or Successor Delaware
Trustee, as the case may be.
(g) No Property Trustee or Delaware Trustee shall be liable for
the acts or omissions to act of any Successor Property Trustee or Successor
Delaware Trustee, as the case may be.
SECTION 5.7 VACANCIES AMONG TRUSTEES.
If an Issuer Trustee ceases to hold office for any reason and the
number of Trustees is not reduced pursuant to Section 5.1, or if the number of
Trustees is increased pursuant to Section 5.1, a vacancy shall occur. A
resolution certifying the existence of such vacancy by a majority of the
Administrative Trustees, shall be conclusive evidence of the existence of such
vacancy. The vacancy shall be filled with an Issuer Trustee appointed in
accordance with Section 5.6.
The death, resignation, retirement, removal, bankruptcy, dissolution,
liquidation, incompetence or incapacity to perform the duties of an Issuer
Trustee shall not operate to annul, dissolve or terminate the Trust or terminate
this Declaration. Whenever a
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vacancy in the number of Administrative Trustees shall occur, until such vacancy
is filled by the appointment of an Administrative Trustee in accordance with
this Section 5.6, the Administrative Trustees in office, regardless of their
number, shall have all the powers granted to the Administrative Trustees and
shall discharge all the duties imposed upon the Administrative Trustees by this
Declaration.
SECTION 5.8 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS OF
AN ISSUER TRUSTEE.
Any entity into which the Property Trustee, the Delaware Trustee or
any Administrative Trustee that is not a natural person, as the case may be, may
be merged or converted or with which either may be consolidated, or any entity
resulting from any merger, conversion or consolidation to which the Property
Trustee, the Delaware Trustee or Administrative Trustee, as the case may be,
shall be a party, or any entity succeeding to all or substantially all the
corporate trust business of the Property Trustee, the Delaware Trustee or the
Administrative Trustee, as the case may be, shall be the successor of the
Property Trustee, the Delaware Trustee or the Administrative Trustee, as the
case may be, hereunder, provided such corporation shall be otherwise qualified
and eligible under this Article V, without the execution or filing of any paper
or any further act on the part of any of the parties hereto.
SECTION 5.9 AUTHORITY, POWERS AND DUTIES OF THE ADMINISTRATIVE TRUSTEES.
(a) Subject to the limitations provided in this Declaration and to
the specific duties of the Property Trustee, the Administrative Trustees shall
have exclusive and complete authority to carry out the purposes of the Trust.
An action taken by the Administrative Trustees in accordance with their powers
shall constitute the act of and serve to bind the Trust and an action taken by
the Property Trustee on behalf of the Trust in accordance with its powers shall
constitute the act of and serve to bind the Trust.
(b) Except as expressly set forth in this Declaration and except
if a meeting of the Administrative Trustees is called with respect to any matter
over which the Administrative Trustees have power to act, any power of the
Administrative Trustees may be exercised by, or with the consent of, any one
such Administrative Trustee.
(c) Unless otherwise determined by the Administrative Trustees,
and except as otherwise required by the Business Trust Act or applicable law,
any Administrative Trustee is authorized to execute on behalf of the Trust any
documents which the Administrative Trustees have the power and authority to
cause the Trust to execute pursuant
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to Section 5.9, PROVIDED, that any shelf registration statement, including any
amendments thereto, shall be signed by a majority of the Administrative
Trustees.
(d) The Administrative Trustees shall have the exclusive power,
duty and authority to cause the Trust to engage in the following activities:
(i) to issue and sell the Convertible Preferred Securities
and the Common Securities in accordance with this Declaration; PROVIDED,
HOWEVER, that the Trust may issue no more than one series of Convertible
Preferred Securities and no more than one series of Common Securities, and,
PROVIDED, FURTHER, that there shall be no interests in the Trust other than
the Trust Securities, and the issuance of Trust Securities shall be limited
to simultaneous issuance of both Convertible Preferred Securities and
Common Securities on the Closing Date and any other date Convertible
Preferred Securities and Common Securities are sold pursuant to the
over-allotment option granted in the Purchase Agreement;
(ii) to cause the Trust to enter into, and to execute,
deliver and perform on behalf of the Trust, the Registration Rights
Agreement, the Common Securities Purchase Agreement, the Convertible
Debentures Purchase Agreement and the Certificate Depository Agreement and
such other agreements as may be necessary or incidental to the purposes and
function of the Trust;
(iii) to assist in the registration of the Convertible
Preferred Securities under the Securities Act and under state securities or
blue sky laws according to the terms of the Registration Rights Agreement,
and the qualification of this Declaration as a trust indenture under the
Trust Indenture Act upon the effectiveness of the Shelf Registration
Statement pursuant to the Registration Rights Agreement;
(iv) to assist the registration of the Convertible Preferred
Securities under the Exchange Act, in connection with the Shelf
Registration Statement and according to the terms of the Registration
Rights Agreement, and the preparation and filing of all periodic and other
reports and other documents pursuant to the foregoing (only to the extent
that such listing or registration is requested by the Sponsor);
(v) execute and perform the Purchase Agreement,
Registration Rights Agreement and other agreements, documents and
instruments providing for the sale of the Convertible Preferred Securities;
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(vi) to acquire the Convertible Debentures with the proceeds
of the sale of the Convertible Preferred Securities and the Common
Securities; PROVIDED, HOWEVER, that the Administrative Trustees shall cause
legal title to the Convertible Debentures to be held of record in the name
of the Property Trustee for the benefit of the Holders of the Convertible
Preferred Securities and the Holders of Common Securities;
(vii) to give the Sponsor and the Property Trustee prompt
written notice of the occurrence of a Special Event; PROVIDED that the
Administrative Trustees shall consult with the Sponsor and the Property
Trustee before taking or refraining from taking any Ministerial Action in
relation to a Special Event;
(viii) to establish a record date with respect to all actions
to be taken hereunder that require a record date be established, including
and with respect to, for the purposes of Section 316(c) of the Trust
Indenture Act, Distributions, voting rights, redemptions and exchanges, and
to issue relevant notices to the Holders of Convertible Preferred
Securities and Holders of Common Securities as to such actions and
applicable record dates;
(ix) to take all actions and perform such duties as may be
required of the Administrative Trustees pursuant to the terms of the Trust
Securities;
(x) to bring or defend, pay, collect, compromise,
arbitrate, resort to legal action, or otherwise adjust claims or demands of
or against the Trust ("Legal Action"), unless pursuant to Section 5.11(e),
the Property Trustee has the exclusive power to bring such Legal Action;
(xi) to employ or otherwise engage employees and agents (who
may be designated as officers with titles) and managers, contractors,
advisors, and consultants and pay reasonable compensation for such
services;
(xii) to cause the Trust to comply with the Trust's
obligations under the Trust Indenture Act;
(xiii) to give the certificate required by Section 314(a)(4)
of the Trust Indenture Act to the Property Trustee, which certificate may
be executed by any Administrative Trustee;
(xiv) to incur expenses that are necessary or incidental to
carry out any of the purposes of the Trust;
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(xv) to act as, or appoint another Person to act as,
registrar and transfer agent for the Trust Securities;
(xvi) to give prompt written notice to the Holders of the
Trust Securities of any notice received from the Sponsor of its election to
defer payments of interest on the Convertible Debentures by extending the
interest payment period under the Indenture;
(xvii) to execute all documents or instruments, perform all
duties and powers, and do all things for and on behalf of the Trust in all
matters necessary or incidental to the foregoing;
(xviii) to take all action that may be necessary or appropriate
for the preservation and the continuation of the Trust's valid existence,
rights, franchises and privileges as a statutory business trust under the
laws of the State of Delaware and of each other jurisdiction in which such
existence is necessary to protect the limited liability of the Holders of
the Convertible Preferred Securities or to enable the Trust to effect the
purposes for which the Trust was created;
(xix) to take any action, not inconsistent with this
Declaration or with applicable law, that the Administrative Trustees
determine in their discretion to be necessary or desirable in carrying out
the activities of the Trust as set out in this Section 5.9, including, but
not limited to:
(A) causing the Trust not to be deemed to be an
Investment Company required to be registered under the
Investment Company Act;
(B) causing the Trust to be classified for United
States federal income tax purposes as a grantor trust; and
(C) cooperating with the Company to ensure that the
Convertible Debentures will be treated as indebtedness of the
Company for United States federal income tax purposes;
PROVIDED that such action does not adversely affect the interests of Holders;
(xx) to take all action necessary to cause all applicable
tax returns and tax information reports that are required to be filed with
respect to the Trust to be duly prepared and filed by the Administrative
Trustees, on behalf of the Trust;
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(xxi) execute, if necessary, an offering memorandum (the
"Offering Memorandum") in preliminary and final form prepared by the
Sponsor, in relation to the offering and sale of the Convertible Preferred
Securities, and to execute and file with the Commission, at such time as
determined by the Sponsor, any Registration Statement, including any
amendments thereto, as contemplated by the Registration Rights Agreement;
(xxii) execute and file an application prepared by the
Sponsor, to permit the Preferred Securities to trade or be quoted or listed
in or on the PORTAL Market or any other securities exchange quotation
system or the Nasdaq Stock Market's National Market;
(xxiii) execute and deliver letters, documents or instruments
to The Depository Trust Company and other clearing agencies relating to the
Convertible Preferred Securities; and
(xxiv) to correspond with the Securities and Exchange
Commission, when necessary or advisable.
(e) The Administrative Trustees must exercise the powers set forth
in this Section 5.9 in a manner that is consistent with the purposes and
functions of the Trust set out in Section 3.3, and the Administrative Trustees
shall not take any action that is inconsistent with the purposes and functions
of the Trust set forth in Section 3.3.
(f) Subject to this Section 5.9, the Administrative Trustees shall
have none of the powers or the authority of the Property Trustee set forth in
Section 5.11.
(g) Any expenses incurred by the Administrative Trustees pursuant
to this Section 5.9 shall be reimbursed by the Sponsor.
SECTION 5.10 DELEGATION OF POWERS AND DUTIES OF THE ADMINISTRATIVE
TRUSTEES.
The Administrative Trustees shall have power to delegate from time to
time to such of their number or to officers of the Trust the doing of such
things and the execution of such instruments either in the name of the Trust or
the names of the Administrative Trustees or otherwise as the Administrative
Trustees may deem expedient, to the extent such delegation is not prohibited by
applicable law or contrary to the provisions of the Trust, as set forth herein.
The Administrative Trustees may, by power of attorney consistent with applicable
law, delegate to any other natural person over the age of 21 their power for the
purpose of executing any documents contemplated in Section 5.9, including any
shelf
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registration statement or any amendment thereto or other document filed with the
Commission, or making any other governmental filing.
SECTION 5.11 POWERS AND DUTIES OF THE PROPERTY TRUSTEE.
(a) The legal title to the Convertible Debentures shall be owned
by and held of record in the name of the Property Trustee in trust for the
benefit of the Holders of the Trust Securities. The right, title and interest
of the Property Trustee to the Convertible Debentures shall vest automatically
in each Person who may hereafter be appointed as Property Trustee in accordance
with Section 5.6. Such vesting and cessation of title shall be effective
whether or not conveyancing documents with regard to the Convertible Debentures
have been executed and delivered.
(b) The Property Trustee shall not transfer its right, title and
interest in the Convertible Debentures to the Administrative Trustees or to the
Delaware Trustee (if the Property Trustee does not also act as Delaware
Trustee).
(c) The Property Trustee shall:
(i) establish and maintain a segregated non-interest
bearing trust account (the "Property Account") in the name of and under the
exclusive control of the Property Trustee on behalf of the Holders of the
Trust Securities and, upon the receipt of payments of funds made in respect
of the Convertible Debentures held by the Property Trustee, deposit such
funds into the Property Account and make payments to the Holders of the
Convertible Preferred Securities and Holders of the Common Securities from
the Property Account in accordance with Section 6.1. Funds in the Property
Account shall be held uninvested until disbursed in accordance with this
Declaration. The Property Account shall be an account that is maintained
with a banking institution the rating on whose long-term unsecured
indebtedness is at least equal to the rating assigned to the Convertible
Preferred Securities by a "nationally recognized statistical rating
organization," as that term is defined for purposes of Rule 436(g)(2) under
the Securities Act;
(ii) engage in such ministerial activities as so directed
and as shall be necessary or appropriate to effect the redemption of the
Convertible Preferred Securities and the Common Securities to the extent
the Convertible Debentures are redeemed or mature;
(iii) upon written notice of distribution issued by the
Administrative Trustees in accordance with the terms of the Trust
Securities, engage in such
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ministerial activities as so directed as shall be necessary or appropriate
to effect the distribution of the Convertible Debentures to Holders of
Trust Securities upon the occurrence of certain Special Events arising from
a change in law or a change in legal interpretation or other specified
circumstances pursuant to the terms of the Trust Securities; and
(iv) give prompt written notice to the Holders of the Trust
Securities of any notice received from the Company of its election to defer
payments of interest on the Convertible Debentures by extending the
interest payment period under the Indenture.
(d) The Property Trustee shall take all actions and perform such
duties as may be specifically required of the Property Trustee pursuant to the
terms of the Trust Securities.
(e) The Property Trustee shall take any Legal Action which arises
out of or in connection with an Event of Default of which a Responsible Officer
of the Property Trustee has actual knowledge or the Property Trustee's duties
and obligations under this Declaration or the Trust Indenture Act. If the
Property Trustee fails to enforce its rights under the Convertible Debentures
after a Holder of Convertible Preferred Securities has made a written request,
such Holder of Convertible Preferred Securities may, to the fullest extent
permitted by law, institute a legal proceeding directly against the Company to
enforce the Property Trustee's rights under the Convertible Debentures without
first instituting any legal proceeding against the Property Trustee or any other
Person. Notwithstanding the foregoing, if an Event of Default has occurred and
is continuing and such event is attributable to the failure of the Company to
pay interest or principal on the Convertible Debentures on the date such
interest or principal is otherwise payable (or in the case of redemption on the
date fixed for redemption), then a Holder of Convertible Preferred Securities
may directly institute a proceeding for enforcement of payment to such Holder (a
"Direct Action") of the principal of or interest on Convertible Debentures
having a principal amount equal to the aggregate liquidation amount of the
Convertible Preferred Securities of such Holder on or after the respective due
date specified in the Convertible Debentures. Except as provided above, the
Holders of Convertible Preferred Securities will not be able to exercise
directly any other remedy available to the holders of the Convertible
Debentures. In connection with such Direct Action, the Company will be
subrogated to the rights of such Holder of Convertible Preferred Securities
under the Declaration to the extent of any payment made by the Company to such
Holder of Convertible Preferred Securities in such Direct Action.
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(f) Subject to this Section 5.11, the Property Trustee shall have
none of the duties, liabilities, powers or the authority of the Administrative
Trustees set forth in Section 5.9.
(g) The Property Trustee must exercise the powers set forth in
this Section 5.11 in a manner that is consistent with the purposes and functions
of the Trust set out in Section 3.3, and the Property Trustee shall not take any
action that is inconsistent with the purposes and functions of the Trust set out
in Section 3.3.
(h) The Property Trustee may authorize one or more Persons (each,
a "Paying Agent") to pay Distributions, redemption payments or liquidation
payments on behalf of the Trust with respect to all Securities and any such
Paying Agent shall comply with Section 317(b) of the Trust Indenture Act. Any
Paying Agent may be removed by the Property Trustee at any time and a successor
Paying Agent or additional Paying Agent may be appointed at any time by the
Property Trustee. The Property Trustee hereby initially appoints The Bank of
New York as the Paying Agent.
SECTION 5.12 CERTAIN DUTIES AND RESPONSIBILITIES OF THE PROPERTY TRUSTEE.
(a) The Property Trustee, before the occurrence of any Event of
Default and after the curing or waiving of all Events of Default that may have
occurred, shall undertake to perform only such duties and obligations as are
specifically set forth in this Declaration and no implied covenants shall be
read into this Declaration against the Property Trustee. In case an Event of
Default has occurred (that has not been cured or waived pursuant to Section 2.6)
of which a Responsible Officer of the Property Trustee has actual knowledge, the
Property Trustee shall exercise such rights and powers vested in it by this
Declaration, and use the same degree of care and skill in its exercise, as a
prudent individual would exercise or use under the circumstances in the conduct
of his or her own affairs.
(b) No provision of this Declaration shall be construed to relieve
the Property Trustee from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that prior to
the occurrence of an Event of Default and after the curing or waiving of all
such Events of Default that may have occurred, in the absence of bad faith on
the part of the Property Trustee, the Property Trustee may conclusively rely, as
to the truth of the statements and the correctness of the opinions expressed
therein, upon any certificates or opinions furnished to the Property Trustee and
conforming to the requirements of this Declaration; but in the case of any such
certificates or opinions that by any provision hereof are specifically required
to be furnished to the Property Trustee, the Property Trustee shall be under a
duty to examine the same to determine whether or not they conform on their face
to the requirements of this Declaration.
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(c) The Property Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer of the Property Trustee,
unless it shall be proved that the Property Trustee was negligent in
ascertaining the pertinent facts.
(d) The Property Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with the
direction of the Holders of not less than a Majority in Liquidation Amount of
the Trust Securities relating to the time, method and place of conducting any
proceeding for any remedy available to the Property Trustee, or exercising any
trust or power conferred upon the Property Trustee under this Declaration.
(e) The Property Trustee shall not be responsible for monitoring
the compliance by the Administrative Trustees or the Sponsor with their
respective duties under this Declaration, nor shall the Property Trustee be
liable for any default or misconduct of the Administrative Trustees or the
Sponsor.
(f) No provision of this Declaration shall require the Property
Trustee to expend or risk its own funds or otherwise incur personal financial
liability in the performance of any of its duties or in the exercise of any of
its rights or powers, if it shall have reasonable grounds for believing that the
repayment of such funds or liability is not reasonably assured to it under the
terms of this Declaration or indemnity reasonably satisfactory to the Property
Trustee against such risk or liability is not reasonably assured to it.
(g) The Property Trustee's sole duty with respect to the custody,
safe keeping and physical preservation of the Convertible Debentures and the
Property Account shall be to deal with such property in a similar manner as the
Property Trustee deals with similar property for its own account, subject to the
protections and limitations on liability afforded to the Property Trustee under
this Declaration and the Trust Indenture Act.
(h) The Property Trustee shall not be liable for any interest on
any money received by it except as it may otherwise agree in writing with the
Sponsor. Money held by the Property Trustee need not be segregated from other
funds held by it except in relation to the Property Account maintained by the
Property Trustee pursuant to Section 5.11(c)(i) and except to the extent
otherwise required by law or by agreement.
(i) The Property Trustee shall have no duty or liability for or
with respect to the value, genuineness, existence or sufficiency of the
Convertible Debentures or the payment of any taxes or assessments levied thereon
or in connection therewith.
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SECTION 5.13 CERTAIN RIGHTS OF PROPERTY TRUSTEE.
(a) Subject to the provisions of Section 5.12:
(i) the Property Trustee may rely and shall be fully
protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document believed by it to be genuine and to
have been signed, sent or presented by the proper party or parties;
(ii) any direction or act of the Sponsor or the
Administrative Trustees contemplated by this Declaration shall be
sufficiently evidenced by an Officers' Certificate;
(iii) whenever in the administration of this Declaration, the
Property Trustee shall deem it desirable that a matter be proved or
established before taking, suffering or omitting any action hereunder, the
Property Trustee (unless other evidence is herein specifically prescribed)
may, in the absence of bad faith on its part, request and rely upon an
Officers' Certificate which, upon receipt of such request, shall be
promptly delivered by the Sponsor or the Administrative Trustees;
(iv) the Property Trustee shall have no duty to see to any
recording, filing or registration of any instrument (including any
financing or continuation statement or any filing under tax or securities
laws) or any rerecording, refiling or registration thereof;
(v) the Property Trustee may consult with counsel of its
choice or other experts and the advice or opinion of such counsel and
experts with respect to legal matters or advice within the scope of such
experts' area of expertise shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in accordance with such advice or opinion, such
counsel may be counsel to the Sponsor or any of its Affiliates, and may
include any of its employees. The Property Trustee shall have the right at
any time to seek instructions concerning the administration of this
Declaration from any court of competent jurisdiction;
(vi) the Property Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Declaration at
the request or direction of any Holder, unless such Holder shall have
provided to the Property Trustee adequate security and indemnity,
reasonably satisfactory to the Property Trustee,
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against the costs, expenses (including attorneys' fees and expenses and the
expenses of the Property Trustee's agents, nominees or custodians) and
liabilities that might be incurred by it in complying with such request or
direction, including such reasonable advances as may be requested by the
Property Trustee; PROVIDED that, nothing contained in this Section
5.13(a)(vi) shall be taken to relieve the Property Trustee, upon the
occurrence of an Event of Default, of its obligation to exercise the rights
and powers vested in it by this Declaration;
(vii) the Property Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, security, bond, debenture, note, other evidence
of indebtedness or other paper or document, but the Property Trustee, in
its discretion, may make such further inquiry or investigation into such
facts or matters as it may see fit;
(viii) the Property Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Property Trustee shall not be
responsible for any misconduct or negligence on the part of any agent or
attorney appointed with due care by it hereunder;
(ix) any action taken by the Property Trustee or its agents
hereunder shall bind the Trust and the Holders of the Trust Securities, and
the signature of the Property Trustee or its agents alone shall be
sufficient and effective to perform any such action and no third party
shall be required to inquire as to the authority of the Property Trustee to
so act or as to its compliance with any of the terms and provisions of this
Declaration, both of which shall be conclusively evidenced by the Property
Trustee's or its agent's taking such action;
(x) whenever in the administration of this Declaration the
Property Trustee shall deem it desirable to receive instructions with
respect to enforcing any remedy or right or taking any other action
hereunder the Property Trustee (A) may request instructions from the
Holders of the Trust Securities, which instructions may only be given by
the Holders of the same proportion in liquidation amount of the Trust
Securities as would be entitled to direct the Property Trustee under the
terms of the Trust Securities in respect of such remedy, right or action,
(B) may refrain from enforcing such remedy or right or taking such other
action until such instructions are received, and (C) shall be protected in
acting in accordance with such instructions;
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(xi) except as otherwise expressly provided by this
Declaration, the Property Trustee shall not be under any obligation to take
any action that is discretionary under the provisions of this Declaration;
and
(xii) the Property Trustee shall not be liable for any action
taken, suffered, or omitted to be taken by it in good faith and reasonably
believed by it to be authorized or within the discretion or rights or
powers conferred upon it by this Declaration.
(b) No provision of this Declaration shall be deemed to impose any
duty or obligation on the Property Trustee to perform any act or acts or
exercise any right, power, duty or obligation conferred or imposed on it, in any
jurisdiction in which it shall be illegal, or in which the Property Trustee
shall be unqualified or incompetent in accordance with applicable law, to
perform any such act or acts, or to exercise any such right, power, duty or
obligation. No permissive power or authority available to the Property Trustee
shall be construed to be a duty.
(c) It is expressly understood and agreed by the parties hereto
that in fulfilling its obligations as Property Trustee hereunder on behalf of
the Trust, (a) any agreements or instruments executed or delivered by The Bank
of New York are executed and delivered not in its individual capacity but solely
as Property Trustee under this Declaration in the exercise of the powers and
authority conferred and vested in it, (b) each of the representations,
undertakings and agreements herein made on the part of the Trust is made and
intended not as representations, warranties, covenants, undertakings and
agreements by The Bank of New York in its individual capacity but is made and
intended for the purpose of binding only the Trust, and (c) under no
circumstances shall The Bank of New York in its individual capacity be
personally liable for the payment of any indebtedness or expenses of the Trust
or be liable for the breach or failure of any obligation, representation,
warrant, or covenant made or undertaken by the Trust under this Declaration
except if such breach or failure is due to any negligence or wilful misconduct
of the Property Trustee.
SECTION 5.14 DELAWARE TRUSTEE.
(a) Notwithstanding any other provision of this Declaration other
than Section 5.2, the Delaware Trustee shall not be entitled to exercise any
powers, nor shall the Delaware Trustee have any of the duties and
responsibilities of the Administrative Trustees or the Property Trustee
described in this Declaration. Except as set forth in Section 5.2, the Delaware
Trustee shall be a Trustee for the sole and limited purpose of fulfilling the
requirements of Section 3807 of the Business Trust Act.
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(b) It is expressly understood and agreed by the parties hereto
that in fulfilling its obligations as Delaware Trustee hereunder on behalf of
the Trust, (i) any agreements or instruments executed or delivered by The Bank
of New York (Delaware) are executed and delivered not in its individual capacity
but solely as Delaware Trustee under this Declaration in the exercise of the
powers and authority conferred and vested in it, (ii) each of the
representations, undertakings and agreements herein made on the part of the
Trust is made and intended not as representations, warranties, covenants,
undertakings and agreements by The Bank of New York (Delaware) in its individual
capacity but is made and intended for the purpose of binding only the Trust, and
(c) under no circumstances shall The Bank of New York (Delaware) in its
individual capacity be personally liable for the payment of any indebtedness or
expenses of the Trust or be liable for the breach or failure of any obligation,
representation, warrant, or covenant made or undertaken by the Trust under this
Declaration except if such breach or failure is due to any negligence or wilful
misconduct of the Delaware Trustee.
SECTION 5.15 MEETINGS.
If there is more than one Administrative Trustee, meetings of the
Administrative Trustees shall be held from time to time upon the call of any
Administrative Trustee. Regular meetings of the Administrative Trustees may be
held at a time and place fixed by resolution of the Administrative Trustees.
Notice of any in-person meetings of the Administrative Trustees shall be hand
delivered or otherwise delivered in writing (including by facsimile, with a hard
copy by overnight courier) not less than 48 hours before such meeting. Notice
of any telephonic meetings of the Administrative Trustees or any committee
thereof shall be hand delivered or otherwise delivered in writing (including by
facsimile, with a hard copy by overnight courier) not less than 24 hours before
a meeting. Notices shall contain a brief statement of the time, place and
anticipated purposes of the meeting. The presence (whether in person or by
telephone) of an Administrative Trustee at a meeting shall constitute a waiver
of notice of such meeting except where an Administrative Trustee attends a
meeting for the express purpose of objecting to the transaction of any activity
on the ground that the meeting has not been lawfully called or convened. Unless
provided otherwise in this Declaration, any action of the Administrative
Trustees may be taken at a meeting by vote of a majority of the Administrative
Trustees present (whether in person or by telephone) and eligible to vote with
respect to such matter, provided that a Quorum is present, or without a meeting
by the unanimous written consent of the Administrative Trustees. In the event
there is only one Administrative Trustee, any and all action of such
Administrative Trustee shall be evidenced by a written consent of such
Administrative Trustee.
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ARTICLE VI
DISTRIBUTIONS
SECTION 6.1 DISTRIBUTIONS.
If and to the extent that the Company makes a payment of interest
(including Compounded Interest), Additional Interest, premium and/or principal
on the Convertible Debentures held by the Property Trustee, or Liquidated
Damages, if any, (the amount of any such payment being a "Payment Amount"), the
Property Trustee shall and is directed, to the extent funds are available for
that purpose, to make a distribution (a "Distribution") of the Payment Amount to
Holders of Convertible Preferred Securities and Common Securities in accordance
with the preferences set forth in the respective terms of such Trust Securities,
as described in Annex I hereto.
ARTICLE VII
THE TRUST SECURITIES
SECTION 7.1 TITLE AND TERMS.
The Administrative Trustees shall on behalf of the Trust issue one
class of Convertible Preferred Securities, representing undivided beneficial
interests in the assets of the Trust (the "Convertible Preferred Securities"),
and one class of convertible common securities, representing undivided
beneficial interests in the assets of the Trust (the "Common Securities"), each
having such terms (the "Terms") as are set forth in Annex I. The Trust shall
issue no securities or other interests in the assets of the Trust other than the
Convertible Preferred Securities and the Common Securities. The aggregate
number of Convertible Preferred Securities outstanding at any time shall not
exceed the number set forth in the Terms in Annex I hereto.
The Terms of the Trust Securities set forth in Annex I and the forms
of Certificates set forth in Exhibits A-1 and A-2 are part of the terms of this
Declaration and to the extent applicable, the Property Trustee and the Sponsor,
by their execution and delivery of this Declaration, expressly agree to such
Terms and to be bound thereby.
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SECTION 7.2 GENERAL PROVISIONS REGARDING THE TRUST SECURITIES.
(a) The consideration received by the Trust for the issuance of
the Trust Securities shall constitute a contribution to the capital of the Trust
and shall not constitute a loan to the Trust.
(b) Upon issuance of the Trust Securities as provided in this
Declaration, the Trust Securities so issued shall be validly issued, fully paid
and nonassessable.
(c) Every Person, by virtue of having become a Holder or a
Convertible Preferred Security Beneficial Owner in accordance with the terms of
this Declaration, shall be deemed to have expressly assented and agreed to the
terms of, and shall be bound by, this Declaration.
SECTION 7.3 GENERAL FORM OF CERTIFICATES.
The Convertible Preferred Security Certificates and the Property
Trustee's certificate of authentication shall be substantially in the form of
Exhibit A-1 and the Common Security Certificates shall be substantially in the
form of Exhibit A-2, each of which is hereby incorporated in and expressly made
a part of this Declaration.
The Certificates may have letters, numbers, notations or other marks
of identification or designation and such legends or endorsements required by
law, stock exchange rule, agreements to which the Trust is subject, if any, or
usage (provided that any such notation, legend or endorsement is in a form
acceptable to the Trust). The Trust at the direction of the Sponsor shall
furnish any such legend not contained in Exhibit A-1 to the Property Trustee in
writing.
The definitive Certificates shall be printed, lithographed or engraved
or produced by any combination of these methods on steel engraved borders or may
be produced in any other manner permitted by the rules of any securities
exchange on which the Trust Securities may be listed, all as determined by the
Administrative Trustees, as evidenced by their execution thereof. The Trust
shall issue no Trust Securities in bearer form.
SECTION 7.4 FORM OF CONVERTIBLE PREFERRED SECURITIES CERTIFICATES; GLOBAL
CERTIFICATES.
(a) Convertible Preferred Securities initially sold to qualified
institutional buyers in reliance on Rule 144A under the Securities Act initially
will be represented by one or more certificates in registered, global form
(collectively, the "Restricted Global Certificate"). Convertible Preferred
Securities that upon initial issuance are beneficially
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owned by persons that are not "qualified institutional buyers" (as defined in
Rule 144A under the Securities Act) ("QIBs") will be represented by one or more
certificates in registered, definitive form (collectively, the "Definitive
Convertible Preferred Security Certificates") and may not be represented by a
Global Certificate. The Trust Securities Certificates shall be executed on
behalf of the Trust by manual or facsimile signature of at least one
Administrative Trustee and the Convertible Preferred Security Certificates shall
be authenticated by the Property Trustee. Trust Securities Certificates
bearing the manual or facsimile signatures of individuals who were, at the time
when such signatures shall have been affixed, authorized to sign on behalf of
the Trust, shall be validly issued and entitled to the benefit of this
Declaration, notwithstanding that such individuals or any of them shall have
ceased to be so authorized prior to the delivery of such Trust Securities
Certificates or did not hold such offices at the date of delivery of such Trust
Securities Certificates. A transferee of a Trust Securities Certificate shall
become a Holder, and shall be entitled to the rights and subject to the
obligations of a Holder hereunder, upon due registration of such Trust
Securities Certificate in such transferee's name pursuant to Section 8.1(d).
(b) Every Global Certificate (as defined in Section 8.2)
authenticated and delivered hereunder shall bear a legend in substantially the
following form, in capital letters and bold-face type:
THIS SECURITY IS A GLOBAL CERTIFICATE WITHIN THE MEANING OF THE
DECLARATION OF TRUST HEREINAFTER REFERRED TO AND IS REGISTERED IN THE
NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY MAY NOT BE
EXCHANGED IN WHOLE OR IN PART FOR A SECURITY REGISTERED, AND NO
TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE REGISTERED, IN
THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE
THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
DECLARATION OF TRUST.
(c) If the Depositary is The Depository Trust Company, the Global
Certificate authenticated and delivered hereunder shall also bear a legend in
substantially the following form, in capital letters and bold-face type:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED SIGNATORY OF THE
DEPOSITORY TRUST COMPANY ("DTC") TO THE TRUST OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME
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OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH
OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS
AN INTEREST HEREIN.
SECTION 7.5 EXECUTION AND DATING OF CERTIFICATES.
The Certificates shall be signed on behalf of the Trust by an
Administrative Trustee. In case any Administrative Trustee who shall have
signed any of the Certificates shall cease to be such Administrative Trustee
before the Certificates so signed shall be delivered by the Trust, such
Certificates nevertheless may be delivered as though the person who signed such
Certificates had not ceased to be such Administrative Trustee; and any
Certificates may be signed on behalf of the Trust by such persons who, at the
actual date of execution of such Certificate, shall be the Administrative
Trustees of the Trust, although at the date of the execution and delivery of the
Declaration any such person was not such an Administrative Trustee. Each
Convertible Preferred Security shall be dated the date of its authentication.
One Administrative Trustee shall sign the Convertible Preferred
Security Certificates for the Trust by manual or facsimile signature. Unless
otherwise determined by the Trust, such signature shall, in the case of Common
Security Certificates, be a manual signature.
SECTION 7.6 GLOBAL SECURITIES; NON-GLOBAL SECURITIES; COMMON SECURITIES
CERTIFICATE.
(a) Each Global Certificate authenticated under this Declaration
shall be registered in the name of the Clearing Agency designated by the Sponsor
for such Global Certificate or a nominee thereof and delivered to such Clearing
Agency or a nominee thereof or custodian therefor, and each such Global
Certificate shall constitute a Convertible Preferred Security for all purposes
of this Declaration.
(b) If a Global Certificate is to be exchanged for Definitive
Convertible Preferred Security Certificates or canceled in whole, it shall be
surrendered by or on behalf of the Clearing Agency, its nominee or custodian to
the Property Trustee, as Registrar, for exchange or cancellation as provided in
this Article 7. If any Global Certificate is to be exchanged for Definitive
Convertible Preferred Security Certificates or cancelled in part, or
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if another Convertible Preferred Security is to be exchanged in whole or in part
for a beneficial interest in any Global Certificate, in each case, as provided
in Section 8.2, then either (i) such Global Certificate shall be so surrendered
for exchange or cancellation as provided in this Article 7 or (ii) the
liquidation amount thereof (or number of Convertible Preferred Securities
represented thereby) shall be reduced or increased by an amount equal to the
portion thereof to be so exchanged or cancelled, or equal to the liquidation
amount of (or number of securities represented by) such Certificated Convertible
Preferred Security to be so exchanged for a beneficial interest therein, as the
case may be, by means of an appropriate adjustment made on the records of the
Property Trustee, as Registrar, whereupon the Property Trustee, in accordance
with the Applicable Procedures, shall instruct the Clearing Agency or its
authorized representative to make a corresponding adjustment to its records.
Upon any such surrender or adjustment of a Global Certificate, an Administrative
Trustee shall execute on behalf of the Trust by manual or facsimile signature,
and the Property Trustee shall, subject to Section 8.2 and as otherwise provided
in this Article 7, authenticate and deliver any Convertible Preferred Securities
issuable in exchange for such Global Certificate (or any portion thereof) to or
upon the written order of, and registered in such names as may be directed by,
the Clearing Agency or its authorized representative. Upon the request of the
Property Trustee in connection with the occurrence of any of the events
specified in the preceding paragraph, the Sponsor shall promptly make available
to the Property Trustee a reasonable supply of Convertible Preferred Securities
that are not in the form of Global Certificates but are in certificated form.
The Property Trustee shall be entitled to conclusively rely upon any order,
direction or request of the Clearing Agency or its authorized representative
which is given or made pursuant to this Article 7 if such order, direction or
request is given or made in accordance with the Applicable Procedures.
(c) Every Convertible Preferred Security authenticated and
delivered upon registration of, transfer of, or in exchange for or in lieu of, a
Global Certificate or a Definitive Convertible Preferred Security, as the case
may be, or any portion thereof, whether pursuant to this Article 7 or otherwise,
shall be authenticated and delivered in the form of, and shall be, a Global
Certificate, unless such Convertible Preferred Security is registered in the
name of a Person other than the Clearing Agency for such Global Certificate or a
nominee thereof.
(d) The Clearing Agency or its nominee, as registered owner of a
Global Certificate, shall be the Holder of such Global Certificate for all
purposes under this Declaration and the Convertible Preferred Securities, and
owners of beneficial interests in a Global Certificate shall hold such interests
pursuant to the Applicable Procedures. Accordingly, any such Convertible
Preferred Security Beneficial Owner's beneficial interest in a Global
Certificate will be shown only on, and the transfer of such interest shall be
effected only through, records maintained by the Clearing Agency or its nominee
or its participants and such owners of beneficial interests in a Global
Certificate will not be considered the
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owners or holders of such Global Certificate for any purpose of this Declaration
or the Convertible Preferred Securities.
(e) A single Common Securities Certificate representing the Common
Securities shall initially be issued to the Sponsor in the form of a definitive
Common Securities Certificate.
SECTION 7.7 DEFINITIVE CONVERTIBLE PREFERRED SECURITY CERTIFICATES.
If:
(a) a Clearing Agency notifies the Trust that it is unwilling or
unable to continue its services as securities depositary with respect to the
Convertible Preferred Securities and no successor Clearing Agency shall have
been appointed pursuant to Section 7.15 within 90 days of such notification or
if at any time such Clearing Agency ceases to be a clearing agency registered as
such under the Exchange Act when such Clearing Agency is required to be so
registered to act as such depositary and no successor Clearing Agency shall have
been appointed pursuant to Section 7.15 within 90 days of such notification;
(b) the Administrative Trustees (with the consent of the Sponsor),
in their sole discretion determine that the Convertible Preferred Securities in
global form shall be exchanged for Convertible Preferred Securities in
definitive form; or
(c) there shall have occurred and be continuing an Event of
Default;
then:
(d) Definitive Convertible Preferred Security Certificates shall
be prepared by the Administrative Trustees on behalf of the Trust with respect
to such Convertible Preferred Securities; and
(e) upon surrender of the Global Certificates by the Clearing
Agency, accompanied by registration instructions, the Administrative Trustees
shall cause Definitive Convertible Preferred Security Certificates to be
delivered to Convertible Preferred Security Beneficial Owners of such
Convertible Preferred Securities in accordance with the instructions of the
Clearing Agency. Neither the Trustees nor the Trust shall be liable for any
delay in delivery of such instructions and each of them may conclusively rely on
and shall be protected in relying on, said instructions of the Clearing Agency.
The Definitive Convertible Preferred Security Certificates shall be printed,
lithographed or engraved or may be produced in any other manner as is reasonably
acceptable to the Administrative Trustees, as evidenced
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by their execution thereof and may have such letters, numbers or other marks of
identification or designation and such legends or endorsements as the
Administrative Trustees may deem appropriate, or as may be required to comply
with any law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange on which Convertible Preferred
Securities may be listed, or to conform to usage.
At such time as all interests in a Convertible Preferred Security in
global form have been redeemed, converted, exchanged, repurchased or canceled,
such Convertible Preferred Security in global form shall be, upon receipt
thereof, canceled by the Trust in accordance with standing procedures and
instructions of the Clearing Agency.
Convertible Preferred Securities that upon initial issuance are
beneficially owned by persons that are not QIBs will be issued as Definitive
Convertible Preferred Security Certificates and may not be represented by a
Global Certificate.
SECTION 7.8 RESTRICTIVE LEGENDS.
(a) The Restricted Global Certificate and the Definitive
Convertible Preferred Securities Certificates shall bear the following legend
(the "Restricted Securities Legend") unless the Sponsor determines otherwise in
accordance with applicable law.
THIS SECURITY AND ANY COMMON STOCK ISSUED ON CONVERSION HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY
INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION
OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS SECURITY BY ITS
ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY,
PRIOR TO THE DATE WHICH IS AFTER THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE
TO SALES THEREOF UNDER RULE 144(k) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR
RULE) (THE "RESALE RESTRICTION TERMINATION DATE") ONLY (A) TO SUN HEALTHCARE
GROUP, INC., (THE "COMPANY") (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR
RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON
IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE
144A THAT PURCHASES FOR ITS
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OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE
IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (a)(1),
(2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE
SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL
"ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR
OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT, OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND
THE TRANSFER AGENT'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i)
PURSUANT TO CLAUSES (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (ii) IN
EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE
FORM APPEARING ON THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO
THE TRANSFER AGENT, THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF A HOLDER
AFTER THE RESALE RESTRICTION TERMINATION DATE.
SECTION 7.9 TEMPORARY CERTIFICATES.
Until definitive Certificates are ready for delivery, the Trust may
prepare and, in the case of the Convertible Preferred Securities, the Property
Trustee shall authenticate temporary Certificates. Temporary Certificates shall
be substantially in the form of definitive Certificates but may have variations
that the Trust considers appropriate for temporary Certificates. Without
unreasonable delay, the Trust shall prepare and, in the case of the Convertible
Preferred Securities, the Property Trustee shall authenticate definitive
Certificates in exchange for temporary Certificates.
SECTION 7.10 REGISTRAR, PAYING AGENT AND CONVERSION AGENT.
In the event that the Convertible Preferred Securities are not in
book-entry only form, the Trust shall maintain in the Borough of Manhattan, The
City of New York, (i) an office or agency where Convertible Preferred Securities
may be presented for registration of transfer or for exchange ("Registrar") and
(ii) an office or agency where Convertible Preferred Securities may be presented
for payment ("Paying Agent"). The Trust shall maintain an office or agency
where Securities may be presented for conversion ("Conversion Agent"). The
Registrar shall keep a register of the Convertible Preferred Securities and of
their transfer and exchange. The Trust may appoint the Registrar, the Paying
Agent and the
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Conversion Agent and may appoint one or more co-registrars, one or more
additional paying agents and one or more additional conversion agents in such
other locations as it shall determine. The term "Paying Agent" includes any
additional paying agent and the term "Conversion Agent" includes any additional
conversion agent. The Trust may change any Paying Agent, Registrar,
co-registrar or Conversion Agent without prior notice to any Holder. The Paying
Agent shall be permitted to resign as Paying Agent upon 30 days' written notice
to the Administrative Trustees. The Trust shall notify the Property Trustee of
the name and address of any agent not a party to this Declaration. If the Trust
fails to appoint or maintain another entity as Registrar, Paying Agent or
Conversion Agent, the Property Trustee shall act as such. The Trust or any of
its Affiliates may act as Paying Agent, Registrar, or Conversion Agent. The
Trust shall act as Paying Agent, Registrar, co-registrar, and Conversion Agent
for the Common Securities.
The Trust initially appoints the Property Trustee as Registrar, Paying
Agent and Conversion Agent for the Convertible Preferred Securities. The
Property Trustee shall be entitled to the protections of Sections 5.12 and 5.13
and Article IX in its capacity as Registrar, Paying Agent and Conversion Agent.
SECTION 7.11 PAYING AGENT TO HOLD MONEY IN TRUST.
The Trust shall require each Paying Agent other than the Property
Trustee to agree in writing that the Paying Agent will hold in trust for the
benefit of Holders or the Property Trustee all money held by the Paying Agent
for the payment of principal or distribution on the Trust Securities, and will
notify the Property Trustee if there are insufficient funds. While any such
insufficiency continues, the Property Trustee may require a Paying Agent to pay
all money held by it to the Property Trustee. The Trust at any time may require
a Paying Agent to pay all money held by it to the Property Trustee and to
account for any money disbursed by it. Upon payment over to the Property
Trustee, the Paying Agent (if other than the Trust or an Affiliate of the Trust)
shall have no further liability for the money. If the Trust or the Sponsor or
an Affiliate of the Trust or the Sponsor acts as Paying Agent, it shall
segregate and hold in a separate trust fund for the benefit of the Holders all
money held by it as Paying Agent.
SECTION 7.12 OUTSTANDING CONVERTIBLE PREFERRED SECURITIES.
The Convertible Preferred Securities outstanding at any time are all
the Convertible Preferred Securities authenticated by the Property Trustee
except for those cancelled by it, those delivered to it for cancellation, and
those described in this Section 7.12 as not outstanding.
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If a Convertible Preferred Security is replaced, paid or purchased
pursuant to Section 8.3, it ceases to be outstanding unless the Property Trustee
receives proof satisfactory to it that the replaced, paid or purchased
Convertible Preferred Security is held by a bona fide purchaser.
If Convertible Preferred Securities are considered paid in accordance
with the terms of this Declaration, they cease to be outstanding and interest on
them ceases to accrue.
A Convertible Preferred Security does not cease to be outstanding
because one of the Trust, the Sponsor or an Affiliate of the Sponsor holds the
Convertible Preferred Security.
SECTION 7.13 CONVERTIBLE PREFERRED SECURITIES IN TREASURY.
In determining whether the Holders of the required amount of Trust
Securities have concurred in any direction, waiver or consent, Convertible
Preferred Securities owned by the Trust, the Sponsor or an Affiliate of the
Sponsor, as the case may be, shall be disregarded and deemed not to be
outstanding, except that for the purposes of determining whether the Property
Trustee shall be fully protected in relying on any such direction, waiver or
consent, only Convertible Preferred Securities which the Property Trustee knows
are so owned shall be so disregarded.
SECTION 7.14 NOTICES TO CLEARING AGENCY.
Whenever a notice or other communication to the Holders of Convertible
Preferred Securities is required under this Declaration, the Administrative
Trustees shall, in the case of any Global Certificate, give all such notices and
communications specified herein to be given to the Convertible Preferred
Security Holders to the Depositary, and shall have no notice obligations to the
Convertible Preferred Security Beneficial Owners.
SECTION 7.15 APPOINTMENT OF SUCCESSOR CLEARING AGENCY.
If the Depositary elects to discontinue its services as securities
depositary with respect to the Convertible Preferred Securities, the
Administrative Trustees may, in their sole discretion, appoint a successor
Clearing Agency with respect to such Convertible Preferred Securities.
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SECTION 7.16 DEEMED SECURITY HOLDERS.
The Trustees and any agent may treat the Person in whose name any
Certificate shall be registered on the books and records of the Trust as the
sole holder of such Certificate and of the Trust Securities represented by such
Certificate for purposes of receiving Distributions and for all other purposes
whatsoever and, accordingly, shall not be bound to recognize any equitable or
other claim to or interest in such Certificate or in the Trust Securities
represented by such Certificate on the part of any Person, whether or not the
Trust shall have actual or other notice thereof.
ARTICLE VIII
TRANSFERS, EXCHANGES AND CANCELLATIONS
OF TRUST SECURITIES
SECTION 8.1 GENERAL.
(a) Where Convertible Preferred Security Certificates are
presented to the Registrar or a co-registrar with a request to register a
transfer or to exchange them for an equal number of Convertible Preferred
Securities represented by different certificates, the Registrar shall register
the transfer or make the exchange if its requirements for such transactions are
met. To permit registrations of transfers and exchanges, the Trust shall issue
and the Property Trustee shall authenticate Convertible Preferred Security
Certificates at the Registrar's request.
(b) Trust Securities may only be transferred, in whole or in part,
in accordance with the terms and conditions set forth in this Declaration, in
the terms set forth in Annex I and pursuant to the legends, if any, on such
securities. Any transfer or purported transfer of any Trust Security not made
in accordance with this Declaration shall be null and void.
(c) Subject to this Article VIII, the Sponsor and any Related
Party may only transfer Common Securities to the Sponsor or a Related Party of
the Sponsor; PROVIDED that, any such transfer is subject to the condition
precedent that the transferor obtain the written opinion of nationally
recognized independent counsel experienced in such matters that such transfer
would not cause more than an insubstantial risk that:
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(i) the Trust would not be classified for United States
federal income tax purposes as a grantor trust; and
(ii) the Trust would be an Investment Company or the
transferee would become an Investment Company.
(d) The Administrative Trustees shall provide for the registration
of Trust Securities and of transfers of Trust Securities, which will be effected
without charge but only upon payment (with such indemnity as the Administrative
Trustees may require) in respect of any tax or other governmental charges that
may be imposed in relation to it. Upon surrender for registration of transfer
of any Certificates, the Administrative Trustees shall cause one or more new
Certificates to be issued in the name of the designated transferee or
transferees. Every Certificate surrendered for registration of transfer shall
be accompanied by a written instrument of transfer (including, unless waived,
the certification by the transferor and transferee on the reverse side of the
Convertible Preferred Security) in form satisfactory to the Administrative
Trustees and the Sponsor duly executed by the Holder or such Holder's attorney
duly authorized in writing. Each Certificate surrendered for registration of
transfer shall be canceled by the Administrative Trustees. A transferee of a
Certificate shall be entitled to the rights and subject to the obligations of a
Holder hereunder upon the receipt by such transferee of a Certificate. By
acceptance of a Certificate, each transferee shall be deemed to have agreed to
be bound by this Declaration.
(e) The Trust shall not be required (i) to issue, register the
transfer of or exchange Convertible Preferred Security Certificates during a
period beginning at the opening of business 15 days before the day of any
selection of Convertible Preferred Securities for redemption and ending at the
close of business on the earliest date in which the relevant notice of
redemption is deemed to have been given to all holders of Convertible Preferred
Securities to be so redeemed and (ii) to register the transfer or exchange of
any Convertible Preferred Security so selected for redemption in whole or in
part, except the unredeemed portion of any Convertible Preferred Security being
redeemed in part.
SECTION 8.2 CERTAIN TRANSFERS AND EXCHANGES.
(a) So long as Convertible Preferred Securities are eligible for
book-entry settlement with the Clearing Agency or unless otherwise required by
law, all Convertible Preferred Securities that are so eligible may be
represented by one or more fully registered Convertible Preferred Security
Certificates (each a "Global Certificate") in global form to be delivered to the
Depositary, the initial Clearing Agency, by, or on behalf of, the Trust. Such
Global Certificates shall initially be registered on the books and records of
the Trust in the name of Cede & Co., the nominee of the Depositary, and no
Convertible Preferred Security
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Beneficial Owner will receive a definitive Convertible Preferred Security
Certificate representing such Convertible Preferred Security Beneficial Owner's
interests in such Global Certificates, except as provided in Section 7.7 below.
The transfer and exchange of beneficial interests in any such Convertible
Preferred Security in global form shall be effected through the Clearing Agency
in accordance with this Declaration (including the applicable restrictions on
transfer contained herein, if any) and the procedures of the Clearing Agency
therefor.
(b) Convertible Preferred Securities that upon initial issuance
are beneficially owned by QIBs may, at the option of the Trust, be represented
by one or more Global Certificates. Except as otherwise provided herein,
beneficial owners of a Convertible Preferred Security in global form shall not
be entitled to have certificates registered in their names, will not receive or
be entitled to receive physical delivery of certificates in definitive form and
will not be considered Holders of such Convertible Preferred Security in global
form.
(c) So long as the Convertible Preferred Securities are eligible
for book-entry settlement and to the extent Convertible Preferred Securities
held by QIBs are held in a global form, or unless otherwise required by law,
upon any transfer of a Definitive Convertible Preferred Certificate to a QIB in
accordance with Rule 144A, unless otherwise requested by the transferor, and
upon receipt of the Definitive Convertible Preferred Security Certificates being
so transferred, together with a certification from the transferor and transferee
that the transfer is being made in compliance with Rule 144A and certification
in the form set forth on the reverse side of the Convertible Preferred Security
(or other evidence satisfactory to the Property Trustee on behalf of the Trust)
and any other documents or certifications required by the Trust or the Property
Trustee to ensure compliance with the Securities Act, the Property Trustee on
behalf of the Trust shall make an endorsement on any Restricted Global
Certificate, to reflect an increase in the number of Convertible Preferred
Securities represented by such Global Certificate, and the Property Trustee on
behalf of the Trust shall cancel such Definitive Convertible Preferred Security
Certificates in accordance with the standing instructions and procedures of the
Clearing Agency, the number of Convertible Preferred Securities represented by
such Restricted Global Certificate shall be increased accordingly; PROVIDED that
no Definitive Convertible Preferred Security Certificates, or portion thereof,
in respect of which the Trust or an Affiliate of the Trust held any beneficial
interest shall be included in such Restricted Global Certificate until such
Definitive Convertible Preferred Security Certificate is freely tradeable in
accordance with Rule 144(k); PROVIDED FURTHER that the Trust shall issue
Convertible Preferred Securities in definitive form upon any transfer of a
beneficial interest in the Convertible Preferred Security in global form to the
Company, any Affiliate of the Company or to an institutional accredited investor
in accordance with subsection (d) below.
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(d) In the event a beneficial interest in a Restricted Global
Certificate is transferred or exchanged other than pursuant to an effective
registration statement so that such beneficial interest will be held by a person
who is not a QIB or otherwise are to be held as a definitive Convertible
Preferred Security, such beneficial interest, upon receipt by the Property
Trustee from the Clearing Agency or its nominee on behalf of any Person having a
beneficial interest in a Global Certificate of written instructions or such
other form of instructions as is customary for the Clearing Agency or the person
designated by the Clearing Agency as having such a beneficial interest in a
Restricted Convertible Preferred Security and a certification from the
transferor and transferee in the form set forth on the reverse side of the
Convertible Preferred Security (or other evidence satisfactory to the Property
Trustee on behalf of the Trust) and any other documents or certifications
required by the Sponsor or the Property Trustee to ensure compliance with the
Securities Act, shall be exchanged for a Restricted Definitive Convertible
Preferred Security representing the same number of Convertible Preferred
Securities.
(e) In the event a beneficial interest in a Restricted Definitive
Convertible Preferred Security Certificate is transferred or exchanged other
than pursuant to an effective registration statement so that such beneficial
interest will be held by a person who is not a QIB or otherwise are to be held
as a definitive Convertible Preferred Security, such beneficial interest, upon
receipt by the Property Trustee from the person having such a beneficial
interest in a Restricted Convertible Preferred Security and a certification from
the transferor and transferee in the form set forth on the reverse side of the
Convertible Preferred Security (or other evidence satisfactory to the Property
Trustee on behalf of the Trust) and any other documents or certifications
required by the Sponsor or the Property Trustee to ensure compliance with the
Securities Act, shall be exchanged for a Restricted Definitive Convertible
Preferred Security representing the same number of Convertible Preferred
Securities.
(f) Any Global Certificate may be endorsed with or have
incorporated in the text thereof such legends or recitals or changes not
inconsistent with the provisions of this Declaration as may be required by the
Clearing Agency, by any national securities exchange or by the National
Association of Securities Dealers, Inc. in order for the Convertible Preferred
Securities to be tradeable on the PORTAL Market or as may be required for the
Convertible Preferred Securities to be tradeable on any other market developed
for trading of securities pursuant to Rule 144A or required to comply with any
applicable law or any regulation thereunder or with the rules and regulations of
any securities exchange upon which the Convertible Preferred Securities may be
listed or traded or to conform with any usage with respect thereto, or to
indicate any special limitations or restrictions to which any particular
Convertible Preferred Securities are subject.
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(g) Unless and until definitive, fully registered Definitive
Convertible Preferred Security Certificates have been issued to the Convertible
Preferred Security Beneficial Owners pursuant to Section 7.7:
(h) the provisions of this Section 8.2 shall be in full force and
effect with respect to such Convertible Preferred Securities;
(ii) the Trust and the Trustees shall be entitled to deal with the
Clearing Agency for all purposes of this Declaration (including the payment
of Distributions on the Global Certificates and receiving approvals, votes
or consents hereunder) as the Holder of such Convertible Preferred
Securities (with respect to such Convertible Preferred Security Beneficial
Owners) and the sole holder of the Global Certificates and shall have no
obligation to the Convertible Preferred Security Beneficial Owners of such
Convertible Preferred Securities;
(iii) to the extent that the provisions of this Section 8.2 conflict
with any other provisions of this Declaration, the provisions of this
Section 8.2 shall control; and
(iv) the rights of the Convertible Preferred Security Beneficial
Owners shall be exercised only through the Clearing Agency and shall be
limited to those established by law and agreements between such Convertible
Preferred Security Beneficial Owners and the Clearing Agency and/or the
Clearing Agency participants. The Clearing Agency will make book-entry
transfers among Clearing Agency participants and receive and transmit
payments of Distributions on the Global Certificates to such Clearing
Agency participants. The Clearing Agency will make book entry transfers
among the Clearing Agency participants PROVIDED, that solely for the
purposes of determining whether the holders of the requisite amount of
Convertible Preferred Securities have voted on any matter provided for in
this Declaration, so long as Definitive Convertible Preferred Security
Certificates have not been issued for all such securities, the Trustees may
conclusively rely on, and shall be protected in relying on, any written
instrument (including a proxy) delivered to the Trustees by the Clearing
Agency setting forth the Convertible Preferred Securities Beneficial
Owners' votes or assigning the right to vote on any matter to any other
Persons either in whole or in part.
(g) Notwithstanding any other provisions of this Declaration
(other than the provisions set forth in this Section 8.2(f)), a Convertible
Preferred Security in global form may not be transferred as a whole except by
the Clearing Agency to a nominee of the Clearing
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Agency or by a nominee of the Clearing Agency to the Clearing Agency or another
nominee to a successor Clearing Agency or a nominee of such successor Clearing
Agency.
(h) SECURITIES ACT LEGENDS. Global Certificates and Definitive
Convertible Preferred Security Certificates and their respective Successor
Securities shall bear a Restricted Securities Legend and be subject to the
restrictions on transfer contained therein as set forth in Section 7.8 subject
to the following:
(i) subject to the following Clauses of this Section
8.2(g), a new Convertible Preferred Security which is not a Global
Certificate and is issued in exchange for another Convertible Preferred
Security (including, a Global Certificate) of any portion thereof, upon
transfer or otherwise, shall bear the Securities Act Legend borne by such
other Convertible Preferred Security and be subject to the restrictions on
transfer contained therein;
(ii) Any Convertible Preferred Securities which are sold or
otherwise disposed of pursuant to an effective registration statement under
the Securities Act, together with their Successor Securities shall not bear
a Securities Act Legend; the Sponsor shall inform the Property Trustee in
writing of the effective date of any such registration statement
registering the Convertible Preferred Securities under the Securities Act
and shall notify the Property Trustee at any time when prospectuses may not
be delivered with respect to Convertible Preferred Securities to be sold
pursuant to such registration statement. The Property Trustee shall not be
liable for any action taken or omitted to be taken by it in good faith in
accordance with the aforementioned registration statement;
(iii) at any time after the Convertible Preferred Securities
may be freely transferred without registration under the Securities Act,
which shall be determined in the sole discretion of the Sponsor, or without
being subject to transfer restrictions pursuant to the Securities Act, a
new Convertible Preferred Security which does not bear a Securities Act
Legend may be issued in exchange for or in lieu of a Convertible Preferred
Security (other than a Global Certificate) or any portion thereof which
bears such a legend if the Property Trustee has received an Unrestricted
Securities Certificate, satisfactory to the Property Trustee and the
Sponsor and duly executed by the Holder of such legended Convertible
Preferred Security or his attorney duly authorized in writing, and after
such date and receipt of such certificate, an Administrative Trustee shall
execute on behalf of the Trust by manual or facsimile signature, and the
Property Trustee shall authenticate and deliver such a new Convertible
Preferred Security in exchange for or in lieu of such other Convertible
Preferred Security as provided in this Article 8;
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(iv) a new Convertible Preferred Security which does not
bear a Securities Act Legend may be issued in exchange for or in lieu of a
Convertible Preferred Security (other than a Global Certificate) or any
portion thereof which bears such a legend if, in the Sponsor's judgment,
placing such a legend upon such new Convertible Preferred Security is not
necessary to ensure compliance with the registration requirements of the
Securities Act, and an Administrative Trustee shall execute on behalf of
the Trust by manual or facsimile signature, and the Property Trustee, at
the written direction of the Sponsor, shall authenticate and deliver such a
new Convertible Preferred Security as provided in this Article 8; and
(v) notwithstanding the foregoing provisions of this
Section 8.2(g), a Successor Security of a Convertible Preferred Securities
that does not bear a particular form of Securities Act Legend shall not
bear such form of legend unless the Sponsor has reasonable cause to believe
that such Successor Security is a "restricted security" within the meaning
of Rule 144 or otherwise, in the Sponsor's judgment, restricted under the
Securities Act, in which case an Administrative Trustee shall execute on
behalf of the Trust by manual or facsimile signature, and the Property
Trustee, at the written direction of the Sponsor, shall authenticate and
deliver a new Convertible Preferred Security bearing a Restricted
Securities Legend in exchange for such Successor Security as provided in
this Article 8.
SECTION 8.3 MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES; REPLACEMENT
SECURITIES.
If the Holder of a Trust Security claims that the Certificate
representing such Trust Security has been lost, destroyed or wrongfully taken or
if such Certificate is mutilated and is surrendered to the Trust or in the case
of the Convertible Preferred Securities to the Property Trustee, the Trust shall
issue and the Property Trustee shall authenticate a replacement Certificate if
the Property Trustee's and the Trust's requirements, as the case may be, are
met. If required by the Property Trustee or the Trust, an indemnity bond must
be sufficient in the judgment of both to protect the Trustees, the Property
Trustee, the Sponsor or any authenticating agent from any loss which any of them
may suffer if a Certificate is replaced. The Company may charge for its
expenses in replacing a Certificate.
In case any such mutilated, destroyed, lost or stolen Trust Security
has become or is about to become due and payable, the Sponsor in its discretion
may, instead of issuing a new Certificate, pay such Trust Security.
Every replacement Certificate is an additional obligation of the
Trust.
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SECTION 8.4 CANCELLATION OF CONVERTIBLE PREFERRED SECURITY CERTIFICATES.
The Trust at any time may deliver Convertible Preferred Security
Certificates to the Property Trustee for cancellation. The Registrar, Paying
Agent and Conversion Agent shall forward to the Property Trustee any Convertible
Preferred Securities surrendered to them for registration of transfer,
redemption, conversion, exchange or payment. The Property Trustee shall
promptly cancel all Convertible Preferred Securities surrendered for
registration of transfer, redemption, conversion, exchange, payment, replacement
or cancellation and shall dispose of cancelled Convertible Preferred Securities
as the Trust directs. The Trust may not issue new Convertible Preferred
Securities to replace Convertible Preferred Securities that it has paid or that
have been delivered to the Property Trustee for cancellation or that any holder
has converted.
ARTICLE IX
LIMITATION OF LIABILITY OF
HOLDERS OF TRUST SECURITIES, TRUSTEES AND OTHERS
SECTION 9.1 LIABILITY.
(a) Except as expressly set forth in this Declaration, the
Securities Guarantees and the terms of the Trust Securities, the Sponsor shall
not be:
(i) personally liable for the return of any portion of the
capital contributions (or any return thereon) of the Holders of the Trust
Securities which shall be made solely from assets of the Trust; or
(ii) required to pay to the Trust or to any Holder of Trust
Securities any deficit upon dissolution of the Trust or otherwise.
(b) The Sponsor shall be liable for all of the debts and
obligations of the Trust (other than with respect to the Trust Securities) to
the extent not satisfied out of the Trust's assets.
(c) Pursuant to Section 3803(a) of the Business Trust Act, the
Holders of the Convertible Preferred Securities shall be entitled to the same
limitation of personal liability as is extended to stockholders of private
corporations for profit organized under the General Corporation Law of the State
of Delaware.
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SECTION 9.2 EXCULPATION.
(a) No Indemnified Person shall be liable, responsible or
accountable in damages or otherwise to the Trust or any Covered Person for any
loss, damage or claim incurred by reason of any act or omission performed or
omitted by such Indemnified Person in good faith on behalf of the Trust and in a
manner such Indemnified Person reasonably believed to be within the scope of the
authority conferred on such Indemnified Person by this Declaration or by law,
except that an Indemnified Person shall be liable for any such loss, damage or
claim incurred by reason of such Indemnified Person's gross negligence (subject
to the Trust Indenture Act) or willful misconduct with respect to such acts or
omissions.
(b) An Indemnified Person shall be fully protected in relying in
good faith upon the records of the Trust and upon such information, opinions,
reports or statements presented to the Trust by any Person as to matters the
Indemnified Person reasonably believes are within such other Person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Trust, including information, opinions, reports or
statements as to the value and amount of the assets, liabilities, profits,
losses, or any other facts pertinent to the existence and amount of assets from
which Distributions to Holders of Trust Securities might properly be paid.
SECTION 9.3 FIDUCIARY DUTY.
(a) To the extent that, at law or in equity, an Indemnified Person
has duties (including fiduciary duties) and liabilities relating thereto to the
Trust or to any other Covered Person, an Indemnified Person acting under this
Declaration shall not be liable to the Trust or to any other Covered Person for
its good faith reliance on the provisions of this Declaration. The provisions
of this Declaration, to the extent that they restrict the duties and liabilities
of an Indemnified Person otherwise existing at law or in equity (other than the
duties imposed on the Property Trustee under the Trust Indenture Act), are
agreed by the parties hereto to replace such other duties and liabilities of
such Indemnified Person.
(b) Unless otherwise expressly provided herein:
(i) whenever a conflict of interest exists or arises
between an Indemnified Person and any Covered Person or
(ii) whenever this Declaration or any other agreement
contemplated herein or therein provides that an Indemnified Person shall
act in a manner that is, or provides terms that are, fair and reasonable to
the Trust or any Holder of Trust Securities,
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the Indemnified Person shall resolve such conflict of interest, take such
action or provide such terms, considering in each case the relative
interest of each party (including its own interest) to such conflict,
agreement, transaction or situation and the benefits and burdens relating
to such interests, any customary or accepted industry practices, and any
applicable generally accepted accounting practices or principles. In the
absence of bad faith by the Indemnified Person, the resolution, action or
term so made, taken or provided by the Indemnified Person shall not
constitute a breach of this Declaration or any other agreement contemplated
herein or of any duty or obligation of the Indemnified Person at law or in
equity or otherwise.
(c) Whenever in this Declaration an Indemnified Person is
permitted or required to make a decision:
(i) in its "discretion" or under a grant of similar
authority, the Indemnified Person shall be entitled to consider such
interests and factors as it desires, including its own interests, and shall
have no duty or obligation to give any consideration to any interest of or
factors affecting the Trust or any other Person; or
(ii) in its "good faith" or under another express standard,
the Indemnified Person shall act under such express standard and shall not
be subject to any other or different standard imposed by this Declaration
or by applicable law.
SECTION 9.4 INDEMNIFICATION.
(a) (i) The Company shall indemnify, to the full extent
permitted by law, any Company Indemnified Person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Trust) by
reason of the fact that he is or was a Company Indemnified Person against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Trust, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction,
or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of itself,
create a presumption that the Company Indemnified Person did not act in
good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Trust, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
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(ii) The Company shall indemnify, to the full extent permitted by
law, any Company Indemnified Person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit
by or in the right of the Trust to procure a judgment in its favor by
reason of the fact that he is or was a Company Indemnified Person against
expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the Trust and except that no such
indemnification shall be made in respect of any claim, issue or matter as
to which such Company Indemnified Person shall have been adjudged to be
liable to the Trust unless and only to the extent that the Court of
Chancery of Delaware or the court in which such action or suit was brought
shall determine 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 for such expenses which such
Court of Chancery or such other court shall deem proper.
(iii) To the extent that a Company Indemnified Person shall be
successful on the merits or otherwise (including dismissal of an action
without prejudice or the settlement of an action without admission of
liability) in defense of any action, suit or proceeding referred to in
paragraphs (i) and (ii) of this Section 9.4(a), or in defense of any claim,
issue or matter therein, he shall be indemnified, to the full extent
permitted by law, against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
(iv) Any indemnification under paragraphs (i) and (ii) of this
Section 9.4(a) (unless ordered by a court) shall be made by the Company
only as authorized in the specific case upon a determination that
indemnification of the Company Indemnified Person is proper in the
circumstances because he has met the applicable standard of conduct set
forth in paragraphs (i) and (ii). Such determination shall be made (1) by
the Administrative Trustees by a majority vote of a quorum consisting of
such Administrative Trustees who were not parties to such action, suit or
proceeding, (2) if such a quorum is not obtainable, or, even if obtainable,
if a quorum of disinterested Administrative Trustees so directs, by
independent legal counsel in a written opinion, or (3) by the Holders of
the Common Securities of the Trust.
(v) Expenses (including attorneys' fees) incurred by a Company
Indemnified Person in defending a civil, criminal, administrative or
investigative action, suit or proceeding referred to in paragraphs (i) and
(ii) of this Section 9.4(a) shall be paid by the Company in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such Company
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Indemnified Person to repay such amount if it shall ultimately be
determined that he or she is not entitled to be indemnified by the Company
as authorized in this Section 9.4(a). Notwithstanding the foregoing, no
advance shall be made by the Company if a determination is reasonably and
promptly made (i) by the Administrative Trustees by a majority vote of a
quorum of disinterested Administrative Trustees, (ii) if such a quorum is
not obtainable, or, even if obtainable, if a quorum of disinterested
Administrative Trustees so directs, by independent legal counsel in a
written opinion or (iii) by the Holders of the Common Securities of the
Trust, that, based upon the facts known to the Administrative Trustees,
counsel or the Holders of the Common Securities at the time such
determination is made, such Company Indemnified Person acted in bad faith
or in a manner that such person did not believe to be in or not opposed to
the best interests of the Trust, or, with respect to any criminal
proceeding, that such Company Indemnified Person believed or had reasonable
cause to believe his conduct was unlawful. In no event shall any advance
be made in instances where the Administrative Trustees, independent legal
counsel or the Holders of the Common Securities reasonably determine that
such person deliberately breached his duty to the Trust or the Holders of
the Common or Convertible Preferred Securities.
(vi) The indemnification and advancement of expenses provided by,
or granted pursuant to, the other paragraphs of this Section 9.4(a) shall
not be deemed exclusive of any other rights to which those seeking
indemnification and advancement of expenses may be entitled under any
agreement, vote of stockholders or disinterested directors of the Company
or Holders of the Convertible Preferred Securities of the Trust or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office. All rights to indemnification
under this Section 9.4(a) shall be deemed to be provided by a contract
between the Company and each Company Indemnified Person who serves in such
capacity at any time while this Section 9.4(a) is in effect. Any repeal or
modification of this Section 9.4(a) shall not affect any rights or
obligations then existing.
(vii) The Company or the Trust may purchase and maintain insurance
on behalf of any person who is or was a Company Indemnified Person against
any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the Company
would have the power to indemnify him against such liability under the
provisions of this Section 9.4(a).
(viii) For purposes of this Section 9.4(a), references to "the Trust"
shall include, in addition to the resulting or surviving entity, any
constituent entity (including any constituent of a constituent) absorbed in
a consolidation or merger, so that any person who is or was a director,
trustee, officer or employee of such
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constituent entity, or is or was serving at the request of such constituent
entity as a director, trustee, officer, employee or agent of another
entity, shall stand in the same position under the provisions of this
Section 9.4(a) with respect to the resulting or surviving entity as he
would have with respect to such constituent entity if its separate
existence had continued.
(ix) The indemnification and advancement of expenses provided by,
or granted pursuant to, this Section 9.4(a) shall, unless otherwise
provided when authorized or ratified, continue as to a person who has
ceased to be a Company Indemnified Person and shall inure to the benefit of
the heirs, executors and administrators of such a person.
(b) The Sponsor agrees to indemnify the (i) Property Trustee, (ii) the
Delaware Trustee, (iii) any Affiliate of the Property Trustee and the Delaware
Trustee, and (iv) any officers, directors, shareholders, members, partners,
employees, representatives, custodians, nominees or agents of the Property
Trustee and the Delaware Trustee (each of the Persons in (i) through (iv) being
referred to as a "Fiduciary Indemnified Person") for, and to hold each Fiduciary
Indemnified Person harmless against, any and all loss, liability or expense
including taxes (other than taxes based on the income of such Fiduciary
Indemnified Person) incurred without gross negligence (subject to the Trust
Indenture Act) or bad faith on its part, arising out of or in connection with
the acceptance or administration or the trust or trusts hereunder, including the
costs and expenses (including reasonable legal fees and expenses) of defending
itself against or investigating any claim or liability in connection with the
exercise or performance of any of its powers or duties hereunder. The
obligation to indemnify as set forth in this Section 9.4(b) shall survive the
satisfaction and discharge of this Declaration.
SECTION 9.5 OUTSIDE BUSINESSES.
Any Covered Person, the Sponsor, the Delaware Trustee and its
Affiliates and the Property Trustee and its Affiliates may engage in or possess
an interest in other business ventures of any nature or description,
independently or with others, similar or dissimilar to the business of the
Trust, and the Trust and the Holders of Trust Securities shall have no rights by
virtue of this Declaration in and to such independent ventures or the income or
profits derived therefrom, and the pursuit of any such venture, even if
competitive with the business of the Trust, shall not be deemed wrongful or
improper. No Covered Person, the Sponsor, the Delaware Trustee, its Affiliates,
or the Property Trustee or its Affiliates shall be obligated to present any
particular investment or other opportunity to the Trust even if such opportunity
is of a character that, if presented to the Trust, could be taken by the Trust,
and any Covered Person, the Sponsor, the Delaware Trustee, its Affiliates and
the Property Trustee and its Affiliates shall have the right to take for its own
account (individually or as
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a partner or fiduciary) or to recommend to others any such particular investment
or other opportunity. Any Covered Person, the Delaware Trustee, its Affiliates
and the Property Trustee and its Affiliates may engage or be interested in any
financial or other transaction with the Sponsor or any Affiliate of the Sponsor,
or may act as depositary for, trustee or agent for, or act on any committee or
body of holders of, securities or other obligations of the Sponsor or its
Affiliates.
ARTICLE X
ACCOUNTING
SECTION 10.1 FISCAL YEAR.
The fiscal year ("Fiscal Year") of the Trust shall commence on January
1 and end on December 31, unless otherwise required by the Code or changed by
the requisite vote of the Administrative Trustees.
SECTION 10.2 CERTAIN ACCOUNTING MATTERS.
(a) At all times during the existence of the Trust, the
Administrative Trustees shall keep, or cause to be kept, full books of account,
records and supporting documents, which shall reflect in reasonable detail, each
transaction of the Trust. The books of account shall be maintained on the
accrual method of accounting, in accordance with generally accepted accounting
principles, consistently applied. The Trust shall use the accrual method of
accounting for United States federal income tax purposes. The books of account
and the records of the Trust shall be examined by and reported upon as of the
end of each Fiscal Year by a firm of independent certified public accountants
selected by the Administrative Trustees.
(b) The Administrative Trustees shall cause to be prepared and
delivered (or made available) to each of the Holders of Trust Securities, within
90 days after the end of each Fiscal Year of the Trust, annual financial
statements of the Trust, including a balance sheet of the Trust as of the end of
such Fiscal Year, and the related statements of income or loss or the financial
statements of the Company, which shall include information regarding the Trust
to the extent required by the Exchange Act and the Commission;
(c) The Administrative Trustees shall cause to be duly prepared
and delivered to each of the Holders of Trust Securities, any annual United
States federal income tax information statement required by the Code, containing
such information with regard to
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the Trust Securities held by each Holder as is required by the Code and the
Treasury Regulations. Notwithstanding any right under the Code to deliver any
such statement at a later date, the Administrative Trustees shall endeavor to
deliver all such statements within 30 days after the end of each Fiscal Year of
the Trust.
(d) The Administrative Trustees shall cause to be duly prepared
and filed with the appropriate taxing authority, an annual United States federal
income tax return, on a Form 1041 or such other form required by the Code, and
any other annual income tax returns required to be filed by the Administrative
Trustees on behalf of the Trust with any state or local taxing authority.
SECTION 10.3 BANKING.
The Trust shall maintain one or more bank accounts in the name and for
the sole benefit of the Trust; PROVIDED, HOWEVER, that all payments of funds in
respect of the Convertible Debentures held by the Property Trustee shall be made
directly to the Property Account and no other funds of the Trust shall be
deposited in the Property Account. The sole signatories for such accounts shall
be designated by the Administrative Trustees; PROVIDED, HOWEVER, that the
Property Trustee shall designate the signatories for the Property Account.
SECTION 10.4 WITHHOLDING.
The Trust and the Administrative Trustees shall comply with all
withholding requirements under United States federal, state and local law. The
Trust shall request, and the Holders shall provide to the Trust, such forms or
certificates as are necessary to establish an exemption from withholding with
respect to each Holder, and any representations and forms as shall reasonably be
requested by the Trust to assist it in determining the extent of, and in
fulfilling, its withholding obligations. The Administrative Trustee shall file
required forms with applicable jurisdictions and, unless an exemption from
withholding is properly established by a Holder, shall remit amounts withheld
with respect to the Holder to applicable jurisdictions. To the extent that the
Trust is required to withhold and pay over any amounts to any authority with
respect to distributions or allocations to any Holder, the amount withheld shall
be deemed to be a distribution in the amount of the withholding to the Holder.
In the event of any claimed overwithholding, Holders shall be limited to an
action against the applicable jurisdiction. If the amount required to be
withheld was not withheld from actual Distributions made, the Trust may reduce
subsequent Distributions by the amount of such withholding.
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ARTICLE XI
AMENDMENTS AND MEETINGS
SECTION 11.1 AMENDMENTS.
(a) Except as otherwise provided in this Declaration or by any
applicable terms of the Trust Securities, this Declaration may only be amended
by a written instrument approved and executed by:
(i) the majority of the Administrative Trustees;
(ii) if the amendment affects the rights, powers, duties,
obligations or immunities of the Property Trustee, the Property Trustee;
and
(iii) if the amendment affects the rights, powers, duties,
obligations or immunities of the Delaware Trustee, the Delaware Trustee.
(b) No amendment shall be made, and any such purported amendment
shall be void and ineffective:
(i) unless, in the case of any proposed amendment, the
Property Trustee shall have first received an Officers' Certificate (if
requested) from each of the Trust and the Sponsor that such amendment is
permitted by, and conforms to, the terms of this Declaration (including the
terms of the Trust Securities);
(ii) unless, in the case of any proposed amendment which
affects the rights, powers, duties, obligations or immunities of the
Property Trustee, the Property Trustee shall have first received (if
requested):
(A) an Officers' Certificate from each of the Trust
and the Sponsor that such amendment is permitted by, and conforms to,
the terms of this Declaration (including the terms of the Trust
Securities); and
(B) an opinion of counsel (who may be counsel to the
Sponsor or the Trust) that such amendment is permitted by, and
conforms to, the terms of this Declaration (including the terms of the
Trust Securities); and
(iii) to the extent the result of such amendment would be to:
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(A) cause the Trust to fail to continue to be
classified for purposes of United States federal income taxation as a
grantor trust;
(B) reduce or otherwise adversely affect the powers of
the Property Trustee in contravention of the Trust Indenture Act; or
(C) cause the Trust to be deemed to be an Investment
Company that is required to be registered under the Investment Company
Act.
(c) So long as any Trust Securities remain outstanding, any amendment
that would adversely affect the rights, privileges or preferences of any Holder
of Trust Securities in any material respect may be effected only with such
additional requirements as may be set forth in the terms of such Trust
Securities.
(d) Section 8.1(c) and this Section 11.1 shall not be amended without
the consent of all of the Holders of the Trust Securities.
(e) Article IV and the rights of the holders of the Common Securities
under Article V to increase or decrease the number of, and appoint and remove
Trustees shall not be amended without the consent of the Holders of a Majority
in Liquidation Amount of the Common Securities.
(f) Notwithstanding Section 11.1(c), this Declaration may be amended
without the consent of the Holders of the Trust Securities to:
(i) cure any ambiguity;
(ii) correct or supplement any provision in this Declaration
that may be defective or inconsistent with any other provision of this
Declaration;
(iii) add to the covenants, restrictions or obligations of the
Sponsor;
(iv) conform to any change in Rule 3a-5 or written change in
interpretation or application of Rule 3a-5 by any legislative body, court,
government agency or regulatory authority, which amendment does not have a
material adverse effect on the rights, preferences or privileges of the
Holders; and
(v) modify, eliminate and add to any provision of this
Declaration to such extent as may be necessary to comply with applicable law or
otherwise.
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SECTION 11.2 MEETINGS OF THE HOLDERS OF TRUST SECURITIES; ACTION BY WRITTEN
CONSENT.
(a) Meetings of the Holders of any class of Trust Securities may be
called at any time by the Administrative Trustees (or as provided in the terms
of the Trust Securities) to consider and act on any matter on which Holders of
such class of Trust Securities are entitled to act under the terms of this
Declaration, the terms of the Trust Securities or the rules of any stock
exchange on which the Convertible Preferred Securities are listed or admitted
for trading. The Administrative Trustees shall call a meeting of the Holders of
such class if directed to do so by the Holders of at least 10% in liquidation
amount of such class of Trust Securities. Such direction shall be given by
delivering to the Administrative Trustees one or more calls in a writing stating
that the signing Holders of Trust Securities wish to call a meeting and
indicating the general or specific purpose for which the meeting is to be
called. Any Holders of Trust Securities calling a meeting shall specify in
writing the Certificates held by the Holders of Trust Securities exercising the
right to call a meeting and only those Trust Securities represented by the
Certificates so specified shall be counted for purposes of determining whether
the required percentage set forth in the second sentence of this paragraph has
been met.
(b) Except to the extent otherwise provided in the terms of the Trust
Securities, the following provisions shall apply to meetings of Holders of Trust
Securities:
(i) notice of any such meeting shall be given to all the
Holders of Trust Securities having a right to vote thereat at least seven
days and not more than 60 days before the date of such meeting. Whenever a
vote, consent or approval of the Holders of Trust Securities is permitted
or required under this Declaration or the rules of any stock exchange or
over-the-counter market on which the Convertible Preferred Securities are
listed or admitted for trading, such vote, consent or approval may be given
at a meeting of the Holders of Trust Securities. Any action that may be
taken at a meeting of the Holders of Trust Securities may be taken without
a meeting if a consent in writing setting forth the action so taken is
signed by the Holders of Trust Securities owning not less than the minimum
amount of Trust Securities in liquidation amount that would be necessary to
authorize or take such action at a meeting at which all Holders of Trust
Securities having a right to vote thereon were present and voting. Prompt
notice of the taking of action without a meeting shall be given to the
Holders of Trust Securities entitled to vote who have not consented in
writing. The Administrative Trustees may specify that any written ballot
submitted to the Security Holders for the purpose of taking any action
without a meeting shall be returned to the Trust within the time specified
by the Administrative Trustees;
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(ii) each Holder of a Security may authorize any Person to act
for it by proxy on all matters in which a Holder of Trust Securities is
entitled to participate, including waiving notice of any meeting, or voting
or participating at a meeting. No proxy shall be valid after the
expiration of 11 months from the date thereof unless otherwise provided in
the proxy. Every proxy shall be revocable at the pleasure of the Holder of
Trust Securities executing it. Except as otherwise provided herein, all
matters relating to the giving, voting or validity of proxies shall be
governed by the General Corporation Law of the State of Delaware relating
to proxies, and judicial interpretations thereunder, as if the Trust were a
Delaware corporation and the Holders of the Trust Securities were
stockholders of a Delaware corporation;
(iii) each meeting of the Holders of the Trust Securities shall
be conducted by the Administrative Trustees or by such other Person that
the Administrative Trustees may designate; and
(iv) unless the Business Trust Act, this Declaration, the
terms of the Trust Securities, the Trust Indenture Act or the listing rules
of any stock exchange on which the Convertible Preferred Securities are
then listed or trading provide otherwise, the Administrative Trustees, in
their sole discretion, shall establish all other provisions relating to
meetings of Holders of Trust Securities, including notice of the time,
place or purpose of any meeting at which any matter is to be voted on by
any Holders of Trust Securities, waiver of any such notice, action by
consent without a meeting, the establishment of a record date, quorum
requirements, voting in person or by proxy or any other matter with respect
to the exercise of any such right to vote.
ARTICLE XII
REPRESENTATIONS OF PROPERTY TRUSTEE AND DELAWARE TRUSTEE
SECTION 12.1 REPRESENTATIONS AND WARRANTIES OF PROPERTY TRUSTEE.
The Issuer Trustee that acts as initial Property Trustee represents
and warrants to the Trust and to the Sponsor at the date of this Declaration,
and each Successor Property Trustee represents and warrants to the Trust and the
Sponsor at the time of the Successor Property Trustee's acceptance of its
appointment as Property Trustee that:
(a) The Property Trustee is a New York banking corporation with trust
powers, duly organized and validly existing under the laws of the United States
of America,
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with trust power and authority to execute and deliver, and to carry out and
perform its obligations under the terms of, this Declaration.
(b) The execution, delivery and performance by the Property Trustee
of the Declaration has been duly authorized by all necessary corporate action on
the part of the Property Trustee; and the Declaration has been duly executed and
delivered by the Property Trustee, and constitutes a legal, valid and binding
obligation of the Property Trustee, enforceable against it in accordance with
its terms, subject to applicable bankruptcy, reorganization, moratorium,
insolvency, and other similar laws affecting creditors' rights generally and to
general principles of equity and the discretion of the court (regardless of
whether the enforcement of such remedies is considered in a proceeding in equity
or at law).
(c) The execution, delivery and performance of the Declaration by the
Property Trustee does not conflict with or constitute a breach of the articles
of association or By-laws of the Property Trustee.
(d) At the Closing Date, the Property Trustee will be the record
holder of the Convertible Debentures and the Property Trustee has not knowingly
created any liens or encumbrances on such Convertible Debentures.
(e) No consent, approval or authorization of, or registration with or
notice to any state or federal banking authority is required for the execution,
delivery or performance by the Property Trustee, of the Declaration.
SECTION 12.2 REPRESENTATIONS AND WARRANTIES OF DELAWARE TRUSTEE.
The Issuer Trustee that acts as initial Delaware Trustee represents
and warrants to the Trust and to the Sponsor at the date of this Declaration and
at the time of Closing, and each Successor Delaware Trustee represents and
warrants to the Trust and the Sponsor at the time of the Successor Delaware
Trustee's acceptance of its appointment as Delaware Trustee that:
(a) The Delaware Trustee is duly organized, validly existing and in
good standing under the laws of the State of Delaware, with trust power and
authority to execute and deliver, and to carry out and perform its obligations
under the terms of, the Declaration.
(b) The execution, delivery and performance by the Delaware Trustee
of the Declaration has been duly authorized by all necessary corporate action on
the part of the Delaware Trustee; and the Declaration has been duly executed and
delivered by the Delaware Trustee, and constitutes a legal, valid and binding
obligation of the Delaware Trustee,
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enforceable against it in accordance with its terms, subject to applicable
bankruptcy, reorganization, moratorium, insolvency, and other similar laws
affecting creditors' rights generally and to general principles of equity and
the discretion of the court (regardless of whether the enforcement of such
remedies is considered in a proceeding in equity or at law).
(c) The execution, delivery and performance of the Declaration by the
Delaware Trustee does not conflict with or constitute a breach of the
certificate of incorporation or by-laws of the Delaware Trustee.
(d) No consent, approval or authorization of, or registration with or
notice to, any state or federal banking authority is required for the execution,
delivery or performance by the Delaware Trustee, of this Declaration.
(e) The Delaware Trustee is an entity which has its principal place
of business in the State of Delaware.
(f) The Delaware Trustee has been authorized to perform its
obligations under the Certificate of Trust and the Declaration.
ARTICLE XIII
CONVERSION
SECTION 13.1 CONVERSION RIGHTS.
The holders of Trust Securities shall have the right at any time prior
to 5:00 p.m. (New York City time) on the Business Day immediately preceding the
date of repayment of such Trust Securities, whether at maturity or upon
redemption (either at the option of the Company or pursuant to a Tax Event), at
their option, to cause the Conversion Agent to convert Trust Securities, on
behalf of the converting Holders, into shares of Sun Common Stock of the Company
in the manner described herein on and subject to the following terms and
conditions:
The Trust Securities will be convertible at the office of the
Conversion Agent into fully paid and nonassessable shares of Sun Common Stock
of the Company pursuant to the Holder's direction to the Conversion Agent to
exchange such Trust Securities for a portion of the Convertible Debentures
theretofore held by the Trust on the basis of one Trust Security per $25
principal amount of Convertible Debentures, and immediately convert such
amount of Convertible Debentures into fully paid and nonassessable shares of
Sun Common
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Stock of the Company at an initial conversion rate of 1.2419 shares of Sun
Common Stock of the Company per $25 principal amount of Convertible Debentures
(which is equivalent to a conversion price of $20.13 per share of Sun Common
Stock of the Company, subject to certain adjustments set forth in this Article
Thirteen (as so adjusted, the "Conversion Price")).
SECTION 13.2 CONVERSION PROCEDURES.
(a) In order to convert Trust Securities into Sun Common Stock, the
Holder shall submit to the Conversion Agent an irrevocable request to convert
Trust Securities on behalf of such Holder (the "Conversion Notice"), forms of
which are set forth in Exhibit A together, if the Trust Securities are in
certificated form, with such certificates. The Conversion Notice shall (i) set
forth the number of Trust Securities to be converted and the name or names, if
other than the Holder, in which the shares of Sun Common Stock of the Company
should be issued and (ii) direct the Conversion Agent (A) to exchange such Trust
Securities for a portion of the Convertible Debentures held by the Trust (at the
rate of exchange specified in Section 13.1) and (B) to immediately convert such
Convertible Debentures on behalf of such Holder, into Sun Common Stock of the
Company (at the conversion rate specified in Section 13.1).
(b) The Conversion Agent shall notify the Trust of the Holder's
election to exchange Trust Securities for a portion of the Convertible
Debentures held by the Trust and the Trust shall, upon receipt of such notice,
deliver to the Conversion Agent the appropriate principal amount of Convertible
Debentures for exchange in accordance with this Article Thirteen. The
Conversion Agent shall thereupon notify the Company of the Holder's election to
convert such Convertible Debentures into shares of Sun Common Stock of the
Company. Accrued Distributions will not be paid on Preferred Trust Securities
that are converted, nor will any payment, allowance or adjustment be made for
accumulated and unpaid Distributions, whether or not in arrears, on converted
Convertible Preferred Securities except that if any Convertible Preferred
Security is converted on or after a record date for payment of Distributions
thereon, the Distributions payable on the related payment date with respect to
such Convertible Preferred Security shall be distributed to the Holder on such
record date, despite such conversion. Except as provided above, neither the
Trust nor the Company will make, or be required to make, any payment, allowance
or adjustment upon any conversion on account of any accumulated and unpaid
Distributions accrued on the Trust Securities (including any Additional
Interest, Compounded Interest or Liquidated Damages, if any) surrendered for
conversion, or on account of any accumulated and unpaid dividends on the shares
of Sun Common Stock of the Company issued upon such conversion. The Company
shall make no payment or allowance for distributions on the shares of Sun Common
Stock of the Company issued upon such conversion, except to the extent that such
shares of Sun Common Stock of the Company are held of record on the record date
for any such
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distributions and except as provided in Section 1309 of the Indenture. Trust
Securities shall be deemed to have been converted immediately prior to 5:00 p.m.
(New York City time) on the day on which a Conversion Notice relating to such
Trust Securities is received by the Trust in accordance with the foregoing
provision (the "Conversion Date"). The Person or Persons entitled to receive
the Sun Common Stock of the Company issuable upon conversion of the Convertible
Debentures shall be treated for all purposes as the record holder or holders of
such Sun Common Stock of the Company as of the Conversion Date. As promptly as
practicable on or after the Conversion Date, the Company shall issue and deliver
at the office of the Conversion Agent a certificate or certificates for the
number of full shares of Sun Common Stock of the Company issuable upon such
conversion, together with the cash payment, if any, in lieu of any fraction of
any share to the Person or Persons entitled to receive the same, unless
otherwise directed by the Holder in the notice of conversion and the Conversion
Agent shall distribute such certificate or certificates to such Person or
Persons.
(c) Each Holder of a Security by his acceptance thereof appoints The
Bank of New York for the purpose of effecting the conversion of Trust Securities
in accordance with this Article Thirteen. In effecting the conversion and
transactions described in this Article Thirteen, the Conversion Agent shall be
acting as agent of the Holders of Trust Securities directing it to effect such
conversion transactions. The Conversion Agent is hereby authorized (i) to
exchange Trust Securities from time to time for Convertible Debentures held by
the Trust in connection with the conversion of such Trust Securities in
accordance with this Article Thirteen and (ii) to convert all or a portion of
the Convertible Debentures into Sun Common Stock of the Company and thereupon to
deliver such shares of Sun Common Stock of the Company in accordance with the
provisions of this Article Thirteen and to deliver to the Trust a new debenture
or Convertible Debentures for any resulting unconverted principal amount.
(d) No fractional shares of Sun Common Stock of the Company will be
issued as a result of conversion, but in lieu thereof such fractional interest
will be paid in cash (based on the last reported sale price of the Sun Common
Stock of the Company on the Conversion Date) by the Company to the Trust, which
in turn will make such payment to the Holder or Holders of Trust Securities so
converted.
(e) The Company shall at all times reserve and keep available out
of its authorized and unissued Sun Common Stock, solely for issuance upon the
conversion of the Convertible Debentures, free from any preemptive or other
similar rights, such number of shares of Sun Common Stock of the Company as
shall from time to time be issuable upon the conversion of all the
Convertible Debentures then outstanding. Notwithstanding the foregoing, the
Company shall be entitled to deliver upon conversion of Convertible
Debentures, shares of Sun Common Stock of the Company reacquired and held in
the
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treasury of the Company (in lieu of the issuance of authorized and unissued
shares of Sun Common Stock of the Company), so long as any such treasury shares
are free and clear of all liens, charges, security interests or encumbrances.
Any shares of Sun Common Stock issued upon conversion of the Convertible
Debentures shall be duly authorized, validly issued, fully paid and
nonassessable. The Trust shall deliver the shares of Sun Common Stock received
upon conversion of the Convertible Debentures to the converting Holder free and
clear of all liens, charges, security interests and encumbrances, except for
United States withholding taxes. Each of the Company and the Trust shall
prepare and shall use its best efforts to obtain and keep in force such
governmental or regulatory permits or other authorizations as may be required by
law, and shall comply with all applicable requirements as to registration or
qualification of the Sun Common Stock (and all requirements to list the Sun
Common Stock issuable upon conversion of Convertible Debentures that are at the
time applicable), in order to enable the Company to lawfully issue Sun Common
Stock to the Trust upon conversion of the Convertible Debentures and the Trust
to lawfully deliver the Sun Common Stock to each Holder upon conversion of the
Trust Securities.
(f) The Company will pay any and all taxes that may be payable in
respect of the issue or delivery of shares of Sun Common Stock on conversion of
Convertible Debentures and the delivery of the shares of Sun Common Stock by the
Trust upon conversion of the Trust Securities. The Company shall not, however,
be required to pay any tax that may be payable in respect of any transfer
involved in the issue and delivery of shares of Sun Common Stock in a name other
than that in which the Trust Securities so converted were registered, and no
such issue or delivery shall be made unless and until the person requesting such
issue has paid to the Trust the amount of any such tax or has established to the
satisfaction of the Trust that such tax has been paid.
(g) Nothing in this Article Thirteen shall limit the requirement
of the Trust to withhold taxes pursuant to the terms of the Trust Securities
or as set forth in Annex I to the Declaration or otherwise require the
Property Trustee or the Trust to pay any amounts on account of such
withholdings.
SECTION 13.3 CONVERSION PRICE ADJUSTMENTS.
The conversion price shall be subject to adjustment (without
duplication) from time to time as follows:
(a) In case the Company shall, while any of the Trust Securities are
outstanding, (i) pay a dividend or make a distribution with respect to its Sun
Common Stock in shares of Sun Common Stock, (ii) subdivide its outstanding
shares of Sun Common Stock, (iii) combine its outstanding shares of Sun Common
Stock into a smaller number of shares
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or (iv) issue by reclassification of its shares of Sun Common Stock any shares
of capital stock of the Company, the conversion price in effect immediately
prior to such action shall be adjusted so that the Holder of any Trust
Securities thereafter surrendered for conversion shall be entitled to receive
the number of shares of capital stock of the Company which he would have owned
immediately following such action had such Trust Securities been converted
immediately prior thereto. An adjustment made pursuant to this Section 13.3(a)
shall become effective immediately after the record date in the case of a
dividend or other distribution and shall become effective immediately after the
effective date in case of a subdivision, combination or reclassification (or
immediately after the record date if a record date shall have been established
for such event). If, as a result of an adjustment made pursuant to this Section
13.3(a), the Holder of any Trust Securities thereafter surrendered for
conversion shall become entitled to receive shares of two or more classes or
series of capital stock of the Company, the Board of Directors (whose
determination shall be conclusive and shall be described in a Board Resolution
filed with the Trustee) shall determine the allocation of the adjusted
conversion price between or among shares of such classes or series of capital
stock.
(b) In case the Company shall, while any of the Trust Securities are
outstanding, issue rights or warrants to all holders of its Sun Common Stock
entitling them (for a period expiring within 45 days after the record date
mentioned in this Section 13.3(b)) to subscribe for or purchase shares of Sun
Common Stock at a price per share less than the current market price per share
of Sun Common Stock (as determined pursuant to Section 13.3(f) below) on such
record date, the conversion price for the Trust Securities shall be adjusted so
that the same shall equal the price determined by multiplying the conversion
price in effect immediately prior to the date of issuance of such rights or
warrants by a fraction of which the numerator shall be the number of shares of
Sun Common Stock outstanding on the date of issuance of such rights or warrants
plus the number of shares which the aggregate offering price of the total number
of shares so offered for subscription or purchase would purchase at such current
market price, and of which the denominator shall be the number of shares of Sun
Common Stock outstanding on the date of issuance of such rights or warrants plus
the number of additional shares of Sun Common Stock offered for subscription or
purchase. Such adjustment shall become effective immediately after the record
date for the determination of stockholders entitled to receive such rights or
warrants. For the purposes of this subsection, the number of shares of Sun
Common Stock at any time outstanding shall not include shares held in the
treasury of the Company. The Company shall not issue any rights or warrants in
respect of shares of Sun Common Stock held in the treasury of the Company. In
case any rights or warrants referred to in this subsection in respect of which
an adjustment shall have been made shall expire unexercised within 45 days after
the same shall have been distributed or issued by the Company, the conversion
price shall be readjusted at the time of such expiration to the conversion price
that would have been in effect if no adjustment had been made on account of the
distribution or issuance of such expired rights
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or warrants. In determining whether any rights, options, or warrants entitle
the holders to subscribe for or purchase shares of Sun Common Stock at less than
such Current Market Price and, in determining the aggregate offering price of
such shares of Sun Common Stock, there shall be taken into account any
consideration received for such rights, options or warrants, the value of such
consideration, if other than cash, to be determined by the Board of Directors.
Notwithstanding this Article XIII, no adjustment will be made pursuant to this
Article XIII if the Company makes proper provision for each Holder of
Convertible Preferred Securities who converts a Convertible Preferred Security
to receive, in addition to the Sun Common Stock issuable upon such conversion,
the kind and amount assets (including securities) if such Holder had been a
holder of the Common Stock at the time of the distribution of such assets or
securities. Rights, options or warrants distributed by the Company to all
holders of the Sun Common Stock that entitle the holders thereof to purchase
shares of the Company's capital stock and that, until the occurrence of an event
(a "Triggering Event"), (i) are deemed to be transferred with the Sun Common
Stock, (ii) are not exercisable and (iii) are also issued in respect of future
issuances of Sun Common Stock, shall not be deemed to be distributed until the
occurrence of the Triggering Event.
(c) Subject to the last sentence of this Section 13.3(c), in case the
Company shall, by dividend or otherwise, distribute to all holders of its Sun
Common Stock evidences of its indebtedness, shares of any class or series of
capital stock, cash or assets (including securities, but excluding any rights or
warrants referred to in Section 13.3(b) and dividends and distributions in
connection with the liquidation, dissolution or winding up of the Company and
dividends and distributions paid exclusively in cash and any dividend or
distribution referred to in Section 13.3(a)), the conversion price shall be
reduced so that the same shall equal the price determined by multiplying the
conversion price in effect immediately prior to the effectiveness of the
conversion price reduction contemplated by this Section 13.3(c) by a fraction of
which the numerator shall be the current market price per share (determined as
provided in Section 13.3(f)) of the Sun Common Stock on the date fixed for the
payment of such distribution (the "Reference Date") less the fair market value
(as determined in good faith by the Board of Directors, whose determination
shall be conclusive and described in a resolution of the Board of Directors), on
the Reference Date, of the portion of the evidences of indebtedness, shares of
capital stock, cash and assets so distributed applicable to one share of Sun
Common Stock and the denominator shall be such current market price per share of
the Sun Common Stock, such reduction to become effective immediately prior to
the opening of business on the day following the Reference Date. In the event
that such dividend or distribution is not so paid or made, the conversion price
shall again be adjusted to be the conversion price which would then be in effect
if such dividend or distribution had not occurred. If the Board of Directors
determines the fair market value of any distribution for purposes of this
Section 13.3(c) by reference to the actual or when issued trading market for any
securities comprising such distribution, it must in doing so
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consider the prices in such market over the same period used in computing the
current market price per share of Sun Common Stock (determined as provided in
Section 13.3(f)). For purposes of this Section 13.3(c), any dividend or
distribution that includes shares of Sun Common Stock or rights or warrants to
subscribe for or purchase shares of Sun Common Stock shall be deemed instead to
be (1) a dividend or distribution of the evidences of indebtedness, shares of
capital stock, cash or assets other than such shares of Sun Common Stock or such
rights or warrants (making any conversion price reduction required by this
Section 13.3(c)) immediately followed by (2) a dividend or distribution of such
shares of Sun Common Stock or such rights or warrants (making any further
conversion price reduction required by Section 13.3(a) or 13.3(b)), except (A)
the Reference Date of such dividend or distribution as defined in this Section
13.3(c) shall be substituted as (a) "the record date in the case of a dividend
or other distribution," and (b) "the record date for the determination of
stockholders entitled to receive such rights or warrants" and (c) "the date
fixed for such determination" within the meaning of Sections 13.3(a) and 13.3(b)
and (B) any shares of Sun Common Stock included in such dividend or distribution
shall not be deemed outstanding for purposes of computing any adjustment of the
conversion price in Section 13.3(a).
(d) In case the Company shall pay or make a dividend or other
distribution on its Sun Common Stock exclusively in cash (excluding any cash
portion of distributions referred to in Section 13.3(c) or in connection with a
consolidation, merger or sale of assets of the Company as referred to in Section
13.4(c)), excluding cash dividends if such dividends (and other distributions)
together with all other such all-cash dividends and distributions made within
the preceding 12 months in respect of which no adjustment has been made do not
exceed 20% of the Company's current capitalization (being the product of the
then current market price per share determined as provided in Section 13.3(f) of
Sun Common Stock times the number of shares of Sun Common Stock then
outstanding) on the Trading Day immediately preceding the date of declaration of
such dividend), the conversion price shall be reduced so that the same shall
equal the price determined by multiplying the conversion price in effect
immediately prior to the effectiveness of the conversion price reduction
contemplated by this Section 13.3(d) by a fraction of which the numerator shall
be the current market price per share (determined as provided in Section
13.3(f)) of the Sun Common Stock on the date fixed for the payment of such
distribution less the amount of cash so distributed and not excluded as provided
applicable to one share of Sun Common Stock and the denominator shall be such
current market price per share of Sun Common Stock, such reduction to become
effective immediately prior to the opening of business on the day following the
date fixed for the payment of such distribution; PROVIDED, HOWEVER, that in the
event the portion of the cash so distributed applicable to one share of Sun
Common Stock is equal to or greater than the current market price per share (as
defined in Section 13.3(f)) of the Sun Common Stock on the record date mentioned
above, in lieu of the foregoing adjustment, adequate provision shall be made so
that each Holder of shares of Trust Securities
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shall have the right to receive upon conversion the amount of cash such Holder
would have received had such Holder converted each share of Trust Securities
immediately prior to the record date for the distribution of the cash. In the
event that such dividend or distribution is not so paid or made, the conversion
price shall again be adjusted to be the conversion price which would then be in
effect if such record date had not been fixed.
(e) In case a tender or exchange offer (other than an odd-lot offer)
made by the Company or any Subsidiary of the Company for all or any portion of
the Sun Common Stock shall expire and such tender or exchange offer shall
involve the payment by the Company or such Subsidiary of consideration per share
of Sun Common Stock having a fair market value (as determined in good faith by
the Board of Directors, whose determination shall be conclusive and described in
a resolution of the Board of Directors) at the last time (the "Expiration Time")
tenders or exchanges may be made pursuant to such tender or exchange offer (as
it shall have been amended) that exceeds 110% of the current market price per
share (determined as provided in Section 13.3(f)) of the Sun Common Stock on the
Trading Day next succeeding the Expiration Time, the conversion price shall be
reduced so that the same shall equal the price determined by multiplying the
conversion price in effect immediately prior to the effectiveness of the
conversion price reduction contemplated by this Section 13.3(e) by a fraction of
which the numerator shall be the number of shares of Sun Common Stock
outstanding (including any tendered or exchanged shares) at the Expiration Time
multiplied by the current market price per share (determined as provided in
Section 13.3(f)) of the Sun Common Stock on the Trading Day next succeeding the
Expiration Time and the denominator shall be the sum of (x) the fair market
value (determined as aforesaid) of the aggregate consideration payable to
stockholders based on the acceptance (up to any maximum specified in the terms
of the tender or exchange offer) of all shares validly tendered or exchanged and
not withdrawn as of the Expiration Time (the shares deemed so accepted, up to
any such maximum, being referred to as the "Purchased Shares") and (y) the
product of the number of shares of Sun Common Stock outstanding (less any
Purchased Shares) at the Expiration Time and the current market price per share
(determined as provided in Section 13.3(f)) of the Sun Common Stock on the
Trading Day next succeeding the Expiration Time, such reduction to become
effective immediately prior to the opening of business on the day following the
Expiration Time.
(f) For the purpose of any computation under Section 13.3(b),
13.3(c), 13.3(d) or 13.3(e), the current market price per share of Sun Common
Stock on any date in question shall be deemed to be the average of the daily
Closing Prices for the five consecutive Trading Days selected by the Company
commencing not more than 20 Trading Days before, and ending not later than, the
earlier of the day in question or, if applicable, the day before the "ex" date
with respect to the issuance or distribution requiring such computation;
PROVIDED, HOWEVER, that if another event occurs that would require an adjustment
pursuant to Section
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13.3(a) through (e), inclusive, the Board of Directors may make such adjustments
to the Closing Prices during such five Trading Day period as it deems
appropriate to effectuate the intent of the adjustments in this Section 13.3, in
which case any such determination by the Board of Directors shall be set forth
in a Board Resolution and shall be conclusive. For purposes of this paragraph,
the term "ex" date, (i) when used with respect to any issuance or distribution,
means the first date on which the Sun Common Stock trades regular way on the New
York Stock Exchange or on such successor securities exchange as the Sun Common
Stock may be listed or in the relevant market from which the Closing Prices were
obtained without the right to receive such issuance or distribution, and (ii)
when used with respect to any tender or exchange offer, means the first date on
which the Sun Common Stock trades regular way on such securities exchange or in
such market after the Expiration Time of such offer.
(g) The Company may make such reductions in the conversion price, in
addition to those required by Sections 13.3(a) through (e), as it considers to
be advisable to avoid or diminish any income tax to holders of Sun Common Stock
or rights to purchase Sun Common Stock resulting from any dividend or
distribution of stock (or rights to acquire stock) or from any event treated as
such for income tax purposes. The Company from time to time may reduce the
conversion price by any amount for any period of time if the period is at least
20 days, the reduction is irrevocable during the period, and the Board of
Directors of the Company shall have made a determination that such reduction
would be in the best interest of the Company, which determination shall be
conclusive. Whenever the conversion price is reduced pursuant to the preceding
sentence, the Company shall mail to holders of record of the Convertible
Debentures a notice of the reduction at least 15 days prior to the date the
reduced conversion price takes effect, and such notice shall state the reduced
conversion price and the period it will be in effect.
(h) No adjustment in the conversion price shall be required unless
such adjustment would require an increase or decrease of at least 1% in the
conversion price; PROVIDED, HOWEVER, that any adjustments which by reason of
this Section 13.3(h) are not required to be made shall be carried forward and
taken into account in determining whether any subsequent adjustment shall be
required.
(i) If any action would require adjustment of the conversion price
pursuant to more than one of the provisions described above, only one adjustment
shall be made and such adjustment shall be the amount of adjustment that has the
highest absolute value to the Holder of the Trust Securities.
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(j) Except as stated above, the conversion price will not be adjusted
for the issuance of Sun Common Stock or any securities convertible into or
exchangeable for Sun Common Stock or carrying the right to purchase any of the
foregoing.
SECTION 13.4 FUNDAMENTAL CHANGE.
(a) In the event that the Company is party to any transaction
(including, without limitation, a merger other than a merger that does not
result in a reclassification, conversion, exchange or cancellation of Sun Common
Stock), consolidation, sale of all or substantially all of the assets of the
Company, recapitalization or reclassification of Sun Common Stock (other than a
change in par value, or from par value to no par value, or from no par value to
par value or as a result of a subdivision or combination of Sun Common Stock) or
any compulsory share exchange (each of the foregoing being referred to as a
"Transaction"), in each case, as a result of which shares of Sun Common Stock
shall be converted into the right to receive, or shall be exchanged for, (i) in
the case of any Transaction other than a Transaction involving a Common Stock
Fundamental Change (and subject to funds being legally available for such
purpose under applicable law at the time of such conversion), securities, cash
or other property, each Convertible Preferred Security shall thereafter be
convertible into the kind and, in the case of a Transaction which does not
involve a Fundamental Change, amount of securities, cash and other property
receivable upon the consummation of such Transaction by a holder of that number
of shares of Sun Common Stock into which a Convertible Preferred Security was
convertible immediately prior to such Transaction, or (ii) in the case of a
Transaction involving a Common Stock Fundamental Change, common stock, each
Convertible Preferred Security shall thereafter be convertible (in the manner
described therein) into common stock of the kind received by holders of Sun
Common Stock (but in each case after giving effect to any adjustment discussed
below relating to a Fundamental Change if such Transaction constitutes a
Fundamental Change). The holders of Convertible Preferred Securities will have
no voting rights with respect to any Transaction.
(b) If any Fundamental Change occurs, then the conversion price in
effect will be adjusted immediately after such Fundamental Change as described
below.
(c) The conversion price in the case of any Transaction involving a
Fundamental Change will be adjusted immediately after such Fundamental Change:
(i) in the case of a Non-Stock Fundamental Change, the
conversion price of the Convertible Preferred Securities will
thereupon become the lower of (A) the conversion price in effect
immediately prior to such Non-Stock Fundamental Change, but after
giving effect to any other prior
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adjustments effected pursuant to the preceding paragraphs, and (B) the
greater of the Applicable Price or the then applicable Reference
Market Price plus any then-accrued and unpaid distributions on one
Convertible Preferred Security; and
(ii) in the case of a Common Stock Fundamental Change, the
conversion price of the Convertible Preferred Securities in effect
immediately prior to such Common Stock Fundamental Change, but after
giving effect to any other prior adjustments effected pursuant to the
preceding paragraphs, will thereupon be adjusted by multiplying such
conversion price by a fraction of which the numerator will be the
Purchaser Stock Price and the denominator will be the Applicable
Price; provided, however, that in the event of a Common Stock
Fundamental Change in which (A) 100% of the value of the consideration
received by a holder of Sun Common Stock is common stock of the
successor, acquirer, or other third party (and cash, if any, is paid
only with respect to any fractional interests in such common stock
resulting from such Common Stock Fundamental Change) and (B) all Sun
Common Stock will be have been exchanged for, converted into, or
acquired for common stock (and cash with respect to fractional
interests) of the successor, acquirer, or other third party, the
conversion price of the Convertible Preferred Securities in effect
immediately prior to such Common Stock Fundamental Change will
thereupon be adjusted by multiplying such conversion price by a
fraction of which the numerator will be one and the denominator will
be the number of shares of common stock of the successor, acquirer,
or other third party received by a holder of one share of Sun Common
Stock as a result of such Common Stock Fundamental Change.
The Company or the Person formed by such consolidation or resulting
from such merger or which acquired such assets or which acquires the Company's
shares, as the case may be, shall make provision in its certificate or articles
of incorporation or other constituent document to establish such right. Such
certificate or articles of incorporation or other constituent document shall
provide for adjustments which, for events subsequent to the effective date of
such certificate or articles of incorporation or other constituent document,
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Article Thirteen. The above provisions shall similarly apply to
successive transactions of the foregoing type.
SECTION 13.5 NOTICE OF ADJUSTMENTS OF CONVERSION PRICE.
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Whenever the conversion price is adjusted as herein provided:
(a) the Company shall compute the adjusted Conversion Price and shall
prepare a certificate signed by the Chief Financial Officer or the Treasurer of
the Company setting forth the adjusted Conversion Price and showing in
reasonable detail the facts upon which such adjustment is based, and such
certificate shall forthwith be filed with the Trustee, the Conversion Agent and
the transfer agent for the Convertible Preferred Securities and the Convertible
Debentures; and
(b) a notice stating the Conversion Price has been adjusted and
setting forth the adjusted Conversion Price shall as soon as practicable be
mailed by the Company to all record holders of Convertible Preferred Securities
and the Convertible Debentures at their last addresses as they appear upon the
stock transfer books of the Company and the Trust.
SECTION 13.6 PRIOR NOTICE OF CERTAIN EVENTS.
In case:
(a) the Company shall (i) declare any dividend (or any other
distribution) on its Sun Common Stock, other than (A) a dividend payable in
shares of Sun Common Stock or (B) a dividend payable in cash that would not
require an adjustment pursuant to Section 13.3(c) or 13.3(d), or (ii) authorize
a tender or exchange offer that would require an adjustment pursuant to Section
13.3(e);
(b) the Company shall authorize the granting to all holders of Sun
Common Stock of rights or warrants to subscribe for or purchase any shares of
stock of any class or series or of any other rights or warrants;
of any reclassification of Sun Common Stock (other than a subdivision or
combination of the outstanding Sun Common Stock, or a change in par value, or
from par value to no par value, or from no par value to par value), or of any
consolidation or merger to which the Company is a party and for which approval
of any stockholders of the Company shall be required, or of the sale or transfer
of all or substantially all of the assets of the Company or of any compulsory
share exchange whereby the Sun Common Stock is converted into other securities,
cash or other property; or
(c) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company;
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then the Company shall (1) if any Convertible Preferred Securities are
outstanding, cause to be filed with the transfer agent for the Convertible
Preferred Securities, and shall cause to be mailed to the holders of record of
the Convertible Preferred Securities, at their last addresses as they shall
appear upon the stock transfer books the Trust or (2) shall cause to be mailed
to all Holders at their last addresses as they shall appear in the Security
Register, at least 15 days prior to the applicable record or effective date
hereinafter specified, a notice stating (x) the date on which a record (if any)
is to be taken for the purpose of such dividend, distribution, rights or
warrants or, if a record is not to be taken, the date as of which the holders of
Sun Common Stock of record to be entitled to such dividend, distribution, rights
or warrants are to be determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up is expected to become effective, and the date as of which it is
expected that holders of Sun Common Stock of record shall be entitled to
exchange their shares of Sun Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer,
share exchange, dissolution, liquidation or winding up (but no failure to mail
such notice or any defect therein or in the mailing thereof shall affect the
validity of the corporate action required to be specified in such notice).
SECTION 13.7 CERTAIN DEFINED TERMS.
The following definitions shall apply to terms used in this Article
Thirteen:
(a) "CLOSING PRICE" of any Sun Common Stock on any day shall mean the
reported last sale price on such day or in case no sale takes place on such day,
the average of the reported closing bid and asked prices in each case on the New
York Stock Exchange Consolidated Transactions Tape or, if the stock is not
listed or admitted to trading on the New York Stock Exchange, on the principal
national securities exchange on which such stock is listed or admitted to
trading or, if not listed or admitted to trading on any national securities
exchange, the average of the closing bid and asked prices as furnished by any
New York Stock Exchange member firm, selected by the Debenture Trustee for that
purpose.
(b) "TRADING DAY" shall mean a day on which securities are traded on
the national securities exchange or quotation system used to determine the
Closing Price.
SECTION 13.8 DIVIDEND OR INTEREST REINVESTMENT PLANS.
Notwithstanding the foregoing provisions, the issuance of any shares
of Sun Common Stock pursuant to any plan providing for the reinvestment of
dividends or interest payable on securities of the Company and the investment of
additional optional amounts in shares of Sun Common Stock under any such plan,
and the issuance of any shares of Sun
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Common Stock or options or rights to purchase such shares pursuant to any
employee benefit plan or program of the Company or pursuant to any option,
warrant, right or exercisable, exchangeable or convertible security outstanding
as of the date the Convertible Debentures were first issued, shall not be deemed
to constitute an issuance of Sun Common Stock or exercisable, exchangeable or
convertible securities by the Company to which any of the adjustment provisions
described above applies. There shall also be no adjustment of the conversion
price in case of the issuance of any stock (or securities convertible into or
exchangeable for stock) of the Company except as specifically described in this
Article Thirteen.
SECTION 13.9 CERTAIN ADDITIONAL RIGHTS.
In case the Company shall, by dividend or otherwise, declare or make a
distribution on its Sun Common Stock referred to in Section 13.3(c) or 13.3(d)
(including, without limitation, dividends or distributions referred to in the
last sentence of Section 13.3(c)), the Holder of the Trust Securities, upon the
conversion thereof subsequent to 5:00 p.m. (New York City time) on the date
fixed for the determination of stockholders entitled to receive such
distribution and prior to the effectiveness of the conversion price adjustment
in respect of such distribution, shall also be entitled to receive for each
share of Sun Common Stock into which the Trust Securities are converted, the
portion of the shares of Sun Common Stock, rights, warrants, evidences of
indebtedness, shares of capital stock, cash and assets so distributed applicable
to one share of Sun Common Stock; PROVIDED, HOWEVER, that, at the election of
the Company (whose election shall be evidenced by a resolution of the Board of
Directors) with respect to all Holders so converting, the Company may, in lieu
of distributing to such Holder any portion of such distribution not consisting
of cash or securities of the Company, pay such Holder an amount in cash equal to
the fair market value thereof (as determined in good faith by the Board of
Directors, whose determination shall be conclusive and described in a resolution
of the Board of Directors). If any conversion of Trust Securities described in
the immediately preceding sentence occurs prior to the payment date for a
distribution to holders of Sun Common Stock which the Holder of Trust Securities
so converted is entitled to receive in accordance with the immediately preceding
sentence, the Company may elect (such election to be evidenced by a resolution
of the Board of Directors) to distribute to such Holder a due bill for the
shares of Sun Common Stock, rights, warrants, evidences of indebtedness, shares
of capital stock, cash or assets to which such Holder is so entitled, PROVIDED,
that such due bill (i) meets any applicable requirements of the principal
national securities exchange or other market on which the Sun Common Stock is
then traded and (ii) requires payment or delivery of such shares of Sun Common
Stock, rights, warrants, evidences of indebtedness, shares of capital stock,
cash or assets no later than the date of payment or delivery thereof to holders
of shares of Sun Common Stock receiving such distribution.
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SECTION 13.10 RESTRICTIONS ON SUN COMMON STOCK ISSUABLE UPON CONVERSION.
(a) Shares of Sun Common Stock to be issued upon conversion of a
Convertible Preferred Security shall bear the following legend (the "Restricted
Common Stock Legend") and be subject to the restrictions on transfer contained
therein unless the Company determines otherwise in accordance with applicable
law.
THE COMMON STOCK EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL
OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE WHICH IS AFTER THE
EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES THEREOF UNDER RULE 144(k)
UNDER THE SECURITIES ACT (OR ANY SUCCESSOR RULE) (THE "RESALE RESTRICTION
TERMINATION DATE") ONLY (A) TO SUN HEALTHCARE GROUP, INC. (THE "COMPANY") (B)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, (C) TO
AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH
(a)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING
THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL
"ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR
OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT, OR (D) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND
THE TRANSFER AGENT'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i)
PURSUANT TO CLAUSES (C) OR (D) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (ii) IN
EACH OF THE FOREGOING CASES TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE
FORM APPEARING ON THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO
THE TRANSFER AGENT. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF A HOLDER
AFTER THE RESALE RESTRICTION TERMINATION DATE.
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(b) If shares of Sun Common Stock to be issued upon conversion of a
Trust Security in respect of Restricted Convertible Preferred Securities are to
be registered in a name other than that of the Holder of such Convertible
Preferred Security, then the Person in whose name such shares of Sun Common
Stock are to be registered must deliver to the Conversion Agent a certificate or
certificates satisfactory to the Company and signed by such Person and the
transferee, as to compliance with the restrictions on transfer applicable to
such Convertible Preferred Security. Neither the Trustee nor any Conversion
Agent or Registrar shall be required to register in a name other than that of
the Holder shares of Sun Common Stock issued upon conversion of any such Trust
Security in respect of such Convertible Preferred Securities not so accompanied
by a properly completed certificate or certificates.
SECTION 13.11 TRUSTEE NOT RESPONSIBLE FOR DETERMINING CONVERSION PRICE OR
ADJUSTMENTS.
Neither the Trustee nor any Conversion Agent shall at any time be
under any duty or responsibility to any Holder of any Trust Security to
determine whether any facts exist which may require any adjustment of the
conversion price, or with respect to the nature or extent of any such adjustment
when made, or with respect to the method employed, or herein or in any
supplemental indenture provided to be employed, in making the same. Neither the
Trustee nor any Conversion Agent shall be accountable with respect to the
validity or value (or the kind of account) of any shares of Sun Common Stock or
of any securities or property, which may at any time be issued or delivered upon
the conversion of any Trust Security; and neither the Trustee nor any Conversion
Agent makes any representation with respect thereto. Neither the Trustee nor
any Conversion Agent shall be responsible for any failure of the Company to make
any cash payment or to issue, transfer or deliver any shares of Sun Common Stock
or stock certificates or other securities or property upon the surrender of any
Trust Security for the purpose of conversion, or, except as expressly herein
provided, to comply with any of the covenants of the Company contained in this
Article Thirteen.
ARTICLE XIV
MISCELLANEOUS
SECTION 14.1 NOTICES.
All notices provided for in this Declaration shall be in writing, duly
signed by the party giving such notice, and shall be delivered, sent by
facsimile or mailed by first class mail, as follows:
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(a) if given to the Trust, in care of the Administrative Trustees at
the Trust's mailing address set forth below (or such other address as the Trust
may give notice of to the Holders of the Trust Securities):
c/o Sun Healthcare Group, Inc.
101 Sun Avenue NE
Albuquerque, New Mexico 87109
Tel: (505) 856-2423
Fax: (505) 822-0747
Attention: Robert F. Murphy, Esq.
Senior Vice President, General Counsel
and Secretary
(b) if given to the Property Trustee, at the mailing address set
forth below (or such other address as the Property Trustee may give notice of to
the Holders of the Trust Securities):
The Bank of New York
101 Barclay Street, Floor 21 West
New York, New York 10286
Tel. (212) 815-5783
Fax: (212) 815-5915
Attention: Corporate Trust Trustee, Administration
(c) if given to the Delaware Trustee, at the mailing address set
forth below (or such other address as the Delaware Trustee may give notice of to
the Holders of the Trust Securities):
The Bank of New York (Delaware)
101 Barclay Street, Floor 21 West
New York, New York 10286
Tel. (212) 815-5783
Fax: (212) 815-5915
Attention: Corporate Trust Trustee, Administration
(d) if given to the Holder of the Common Securities, at the mailing
address of the Sponsor set forth below (or such other address as the Holder of
the Common Securities may give notice to the Trust):
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c/o Sun Healthcare Group, Inc.
101 Sun Avenue NE
Albuquerque, New Mexico 87109
Tel: (505) 856-2423
Fax: (505) 822-0747
Attention: Robert F. Murphy, Esq.
Senior Vice President General Counsel
and Secretary
(e) if given to any other Holder, at the address set forth on the
books and records of the Trust or the Registrar, as applicable.
All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid except that if a notice or other document is refused delivery or
cannot be delivered because of a changed address of which no notice was given,
such notice or other document shall be deemed to have been delivered on the date
of such refusal or inability to deliver.
SECTION 14.2 GOVERNING LAW.
This Declaration and the rights of the parties hereunder shall be
governed by and interpreted in accordance with the laws of the State of Delaware
and all rights and remedies shall be governed by such laws without regard to
principles of conflict of laws.
SECTION 14.3 INTENTION OF THE PARTIES.
It is the intention of the parties hereto that the Trust be classified
for United States federal income tax purposes as a grantor trust. The
provisions of this Declaration shall be interpreted to further this intention of
the parties.
SECTION 14.4 HEADINGS.
Headings contained in this Declaration are inserted for convenience of
reference only and do not affect the interpretation of this Declaration or any
provision hereof.
SECTION 14.5 SUCCESSORS AND ASSIGNS
Whenever in this Declaration any of the parties hereto is named or
referred to, the successors and assigns of such party shall be deemed to be
included, and all covenants and
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agreements in this Declaration by the Sponsor and the Trustees shall bind and
inure to the benefit of their respective successors and assigns, whether so
expressed.
SECTION 14.6 PARTIAL ENFORCEABILITY.
If any provision of this Declaration, or the application of such
provision to any Person or circumstance, shall be held invalid, the remainder of
this Declaration, or the application of such provision to persons or
circumstances other than those to which it is held invalid, shall not be
affected thereby.
SECTION 14.7 COUNTERPARTS.
This Declaration may contain more than one counterpart of the
signature page and this Declaration may be executed by the affixing of the
signature of each of the Trustees to one of such counterpart signature pages.
All of such counterpart signature pages shall be read as though one, and they
shall have the same force and effect as though all of the signers had signed a
single signature page.
ARTICLE XV
REGISTRATION RIGHTS
SECTION 15.1 REGISTRATION RIGHTS.
The Holders of the Convertible Preferred Securities, the Convertible
Debentures and the Securities Guarantee and the shares of Sun Common Stock of
the Sponsor issuable upon conversion of the Convertible Debentures and/or the
Convertible Preferred Securities are entitled to the benefits of the
Registration Rights Agreement.
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IN WITNESS WHEREOF, the undersigned has caused these presents to be
executed as of the date first above written.
/s/ Robert D. Woltil
---------------------------------------
Robert D. Woltil, as Administrative Trustee
/s/ William C. Warrick
---------------------------------------
William C. Warrick, as Administrative Trustee
/s/ Robert F. Murphy
---------------------------------------
Robert F. Murphy, as Administrative Trustee
THE BANK OF NEW YORK (DELAWARE), Delaware
Trustee
By: /s/ Frederick W. Clark
----------------------------------
Name: Frederick W. Clark
Title: Authorized Signatory
THE BANK OF NEW YORK,
Property Trustee
By: /s/ Mary LeGumina
----------------------------------
Name: Mary LeGumina
Title: Assistant Vice President
SUN HEALTHCARE GROUP, INC.,
Sponsor
By: /s/ Robert D. Woltil
----------------------------------
Name: Robert D. Woltil
Title: Chief Financial Officer
<PAGE>
ANNEX I
TERMS OF TRUST SECURITIES
<PAGE>
ANNEX I
TERMS OF
7% CONVERTIBLE TRUST ISSUED CONVERTIBLE PREFERRED SECURITIES
7% CONVERTIBLE COMMON SECURITIES
Pursuant to Section 7.1 of the Amended and Restated Declaration of
Trust, dated as of May 4, 1998 (as amended from time to time, the
"Declaration"), the designation, rights, privileges, restrictions, preferences
and other terms and provisions of the Convertible Preferred Securities and the
Convertible Common Securities are set out below (each capitalized term used but
not defined herein has the meaning set forth in the Declaration):
1. DESIGNATION AND NUMBER.
(a) "CONVERTIBLE PREFERRED SECURITIES": 13,800,000 7% Convertible Trust
Issued Preferred Securities of the Trust with a liquidation amount of
$25 per Convertible Preferred Security are hereby designated for the
purposes of identification only as "7% Convertible Trust Issued
Preferred Securities (liquidation amount of $25 per Convertible
Preferred Security)" (the "Convertible Preferred Securities"). The
Convertible Preferred Security Certificates evidencing the Convertible
Preferred Securities shall be substantially in the form of Exhibit A-1
to the Declaration, with such changes and additions thereto or
deletions therefrom as may be required by ordinary usage, custom or
practice or to conform to the rules of any stock exchange or other
organization on which the Convertible Preferred Securities are listed.
(b) "COMMON SECURITIES": 426,805.25 Convertible Common Securities of the
Trust with a liquidation amount of $25 per Convertible Common Security
to meet the capital requirements of the Trust in the event of an
issuance of Additional Convertible Preferred Securities, if any, are
hereby designated for the purposes of identification only as "7%
Convertible Common Securities (liquidation amount of $25 per Common
Security)" (the "Convertible Common Securities"). The Common Security
Certificates evidencing the Convertible Common Securities shall be
substantially in the form of Exhibit A-2 to the Declaration, with such
changes
<PAGE>
and additions thereto or deletions therefrom as may be required by
ordinary usage, custom or practice.
2. DISTRIBUTIONS.
(a) Distributions payable on each Trust Security will be fixed at a rate
per annum of 7% (the "Coupon Rate") of the stated liquidation amount
of $25 per Trust Security, such rate being the rate of interest
payable on the Convertible Debentures to be held by the Property
Trustee. Distributions in arrears for more than one quarter will bear
interest thereon compounded quarterly at the Coupon Rate (to the
extent permitted by applicable law). The term "Distributions" as used
herein includes any such interest including any Additional Interest,
Compounded Interest and Liquidated Damages (all as defined in the
Declaration), if any, payable unless otherwise stated. A Distribution
is payable only to the extent that payments are made in respect of the
Convertible Debentures held by the Property Trustee and to the extent
the Trust has funds available therefor. The amount of Distributions
payable for any period will be computed for any full quarterly
Distribution period on the basis of a 360-day year of twelve 30-day
months, and for any period shorter than a full quarterly Distribution
period for which Distributions are computed, Distributions will be
computed on the basis of the actual number of days elapsed per 90-day
quarter.
(b) Except as otherwise described below, Distributions on the Trust
Securities will be cumulative, will accrue from the date of initial
issuance and will be payable quarterly in arrears, on the following
dates, which dates correspond to the interest payment dates on the
Convertible Debentures: February 1, May 1, August 1 and November 1,
of each year, commencing on August 1, 1998, when, as and if available
for payment by the Property Trustee. Provided that no Event of
Default has occurred and is continuing, the Company has the right at
any time during the term of the Convertible Debentures to defer
interest payments from time to time by extending the interest payment
period for successive periods not exceeding 20 consecutive quarters
(each an "Extension Period") for each such period; PROVIDED, that no
Extension Period may extend beyond the maturity date of the
Convertible Debentures. As a consequence of such extension, quarterly
Distributions on the Trust Securities would be deferred (though such
Distributions would continue to accrue with interest since interest
would continue to accrue on the Convertible Debentures) during any
such extended interest payment period. In the event that the Company
exercises this right, then, during such period the Company has agreed,
among other things, (a) not to declare or pay dividends on, or make a
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distribution with respect to, or redeem or purchase or acquire, or
make a liquidation payment with respect to, any of its capital stock
(other than (i) purchases or acquisitions of shares of Sun Common
Stock in connection with the satisfaction by the Company of its
obligations under any employee benefit plans or the satisfaction by
the Company of its obligations pursuant to any contract or security
requiring the Company to purchase shares of Sun Common Stock, (ii) as
a result of a reclassification of the Company's capital stock or the
exchange or conversion of one class or series of the Company's capital
stock for another class or series of the Company's capital stock or
(iii) the purchase of fractional interests in shares of the Company's
capital stock pursuant to the conversion or exchange provisions of
such capital stock or the security being converted or exchanged) or
make any guarantee payments with respect to the foregoing, (b) not to
make any payment of interest, principal or premium, if any, on or
repay, repurchase or redeem any debt securities (including guarantees)
issued by the Company that rank PARI PASSU with or junior to the
Convertible Debentures (except by conversion into or exchange for
shares of its capital stock) and (c) not to make any guarantee
payments with respect to the foregoing (other than pursuant to the
Convertible Preferred Securities Guarantee). Prior to the termination
of any such Extension Period, the Company may further extend the
interest payment period; PROVIDED, that such Extension Period,
together with all such previous and further extensions thereof, may
not exceed 20 consecutive quarters or extend beyond the maturity date
of the Convertible Debentures. Upon the termination of any Extension
Period and the payment of all amounts then due, the Company may
commence a new Extension Period, subject to the above requirements.
(c) Distributions on the Trust Securities will be payable to the Holders
thereof as they appear on the books and records of the Trust on the
relevant record dates. The relevant record dates shall be the
fifteenth day prior to the next succeeding payment dates, except as
otherwise described in this Annex I to the Declaration. Subject to
any applicable laws and regulations and the provisions of the
Declaration, each such payment in respect of the Convertible Preferred
Securities being held in book-entry form through The Depository Trust
Company (the "Depositary") will be made as described under the heading
"Description of the Convertible Preferred Securities -- Form,
Denominations and Registration" in the Offering Memorandum. The
relevant record dates for the Convertible Common Securities shall be
the same record dates as for the Convertible Preferred Securities.
Distributions payable on any Trust Securities that are not punctually
paid on any Distribution payment date as a result of the Company
having failed to make a payment under the Convertible Debentures, will
cease to be payable to the Person in whose name such Trust Securities
are registered on the relevant record
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date, and such defaulted Distribution will instead be payable to the
Person in whose name such Trust Securities are registered on the
special record date or other specified date determined in accordance
with the Indenture. If Distributions are deferred, the deferred
Distributions and accrued interest thereon shall be paid to the
Holders of record of Trust Securities as they appear on the books and
records of the Trust on the record date next following the termination
of such deferral period. If any date on which Distributions are
payable on the Trust Securities is not a Business Day, then payment of
the Distribution payable on such date will be made on the next
succeeding day that is a Business Day (and without any distribution or
other payment in respect of any such delay) except that, if such
Business Day is in the next succeeding calendar year, such payment
shall be made on the immediately preceding Business Day, in each case
with the same force and effect as if made on such date.
(d) In the event of an election by the Holder to convert its Trust
Securities through the Conversion Agent into Sun Common Stock of the
Company pursuant to the terms of the Trust Securities as set forth in
the Declaration and in this Annex I to the Declaration, accrued
Distributions will not be paid on Convertible Preferred Securities
that are converted, nor will any payment, allowance or adjustment be
made for accumulated and unpaid Distributions, whether or not in
arrears, on converted Convertible Preferred Securities except that if
any Convertible Preferred Security is converted on or after a record
date for payment of Distributions thereon, the Distributions payable
on the related payment date with respect to such Convertible Preferred
Security shall be distributed to the Holder on such record date,
despite such conversion.
(e) In the event that there is any money or other property held by or for
the Trust that is not accounted for hereunder, such property shall be
distributed Pro Rata (as defined in paragraph 9) among the Holders of
the Trust Securities.
3. LIQUIDATION DISTRIBUTION UPON DISSOLUTION.
In the event of any voluntary or involuntary dissolution of the Trust
(each a "Liquidation"), the then Holders of the Trust Securities on the date of
the Liquidation will be entitled to receive out of the assets of the Trust
available for distribution to Holders of Trust Securities after satisfaction of
liabilities of creditors, distributions in an amount equal to the aggregate of
the stated liquidation amount of $25 per Trust Security plus accrued and unpaid
Distributions thereon to the date of payment (such amount being the "Liquidation
Distribution"), unless, in connection with such Liquidation, Convertible
Debentures in an aggregate principal amount equal to the aggregate stated
liquidation amount of such Trust Securities, with an interest
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rate equal to the Coupon Rate of, and accrued and unpaid interest in an amount
equal to the accrued and unpaid Distributions on, such Trust Securities, shall
be distributed on a Pro Rata basis to the Holders of the Trust Securities.
If, upon any such Liquidation, the Liquidation Distribution can be
paid only in part because the Trust has insufficient assets available to pay in
full the aggregate Liquidation Distribution, then the amounts payable directly
by the Trust on the Trust Securities shall be paid on a Pro Rata basis in
accordance with paragraph 9 below.
4. REDEMPTION AND DISTRIBUTION.
(a) Upon the repayment of the Convertible Debentures, in whole or in part,
whether at maturity or upon redemption (either at the option of the
Company or pursuant to a Tax Event), the proceeds from such repayment
or payment shall be simultaneously applied to redeem Trust Securities
having an aggregate liquidation amount equal to the aggregate
principal amount of the Convertible Debentures so repaid or redeemed
at a redemption price equal to the redemption price of such repaid or
redeemed Convertible Debentures, together with accrued and unpaid
Distributions thereon through the date fixed for redemption, payable
in cash (the "Redemption Price").
(b) If fewer than all the outstanding Trust Securities are to be so
redeemed, the Convertible Common Securities and the Convertible
Preferred Securities will be redeemed Pro Rata and the Convertible
Preferred Securities to be redeemed will be as described in paragraph
4(f)(ii) below.
(c) If, at any time, a Tax Event or an Investment Company Event (each as
defined below and each a "Special Event") shall occur and be
continuing, the Administrative Trustees shall, unless the Convertible
Debentures are redeemed in the limited circumstances in relation to a
Tax Event described in the following paragraph of this paragraph 4(c),
dissolve the Trust and, after satisfaction of creditors of the Trust,
if any, cause Convertible Debentures held by the Property Trustee (w)
having an aggregate principal amount equal to the aggregate stated
liquidation amount of, (x) an interest rate identical to the Coupon
Rate of, (y) accrued and unpaid interest on equal to the accrued and
unpaid Distributions on, and (z) the same record dates for payment as,
the Trust Securities, to be distributed to the Holders of the Trust
Securities in liquidation of such Holders' interest in the Trust on a
Pro Rata basis, within 90 days following the occurrence of such
Special Event (the "90 Day Period"); PROVIDED, HOWEVER, that in the
case of a Tax Event, such dissolution and distribution shall be
conditioned on the Property Trustee's
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receipt of an opinion of a nationally recognized independent tax
counsel experienced in such matters (a "No Recognition Opinion"),
which opinion may rely on published revenue rulings of the Internal
Revenue Service, to the effect that the Holders of the Convertible
Preferred Securities will not recognize any income, gain or loss for
United States federal income tax purposes as a result of such
dissolution and distribution of Convertible Debentures, and PROVIDED,
FURTHER, that if at the time there is available to the Trust the
opportunity to eliminate, within the 90 Day Period, the Special Event
by taking some ministerial action, such as filing a form or making an
election, or pursuing some other similar reasonable measure that in
the sole judgment of the Company has, or will cause, no adverse effect
on the Trust, the Company or the Holders of the Trust Securities and
will involve no material cost ("Ministerial Action"), the Trust will
pursue such Ministerial Action in lieu of dissolution.
If in the event of a Tax Event, (i) after receipt of a
Dissolution Tax Opinion (as defined below) by the Trust, the Property
Trustee has received an opinion (a "Redemption Tax Opinion") of a
nationally recognized independent tax counsel experienced in such
matters that, as a result of a Tax Event, there is more than an
insubstantial risk that the Company would be precluded from deducting
the interest on the Convertible Debentures for United States federal
income tax purposes even if the Convertible Debentures were
distributed to the Holders of Trust Securities in liquidation of such
Holders' interest in the Trust as described in this paragraph 4(c), or
(ii) after receipt of a Tax Event Opinion, the Administrative Trustees
shall have been informed by such tax counsel that a No Recognition
Opinion cannot be delivered to the Trust, the Company shall have the
right, upon not less than 30 nor more than 60 days' notice, to redeem
the Convertible Debentures in whole (but not in part) for cash at 100%
of the principal amount thereof plus accrued and unpaid interest
thereon within 90 days following the occurrence of such Tax Event, and
promptly following such redemption, the Trust Securities shall be
redeemed at the liquidation amount thereof plus accrued and unpaid
distributions thereon; PROVIDED, HOWEVER, that if at the time there is
available to the Company or the Trust the opportunity to eliminate,
within such 90 Day Period, the Tax Event by taking some Ministerial
Action that has no adverse effect on the Trust, the Holders of Trust
Securities or the Company, the Trust or the Company will pursue such
Ministerial Action in lieu of redemption.
"Tax Event" means that the Property Trustee shall have
received an opinion of a nationally recognized independent tax counsel
experienced in such matters (a "Dissolution Tax Opinion") to the
effect that, as a result of (a) any amendment to, or change (including
any announced prospective change) in, the
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laws (or any regulations thereunder) of the United States or any
political subdivision or taxing authority thereof or therein, (b) any
amendment to, or change in, an interpretation or application of any
such laws or regulations by any legislative body, court, governmental
agency or regulatory authority (including the enactment of any
legislation and the publication of any judicial decision or regulatory
determination), (c) any interpretation or pronouncement that provides
for a position with respect to such laws or regulations that differs
from the theretofore generally accepted position or (d) any action
taken by any governmental agency or regulatory authority, which
amendment or change is enacted, promulgated, issued or announced or
which interpretation or pronouncement is issued or announced or which
action is taken, in each case after the date of the Offering
Memorandum (collectively, a "Change in Tax Law"), there is more than
an insubstantial risk that (i) the Trust is, or will be within 90 days
of the date thereof, subject to United States federal income tax with
respect to interest accrued or received on the Convertible Debentures,
(ii) the Trust is, or will be within 90 days of the date thereof,
subject to more than a de minimis amount of other taxes, duties or
other governmental charges, or (iii) interest payable by the Company
to the Trust on the Convertible Debentures is not, or within 90 days
of the date thereof will not be, deductible by the Company for United
States federal income tax purposes. Notwithstanding anything in the
previous sentence to the contrary, a Tax Event shall not include any
Change in Tax Law that requires the Company for United States federal
income tax purposes to defer taking a deduction for any original issue
discount ("OID") that accrues with respect to the Convertible
Debentures until the interest payment related to such OID is paid by
the Company in cash; PROVIDED, that such Change in Tax Law does not
create more than an insubstantial risk that the Company will be
prevented from taking a deduction for OID accruing with respect to the
Convertible Debentures at a date that is no later than the date the
interest payment related to such OID is actually paid by the Company
in cash.
"Investment Company Event" means that the Property Trustee
shall have received an opinion of a nationally recognized independent
counsel experienced in practice under the Investment Company Act (an
"Investment Company Event Opinion") that, as a result of a change in
law or regulation or a change in interpretation or application of law
or regulation by any legislative body, court, governmental agency or
regulatory authority (a "Change in 1940 Act Law"), there is more than
an insubstantial risk that the Trust is or will be considered an
Investment Company that is required to be registered under the
Investment Company Act, which Change in 1940 Act Law becomes effective
on or after the date of the Offering Memorandum.
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On the date fixed for any distribution of Convertible
Debentures, upon dissolution of the Trust: (i) the Trust Securities
will no longer be deemed to be outstanding, (ii) the Depositary or its
nominee, as the record holder of such Trust Securities, will receive a
registered global certificate or certificates representing the
Convertible Debentures to be delivered upon such distribution and
(iii) certificates representing Trust Securities not held by
Depositary or its nominee will be deemed to represent beneficial
interests in Convertible Debentures having an aggregate principal
amount equal to the stated liquidation amount, and bearing accrued and
unpaid interest equal to accrued and unpaid Distributions, on such
Trust Securities until such certificates are presented to the Company
or its agent for transfer or reissuance.
(d) The Trust may not redeem fewer than all the outstanding Trust
Securities unless all accrued and unpaid Distributions have been paid
in cash on all Trust Securities for all quarterly Distribution periods
terminating on or before the date of redemption.
(e) If the Convertible Debentures are distributed to the Holders of the
Trust Securities, pursuant to the terms of the Indenture, the Company
will use its reasonable best efforts to have the Convertible
Debentures listed on the New York Stock Exchange or on such other
exchange as the Convertible Preferred Securities were listed
immediately prior to the distribution of the Convertible Debentures.
(f) REDEMPTION OR DISTRIBUTION PROCEDURES.
(i) Notice of any redemption of, or notice of distribution of
Convertible Debentures in exchange for, the Trust Securities
(a "Redemption/Distribution Notice") will be given by the
Trust by mail to each Holder of Trust Securities to be
redeemed or exchanged not fewer than 30 nor more than 60 days
before the date fixed for redemption or exchange thereof,
which, in the case of a redemption, will be the date fixed for
redemption of the Convertible Debentures. For purposes of the
calculation of the date of redemption or exchange and the
dates on which notices are given pursuant to this paragraph
4(f)(i), a Redemption/Distribution Notice shall be deemed to
be given on the day such notice is first mailed by first-class
mail, postage prepaid, to Holders of Trust Securities. Each
Redemption/Distribution Notice shall be addressed to the
Holders of Trust Securities at the address of each such Holder
appearing in the books and records of the Trust. No defect in
the Redemption/Distribution Notice or in the mailing of either
thereof with
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respect to any Holder shall affect the validity of the
redemption or exchange proceedings with respect to any other
Holder.
(ii) In the event that fewer than all the outstanding Trust
Securities are to be redeemed, then the aggregate liquidation
preference of such Trust Securities to be redeemed shall be
allocated Pro Rata among the Convertible Preferred Securities
and the Convertible Common Securities, it being understood
that, in respect of Convertible Preferred Securities
registered in the name of and held of record by the Depositary
or its nominee (or any successor Clearing Agency or its
nominee), the distribution of the proceeds of such redemption
will be made to each Clearing Agency participant (or Person on
whose behalf such nominee holds such securities) in accordance
with the procedures applied by such agency or nominee. The
particular Convertible Preferred Securities to be redeemed
shall be selected not more than 60 days prior to the
redemption date by the Property Trustee from the outstanding
Convertible Preferred Securities not previously called for
redemption, by lot or by such method as the Property Trustee
shall deem fair and appropriate and which may provide for the
selection for redemption of portions (equal to $25 or an
integral multiple of $25 in excess thereof) of the liquidation
amount of the Convertible Preferred Securities. The Property
Trustee shall promptly notify the Conversion Agent in writing
of the Convertible Preferred Securities selected for
redemption and, in the case of any Convertible Preferred
Securities selected for partial redemption, the liquidation
preference thereof to be redeemed.
(iii) If Trust Securities are to be redeemed and the Trust gives a
Redemption/Distribution Notice (which notice is irrevocable),
then, provided that the Company has paid the Property Trustee
a sufficient amount of cash in connection with the related
redemption or maturity of the Convertible Debentures, (A) with
respect to Convertible Preferred Securities held in book-entry
form, by 12:00 noon, New York City time, on the redemption
date, the Trust will deposit irrevocably with the Depositary
or its nominee (or successor Clearing Agency or its nominee)
funds sufficient to pay the applicable Redemption Price with
respect to such Convertible Preferred Securities and will give
the Depositary irrevocable instructions and authority to pay
the applicable Redemption Price to the Convertible Preferred
Security Beneficial Owners of such Convertible Preferred
Securities represented by the Global Certificates, and (B)
with respect to Convertible Preferred Securities issued in
I-9
<PAGE>
definitive form and Convertible Common Securities, the Trust
will irrevocably deposit with the Paying Agent funds
sufficient to pay the amount payable on redemption to the
Holders of such Trust Securities upon surrender of their
certificates. If a Redemption/Distribution Notice shall have
been given and funds deposited as required, then on the date
of such deposit, all rights of Holders of such Trust
Securities so called for redemption will cease, except (i) the
right of the Holders of such Trust Securities to receive the
Redemption Price, but without interest thereon, and (ii) the
right to convert such Trust Securities into Sun Common Stock
in the manner described herein through the close of business
on the date immediately prior to the date fixed for
redemption. Neither the Administrative Trustees, the
Registrar, nor the Trust shall be required to register or
cause to be registered the transfer of any Trust Securities
that have been so called for redemption. If any date fixed
for redemption of Trust Securities is not a Business Day, then
payment of the amount payable on such date will be made on the
next succeeding day that is a Business Day (without any
interest or other payment in respect of any such delay) except
that, if such Business Day falls in the next calendar year,
such payment will be made on the immediately preceding
Business Day, in each case with the same force and effect as
if made on such date fixed for redemption. If payment of the
Redemption Price in respect of any Trust Securities is
improperly withheld or refused and not paid either by the
Trust or by the Company as guarantor pursuant to the relevant
Securities Guarantee, Distributions on such Trust Securities
will continue to accrue at the then applicable rate, from the
original redemption date to the date of payment, in which case
the actual payment date will be considered the date fixed for
redemption for purposes of calculating the amount payable upon
redemption (other than for purposes of calculating any
premium).
(iv) In the event of any redemption in part, the Trust shall not be
required to (i) issue, register the transfer of or exchange of
any Convertible Preferred Security during a period beginning
at the opening of business 15 days before any selection for
redemption of Convertible Preferred Securities and ending at
5:00 p.m. (New York City time) on the earliest date in which
the relevant notice of redemption is deemed to have been given
to all holders of Convertible Preferred Securities to be so
redeemed and (ii) register the transfer of or exchange of any
Convertible Preferred Securities so selected for redemption,
in whole or in part, except for the
I-10
<PAGE>
unredeemed portion of any Convertible Preferred Securities
being redeemed in part.
(v) Redemption/Distribution Notices shall be sent by the
Administrative Trustees on behalf of the Trust to (A) in the
case of Convertible Preferred Securities held in book-entry
form, the Depositary and, in the case of Trust Securities held
in definitive form, the Holders of such certificates and (B)
in respect of the Convertible Common Securities, the Holder
thereof.
(vi) Subject to the foregoing and applicable law (including,
without limitation, United States federal securities laws),
the Company or any of its subsidiaries may at any time and
from time to time purchase outstanding Convertible Preferred
Securities by tender, in the open market or by private
agreement.
5. CONVERSION RIGHTS.
The Holders of Trust Securities shall have the right at any time after June
28, 1998 and prior to 5:00 p.m. (New York City time) on the Business Day
immediately preceding the date of repayment of such Trust Securities,
whether at maturity or upon redemption (either at the option of the Company
or pursuant to a Tax Event), at their option, to cause the Conversion Agent
to convert Trust Securities, on behalf of the converting Holders, into
shares of Sun Common Stock of the Company in the manner described in, and
subject to all of the terms and conditions of, Article Thirteen of the
Declaration.
6. VOTING RIGHTS - CONVERTIBLE PREFERRED SECURITIES.
(a) Except as provided under paragraph 6(b) and paragraph 8, in the
Business Trust Act and as otherwise required by law, the Declaration
and the Guarantee, the Holders of the Convertible Preferred Securities
will have no voting rights. No vote or consent of the Holders of the
Convertible Preferred Securities will be required for the Trust to
redeem and cancel Convertible Preferred Securities or to distribute
the Convertible Debentures in accordance with the Declaration and the
terms of the Trust Securities.
(b) Subject to the requirements set forth in this paragraph 6(b), the
Holders of a majority in liquidation amount of the Convertible
Preferred Securities, voting separately as a class, may direct the
time, method, and place of conducting any proceeding for any remedy
available to the Property Trustee and direct the exercise
I-11
<PAGE>
of any trust or power conferred upon the Property Trustee under the
Declaration, including the right to direct the Property Trustee, as
holder of the Convertible Debentures, to (i) exercise the remedies
available to it under the Indenture as a holder of the Convertible
Debentures, (ii) waive any past default or Event of Default and its
consequences that are waivable under the Indenture, (iii) exercise any
right to rescind or annul a declaration that the principal of all the
Convertible Debentures shall be due and payable, or (iv) consent to
any amendment, modification or termination of the Indenture or the
Convertible Debentures where such consent shall be required; PROVIDED,
HOWEVER, that where a consent or action under the Indenture would
require the consent or act of the Holders of a Super Majority of
Convertible Debentures affected thereby, the Property Trustee may only
give such consent or take such action at the written direction of the
Holders of at least the proportion in liquidation amount of the
Convertible Preferred Securities that the relevant Super Majority
represents of the aggregate principal amount of the Convertible
Debentures outstanding. The Property Trustee shall be under no
obligation to revoke any action previously authorized or approved by a
vote of the Holders of the Convertible Preferred Securities. Other
than with respect to directing the time, method and place of
conducting any proceeding for any remedy available to the Property
Trustee or the Indenture Trustee as set forth above, the Property
Trustee shall be under no obligation to take any action in accordance
with the directions of the Holders of the Convertible Preferred
Securities under this paragraph 6 unless the Property Trustee has
obtained an opinion of independent tax counsel to the effect that for
the purposes of United States federal income tax the Trust will not be
classified as other than a grantor trust on account of such action and
each Holder will be treated as owning an undivided beneficial interest
in the Convertible Debentures. If the Property Trustee fails to
enforce its rights under the Convertible Debentures after a Holder of
Convertible Preferred Securities has made a written request, such
Holder of Convertible Preferred Securities may, to the fullest extent
permitted by law, institute a legal proceeding directly against the
Company to enforce the Property Trustee's rights under the Convertible
Debentures without first instituting any legal proceeding against the
Property Trustee or any other Person. Notwithstanding the foregoing,
if an Event of Default has occurred and is continuing and such event
is attributable to the failure of the Company to pay interest or
principal on the Convertible Debentures on the date such interest or
principal is otherwise payable (or in the case of redemption on the
date fixed for redemption), then a Holder of Convertible Preferred
Securities may directly institute a proceeding for enforcement of
payment to such Holder (a "Direct Action") of the principal of or
interest on Convertible Debentures having a principal amount equal to
the aggregate liquidation amount of the Convertible Preferred
Securities of such
I-12
<PAGE>
Holder on or after the respective due date specified in the
Convertible Debentures. Except as provided above, the Holders of
Convertible Preferred Securities will not be able to exercise directly
any other remedy available to the holders of the Convertible
Debentures. In connection with such Direct Action, the Company will
be subrogated to the rights of such Holder of Convertible Preferred
Securities under the Declaration to the extent of any payment made by
the Company to such Holder of Convertible Preferred Securities in such
Direct Action.
(c) Any required approval or direction of Holders of Convertible Preferred
Securities may be given at a separate meeting of Holders of
Convertible Preferred Securities convened for such purpose, at a
meeting of all of the Holders of Trust Securities in the Trust or
pursuant to written consent. The Property Trustee will cause a notice
of any meeting at which Holders of Convertible Preferred Securities
are entitled to vote, or of any matter upon which action by written
consent of such Holders is to be taken, to be mailed to each Holder of
record of Convertible Preferred Securities. Each such notice will
include a statement setting forth the following information (i) the
date of such meeting or the date by which such action is to be taken,
(ii) a description of any resolution proposed for adoption at such
meeting on which such Holders are entitled to vote or of such matter
upon which written consent is sought and (iii) instructions for the
delivery of proxies or consents.
(d) Notwithstanding that Holders of Convertible Preferred Securities are
entitled to vote or consent under any of the circumstances described
above, any of the Convertible Preferred Securities that are owned by
the Company or any Affiliate of the Company shall not be entitled to
vote or consent and shall, for purposes of such vote or consent, be
treated as if such Convertible Preferred Securities were not
outstanding.
(e) Holders of the Convertible Preferred Securities will have no rights to
appoint or remove the Administrative Trustees, who may be appointed,
removed or replaced solely by the Sponsor as the holder of all
Convertible Common Securities.
7. VOTING RIGHTS - CONVERTIBLE COMMON SECURITIES.
(a) Except as provided under paragraphs 7(b) and (c) and paragraph 8, in
the Business Trust Act and as otherwise required by law and the
Declaration, the Holders of the Convertible Common Securities will
have no voting rights. No vote or consent of the Holders of the
Convertible Common Securities will be required for the Trust to redeem
and cancel Convertible Common Securities or to distribute the
I-13
<PAGE>
Convertible Debentures in accordance with the Declaration and the
terms of the Trust Securities.
(b) The Holders of the Convertible Common Securities are entitled, in
accordance with Article V of the Declaration, to vote to appoint,
remove or replace any Trustee or to increase or decrease the number of
Trustees.
(c) Subject to Section 2.6 of the Declaration and only after the Event of
Default with respect to the Convertible Preferred Securities has been
cured, waived, or otherwise eliminated and subject to the requirements
of the penultimate sentence of this paragraph 7(c), the Holders of a
Majority in Liquidation Amount of the Convertible Common Securities,
voting separately as a class, may direct the time, method, and place
of conducting any proceeding for any remedy available to the Property
Trustee, or exercising any trust or power conferred upon the Property
Trustee under the Declaration, including (i) directing the time,
method, place of conducting any proceeding for any remedy available to
the Indenture Trustee, or exercising any trust or power conferred on
the Indenture Trustee with respect to the Convertible Debentures, (ii)
waive any past default and its consequences that are waivable under
Section 513 of the Indenture, (iii) exercise any right to rescind or
annul a declaration that the principal of all the Convertible
Debentures shall be due and payable, or (iv) consent to any amendment,
modification or termination of the Indenture or the Convertible
Debentures where such consent shall be required; PROVIDED that, where
a consent or action under the Indenture would require the consent or
act of the Holders of a Super Majority in principal amount of
Convertible Debentures affected thereby, the Property Trustee may only
give such consent or take such action at the written direction of the
Holders of at least the proportion in liquidation amount of the
Convertible Common Securities which the relevant Super Majority
represents of the aggregate principal amount of the Convertible
Debentures outstanding. Pursuant to this paragraph 7(c), the Property
Trustee shall not revoke any action previously authorized or approved
by a vote of the Holders of the Convertible Preferred Securities.
Other than with respect to directing the time, method and place of
conducting any proceeding for any remedy available to the Property
Trustee or the Indenture Trustee as set forth above, the Property
Trustee shall be under no obligation to take any action in accordance
with the directions of the Holders of the Convertible Common
Securities under this paragraph 7(c) unless the Property Trustee has
obtained an opinion of independent tax counsel to the effect that for
the purposes of United States federal income tax the Trust will not be
classified as other than a grantor trust on account of such action and
each Holder will be treated as owning an undivided beneficial interest
in the Convertible Debentures. If the Property Trustee fails to
enforce its rights
I-14
<PAGE>
under the Convertible Debentures after a Holder of Convertible Common
Securities has made a written request, such Holder of Convertible
Common Securities may, to the fullest extent permitted by law,
institute a legal proceeding directly against the Company or any other
Person to enforce the Property Trustee's rights under the Convertible
Debentures, without first instituting any legal proceeding against the
Property Trustee or any other Person.
(d) Any approval or direction of Holders of Convertible Common Securities
may be given at a separate meeting of Holders of Convertible Common
Securities convened for such purpose, at a meeting of all of the
Holders of Securities in the Trust or pursuant to written consent.
The Administrative Trustees will cause a notice of any meeting at
which Holders of Convertible Common Securities are entitled to vote,
or of any matter upon which action by written consent of such Holders
is to be taken, to be mailed to each Holder of record of Convertible
Common Securities. Each such notice will include a statement setting
forth (i) the date of such meeting or the date by which such action is
to be taken, (ii) a description of any resolution proposed for
adoption at such meeting on which such Holders are entitled to vote or
of such matter upon which written consent is sought and (iii)
instructions for the delivery of proxies or consents.
8. AMENDMENTS TO DECLARATION AND INDENTURE.
(a) In addition to any requirements under Section 11.1 of the Declaration,
if any proposed amendment to the Declaration provides for, or the
Administrative Trustees otherwise propose to effect, (i) any action
that would adversely affect the powers, preferences or special rights
of the Trust Securities in any material respect, whether by way of
amendment to the Declaration or otherwise, or (ii) the dissolution,
winding-up or termination of the Trust, other than as described in
Section 3.10 of the Declaration, then the Holders of Trust Securities
as a class will be entitled to vote on such amendment or proposal (but
not on any other amendment or proposal) and such amendment or proposal
shall not be effective except with the approval of the Holders of a
Majority in Liquidation Amount of the Trust Securities affected
thereby, voting together as a single class; PROVIDED, HOWEVER, if any
amendment or proposal referred to in clause (i) above would adversely
affect only the Convertible Preferred Securities or only the
Convertible Common Securities, then only the affected class will be
entitled to vote on such amendment or proposal and such amendment or
proposal shall not be effective except with the approval of at least a
Majority in Liquidation Amount of such class of Trust Securities.
I-15
<PAGE>
(b) In the event the consent of the Property Trustee as the holder of the
Convertible Debentures is required under the Indenture with respect to
any amendment, modification or termination on the Indenture or the
Convertible Debentures, the Property Trustee shall request the written
direction of the Holders of the Trust Securities with respect to such
amendment, modification or termination and shall vote with respect to
such amendment, modification or termination as directed by a Majority
in Liquidation Amount of the Trust Securities voting together as a
single class; PROVIDED, HOWEVER, that where a consent under the
Indenture would require a Super Majority in aggregate principal amount
of the Convertible Debentures, the Property Trustee may only give such
consent at the written direction of the Holders of at least the same
proportion in aggregate stated liquidation preference of the Trust
Securities; PROVIDED, FURTHER, that the Property Trustee shall not
take any action in accordance with the directions of the Holders of
the Trust Securities under this paragraph 8(b) unless the Property
Trustee has obtained an opinion of tax counsel to the effect that for
the purposes of United States federal income tax the Trust will not be
classified as other than a grantor trust on account of such action.
9. PRO RATA.
A reference in these terms of the Trust Securities to any payment,
distribution or treatment as being "PRO RATA" shall mean pro rata to each Holder
of Trust Securities according to the aggregate liquidation amount of the Trust
Securities held by the relevant Holder in relation to the aggregate liquidation
amount of all Trust Securities outstanding unless, in relation to a payment, an
Event of Default under the Declaration has occurred and is continuing, in which
case any funds available to make such payment shall be paid first to each Holder
of the Convertible Preferred Securities pro rata according to the aggregate
liquidation amount of Convertible Preferred Securities held by the relevant
Holder relative to the aggregate liquidation amount of all Convertible Preferred
Securities outstanding, and only after satisfaction of all amounts owed to the
Holders of the Convertible Preferred Securities, to each Holder of Convertible
Common Securities pro rata according to the aggregate liquidation amount of
Convertible Common Securities held by the relevant Holder relative to the
aggregate liquidation amount of all Convertible Common Securities outstanding.
10. RANKING; SUBORDINATION.
The Convertible Preferred Securities rank PARI PASSU and payment
thereon shall be made Pro Rata with the Convertible Common Securities, PROVIDED
THAT, if on any distribution date or redemption date an Event of Default occurs
and is continuing under the Indenture in respect of the Convertible Debentures
held by the Property Trustee, the rights of Holders of the
I-16
<PAGE>
Convertible Common Securities to payment in respect of Distributions and
payments upon liquidation, redemption and otherwise are subordinated to the
rights to payment of the Holders of the Convertible Preferred Securities.
Payment of Distributions on, and the amount payable upon redemption
of, the Trust Securities, as applicable, shall be made PRO RATA based on the
liquidation amount of the Trust Securities; PROVIDED, HOWEVER, that, if on any
distribution date or redemption date an Event of Default shall have occurred and
be continuing, no payment of any Distribution on, or amount payable upon
redemption of, any Common Security, and no other payment on account of the
redemption, liquidation or other acquisition of Convertible Common Securities,
shall be made unless payment in full in cash of all accumulated and unpaid
distributions on all outstanding Convertible Preferred Securities for all
Distribution periods terminating on or prior thereto, or in the case of payment
of the amount payable upon redemption of the Convertible Preferred Securities,
the full amount of such amount in respect of all outstanding Convertible
Preferred Securities shall have been made or provided for, and all funds
available to the Property Trustee shall first be applied to the payment in full
in cash of all Distributions on, or the amount payable upon redemption of,
Convertible Preferred Securities then due and payable.
In the case of any Event of Default, the holder of Convertible Common
Securities will be deemed to have waived any such Event of Default until all
such Events of Default with respect to the Convertible Preferred Securities have
been cured, waived or otherwise eliminated. Until any such Events of Default
with respect to the Convertible Preferred Securities have been so cured, waived
or otherwise eliminated, the Property Trustee shall act solely on behalf of the
Holders of the Convertible Preferred Securities and not the Holder of the
Convertible Common Securities, and only the Holders of the Convertible Preferred
Securities will have the right to direct the Property Trustee to act on their
behalf.
11. ACCEPTANCE OF SECURITIES GUARANTEE AND INDENTURE.
Each Holder of Convertible Preferred Securities and Convertible Common
Securities, by the acceptance thereof, agrees to the provisions of the
Convertible Preferred Securities Guarantee and the Convertible Common Securities
Guarantee, respectively, including the subordination provisions therein and to
the provisions of the Indenture.
12. NO PREEMPTIVE RIGHTS.
The Holders of the Trust Securities shall have no preemptive rights to
subscribe for any additional securities.
13. MISCELLANEOUS.
I-17
<PAGE>
These terms constitute a part of the Declaration.
The Company will provide a copy of the Declaration, the Convertible
Preferred Securities Guarantee or the Convertible Common Securities Guarantee
(as may be appropriate), and the Indenture to a Holder without charge on written
request to the Trust at its principal place of business.
I-18
<PAGE>
EXHIBIT A-1
FORM OF CONVERTIBLE PREFERRED SECURITY
<PAGE>
EXHIBIT A-1
FORM OF CONVERTIBLE PREFERRED SECURITY
[FACE OF SECURITY]
[Include if Convertible Preferred Security is in global form:
THIS SECURITY IS A GLOBAL CERTIFICATE WITHIN THE MEANING OF THE
DECLARATION HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A
DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED
IN WHOLE OR IN PART FOR A CONVERTIBLE PREFERRED SECURITY REGISTERED,
AND NO TRANSFER OF THIS CONVERTIBLE PREFERRED SECURITY IN WHOLE OR IN
PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH
DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES
DESCRIBED IN THE DECLARATION.]
[Include if Convertible Preferred Security is in global form and The
Depository Trust Company is the Depositary:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED SIGNATORY OF THE
DEPOSITORY TRUST COMPANY ("DTC") TO THE TRUST OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.]
THIS SECURITY AND ANY COMMON STOCK ISSUED ON CONVERSION HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR
ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED,
<PAGE>
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT
TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF
THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE
TRANSFER SUCH SECURITY, PRIOR TO THE DATE WHICH IS AFTER THE EXPIRATION OF
THE HOLDING PERIOD APPLICABLE TO SALES THEREOF UNDER RULE 144(k) UNDER THE
SECURITIES ACT (OR ANY SUCCESSOR RULE) (THE "RESALE RESTRICTION TERMINATION
DATE") ONLY (A) TO SUN HEALTHCARE GROUP, INC., (THE "COMPANY") (B) PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, (C) FOR SO
LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER
THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A
"QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR
ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO
WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE
144A, (D) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF
SUBPARAGRAPH (a)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT
THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF
SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND
NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY
DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (E) PURSUANT TO ANOTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT, SUBJECT TO THE COMPANY'S AND THE TRANSFER AGENT'S RIGHT PRIOR TO ANY
SUCH OFFER, SALE OR TRANSFER (i) PURSUANT TO CLAUSES (D) OR (E) TO REQUIRE
THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER
INFORMATION SATISFACTORY TO EACH OF THEM, AND (ii) IN EACH OF THE FOREGOING
CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON
THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRANSFER
AGENT, THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF A HOLDER AFTER THE
RESALE RESTRICTION TERMINATION DATE.
A-1-2
<PAGE>
Cert. No.:
CUSIP NO.
Convertible Preferred Securities
of
Sun Financing I
7% Convertible Preferred Securities
(liquidation amount $25 per Convertible Preferred Security)
Sun Financing I, a statutory business trust created under the laws
of the State of Delaware (the "Trust"), hereby certifies that_______________
(the "Holder") is the registered owner of Convertible Preferred Securities of
the Trust representing undivided beneficial interests in the assets of the
Trust designated the "7% Convertible Preferred Securities (liquidation amount
$25 per Convertible Preferred Security)" (the "Convertible Preferred
Securities"). The Convertible Preferred Securities are transferable on the
books and records of the Trust, in person or by a duly authorized attorney,
upon surrender of this certificate duly endorsed and in proper form for
transfer. The designation, rights, privileges, restrictions, preferences and
other terms and provisions of the Convertible Preferred Securities
represented hereby are issued and shall in all respects be subject to the
provisions of the Amended and Restated Declaration of Trust of the Trust
dated as of May 4, 1998, as the same may be amended from time to time,
including the designation of the terms of the Convertible Preferred
Securities as set forth in Annex I to the Declaration (the "Declaration").
Capitalized terms used herein but not defined shall have the meaning given
them in the Declaration. The Holder is entitled to the benefits of the
Convertible Preferred Securities Guarantee to the extent provided therein.
The Company will provide a copy of the Declaration, the Convertible Preferred
Securities Guarantee and the Indenture to a Holder without charge upon
written request to the Company at its principal place of business.
Reference is hereby made to select provisions of the Convertible
Preferred Securities set forth on the reverse hereof, which select provisions
shall for all purposes have the same effect as if set forth at this place.
Upon receipt of this certificate, the Holder is bound by the
Declaration and is entitled to the benefits thereunder.
By acceptance, the Holder agrees to treat, for United States federal
income tax purposes, the Convertible Debentures as indebtedness and the
Convertible Preferred Securities as evidence of indirect beneficial ownership in
the Convertible Debentures.
Unless the Property Trustee's Certificate of Authentication hereon has
been properly executed, these Convertible Preferred Securities shall not be
entitled to any benefit under the Declaration or be valid or obligatory for any
purpose.
A-1-3
<PAGE>
IN WITNESS WHEREOF, the Trust has caused this instrument to be duly
executed.
Dated:
SUN FINANCING I
By:
--------------------------------
Name:
Title:
Attest:
- -----------------------------
PROPERTY TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Convertible Preferred Securities referred to in the
within-mentioned Declaration.
Dated:
THE BANK OF NEW YORK, as Property Trustee
By:
------------------------------
Authorized Signatory
A-1-4
<PAGE>
[REVERSE OF SECURITY]
Distributions payable on each Convertible Preferred Security will be
fixed at a rate per annum of 7% (the "Coupon Rate") of the stated liquidation
amount of $25 per Convertible Preferred Security, such rate being the rate of
interest payable on the Convertible Debentures to be held by the Property
Trustee. Distributions in arrears for more than one quarter will bear interest
thereon compounded quarterly at the Coupon Rate (to the extent permitted by
applicable law). The term "Distributions" as used herein includes any such
interest including any Additional Interest, Compounded Interest and Liquidated
Damages, if any, payable unless otherwise stated. A Distribution is payable
only to the extent that payments are made in respect of the Convertible
Debentures held by the Property Trustee and to the extent the Trust has funds
available therefor. The amount of Distributions payable for any period will be
computed for any full quarterly Distribution period on the basis of a 360-day
year of twelve 30-day months, and for any period shorter than a full quarterly
Distribution period for which Distributions are computed, Distributions will be
computed on the basis of the actual number of days elapsed per 90-day quarter.
Except as otherwise described below, Distributions on the Convertible
Preferred Securities will be cumulative, will accrue from the date of initial
issuance and will be payable quarterly in arrears, on the following dates, which
dates correspond to the interest payment dates on the Convertible Debentures:
February 1, May 1, August 1, and November 1, of each year, commencing on August
1, 1998, when, as and if available for payment by the Property Trustee. The
Company has the right at any time during the term of the Convertible Debentures
to defer interest payments from time to time by extending the interest payment
period for successive periods not exceeding 20 consecutive quarters (each an
"Extension Period") for each such period; PROVIDED, that no Extension Period may
extend beyond the maturity date of the Convertible Debentures. As a consequence
of such extension, quarterly Distributions on the Convertible Preferred
Securities would be deferred (though such Distributions would continue to accrue
with interest since interest would continue to accrue on the Convertible
Debentures) during any such extended interest payment period. In the event that
the Company exercises this right, then, during such period the Company has
agreed, among other things, (a) not to declare or pay dividends on, or make a
distribution with respect to, or redeem or purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock (other than (i)
purchases or acquisitions of shares of Sun Common Stock in connection with the
satisfaction by the Company of its obligations under any employee benefit plans
or the satisfaction by the Company of its obligations pursuant to any contract
or security requiring the Company to purchase shares of Sun Common Stock, (ii)
as a result of a reclassification of the Company's capital stock or the exchange
or conversion of one class or series of the Company's capital stock for another
class or series of the Company's capital stock or (iii) the purchase of
fractional interests in shares of the Company's capital stock pursuant to the
conversion or exchange provisions of such capital stock or the security being
converted or exchanged) or make any guarantee payments with respect to the
foregoing, (b) not to make any
A-1-5
<PAGE>
payment of interest, principal or premium, if any, on or repay, repurchase or
redeem any debt securities (including guarantees) issued by the Company that
rank PARI PASSU with or junior to the Convertible Debentures and (c) not to make
any guarantee payments with respect to the foregoing (other than pursuant to the
Convertible Preferred Securities Guarantee). Prior to the termination of any
such Extension Period, the Company may further extend the interest payment
period; PROVIDED, that such Extension Period, together with all such previous
and further extensions thereof, may not exceed 20 consecutive quarters or extend
beyond the maturity date of the Convertible Debentures. Upon the termination of
any Extension Period and the payment of all amounts then due, the Company may
commence a new Extension Period, subject to the above requirements.
Distributions on the Convertible Preferred Securities will be payable
to the Holders thereof as they appear on the books and records of the Trust on
the relevant record dates. The relevant record dates shall be the fifteenth day
prior to the next such succeeding payment date, except as otherwise described in
the Declaration.
The Convertible Preferred Securities shall be redeemable as provided
in the Declaration.
The Convertible Preferred Securities shall be convertible into shares
of common stock of Sun Healthcare Group, Inc. ("Sun Common Stock"), through (i)
the exchange of Convertible Preferred Securities for a portion of the
Convertible Debentures and (ii) the immediate conversion of such Convertible
Debentures into Sun Common Stock, in the manner and according to the terms set
forth in Article Thirteen of the Declaration.
A-1-6
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Convertible
Preferred Security Certificate to:
(Insert assignee's social security or tax identification number)
(Insert address and zip code of assignee)
and irrevocably appoints
Agent to transfer this Convertible Preferred Security Certificate on the books
of the Trust. The Agent may substitute another to act for him or her.
Date:
-------------------------
- ----------------------------------------------------
(Sign exactly as your name appears on the
other side of this Convertible Preferred Security
Certificate)
Signature Guarantee:*
--------------------------------
- -------------------------
* Signature must be guaranteed by an "eligible guarantor institution" that is
a bank, stockbroker, savings and loan association or credit union meeting
the requirements of the Registrar, which requirements include membership or
participation in the Securities Transfer Agents Medallion Program ("STAMP")
or such other "signature guarantee program" as may be determined by the
Registrar in addition to, or in substitution for, STAMP, all in accordance
with the Securities Exchange Act of 1934, as amended.
A-1-7
<PAGE>
[Include the following if the Convertible Preferred Security bears a Restricted
Securities Legend ]
In connection with any transfer of any of the Convertible Preferred Securities
evidenced by this certificate, the undersigned confirms that such Convertible
Preferred Securities are being:
CHECK ONE BOX BELOW
(1) / / exchanged for the undersigned's own account without transfer;
or
(2) / / transferred to a "Qualified Institutional Buyer" pursuant to
and in compliance with Rule 144A under the Securities Act of
1933, as amended (the "Securities Act"); or
(3) / / transferred to an institutional "accredited investor"; or
(4) / / transferred pursuant to another available exemption from the
registration requirements of the Securities Act; or
(5) / / transferred pursuant to an effective Registration Statement
under the Securities Act.
Unless one of the boxes is checked, the Trustee will refuse to register any of
the Convertible Preferred Securities evidenced by this certificate in the name
of any person other than the registered Holder thereof; PROVIDED, HOWEVER, that
if box (2) or (3) is checked, the Trustee may require, prior to registering any
such transfer of the Convertible Preferred Securities, such legal opinions,
certifications and other information as the Company has reasonably requested in
writing and directed the Trustee to require confirmation that such transfer is
being made pursuant to an exemption from, or in a transaction not subject to,
the registration requirements of the Securities Act, such as the exemption
provided by Rule 144 under such Act; PROVIDED, FURTHER, that after the date that
a Shelf Registration Statement under the Securities Act has been filed and so
long as such Shelf Registration Statement continues to be effective, the Trustee
may only permit transfers for which box (5) has been checked.
-------------------------------------
Signature
Signature Guarantee:**
- ---------------------------------------------------------------
[TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Security for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Dated:
----------------------------- -----------------------------------
- ----------------------------
** Signature must be guaranteed by an "eligible guarantor institution" that is
a bank, stockbroker, savings and loan association or credit union meeting
the requirements of the Registrar, which requirements include membership or
participation in the Securities Transfer Agents Medallion Program ("STAMP")
or such other "signature guarantee program" as may be determined by the
Registrar in addition to, or in substitution for, STAMP, all in accordance
with the Securities Exchange Act of 1934, as amended.
A-1-8
<PAGE>
NOTICE: To be executed by an executive officer]
[TO BE COMPLETED BY A PURCHASER IF (3) ABOVE IS CHECKED.
The undersigned represents and warrant that it is purchasing
Convertible Debenture for its own account or an account with respect to which it
exercises sole investment discretion and that it and any such account is an
institutional "accredited investor" within the meaning of subparagraph (a)(1),
(2), (3) or (7) of Rule 501 under the Securities Act.
Dated:
---------------------------- ------------------------------------
NOTICE: To be executed by an
executive officer]
A-1-9
<PAGE>
CONVERSION NOTICE
To: The Bank of New York, as Property Trustee of Sun Financing I
The undersigned owner of these Convertible Preferred Securities hereby
irrevocably exercises the option to convert these Convertible Preferred
Securities, or the portion below designated, into common stock of Sun Healthcare
Group, Inc. (the "Sun Common Stock") in accordance with the terms of the Amended
and Restated Declaration of Trust (the "Declaration"), dated as of May 4, 1998,
by Robert D. Woltil, William C. Warrick and Robert F. Murphy, as Administrative
Trustees, The Bank of New York, as Property Trustee, The Bank of New York
(Delaware) as Delaware Trustee, Sun Healthcare Group, Inc., as Sponsor, and by
the Holders, from time to time, of individual beneficial interests in the Trust
to be issued pursuant to the Declaration. Pursuant to the aforementioned
exercise of the option to convert these Convertible Preferred Securities, the
undersigned hereby directs the Conversion Agent (as that term is defined in the
Declaration) to (i) exchange such Convertible Preferred Securities for a portion
of the Convertible Debentures (as that term is defined in the Declaration) held
by the Trust (at the rate of exchange specified in the terms of the Declaration)
and (ii) immediately convert such Convertible Debentures on behalf of the
undersigned into Sun Common Stock (at the conversion rate specified in the terms
of the Declaration).
The undersigned also hereby directs the Conversion Agent that the
shares issuable and deliverable upon conversion, together with any check in
payment for fractional shares, be issued in the name of and delivered to the
undersigned, unless a different name has been indicated in the assignment
below. If shares are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto.
Any holder, upon the exercise of conversion rights in accordance with
the terms of the Declaration and the Convertible Preferred Securities agrees to
be bound by the terms of the Registration Rights Agreement relating to the Sun
Common Stock issuable upon conversion of the Convertible Preferred Securities.
Date:
----------------
Number of Convertible Preferred Securities to be converted:
-------------------
If a name or names other than the undersigned, please indicate in the spaces
below the name or names in which the shares of Sun Common Stock are to be
issued, along with the address or addresses of such person or persons.
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
- ------------------------------------------
(Sign exactly as your name appears on the
other side of this Convertible Preferred Security
Certificate) (for conversion only)
A-1-10
<PAGE>
Please Print or Typewrite Name and Address,
Including Zip Code, and Social Security or
Other Identifying Number.
- -------------------------------------------
- -------------------------------------------
- -------------------------------------------
- -------------------------------------------
Signature Guarantee:*
----------------------
- ------------------------------
* Signature must be guaranteed by an "eligible guarantor institution" that is
a bank, stockbroker, savings and loan association or credit union meeting
the requirements of the Registrar, which requirements include membership or
participation in the Securities Transfer Agents Medallion Program ("STAMP")
or such other "signature guarantee program" as may be determined by the
Registrar in addition to, or in substitution for, STAMP, all in accordance
with the Securities Exchange Act of 1934, as amended.
A-1-11
<PAGE>
EXHIBIT A-2
FORM OF COMMON SECURITY
[FACE OF SECURITY]
THIS COMMON SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO AN EXEMPTION FROM REGISTRATION OR AN EFFECTIVE REGISTRATION
STATEMENT. OTHER THAN AS PROVIDED IN THE DECLARATION (AS DEFINED HEREIN), THIS
SECURITY MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT TO A
RELATED PARTY (AS DEFINED IN THE DECLARATION) OF THE SPONSOR.
Certificate Number
Common Securities
of
SUN FINANCING I
7% Convertible Common Securities
(liquidation amount $25 per Convertible Common Security)
Sun Financing I, a statutory business trust created under the laws of
the State of Delaware (the "Trust"), hereby certifies that
___________________________ (the "Holder") is the registered owner of common
securities of the Trust representing undivided beneficial interests in the
assets of the Trust designated the "7% Convertible Common Securities
(liquidation amount $25 per Convertible Common Security)" (the "Common
Securities"). The Common Securities are transferable on the books and records
of the Trust, in person or by a duly authorized attorney, upon surrender of this
certificate duly endorsed and in proper form for transfer. The designation,
rights, privileges, restrictions, preferences and other terms and provisions of
the Common Securities represented hereby are issued and shall in all respects be
subject to the provisions of the Amended and Restated Declaration of Trust of
the Trust dated as of May 4, 1998, as the same may be amended from time to time
(the "Declaration"), including the designation of the terms of the Common
Securities as set forth in Annex I to the Declaration. Capitalized terms used
herein but not defined shall have the meaning given them in the Declaration.
The Holder is entitled to the benefits of the Common Securities Guarantee to the
extent provided therein. The Company
<PAGE>
will provide a copy of the Declaration, the Common Securities Guarantee and the
Indenture to a Holder without charge upon written request to the Sponsor at its
principal place of business.
Reference is hereby made to select provisions of the Common Securities
set forth on the reverse hereof, which select provisions shall for all purposes
have the same effect as if set forth at this place.
Upon receipt of this certificate, the Company is bound by the
Declaration and is entitled to the benefits thereunder.
By acceptance, the Holder agrees to treat for United States federal
income tax purposes the Convertible Debentures as indebtedness and the Common
Securities as evidence of indirect beneficial ownership in the Convertible
Debentures.
IN WITNESS WHEREOF, the Trust has caused this instrument to be duly
executed.
Dated:
SUN FINANCING I
By:
-----------------------------
Name:
Title:
[Seal]
Attest:
- -----------------------
A-2-2
<PAGE>
[REVERSE OF SECURITY]
Distributions payable on each Common Security will be fixed at a rate
per annum of 7% (the "Coupon Rate") of the stated liquidation amount of $25 per
Common Security, such rate being the rate of interest payable on the Convertible
Debentures to be held by the Property Trustee. Distributions in arrears for
more than one quarter will bear interest thereon compounded quarterly at the
Coupon Rate (to the extent permitted by applicable law). The term
"Distributions" as used herein includes any such interest including any
Additional Interest, Compounded Interest and Liquidated Damages, if any, payable
unless otherwise stated. A Distribution is payable only to the extent that
payments are made in respect of the Convertible Debentures held by the Property
Trustee and to the extent the Trust has funds available therefor. The amount of
Distributions payable for any period will be computed for any full quarterly
Distribution period on the basis of a 360-day year of twelve 30-day months, and
for any period shorter than a full quarterly Distribution period for which
Distributions are computed, Distributions will be computed on the basis of the
actual number of days elapsed per 90-day quarter.
Except as otherwise described below, Distributions on the Common
Security Securities will be cumulative, will accrue from the date of initial
issuance and will be payable quarterly in arrears, on the following dates, which
dates correspond to the interest payment dates on the Convertible Debentures:
February 1, May 1, August 1 and November 1, of each year, commencing on August
1, 1998, when, as and if available for payment by the Property Trustee. The
Company has the right at any time during the term of the Convertible Debentures
to defer interest payments from time to time by extending the interest payment
period for successive periods not exceeding 20 consecutive quarters (each an
"Extension Period") for each such period; PROVIDED, that no Extension Period may
extend beyond the maturity date of the Convertible Debentures. As a consequence
of such extension, quarterly Distributions on the Common Security Securities
would be deferred (though such Distributions would continue to accrue with
interest since interest would continue to accrue on the Convertible Debentures)
during any such extended interest payment period. In the event that the Company
exercises this right, then, during such period the Company has agreed, among
other things, (a) not to declare or pay dividends on, or make a distribution
with respect to, or redeem or purchase or acquire, or make a liquidation payment
with respect to, any of its capital stock (other than (i) purchases or
acquisitions of shares of Sun Common Stock in connection with the satisfaction
by the Company of its obligations under any employee benefit plans or the
satisfaction by the Company of its obligations pursuant to any contract or
security requiring the Company to purchase shares of Sun Common Stock, (ii) as a
result of a reclassification of the Company's capital stock or the exchange or
conversion of one class or series of the Company's capital stock for another
class or series of the Company's capital stock or (iii) the purchase of
fractional interests in shares of the Company's capital stock pursuant to the
conversion or exchange provisions of such capital stock or the security being
converted or exchanged) or make any guarantee payments with respect to the
foregoing, (b) not to make any payment of interest, principal or premium, if
any, on or repay, repurchase or redeem any debt securities (including
guarantees) issued by the Company that rank PARI PASSU with or junior to the
Convertible Debentures and (c) not to make any guarantee payments with respect
to the foregoing
A-2-3
<PAGE>
(other than pursuant to the Common Securities Guarantee). Prior to the
termination of any such Extension Period, the Company may further extend the
interest payment period; PROVIDED, that such Extension Period, together with all
such previous and further extensions thereof, may not exceed 20 consecutive
quarters or extend beyond the maturity date of the Convertible Debentures. Upon
the termination of any Extension Period and the payment of all amounts then due,
the Company may commence a new Extension Period, subject to the above
requirements.
The Common Securities shall be convertible into shares of common stock
of Sun Healthcare Group, Inc. ("Sun Common Stock") through (i) the exchange of
Common Securities for a portion of the Convertible Debentures and (ii) the
immediate conversion of such Convertible Debentures into Sun Common Stock, in
the manner and according to the terms set forth in Article Thirteen of the
Declaration.
A-2-4
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Common Security
Certificate to:
(Insert assignee's social security or tax identification number)
(Insert address and zip code of assignee)
and irrevocably appoints
Agent to transfer this Common Security Certificate on the books of the Trust.
The Agent may substitute another to act for him or her.
Date:
--------------------------
- ------------------------------------------
(Sign exactly as your name appears on the
other side of this Common Security
Certificate)
Signature Guarantee:*
-------------------------------------
- --------------------------
* (Signature must be guaranteed by an "eligible guarantor institution" that
is a bank, stockbroker, savings and loan association or credit union
meeting the requirements of the Registrar, which requirements include
membership or participation in the Securities Transfer Agents Medallion
Program ("STAMP") or such other "signature guarantee program" as may be
determined by the Registrar in addition to, or in substitution for, STAMP,
all in accordance with the Securities Exchange Act of 1934, as amended.)
A-2-5
<PAGE>
[Include the following if the Common Security bears a Restricted Securities
Legend ]
In connection with any transfer of any of the Common Securities evidenced by
this certificate, the undersigned confirms that such Common Securities are
being:
CHECK ONE BOX BELOW
(1) / / exchanged for the undersigned's own account without transfer;
or
(2) / / transferred pursuant to and in compliance with Rule 144A under
the Securities Act of 1933, as amended (the "Securities Act");
or
(3) / / transferred to an institutional "accredited investor"; or
(4) / / transferred pursuant to another available exemption from the
registration requirements of the Securities Act; or
(5) / / transferred pursuant to an effective Registration Statement
under the Securities Act.
Unless one of the boxes is checked, the Trustee will refuse to register any of
the Common Securities evidenced by this certificate in the name of any person
other than the registered Holder thereof; PROVIDED, HOWEVER, that if box (3) is
checked, the Trustee may require, prior to registering any such transfer of the
Common Securities, such legal opinions, certifications and other information as
the Company has reasonably requested in writing and directed the Trustee to
require confirmation that such transfer is being made pursuant to an exemption
from, or in a transaction not subject to, the registration requirements of the
Securities Act, such as the exemption provided by Rule 144 under such Act;
PROVIDED, FURTHER, that after the date that a Shelf Registration Statement under
the Securities Act has been filed and so long as such Shelf Registration
Statement continues to be effective, the Trustee may only permit transfers for
which box (5) has been checked.
------------------------------------
Signature
Signature Guarantee:**
------------------------------------------------------
[TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Common Security for its own account or an account with respect to which it
exercises sole investment discretion and that it and any such account is a
"qualified institutional buyer" within the meaning of Rule 144A under the
Securities Act, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated:
----------------------------- ------------------------------------
NOTICE: To be executed by an
executive officer]
- --------------------------------
** Signature must be guaranteed by an "eligible guarantor institution" that is
a bank, stockbroker, savings and loan association or credit union meeting
the requirements of the Registrar, which requirements include membership or
participation in the Securities Transfer Agents Medallion Program ("STAMP")
or such other "signature guarantee program" as may be determined by the
Registrar in addition to, or in substitution for, STAMP, all in accordance
with the Securities Exchange Act of 1934, as amended.
A-2-6
<PAGE>
[TO BE COMPLETED BY A PURCHASER IF (3) ABOVE IS CHECKED.
The undersigned represents and warrant that it is purchasing
Convertible Debenture for its own account or an account with respect to which it
exercises sole investment discretion and that it and any such account is an
institutional "accredited investor" within the meaning of subparagraph (a)(1),
(2), (3) or (7) of Rule 501 under the Securities Act.
Dated:
----------------------------- ------------------------------------
NOTICE: To be executed by an
executive officer]
A-2-7
<PAGE>
CONVERSION NOTICE
To: The Bank of New York, as Property Trustee of Sun Financing I.
The undersigned owner of these Common Securities hereby irrevocably
exercises the option to convert these Common Securities, or the portion below
designated, into common stock of Sun Healthcare Group, Inc. (the "Sun Common
Stock") in accordance with the terms of the Amended and Restated Declaration
of Trust (the "Declaration"), dated as of May 4, 1998, by Robert D. Woltil,
William C. Warrick and Robert F. Murphy, as Administrative Trustees, The Bank
of New York, as Delaware Trustee, The Bank of New York (Delaware), as
Property Trustee, Sun Healthcare Group, Inc., as Sponsor, and by the Holders,
from time to time, of individual beneficial interests in the Trust to be
issued pursuant to the Declaration. Pursuant to the aforementioned exercise
of the option to convert these Common Securities, the undersigned hereby
directs the Conversion Agent (as that term is defined in the Declaration) to
(i) exchange such Common Securities for a portion of the Convertible
Debentures (as that term is defined in the Declaration) held by the Trust (at
the rate of exchange specified in the terms of the Declaration) and (ii)
immediately convert such Convertible Debentures on behalf of the undersigned
into Sun Common Stock (at the conversion rate specified in the terms of the
Declaration).
The undersigned also hereby directs the Conversion Agent that the
shares issuable and deliverable upon conversion, together with any check in
payment for fractional shares, be issued in the name of and delivered to the
undersigned, unless a different name has been indicated in the assignment
below. If shares are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto.
Date:
-----------------
Number of Common Securities to be converted:
---------------------
If a name or names other than the undersigned, please indicate in the spaces
below the name or names in which the shares of Sun Common Stock are to be
issued, along with the address or addresses of such person or persons.
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
- ------------------------------------------
(Sign exactly as your name appears on the
other side of this Common Security
Certificate) (for conversion only)
A-2-8
<PAGE>
Please Print or Typewrite Name and Address,
Including Zip Code, and Social Security or
Other Identifying Number.
- -------------------------------------------
- -------------------------------------------
- -------------------------------------------
- -------------------------------------------
Signature Guarantee:*
-----------------------------
- -----------------------
Signature must be guaranteed by an "eligible guarantor institution" that is
a bank, stockbroker, savings and loan association or credit union meeting
the requirements of the Registrar, which requirements include membership or
participation in the Securities Transfer Agents Medallion Program ("STAMP")
or such other "signature guarantee program" as may be determined by the
Registrar in addition to, or in substitution for, STAMP, all in accordance
with the Securities Exchange Act of 1934, as amended.
A-2-9
<PAGE>
EXHIBIT B - Form of Unrestricted
Securities Certificate
UNRESTRICTED SECURITIES CERTIFICATE
(For removal of Securities Act Legends pursuant to Section 8.2(b)(iv))
Attention: Corporate Trust Department
Re: 7% Convertible Preferred
Securities of Sun Financing I (the "Securities")
Reference is made to the Amended and Restated Declaration, dated as of
May 4, 1998 (as amended from time to time, the "Declaration"), among Sun
Healthcare Group, Inc. (the "Company"), the Bank of New York (Delaware) as
Delaware Trustee, The Bank of New York as Property Trustee and the
Administrative Trustees named therein and the holders, from time to time, of
undivided beneficial interests in the assets of the Trust. Terms used herein
and defined in the Declaration or Rule 144 under the U.S. Securities Act of
1933, as amended (the "Securities Act"), are used herein as so defined.
The certificate relates to ____________ shares of Securities, which
are evidenced by the following certificate(s) (the "Specified Securities"):
CUSIP No(s).:
------------------------------------------------
CERTIFICATE No(s):
----------------------------------------
The Person in whose name this certificate is executed below (the
"Undersigned") hereby certifies that either (i) it is the sole beneficial owner
of the Specified Securities or (ii) it is acting on behalf of all the beneficial
owners of the Specified Securities and is duly authorized by them to do so.
Such beneficial owner or owners are referred to herein collectively as the
"Owner". If the Specified Securities are represented by a Global Certificate,
they are held through the Clearing Agency or participant in the name of the
Undersigned, as or on behalf of the Owner. If the Specified Securities are not
represented by a Global Certificate, they are registered in the name of the
Undersigned, as or on behalf of the Owner.
The Owner has requested that the Specified Securities be exchanged for
Securities bearing no Securities Act Legend pursuant to Section 8.2 of the
Declaration. In connection with such exchange, the Owner hereby certifies that
the exchange is occurring after a holding period of at least two years (computed
in accordance with paragraph (d) of Rule 144) has elapsed since the Specified
Securities were last acquired from the Trust or from an affiliate of the Trust,
whichever is later, and the Owner is not, and during the preceding three months
has not been, an affiliate of the Trust. The Owner also acknowledges that any
future transfers of the Specified Securities must comply with all applicable
securities laws of the states of the United States and other jurisdictions.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Trust and the Purchasers.
Dated:
-------------------------------
(Print the name of the Undersigned, as suchterm is
defined in the second paragraph of this certificate.)
By:
---------------------------
Name:
-------------------------
Title:
-----------------------
(If the Undersigned is a corporation, partnership
or fiduciary, the title of the person signing on
behalf of the Undersigned must be stated.)
B-1
<PAGE>
------------------------------------
------------------------------------
CONVERTIBLE PREFERRED SECURITIES GUARANTEE AGREEMENT
SUN HEALTHCARE GROUP, INC.
DATED AS OF MAY 4, 1998
------------------------------------
------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
DEFINITIONS AND INTERPRETATION
<S> <C> <C>
SECTION 1.1. Definitions and Interpretation. . . . . . . . . . . . . 2
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1. Trust Indenture Act; Application. . . . . . . . . . . . 5
SECTION 2.2. List of Holders of Securities . . . . . . . . . . . . . 6
SECTION 2.3. Reports by the Preferred Guarantee
Trustee . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.4. Periodic Reports to the Preferred
Guarantee Trustee . . . . . . . . . . . . . . . . . . 6
SECTION 2.5. Evidence of Compliance with
Conditions Precedent. . . . . . . . . . . . . . . . . 6
SECTION 2.6. Event of Default; Waiver. . . . . . . . . . . . . . . . 7
SECTION 2.7. Event of Default; Notice. . . . . . . . . . . . . . . . 7
SECTION 2.8. Conflicting Interests . . . . . . . . . . . . . . . . . 7
ARTICLE III
POWERS, DUTIES AND RIGHTS OF
THE PREFERRED GUARANTEE TRUSTEE
SECTION 3.1. Powers and Duties of the Preferred
Guarantee Trustee . . . . . . . . . . . . . . . . . . 7
SECTION 3.2. Certain Rights of the Preferred
Guarantee Trustee . . . . . . . . . . . . . . . . . . 10
SECTION 3.3. Not Responsible for Recitals or
Issuance of Guarantee . . . . . . . . . . . . . . . . 12
ARTICLE IV
PREFERRED GUARANTEE TRUSTEE
SECTION 4.1. Preferred Guarantee Trustee;
Eligibility . . . . . . . . . . . . . . . . . . . . . 12
i
<PAGE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 4.2. Appointment, Removal and Resignation
of Preferred Guarantee Trustees. . . . . . . . . . . . 13
ARTICLE V
GUARANTEE
SECTION 5.1. Guarantee . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 5.2. Subordination . . . . . . . . . . . . . . . . . . . . . 14
SECTION 5.3. Waiver of Notice and Demand . . . . . . . . . . . . . . 14
SECTION 5.4. Obligations Not Affected. . . . . . . . . . . . . . . . 15
SECTION 5.5. Rights of Holders . . . . . . . . . . . . . . . . . . . 16
SECTION 5.6. Guarantee of Payment. . . . . . . . . . . . . . . . . . 16
SECTION 5.7. Subrogation . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 5.8. Independent Obligations . . . . . . . . . . . . . . . . 17
SECTION 5.9. Conversion. . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE VI
LIMITATION OF TRANSACTIONS; RANKING
SECTION 6.1. Limitation of Transactions. . . . . . . . . . . . . . . 17
SECTION 6.2. Ranking . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE VII
TERMINATION
SECTION 7.1. Termination . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE VIII
INDEMNIFICATION
SECTION 8.1. Exculpation . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 8.2. Indemnification . . . . . . . . . . . . . . . . . . . . 19
ARTICLE IX
MISCELLANEOUS
SECTION 9.1. Successors and Assigns. . . . . . . . . . . . . . . . . 20
SECTION 9.2. Amendments. . . . . . . . . . . . . . . . . . . . . . . 20
ii
<PAGE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 9.3. Notices . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 9.4. Benefit . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 9.5. Governing Law . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
iii
<PAGE>
CROSS REFERENCE TABLE*
<TABLE>
<CAPTION>
Section of Trust Section of
Indenture Act of Guarantee
1939, As amended Agreement
- ---------------- ---------
<S> <C>
310(a) . . . . . . . . . . . . . . . . . . . . . . 4.1(a)
310(b) . . . . . . . . . . . . . . . . . . . . . 4.1(c), 2.8
310(c) . . . . . . . . . . . . . . . . . . . . . . Inapplicable
311(a) . . . . . . . . . . . . . . . . . . . . . . 2.2(b)
311(b) . . . . . . . . . . . . . . . . . . . . . . 2.2(b)
311(c) . . . . . . . . . . . . . . . . . . . . . . Inapplicable
312(a) . . . . . . . . . . . . . . . . . . . . . . 2.2(a)
312(b) . . . . . . . . . . . . . . . . . . . . . . 2.2(b)
313 . . . . . . . . . . . . . . . . . . . . . . 2.3
314(a) . . . . . . . . . . . . . . . . . . . . . . 2.4
314(b) . . . . . . . . . . . . . . . . . . . . . . Inapplicable
314(c) . . . . . . . . . . . . . . . . . . . . . . 2.5
314(d) . . . . . . . . . . . . . . . . . . . . . . Inapplicable
314(e) . . . . . . . . . . . . . . . . . . . . . . 1.1, 2.5, 3.2
314(f) . . . . . . . . . . . . . . . . . . . . . . 3.2
315(a) . . . . . . . . . . . . . . . . . . . . . . 3.1(d)
315(b) . . . . . . . . . . . . . . . . . . . . . . 2.7
315(c) . . . . . . . . . . . . . . . . . . . . . . 3.1
315(d) . . . . . . . . . . . . . . . . . . . . . . 3.1(d)
316(a) . . . . . . . . . . . . . . . . . . . . . . 1.1, 2.6, 5.5
316(b) . . . . . . . . . . . . . . . . . . . . . . 5.4
317(a) . . . . . . . . . . . . . . . . . . . . . . Inapplicable
317(b) . . . . . . . . . . . . . . . . . . . . . . Inapplicable
318(a) . . . . . . . . . . . . . . . . . . . . . . 2.1(b)
318(b) . . . . . . . . . . . . . . . . . . . . . . 2.1
318(c) . . . . . . . . . . . . . . . . . . . . . . 2.1(a)
</TABLE>
* This Cross-Reference Table does not constitute part of the Guarantee Agreement
and shall not affect the interpretation of any of its terms or provisions.
iv
<PAGE>
CONVERTIBLE PREFERRED SECURITIES GUARANTEE AGREEMENT
This PREFERRED SECURITIES GUARANTEE AGREEMENT (the "Preferred
Securities Guarantee"), dated as of May 4, 1998, is executed and delivered by
Sun Healthcare Group, Inc., a Delaware corporation (the "Guarantor"), and The
Bank of New York, as trustee (the "Preferred Guarantee Trustee"), for the
benefit of the Holders (as defined herein) from time to time of the Preferred
Securities (as defined herein) of Sun Financing I, a Delaware statutory business
trust (the "Trust");
WHEREAS, pursuant to an Amended and Restated Declaration of Trust (the
"Declaration"), dated as of May 4, 1998, among the trustees of the Trust named
therein, the Guarantor, as sponsor, and the holders from time to time of
undivided beneficial interests in the assets of the Trust, the Trust is issuing
on the date hereof 13,800,000 convertible preferred securities, having a
liquidation amount of $25 per preferred security, designated the 7% Convertible
Trust Issued Preferred Securities (the "Convertible Preferred Securities");
WHEREAS, as incentive for the Holders to purchase the Convertible
Preferred Securities, the Guarantor desires irrevocably and unconditionally to
agree, to the extent set forth in this Convertible Preferred Securities
Guarantee, to guarantee the obligations of the Trust to the Holders of the
Convertible Preferred Securities on the terms and conditions set forth herein;
WHEREAS, the Guarantor is also executing and delivering a guarantee
agreement (the "Common Securities Guarantee") in substantially identical terms
to this Convertible Preferred Securities Guarantee for the benefit of the
holders of the Common Securities (as defined herein), except that if an event of
default (as defined in the Indenture (as defined herein)) (an "Indenture Event
of Default"), has occurred and is continuing, the rights of holders of the
Common Securities to receive Guarantee Payments (as defined in the Common
Securities Guarantee) under the Common Securities Guarantee shall be
subordinated to the rights of Holders of Convertible Preferred Securities to
receive Guarantee Payments (as defined herein) under this Convertible Preferred
Securities Guarantee; and
NOW, THEREFORE, in consideration of the purchase by each Holder of
Convertible Preferred Securities, which purchase the Guarantor hereby agrees
shall benefit the Guarantor, the Guarantor executes and delivers this
Convertible Preferred Securities Guarantee for the benefit of the Holders.
<PAGE>
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1. DEFINITIONS AND INTERPRETATION.
In this Convertible Preferred Securities Guarantee, unless the context
otherwise requires:
(a) Capitalized terms used in this Convertible Preferred Securities
Guarantee but not defined in the preamble above have the respective meanings
assigned to them in this Section 1.1;
(b) terms defined in the Declaration as at the date hereof have the
same meaning when used in this Convertible Preferred Securities Guarantee unless
otherwise defined in this Convertible Preferred Securities Guarantee;
(c) a term defined anywhere in this Convertible Preferred
Securities Guarantee has the same meaning throughout;
(d) all references to "the Convertible Preferred Securities
Guarantee" or "this Convertible Preferred Securities Guarantee" are to this
Convertible Preferred Securities Guarantee as modified, supplemented or amended
from time to time;
(e) all references in this Convertible Preferred Securities
Guarantee to Articles and Sections are to Articles and Sections of this
Convertible Preferred Securities Guarantee, unless otherwise specified;
(f) a term defined in the Trust Indenture Act has the same meaning
when used in this Convertible Preferred Securities Guarantee, unless otherwise
defined in this Convertible Preferred Securities Guarantee or unless the context
otherwise requires;
(g) a reference to the singular includes the plural and vice versa;
(h) a reference to any Person shall include its successors and
assigns;
(i) a reference to any agreement or instrument shall mean such
agreement or instrument, as supplemented, modified, amended, or amended and
restated, and in effect from time to time; and
(j) a reference to any statute, law, rule or regulation, shall
include any amendments thereto applicable to the relevant Person, and any
successor statute, law, rule or regulation.
2
<PAGE>
"Affiliate" has the same meaning as given to that term in Rule 405 of
the Securities Act of 1933, as amended, or any successor rule thereunder.
"Authorized Officer" of a Person means any Person that is authorized
to bind such Person.
"Business Day" means any day other than a day on which banking
institutions in New York, New York or in Wilmington, Delaware are authorized or
required by any applicable law or executive order to close.
"Common Securities" means the securities representing common undivided
beneficial interests in the assets of the Trust.
"Convertible Debentures" means the 7% Convertible Debentures due May
4, 2028 of the Guarantor held by the Property Trustee (as defined in the
Declaration).
"Corporate Trust Office" means the office of the Preferred Guarantee
Trustee at which the corporate trust business of the Preferred Guarantee Trustee
shall, at any particular time, be principally administered, which office at the
date of execution of this Agreement is located at 101 Barclay Street, Floor 21
West, New York, New York 10286, Attention: Corporate Trust Trustee,
Administration.
"Covered Person" means any Holder or beneficial owner of Convertible
Preferred Securities.
"Event of Default" means a default by the Guarantor on any of its
payment or other obligations under this Convertible Preferred Securities
Guarantee.
"Guarantee Payments" means the following payments or distributions,
without duplication, with respect to the Convertible Preferred Securities, to
the extent not paid or made by the Trust: (i) any accrued and unpaid
Distributions (as defined in the Declaration) that are required to be paid on
the Convertible Preferred Securities to the extent the Trust has funds available
therefor, (ii) the redemption price, with respect to any Convertible Preferred
Securities called for redemption by the Trust (the "Redemption Price"), to the
extent the Trust has funds available therefor, and (iii) upon a voluntary or
involuntary dissolution, winding-up or termination of the Trust (other than in
connection with the distribution of Convertible Debentures to the Holders of
Convertible Preferred Securities or the redemption of all the Convertible
Preferred Securities (as provided in the Declaration)), the lesser of (a) the
aggregate of the liquidation amount and all accrued and unpaid Distributions on
the Convertible Preferred Securities to the date of payment to the extent the
Trust has funds available therefor and (b) the amount of assets of the Trust
remaining available for
3
<PAGE>
distribution to Holders of Convertible Preferred Securities upon the liquidation
of the Trust (in either case, the "Liquidation Distribution").
"Holder" shall mean any holder, as registered on the books and records
of the Trust of any Convertible Preferred Securities; provided, however, that in
determining whether the holders of the requisite percentage of Convertible
Preferred Securities have given any request, notice, consent or waiver
hereunder, "Holder" shall not include the Guarantor or any Affiliate of the
Guarantor.
"Indemnified Person" means the Preferred Guarantee Trustee, any
Affiliate of the Preferred Guarantee Trustee, or any officers, directors,
shareholders, members, partners, employees, representatives, nominees,
custodians or agents of the Preferred Guarantee Trustee.
"Indenture" means the Indenture dated as of May 4, 1998 , among the
Guarantor and The Bank of New York, as trustee, pursuant to which the
Convertible Debentures are to be issued to the Property Trustee of the Trust.
"Indenture Trustee" means the Person acting as trustee under the
Indenture, initially The Bank of New York.
"Majority in liquidation amount of the Convertible Preferred
Securities" means, except as provided by the Trust Indenture Act, a vote by
Holder(s) of Convertible Preferred Securities, voting separately as a class, of
more than 50% of the liquidation amount of all Convertible Preferred Securities.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by two Authorized Officers of such Person. Any Officers'
Certificate delivered with respect to compliance with a condition or covenant
provided for in this Convertible Preferred Securities Guarantee shall include:
(a) a statement that each officer signing the Officers' Certificate
has read the covenant or condition and the definition relating
thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the
Officers' Certificate;
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to
enable such officer to express an informed opinion as to
whether or not such covenant or condition has been complied
with; and
4
<PAGE>
(d) a statement as to whether, in the opinion of each such officer,
such condition or covenant has been complied with.
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association, or government or any
agency or political subdivision thereof, or any other entity of whatever nature.
"Preferred Guarantee Trustee" means The Bank of New York, until a
Successor Preferred Guarantee Trustee has been appointed and has accepted such
appointment pursuant to the terms of this Convertible Preferred Securities
Guarantee and thereafter means each such Successor Preferred Guarantee Trustee.
"Responsible Officer" means, with respect to the Preferred Guarantee
Trustee, any officer within the Corporate Trust Office of the Preferred
Guarantee Trustee, including any vice president, any assistant vice president,
any secretary, any assistant secretary, the treasurer, any assistant treasurer
or other officer of the Corporate Trust Office of the Preferred Guarantee
Trustee customarily performing functions similar to those performed by any of
the above designated officers and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter is referred
because of that officer's knowledge of and familiarity with the particular
subject.
"Successor Preferred Guarantee Trustee" means a successor Preferred Guarantee
Trustee possessing the qualifications to act as Preferred Guarantee Trustee
under Section 4.1.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1. TRUST INDENTURE ACT; APPLICATION.
(a) This Convertible Preferred Securities Guarantee is subject to
the provisions of the Trust Indenture Act that are required to be part of this
Convertible Preferred Securities Guarantee and shall, to the extent applicable,
be governed by such provisions.
(b) If and to the extent that any provision of this Convertible
Preferred Securities Guarantee limits, qualifies or conflicts with the duties
imposed by Sections 310 to 317, inclusive, of the Trust Indenture Act, such
imposed duties shall control.
5
<PAGE>
SECTION 2.2. LIST OF HOLDERS OF SECURITIES.
(a) The Guarantor shall provide the Preferred Guarantee Trustee
with a list, in such form as the Preferred Guarantee Trustee may reasonably
require, of the names and addresses of the Holders of the Convertible Preferred
Securities ("List of Holders") as of such date, (i) within 14 Business Day after
each record date for payment of Distributions, as of such record date, and (ii)
at any other time within 30 days of receipt by the Guarantor of a written
request for a List of Holders as of a date no more than 14 days before such List
of Holders is given to the Preferred Guarantee Trustee, PROVIDED that the
Guarantor shall not be obligated to provide such List of Holders at any time (x)
the List of Holders does not differ from the most recent List of Holders given
to or held by the Preferred Guarantee Trustee by the Guarantor or (y) the
Convertible Preferred Securities are represented by one or more Global
Securities (as defined in the Indenture). The Preferred Guarantee Trustee may
destroy any List of Holders previously given to it on receipt of a new List of
Holders.
(b) The Preferred Guarantee Trustee shall comply with its
obligations under Section 311(a), 311(b) and Section 312(b) of the Trust
Indenture Act.
SECTION 2.3. REPORTS BY THE PREFERRED GUARANTEE TRUSTEE.
Within 60 days after May 15 of each year, the Preferred Guarantee
Trustee shall provide to the Holders of the Convertible Preferred Securities
such reports as are required by Section 313 of the Trust Indenture Act, if any,
in the form and in the manner provided by Section 313 of the Trust Indenture
Act. The Preferred Guarantee Trustee shall also comply with the requirements of
Section 313(d) of the Trust Indenture Act.
SECTION 2.4. PERIODIC REPORTS TO THE PREFERRED GUARANTEE TRUSTEE.
The Guarantor shall provide to the Preferred Guarantee Trustee such
documents, reports and information as required by Section 314, if any, and the
compliance certificate required by Section 314 of the Trust Indenture Act in the
form, in the manner and at the times required by Section 314 of the Trust
Indenture Act.
SECTION 2.5. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT.
The Guarantor shall provide to the Preferred Guarantee Trustee such
evidence of compliance with any conditions precedent, if any, provided for in
this Convertible Preferred Securities Guarantee that relate to any of the
matters set forth in Section 314(c) of the Trust Indenture Act. Any certificate
or opinion required to be given by an officer pursuant to Section 314(c)(1) may
be given in the form of an Officers' Certificate.
6
<PAGE>
SECTION 2.6. EVENT OF DEFAULT; WAIVER.
The Holders of a Majority in liquidation amount of Convertible
Preferred Securities may, by vote, on behalf of the Holders of all of the
Convertible Preferred Securities, waive any past Event of Default and its
consequences. Upon such waiver, any such Event of Default shall cease to exist,
and any Event of Default arising therefrom shall be deemed to have been cured,
for every purpose of this Convertible Preferred Securities Guarantee, but no
such waiver shall extend to any subsequent or other default or Event of Default
or impair any right consequent thereon.
SECTION 2.7. EVENT OF DEFAULT; NOTICE.
(a) The Preferred Guarantee Trustee shall, within 90 days after the
occurrence of an Event of Default, transmit by mail, first class postage
prepaid, to the Holders of the Convertible Preferred Securities, notices of all
Events of Default actually known to a Responsible Officer of the Preferred
Guarantee Trustee, unless such defaults have been cured before the giving of
such notice; PROVIDED that the Preferred Guarantee Trustee shall be protected in
withholding such notice if and so long as a Responsible Officer of the Preferred
Guarantee Trustee in good faith determines that the withholding of such notice
is in the interests of the Holders of the Convertible Preferred Securities.
(b) The Preferred Guarantee Trustee shall not be deemed to have
knowledge of any Event of Default unless the Preferred Guarantee Trustee shall
have received written notice, or of which a Responsible Officer of the Preferred
Guarantee Trustee charged with the administration of the Declaration shall have
obtained actual knowledge.
SECTION 2.8. CONFLICTING INTERESTS.
The Declaration shall be deemed to be specifically described in this
Convertible Preferred Securities Guarantee for the purposes of clause (i) of the
first proviso contained in Section 310(b) of the Trust Indenture Act.
ARTICLE III
POWERS, DUTIES AND RIGHTS OF THE
PREFERRED GUARANTEE TRUSTEE
SECTION 3.1. POWERS AND DUTIES OF THE PREFERRED GUARANTEE TRUSTEE.
(a) This Convertible Preferred Securities Guarantee shall be held
by the Preferred Guarantee Trustee for the benefit of the Holders of the
Convertible Preferred Securities, and the Preferred Guarantee Trustee shall not
transfer this Convertible Preferred Securities Guarantee to any
7
<PAGE>
Person except a Holder exercising his or her rights pursuant to Section 5.5(b)
or to a Successor Preferred Guarantee Trustee on acceptance by such Successor
Preferred Guarantee Trustee of its appointment to act as Successor Preferred
Guarantee Trustee. The right, title and interest of the Preferred Guarantee
Trustee shall automatically vest in any Successor Preferred Guarantee Trustee,
and such vesting and cessation of title shall be effective whether or not
conveyancing documents have been executed and delivered pursuant to the
appointment of such Successor Preferred Guarantee Trustee.
(b) If an Event of Default actually known to a Responsible Officer
of the Preferred Guarantee Trustee has occurred and is continuing, the Preferred
Guarantee Trustee shall, to the extent required pursuant to the terms hereof,
take any action requested by the holders of a majority in Liquidation Amount of
the Convertible Preferred Securities, enforce this Convertible Preferred
Securities Guarantee for the benefit of the Holders of the Convertible Preferred
Securities.
(c) The Preferred Guarantee Trustee, before the occurrence of any
Event of Default and after the curing of all Events of Default that may have
occurred, shall undertake to perform only such duties as are specifically set
forth in this Convertible Preferred Securities Guarantee, and no implied
covenants shall be read into this Convertible Preferred Securities Guarantee
against the Preferred Guarantee Trustee. In case an Event of Default has
occurred (that has not been cured or waived pursuant to Section 2.6) and is
actually known to a Responsible Officer of the Preferred Guarantee Trustee, the
Preferred Guarantee Trustee shall exercise such of the rights and powers vested
in it by this Convertible Preferred Securities Guarantee, and use the same
degree of care and skill in its exercise thereof, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
(d) No provision of this Convertible Preferred Securities Guarantee
shall be construed to relieve the Preferred Guarantee Trustee from liability for
its own negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) prior to the occurrence of any Event of Default and
after the curing or waiving of all such Events of Default that
may have occurred:
(A) the duties and obligations of the Preferred
Guarantee Trustee shall be determined solely by the
express provisions of this Convertible Preferred
Securities Guarantee, and the Preferred Guarantee
Trustee shall not be liable except for the performance
of such duties and obligations as are specifically set
forth in this Convertible Preferred Securities
Guarantee, and no implied covenants or obligations
shall be read into this Convertible Preferred
Securities Guarantee against the Preferred Guarantee
Trustee; and
8
<PAGE>
(B) in the absence of bad faith on the part of the
Preferred Guarantee Trustee, the Preferred Guarantee
Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions
expressed therein, upon any certificates or opinions
furnished to the Preferred Guarantee Trustee and
conforming to the requirements of this Convertible
Preferred Securities Guarantee; but in the case of any
such certificates or opinions that by any provision
hereof are specifically required to be furnished to the
Preferred Guarantee Trustee, the Preferred Guarantee
Trustee shall be under a duty to examine the same to
determine whether or not they conform on their face to
the requirements of this Convertible Preferred
Securities Guarantee;
(ii) the Preferred Guarantee Trustee shall not be liable for
any error of judgment made in good faith by a Responsible
Officer of the Preferred Guarantee Trustee, unless it shall be
proved that the Preferred Guarantee Trustee was negligent in
ascertaining the pertinent facts upon which such judgment was
made;
(iii) the Preferred Guarantee Trustee shall not be liable
with respect to any action taken or omitted to be taken by it
in good faith in accordance with the direction of the Holders
of not less than a Majority in liquidation amount of the
Convertible Preferred Securities relating to the time, method
and place of conducting any proceeding for any remedy available
to the Preferred Guarantee Trustee, or exercising any trust or
power conferred upon the Preferred Guarantee Trustee under this
Convertible Preferred Securities Guarantee; and
(iv) no provision of this Convertible Preferred Securities
Guarantee shall require the Preferred Guarantee Trustee to
expend or risk its own funds or otherwise incur personal
financial liability in the performance of any of its duties or
in the exercise of any of its rights or powers, if the
Preferred Guarantee Trustee shall have reasonable grounds for
believing that the repayment of such funds or liability is not
reasonably assured to it under the terms of this Convertible
Preferred Securities Guarantee or indemnity, reasonably
satisfactory to the Preferred Guarantee Trustee, against such
risk or liability is not reasonably assured to it.
9
<PAGE>
SECTION 3.2. CERTAIN RIGHTS OF THE PREFERRED GUARANTEE TRUSTEE.
(a) Subject to the provisions of Section 3.1:
(i) The Preferred Guarantee Trustee may conclusively rely,
and shall be fully protected in acting or refraining from
acting upon, any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document believed by it to be
genuine and to have been signed, sent or presented by the
proper party or parties.
(ii) Any direction or act of the Guarantor contemplated by
this Convertible Preferred Securities Guarantee shall be
sufficiently evidenced by an Officers' Certificate.
(iii) Whenever, in the administration of this Convertible
Preferred Securities Guarantee, the Preferred Guarantee Trustee
shall deem it desirable that a matter be proved or established
before taking, suffering or omitting any action hereunder, the
Preferred Guarantee Trustee (unless other evidence is herein
specifically prescribed) may, in the absence of bad faith on
its part, request and conclusively rely upon an Officers'
Certificate which, upon receipt of such request, shall be
promptly delivered by the Guarantor.
(iv) The Preferred Guarantee Trustee shall have no duty to
see to any recording, filing or registration of any instrument
(or any rerecording, refiling or registration thereof).
(v) The Preferred Guarantee Trustee may consult with
counsel of its selection, and the written advice or opinion of
such counsel with respect to legal matters shall be full and
complete authorization and protection in respect of any action
taken, suffered or omitted by it hereunder in good faith and in
accordance with such advice or opinion. Such counsel may be
counsel to the Guarantor or any of its Affiliates and may
include any of its employees. The Preferred Guarantee Trustee
shall have the right at any time to seek instructions
concerning the administration of this Convertible Preferred
Securities Guarantee from any court of competent jurisdiction.
(vi) The Preferred Guarantee Trustee shall be under no
obligation to exercise any of the rights or powers vested in it
by this Convertible Preferred Securities Guarantee at the
request or direction of any Holder, unless such
10
<PAGE>
Holder shall have provided to the Preferred Guarantee Trustee
such security and indemnity, reasonably satisfactory to the
Preferred Guarantee Trustee, against the costs, expenses
(including attorneys' fees and expenses) and liabilities that
might be incurred by it in complying with such request or
direction, including such reasonable advances as may be
requested by the Preferred Guarantee Trustee; PROVIDED that
nothing contained in this Section 3.2(a)(vi) shall be taken to
relieve the Preferred Guarantee Trustee, upon the occurrence of
an Event of Default, of its obligation to exercise the rights
and powers vested in it by this Convertible Preferred
Securities Guarantee.
(vii) The Preferred Guarantee Trustee shall not be bound to
make any investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper
or document, but the Preferred Guarantee Trustee, in its
discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit.
(viii) The Preferred Guarantee Trustee may execute any of the
trusts or powers hereunder or perform any duties hereunder
either directly or by or through agents, nominees, custodians
or attorneys, and the Preferred Guarantee Trustee shall not be
responsible for any misconduct or negligence on the part of any
agent or attorney appointed with due care by it hereunder.
(ix) Any action taken by the Preferred Guarantee Trustee or
its agents hereunder shall bind the Holders of the Convertible
Preferred Securities, and the signature of the Preferred
Guarantee Trustee or its agents alone shall be sufficient and
effective to perform any such action. No third party shall be
required to inquire as to the authority of the Preferred
Guarantee Trustee to so act or as to its compliance with any of
the terms and provisions of this Convertible Preferred
Securities Guarantee, both of which shall be conclusively
evidenced by the Preferred Guarantee Trustee's or its agent's
taking such action.
(x) Whenever in the administration of this Convertible
Preferred Securities Guarantee the Preferred Guarantee Trustee
shall deem it desirable to receive instructions with respect to
enforcing any remedy or right or taking any other action
hereunder, the Preferred Guarantee Trustee (i) may request
instructions from the Holders of a Majority in liquidation
amount of the Convertible Preferred Securities, (ii) may
refrain from enforcing such remedy or right or taking such
other action until such instructions are received and (iii)
shall be
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protected in conclusively relying on or acting in accordance
with such instructions.
(xi) The Preferred Guarantee Trustee shall not be liable
for any action taken, suffered, or omitted to be taken by it in
good faith and reasonably believed by it to be authorized or
within the discretion or rights or powers conferred upon it by
this Convertible Preferred Securities Guarantee.
(b) No provision of this Convertible Preferred Securities Guarantee
shall be deemed to impose any duty or obligation on the Preferred Guarantee
Trustee to perform any act or acts or exercise any right, power, duty or
obligation conferred or imposed on it in any jurisdiction in which it shall be
illegal, or in which the Preferred Guarantee Trustee shall be unqualified or
incompetent in accordance with applicable law, to perform any such act or acts
or to exercise any such right, power, duty or obligation. No permissive power
or authority available to the Preferred Guarantee Trustee shall be construed to
be a duty.
SECTION 3.3. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF GUARANTEE.
The recitals contained in this Convertible Preferred Securities
Guarantee shall be taken as the statements of the Guarantor, and the Preferred
Guarantee Trustee does not assume any responsibility for their correctness. The
Preferred Guarantee Trustee makes no representation as to the validity or
sufficiency of this Convertible Preferred Securities Guarantee.
ARTICLE IV
PREFERRED GUARANTEE TRUSTEE
SECTION 4.1. PREFERRED GUARANTEE TRUSTEE; ELIGIBILITY.
(a) There shall at all times be a Preferred Guarantee Trustee which
shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a corporation organized and doing business under
the laws of the United States of America or any State or
Territory thereof or of the District of Columbia, or a
corporation or Person permitted by the Securities and Exchange
Commission to act as an institutional trustee under the Trust
Indenture Act, authorized under such laws to exercise corporate
trust powers, having a combined capital and surplus of at least
50 Million U.S. dollars ($50,000,000), and subject to
supervision or examination by Federal, State, Territorial or
District of Columbia authority. If such corporation publishes
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reports of condition at least annually, pursuant to law or to
the requirements of the supervising or examining authority
referred to above, then, for the purposes of this Section
4.1(a)(ii), the combined capital and surplus of such
corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so
published.
(b) If at any time the Preferred Guarantee Trustee shall cease to
be eligible to so act under Section 4.1(a), the Preferred Guarantee Trustee
shall immediately resign in the manner and with the effect set out in Section
4.2(c).
(c) If the Preferred Guarantee Trustee has or shall acquire any
"conflicting interest" within the meaning of Section 310(b) of the Trust
Indenture Act, the Preferred Guarantee Trustee and Guarantor shall in all
respects comply with the provisions of Section 310(b) of the Trust Indenture
Act.
SECTION 4.2. APPOINTMENT, REMOVAL AND RESIGNATION OF PREFERRED GUARANTEE
TRUSTEES.
(a) Subject to Section 4.2(b), the Preferred Guarantee Trustee may
be appointed or removed without cause at any time by the Guarantor.
(b) The Preferred Guarantee Trustee shall not be removed in
accordance with Section 4.2(a) until a Successor Preferred Guarantee Trustee has
been appointed and has accepted such appointment by written instrument executed
by such Successor Preferred Guarantee Trustee and delivered to the Guarantor.
(c) The Preferred Guarantee Trustee appointed to office shall hold
office until a Successor Preferred Guarantee Trustee shall have been appointed
or until its removal or resignation. The Preferred Guarantee Trustee may resign
from office (without need for prior or subsequent accounting) by an instrument
in writing executed by the Preferred Guarantee Trustee and delivered to the
Guarantor, which resignation shall not take effect until a Successor Preferred
Guarantee Trustee has been appointed and has accepted such appointment by
instrument in writing executed by such Successor Preferred Guarantee Trustee and
delivered to the Guarantor and the resigning Preferred Guarantee Trustee.
(d) If no Successor Preferred Guarantee Trustee shall have been
appointed and accepted appointment as provided in this Section 4.2 within 60
days after delivery to the Guarantor of an instrument of removal or resignation,
the resigning or removed Preferred Guarantee Trustee may petition any court of
competent jurisdiction for appointment of a Successor Preferred Guarantee
Trustee. Such court may thereupon, after prescribing such notice, if any, as it
may deem proper, appoint a Successor Preferred Guarantee Trustee.
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(e) No Preferred Guarantee Trustee shall be liable for the acts or
omissions to act of any Successor Preferred Guarantee Trustee.
(f) Upon termination of this Convertible Preferred Securities
Guarantee or removal or resignation of the Preferred Guarantee Trustee pursuant
to this Section 4.2, the Guarantor shall pay to the Preferred Guarantee Trustee
all amounts accrued to the date of such termination, removal or resignation.
ARTICLE V
GUARANTEE
SECTION 5.1. GUARANTEE.
The Guarantor irrevocably and unconditionally agrees to pay in full to
the Holders (except to the extent paid by the Trust), as and when due,
regardless of any defense, right of set-off or counterclaim that the Trust may
have or assert, the Guarantee Payments, without duplication. The Guarantor's
obligation to make a Guarantee Payment may be satisfied by direct payment of the
required amounts by the Guarantor to the Holders or by causing the Trust to pay
such amounts to the Holders.
SECTION 5.2. SUBORDINATION.
If an Indenture Event of Default has occurred and is continuing, the
rights of Holders of Common Securities to receive Guarantee Payments under the
Common Securities Guarantee are subordinate to the rights of Convertible
Preferred Securities to receive Guarantee Payments under this Convertible
Preferred Securities Guarantee.
SECTION 5.3. WAIVER OF NOTICE AND DEMAND.
The Guarantor hereby waives notice of acceptance of this Convertible
Preferred Securities Guarantee and of any liability to which it applies or may
apply, presentment, demand for payment, any right to require a proceeding first
against the Trust or any other Person before proceeding against the Guarantor,
protest, notice of nonpayment, notice of dishonor, notice of redemption and all
other notices and demands.
SECTION 5.4. OBLIGATIONS NOT AFFECTED.
The obligations, covenants, agreements and duties of the Guarantor
under this Convertible Preferred Securities Guarantee shall in no way be
affected or impaired by reason of the happening from time to time of any of the
following:
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(a) the release or waiver, by operation of law or otherwise, of the
performance or observance by the Trust of any express or implied agreement,
covenant, term or condition relating to the Convertible Preferred Securities to
be performed or observed by the Trust;
(b) the extension of time for the payment by the Trust of all or
any portion of the Distributions, Redemption Price, Liquidation Distribution or
any other sums payable under the terms of the Convertible Preferred Securities
or the extension of time for the performance of any other obligation under,
arising out of, or in connection with, the Convertible Preferred Securities
(other than an extension of time for payment of Distributions, Redemption Price,
Liquidation Distribution or other sum payable that results from the extension of
any interest payment period on the Convertible Debentures or any extension of
the maturity date of the Convertible Debentures permitted by the Indenture);
(c) any failure, omission, delay or lack of diligence on the part
of the Holders to enforce, assert or exercise any right, privilege, power or
remedy conferred on the Holders pursuant to the terms of the Convertible
Preferred Securities, or any action on the part of the Trust granting indulgence
or extension of any kind;
(d) the voluntary or involuntary liquidation, dissolution, sale of
any collateral, receivership, insolvency, bankruptcy, assignment for the benefit
of creditors, reorganization, arrangement, composition or readjustment of debt
of, or other similar proceedings affecting, the Trust or any of the assets of
the Trust;
(e) any invalidity of, or defect or deficiency in, the Convertible
Preferred Securities;
(f) the settlement or compromise of any obligation guaranteed
hereby or hereby incurred; or
(g) any other circumstance whatsoever that might otherwise
constitute a legal or equitable discharge or defense of a guarantor, it being
the intent of this Section 5.4 that the obligations of the Guarantor hereunder
shall be absolute and unconditional under any and all circumstances.
There shall be no obligation of the Holders or any other Persons to
give notice to, or obtain consent of, the Guarantor with respect to the
happening of any of the foregoing.
SECTION 5.5. RIGHTS OF HOLDERS.
(a) The Holders of a Majority in liquidation amount of the
Convertible Preferred Securities have the right to direct the time, method and
place of conducting of any proceeding for any remedy available to the Preferred
Guarantee Trustee in respect of this Convertible Preferred Securities
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Guarantee or to direct the exercise of any trust or power conferred upon the
Preferred Guarantee Trustee under this Convertible Preferred Securities
Guarantee.
(b) If the Preferred Guarantee Trustee fails to enforce such
Convertible Preferred Securities Guarantee, any Holder may directly institute a
legal proceeding against the Guarantor to enforce the obligations of the
Guarantor under this Convertible Preferred Securities Guarantee without first
instituting a legal proceeding against the Trust, the Preferred Guarantee
Trustee or any other Person. The Company has waived any right or remedy to
require that any action be brought just against the Trust, or any other person
or entity, before proceeding directly against the Company.
(c) If an event of default with respect to the Convertible
Debentures constituting the failure to pay interest or principal on the
Convertible Debentures on the date such interest or principal is otherwise
payable has occurred and is continuing, then a Holder of Convertible Preferred
Securities may directly, at any time, institute a proceeding for enforcement of
payment to such Holder of the principal of or interest on the Convertible
Debentures having a principal amount equal to the aggregate liquidation amount
of the Convertible Preferred Securities of such Holder on or after the
respective due date specified in the Convertible Debentures. The Holders of
Convertible Preferred Securities will not be able to exercise directly any other
remedy available to the holders of the Convertible Debentures unless the
Property Trustee (as defined in the Indenture) fails to do so.
SECTION 5.6. GUARANTEE OF PAYMENT.
This Convertible Preferred Securities Guarantee creates a guarantee of
payment and not of collection.
SECTION 5.7. SUBROGATION.
The Guarantor shall be subrogated to all, if any, rights of the
Holders against the Trust in respect of any amounts paid to such Holders by the
Guarantor under this Convertible Preferred Securities Guarantee; PROVIDED,
HOWEVER, that the Guarantor shall not (except to the extent required by
mandatory provisions of law) be entitled to enforce or exercise any right that
it may acquire by way of subrogation or any indemnity, reimbursement or other
agreement, in all cases as a result of payment under this Convertible Preferred
Securities Guarantee, if, at the time of any such payment, any amounts are due
and unpaid under this Convertible Preferred Securities Guarantee. If any amount
shall be paid to the Guarantor in violation of the preceding sentence, the
Guarantor agrees to hold such amount in trust for the Holders and to pay over
such amount to the Holders.
SECTION 5.8. INDEPENDENT OBLIGATIONS.
The Guarantor acknowledges that its obligations hereunder are
independent of the obligations of the Trust with respect to the Convertible
Preferred Securities, and that the Guarantor
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shall be liable as principal and as debtor hereunder to make Guarantee Payments
pursuant to the terms of this Convertible Preferred Securities Guarantee
notwithstanding the occurrence of any event referred to in subsections (a)
through (g) inclusive, of Section 5.4 hereof.
SECTION 5.9. CONVERSION.
The Guarantor acknowledges its obligation to issue and deliver common
stock of the Guarantor upon the conversion of the Convertible Preferred
Securities.
ARTICLE VI
LIMITATION OF TRANSACTIONS; RANKING
SECTION 6.1. LIMITATION OF TRANSACTIONS.
So long as any Convertible Preferred Securities remain outstanding, if
(i) the Company has exercised its option to defer interest payments on the
Convertible Debentures by extending the interest payment period and such
extension shall be continuing, (ii) if there shall have occurred any Event of
Default under this Convertible Preferred Securities Guarantee, or (iii) there
shall have occurred and be continuing any event that, with the giving of notice
or the lapse of time or both, would constitute an Indenture Event of Default,
then the Guarantor has agreed (a) not to declare or pay dividends on, or make a
distribution with respect to, or redeem, purchase acquire or make a liquidation
payment with respect to, any of its capital stock (other than (i) purchases or
acquisitions of shares of common stock in connection with the satisfaction by
the Guarantor of its obligations under any employee benefit plans or the
satisfaction by the Guarantor of its obligations pursuant to any contract or
security requiring the Guarantor to purchase shares of common stock, (ii) as a
result of a reclassification of the Guarantor's capital stock or the exchange or
conversion of one class or series of the Guarantor's capital stock for another
class or series of the Guarantor's capital stock or (iii) the purchase of
fractional interests in shares of the Guarantor's capital stock pursuant to the
conversion or exchange provisions of such capital stock or the security being
converted or exchanged (or make any guarantee payments with respect to the
foregoing)), and (b) not to make any payment of interest, principal or premium,
if any, on or repay, repurchase or redeem any debt securities of the Company
that rank PARI PASSU with or junior to the Convertible Debentures (except by
conversion into or exchange for shares of its capital stock, and (c) not to make
any guarantee payments with respect to the foregoing (other than pursuant to
this Convertible Preferred Securities Guarantee).
SECTION 6.2. RANKING.
(a) This Convertible Preferred Securities Guarantee will constitute
an unsecured obligation of the Guarantor and will rank (i) subordinate and
junior to all other liabilities of the Guarantor except any liabilities that may
be PARI PASSU expressly by their terms, (ii) PARI PASSU with the most senior
preferred stock issued from time to time by the Guarantor and with any guarantee
now
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or hereafter entered into by the Guarantor in respect of any preferred or
preference stock or preferred securities of any Affiliate of the Guarantor, and
(iii) senior to the Guarantor's common stock.
(b) The holders of any obligations of the Guarantor that are senior
in priority to the obligations under this Convertible Preferred Securities
Guarantee will be entitled to all of the rights inuring to the holders of
"Senior Indebtedness" under Article 12 of the Indenture, and the Holders of the
Convertible Preferred Securities will be subject to all of the terms and
conditions of such Article 12 with respect to any claims or rights hereunder
with the same effect as though fully set forth herein.
ARTICLE VII
TERMINATION
SECTION 7.1. TERMINATION.
This Convertible Preferred Securities Guarantee will terminate as to
each Holder upon (i) full payment of the Redemption Price of all Convertible
Preferred Securities; (ii) distribution of the Convertible Debentures held by
the Trust to the Holders; (iii) liquidation of the Trust, or (iv) upon the
distribution of Guarantor's common stock to such Holder in respect of conversion
of such Holder's Convertible Preferred Securities into common stock of the
Guarantor. The Guarantee also will terminate completely upon full payment of
the amounts payable in accordance with the Declaration. This Convertible
Preferred Securities Guarantee will continue to be effective or will be
reinstated, as the case may be, if at any time any Holder must restore payment
of any sums paid under such Convertible Preferred Securities or under this
Convertible Preferred Securities Guarantee.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.1. EXCULPATION.
(a) Subject to Section 3.1(d), no Indemnified Person shall be
liable, responsible or accountable in damages or otherwise to the Guarantor or
any Covered Person for any loss, damage or claim incurred by reason of any act
or omission performed or omitted by such Indemnified Person in good faith in
accordance with this Convertible Preferred Securities Guarantee and in a manner
that such Indemnified Person reasonably believed to be within the scope of the
authority conferred on such Indemnified Person by this Convertible Preferred
Securities Guarantee or by law, except that an Indemnified Person shall be
liable for any such loss, damage or claim incurred by reason of such Indemnified
Person's gross negligence or willful misconduct with respect to such acts or
omissions.
(b) Subject to Section 3.1(d), an Indemnified Person shall be fully
protected in relying in good faith upon the records of the Guarantor and upon
such information, opinions, reports or statements presented to the Guarantor by
any Person as to matters the Indemnified Person
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reasonably believes are within such other Person's professional or expert
competence and who has been selected with reasonable care by or on behalf of the
Guarantor, including information, opinions, reports or statements as to the
value and amount of the assets, liabilities, profits, losses, or any other facts
pertinent to the existence and amount of assets from which Distributions to
Holders of Convertible Preferred Securities might properly be paid.
SECTION 8.2. INDEMNIFICATION.
Subject to Section 3.1(d), the Guarantor agrees to indemnify each
Indemnified Person for, and to hold each Indemnified Person harmless against,
any loss, liability or expense incurred without gross negligence or bad faith on
its part, arising out of or in connection with the acceptance or administration
of the trust or trusts hereunder, including the costs and expenses (including
reasonable legal fees and expenses) of defending itself against, or
investigating, any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder. The obligation to
indemnify as set forth in this Section 8.2 shall survive the termination of this
Convertible Preferred Securities Guarantee.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1. SUCCESSORS AND ASSIGNS.
All guarantees and agreements contained in this Convertible Preferred
Securities Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Guarantor and shall inure to the benefit of the Holders
of the Convertible Preferred Securities then outstanding. Except in connection
with any permitted merger or consolidation of the Guarantor with or into another
entity or any permitted sale, transfer or lease of the Guarantor's assets to
another entity as described in the Indenture, the Guarantor may not assign its
rights or delegate its obligations under this Convertible Preferred Securities
Guarantee without the prior approval of the Holders of at least a Majority of
the aggregate stated liquidation amount of the Convertible Preferred Securities
then outstanding.
SECTION 9.2. AMENDMENTS.
Except with respect to any changes that do not materially adversely
affect the rights of Holders (in which case no vote will be required), this
Convertible Preferred Securities Guarantee may be amended only with the prior
approval of the Holders of at least a Majority in liquidation amount of all the
outstanding Convertible Preferred Securities. The provisions of Section 11.2 of
the Declaration with respect to meetings of Holders of the Convertible Preferred
Securities apply to the giving of such approval.
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SECTION 9.3. NOTICES.
All notices provided for in this Convertible Preferred Securities
Guarantee shall be in writing, duly signed by the party giving such notice, and
shall be delivered, sent by facsimile or courier or mailed by registered or
certified mail, as follows:
(a) If given to the Preferred Guarantee Trustee, at the Preferred
Guarantee Trustee's mailing address set forth below (or such other address as
the Preferred Guarantee Trustee may give notice of to the Holders of the
Convertible Preferred Securities):
The Bank of New York
101 Barclay Street, Floor 21 West
New York, New York 10286
Attention: Corporate Trust Trustee, Administration
(b) If given to the Guarantor, at the Guarantor's mailing address
set forth below (or such other address as the Guarantor may give notice of to
the Holders of the Convertible Preferred Securities):
Sun Healthcare Group, Inc.
101 Sun Avenue, N.E.
Albuquerque, New Mexico 87109
Attention: Robert F. Murphy, Esq.
Senior Vice President, General Counsel and Secretary
(c) If given to any Holder at the address set forth on the books
and records of the Trust.
All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by registered or certified
first class mail, postage prepaid except that if a notice or other document is
refused delivery or cannot be delivered because of a changed address of which no
notice was given, such notice or other document shall be deemed to have been
delivered on the date of such refusal or inability to deliver.
SECTION 9.4. BENEFIT.
This Convertible Preferred Securities Guarantee is solely for the
benefit of the Holders of the Convertible Preferred Securities and, subject to
Section 3.1(a), is not separately transferable from the Convertible Preferred
Securities.
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SECTION 9.5. GOVERNING LAW.
THIS CONVERTIBLE PREFERRED SECURITIES GUARANTEE SHALL BE GOVERNED BY,
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK AND ALL RIGHTS AND REMEDIES SHALL BE GOVERNED BY SUCH LAWS WITHOUT REGARD
TO ITS PRINCIPLES OF CONFLICTS OF LAWS.
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THIS CONVERTIBLE PREFERRED SECURITIES GUARANTEE is executed as of the
day and year first above written.
SUN HEALTHCARE GROUP, INC.,
as Guarantor
By:/s/ Robert D. Woltil
------------------------------------------
Name: Robert D. Woltil
Title: Chief Financial Officer
THE BANK OF NEW YORK,
as Preferred Guarantee Trustee
By:/s/ Mary LeGumina
------------------------------------------
Name: Mary LeGumina
Title: Assistant Vice President
<PAGE>
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
DATED AS OF MAY 4, 1998
BY AND AMONG
SUN FINANCING I
AS ISSUER,
SUN HEALTHCARE GROUP, INC.
AS GUARANTOR,
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
- --------------------------------------------------------------------------------
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into as of May 4, 1998, among SUN FINANCING I, a statutory business
trust formed under the laws of the State of Delaware (the "Issuer"), SUN
HEALTHCARE GROUP, INC., a Delaware corporation (the "Guarantor"), 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").
This Agreement is made pursuant to the Purchase Agreement, dated April
28, 1998, among the Issuer, the Guarantor and the Initial Purchasers (the
"Purchase Agreement"), which provides for the sale by the Issuer to the Initial
Purchasers of up to 13,800,000 7% Convertible Trust Issued Preferred Securities
(liquidation amount $25 per preferred security) (collectively, the "Convertible
Preferred Securities"). The Convertible Preferred Securities are guaranteed on
a subordinated basis by the Guarantor as to the payment of distributions, and as
to payments on liquidation or redemption, to the extent set forth in a guarantee
agreement (the "Guarantee") between the Guarantor and The Bank of New York, a
New York banking corporation, as trustee, and may be converted or exchanged
under certain circumstances into the 7% Convertible Junior Subordinated
Debentures due May 1, 2028 of the Guarantor (the "Convertible Debentures") held
by the Issuer and then into common stock, $.01 par value per share ("Underlying
Common Stock"), of the Guarantor's Common Stock (the "Sun Common Stock") as set
forth in the Issuer's Declaration. In order to induce the Initial Purchasers to
enter into the Purchase Agreement, the Issuer and the Guarantor have agreed to
provide to the Initial Purchasers and their respective direct and indirect
transferees, among other things, the registration rights for the Transfer
Restricted Securities set forth in this Agreement. The execution of this
Agreement is a condition to the closing of the transactions contemplated by the
Purchase Agreement.
The parties hereby agree as follows:
1. DEFINITIONS
(a) As used in this Agreement, the following terms shall have the
following meanings (and, unless otherwise indicated, capitalized terms used
herein
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without definition shall have the respective meanings ascribed to them by the
Purchase Agreement):
CONVERTIBLE DEBENTURES: See the introductory paragraphs to this
Agreement.
CONVERTIBLE PREFERRED SECURITIES: See the introductory paragraphs to
this Agreement.
DECLARATION: As defined in the Offering Memorandum.
EFFECTIVENESS PERIOD: See Section 2(a) hereof.
EFFECTIVENESS TARGET DATE: See Section 3(a)(ii) hereof.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC promulgated thereunder.
GUARANTEE: See the introductory paragraphs to this Agreement.
GUARANTOR: See the introductory paragraphs to this Agreement.
HOLDER: Any holder of Transfer Restricted Securities.
INDEMNIFIED PARTY: See Section 6 hereof.
INDEMNIFIED PERSON: See Section 6 hereof.
INDEMNIFYING PERSON: See Section 6 hereof.
INDENTURE: The Indenture, dated as of the date hereof, by and among
the Issuer, the Guarantor and the Bank of New York, a New York banking
corporation, as trustee, pursuant to which the Convertible Preferred Securities
are being issued, as amended or supplemented from time to time in accordance
with the terms thereof.
INITIAL PURCHASERS: See the introductory paragraphs to this
Agreement.
INSPECTORS: See Section 3(m) hereof.
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ISSUE DATE: The date of the original issuance of the Transfer
Restricted Securities.
ISSUER: See the introductory paragraphs to this Agreement.
LIQUIDATED DAMAGES: See Section 3(a) hereof.
OFFERING MEMORANDUM: The final Offering Memorandum dated April 29,
1998 related to the sale of the Convertible Preferred Securities.
PERSON or PERSON: An individual, trustee, corporation, partnership,
joint stock company, trust, unincorporated association, union, business
association, limited liability company, limited liability partnership, firm or
other legal entity.
PROSPECTUS: The prospectus included in any Registration Statement
(including, without limitation, any prospectus subject to completion and a
prospectus that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act), as amended or supplemented by any
prospectus supplement, with respect to the terms of the offering of any portion
of the Transfer Restricted Securities (as applicable), covered by such
Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
RECORDS: See Section 4(m) hereof.
REGISTRATION DEFAULT: See Section 4(a) hereof.
REGISTRATION STATEMENT: Any registration statement of the Issuer
and/or the Guarantor that covers the Transfer Restricted Securities pursuant to
the provisions of this Agreement, including the Prospectus, amendments and
supplements to such registration statement, including post-effective amendments,
all exhibits, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.
RULE 144: Rule 144 promulgated pursuant to the Securities Act, as
currently in effect, as such rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the SEC.
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RULE 144A: Rule 144A promulgated pursuant to the Securities Act, as
currently in effect, as such rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the SEC.
RULE 415: Rule 415 promulgated pursuant to the Securities Act, as
such rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC.
SEC: The Securities and Exchange Commission.
"SECURITIES" means the Convertible Preferred Securities, the
Convertible Debentures, the Guarantee and the Underlying Common Stock issuable
upon conversion or exchange of the Convertible Preferred Securities and the
Convertible Debentures.
SECURITIES ACT: The Securities Act of 1933, as amended, and the rules
and regulations of the SEC promulgated thereunder.
SHELF REGISTRATION STATEMENT: See Section 2(a) hereof.
SUN COMMON STOCK: See the introductory paragraphs to this Agreement.
TIA: The Trust Indenture Act of 1939, as amended, and the rules and
regulations of the SEC promulgated thereunder.
TRANSFER RESTRICTED SECURITIES: The Securities upon original issuance
thereof and at all times subsequent thereto, until (i) a Registration Statement
covering such Securities has been declared effective by the SEC and such
Securities have been disposed of in accordance with such effective Registration
Statement, (ii) such Securities are sold in compliance with Rule 144 or are
eligible for sale under Rule 144(k), (iii) such Securities cease to be
outstanding or (iv) if the Security has otherwise been transferred and a new
Security not subject to transfer restrictions under the Securities Act has been
delivered by or on behalf of the Guarantor in accordance with the Declaration of
Indenture, as the case may be.
TRUSTEE: The trustee under the Indenture.
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UNDERLYING COMMON SECURITIES: See the introductory paragraphs to this
Agreement.
.
UNDERWRITTEN REGISTRATION OR UNDERWRITTEN OFFERING: A registration in
which securities of the Issuer or the Guarantor are sold to an underwriter for
reoffering to the public.
(b) Wherever there is a reference in this Agreement to a percentage
of the "principal amount" of Transfer Restricted Securities or to a percentage
of Transfer Restricted Securities, the Convertible Preferred Securities and the
Convertible Debentures issuable upon exchange of the Convertible Preferred
Securities will be treated as the same class of Securities and Underlying Common
Stock shall be treated as representing the liquidation amount of Convertible
Preferred Securities or the principal amount of Convertible Debentures which was
surrendered for conversion in order to receive such number of shares of
Underlying Common Stock.
2. SHELF REGISTRATION
(a) The Issuer and the Guarantor shall prepare and file with the SEC,
within 90 days after the Issue Date, a Registration Statement for an offering to
be made on a continuous basis pursuant to Rule 415 covering all of the Transfer
Restricted Securities (the "Shelf Registration Statement"). The Shelf
Registration Statement shall be on Form S-3 or another appropriate form
permitting registration of the Transfer Restricted Securities for resale by the
Holders in the manner or manners reasonably designated by the Holders of a
majority in aggregate principal amount of the outstanding Transfer Restricted
Securities (including, without limitation, an underwritten offering). The
Issuer and the Guarantor shall not permit any securities other than the Transfer
Restricted Securities to be included in the Shelf Registration Statement. The
Issuer and the Guarantor shall use their reasonable best efforts to cause the
Shelf Registration Statement to be declared effective (the "Effective Time")
pursuant to the Securities Act on or prior to 60 days after the filing of such
Shelf Registration Statement and to keep the Shelf Registration Statement
continuously effective under the Securities Act until the earlier of (i) the
date which is 24 months after the Issue Date, (ii) the date that all Transfer
Restricted Securities covered by the Shelf Registration Statement have been sold
in the manner set forth and as contemplated in the Shelf Registration Statement,
or (iii) the date that there ceases to be outstanding any Transfer Restricted
Securities (the "Effectiveness Period"); PROVIDED, HOWEVER, that no Holder shall
be entitled to have the Transfer
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Restricted Securities held by it covered by such Shelf Registration Statement
unless such Holder is in compliance with Section 4(s).
(b) If at any time prior to the end of the Effectiveness Period, the
Convertible Preferred Securities are convertible into securities other than
Underlying Common Stock, the Issuer and the Guarantor shall cause such
securities to be included in the Shelf Registration Statement no later than the
date on which the Convertible Preferred Securities may first be converted into
such securities.
3. LIQUIDATED DAMAGES
(a) The Issuer, the Guarantor and the Initial Purchasers agree that
the Holders of Transfer Restricted Securities will suffer damages if the Issuer
or the Guarantor fails to fulfill its obligations pursuant to Section 2 hereof
and that it would not be possible to ascertain the extent of such damages.
Accordingly, in the event of such failure by the Issuer or the Guarantor to
fulfill such obligations, the Issuer hereby agrees to pay liquidated damages
("Liquidated Damages") to each Holder of Transfer Restricted Securities under
the circumstances and to the extent set forth below:
If (i) on or prior to 90 days following the Issue Date, a Shelf
Registration Statement has not been filed with the SEC, or (ii) on or prior to
the 150th day following the Issue Date (the "Effectiveness Target Date") such
Shelf Registration Statement is not declared effective (each, a "Registration
Default"), additional interest will accrue on the Convertible Debentures and,
accordingly, additional distributions will accrue on the Convertible Preferred
Securities, in each case from and including the day following such Registration
Default. Liquidated Damages will be paid quarterly in arrears, with the first
quarterly payment due on the first interest or distribution payment date, as
applicable, following the date on which such Liquidated Damages begin to accrue,
and will accrue at a rate per annum equal to an additional one-quarter of
one percent (0.25%) of the principal amount or liquidation amount, as
applicable, to and including the 90th day following such Registration Default
and one-half of one percent (0.50%) thereof from and after the 91st day
following such Registration Default. The curing of any Registration Default
will reset the rate at which Liquidated Damages begin to accrue for any
subsequent new Registration Default to a rate per annum equal to an additional
one-quarter of one percent (0.25%) of the principal amount or liquidation
amount, as applicable, to and including the 90th day following such Registration
Default and one-half of one percent (0.50%) thereof from and after the 91st day
following such new Registration Default. The Guarantor shall have the right to
suspend the Shelf Registration Statement under certain
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circumstances for up to 90 consecutive days. In the event that the Shelf
Registration Statement ceases to be effective during the Effectiveness Period
for more than 90 consecutive days or any 120 days, whether or not consecutive,
during any 12-month period, then the interest rate borne by the Convertible
Debentures and the distribution rate borne by the Convertible Preferred
Securities will each increase by an additional one quarter of one percent
(0.25%) per annum from such 91st or 121st day, as applicable, until such time as
(i) the Shelf Registration Statement again becomes effective or (ii) the
Effectiveness Period expires.
(b) The Issuer shall promptly notify the Trustee after each and every
date on which a Registration Default first occurs. Accrued and unpaid
Liquidated Damages shall be paid by the Issuer to the Holders in the same manner
dividends are made pursuant to the Declaration or by wire transfer of
immediately available funds to the accounts specified by them or by mailing
checks to their registered addresses if no such accounts have been specified on
each interest payment date provided in the Indenture (whether or not any
interest is then payable on the Convertible Debentures) and on each payment date
provided in the Indenture including, without limitation, whether upon
redemption, maturity (by acceleration or otherwise), purchase upon a change of
control or purchase upon a sale of assets (subject to the Guarantor's right to
defer the payment of Liquidated Damages during any Extension Period (as defined
in the Indenture)). Each obligation to pay Liquidated Damages with respect to
any Registration Default shall be deemed to commence accruing on the date of
such Registration Default and to cease accruing when such Registration Default
has been cured. In no event shall the Issuer pay Liquidated Damages in excess
of the applicable maximum weekly amount set forth above, regardless of whether
one or multiple Registration Defaults exist.
(c) The parties hereto agree that the Liquidated Damages provided for
in this Section 3 constitute a reasonable estimate of the damages that will be
suffered by Holders by reason of the failure to file the Shelf Registration
Statement, the failure of the Shelf Registration Statement to be declared
effective or the failure of the Shelf Registration Statement to remain
effective, as the case may be, in accordance with this Agreement.
4. REGISTRATION PROCEDURES
In connection with the registration of any Transfer Restricted
Securities pursuant to Section 2 hereof, the Issuer and the Guarantor shall
effect such registration to permit the sale of such Transfer Restricted
Securities (as applicable) in accordance
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with the intended method or methods of disposition thereof, and pursuant thereto
the Issuer and the Guarantor shall:
(a) prepare and file with the SEC, a Registration Statement or
Registration Statements as prescribed by Section 2 hereof, and to use their
reasonable best efforts to cause such Registration Statement to become effective
and remain effective as provided herein; PROVIDED that, before going effective
on any Registration Statement or Prospectus or filing any amendments or
supplements thereto, the Issuer and the Guarantor shall furnish to and afford
the Initial Purchasers and their counsel, the Holders of the Transfer Restricted
Securities covered thereby and their counsel and the managing underwriters, if
any, a reasonable opportunity to review copies of all such documents filed or
proposed to be filed. Such documents shall be so furnished at least 3 business
days prior to going effective, or such later date as is reasonable under the
circumstances. The Issuer and the Guarantor shall not file any Registration
Statement or Prospectus or any amendments or supplements thereto if the Initial
Purchasers and their counsel, the Holders of a majority in aggregate principal
amount of the Transfer Restricted Securities covered by such Registration
Statement and their counsel, or the managing underwriters, if any, shall
reasonably object on a timely basis (except that documents filed as exhibits
that are incorporated by reference or deemed to be incorporated by reference
shall not be subject to such objections);
(b) prepare and file with SEC such amendments and post-effective
amendments to each Shelf Registration Statement as may be necessary to keep such
Registration Statement continuously effective for the Effectiveness Period or
such shorter period as will terminate when all Transfer Restricted Securities
covered by such Registration Statement have been sold; cause the related
Prospectus to be supplemented by any required Prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 (or any similar provisions then in
force) under the Securities Act; and comply with the provisions of the
Securities Act, the Exchange Act and the rules and regulations of the SEC
promulgated thereunder with respect to the disposition of all securities covered
by such Registration Statement, as so amended, or in such Prospectus, as so
supplemented; the Issuer and the Guarantor shall be deemed not to have used
their reasonable best efforts to keep a Registration Statement effective during
the Effectiveness Period, if they voluntarily take any action that would result
in selling Holders of the Transfer Restricted Securities covered thereby not
being able to sell such Transfer Restricted Securities during such Period,
unless (i) such action is required by applicable law, or (ii) such action is
taken by them in good faith and for valid business reasons (not including
avoidance of their obligations hereunder), including the acquisition or
divestiture of assets;
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(c) if a Shelf Registration Statement is filed pursuant to Section
2 hereof, the Company shall notify the selling Holders of Transfer Restricted
Securities that have provided in writing to the Company a telephone or
facsimile number and address for notices, their counsel if such counsel has
provided in writing to the Company a telephone or facsimile number and
address for notices and the managing underwriters, if any, promptly and, if
requested, confirm such notice in writing, (i) when a Prospectus, any
prospectus supplement or post-effective amendment has been filed, and, with
respect to a Registration Statement or any post-effective amendment has
become effective (including in any such written notice a statement that any
Holder may, upon request, obtain, without charge, one conformed copy of such
Registration Statement or post-effective amendment including financial
statements and schedules, documents incorporated or deemed to be incorporated
by reference and exhibits), (ii) of the issuance by the SEC of any stop order
suspending the effectiveness of a Registration Statement or of any order
preventing or suspending the use of any Prospectus or the initiation of any
proceedings for that purpose, (iii) of the receipt by the Issuer or the
Guarantor of any notification with respect to the suspension of the
qualification or exemption from qualification of a Registration Statement or
the initiation of any proceeding for such purpose, (iv) of the happening of
any material event or any material information becoming known that makes any
statement made in such Registration Statement or related Prospectus or any
document incorporated or deemed to be incorporated therein by reference
untrue in any material respect or that requires the making of any changes in
such Registration Statement, Prospectus or documents so that, in the case of
the Registration Statement, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and that
in the case of the Prospectus, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and (v) of the
Issuer's and the Guarantor's reasonable determination that sales under the
Registration Statement need to be terminated to comply with applicable law or
that a post-effective amendment to a Registration Statement would be
appropriate;
(d) if a Shelf Registration Statement is filed pursuant to Section
2 hereof, use their reasonable best efforts to prevent the issuance of any
order suspending the effectiveness of a Registration Statement or of any
order preventing or suspending the use of a Prospectus and, if any such order
is issued, to use their reasonable best efforts to obtain the withdrawal of
any such order at the earliest possible moment;
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(e) if a Shelf Registration Statement is filed pursuant to Section
2 hereof and if requested by the managing underwriters, if any, or the
Holders of a majority in aggregate principal amount of the Transfer
Restricted Securities being sold in connection with an underwritten offering,
(i) promptly incorporate in a prospectus supplement or post-effective
amendment such information relating to underwriters, if any, any Holder of
Transfer Restricted Securities or the plan of distribution of the Transfer
Restricted Securities as the managing underwriter, if any, or such Holders
may reasonably request to be included therein, (ii) make all required filings
of such prospectus supplement or such post-effective amendment as soon as
reasonably practicable after the Issuer has received notification of the
matters to be incorporated in such prospectus supplement or post-effective
amendment pursuant to clause (i), and (iii) supplement or make amendments to
such Registration Statement with such information as is required in
connection with any request made pursuant to clause (i);
(f) if a Shelf Registration Statement is filed pursuant to Section
2 hereof, furnish to each selling Holder of Transfer Restricted Securities
who so requests and to each managing underwriter, if any, without charge, one
conformed copy of the Registration Statement or Registration Statements and
each post-effective amendment thereto, including financial statements and
schedules, and, if requested, all documents incorporated or deemed to be
incorporated therein by reference and all exhibits;
(g) if a Shelf Registration Statement is filed pursuant to Section 2
hereof, deliver to each selling Holder, its counsel, and the underwriters, if
any, without charge, as many copies of the Prospectus or Prospectuses (including
each form of preliminary Prospectus), and each amendment or supplement thereto
and any documents incorporated by reference therein, as such Persons may
reasonably request; and, subject to the last paragraph of this Section 4 hereof,
the Issuer and the Guarantor hereby consent to the use of such Prospectus and
each amendment or supplement thereto by each of the selling Holders and their
underwriters or agents, if any, and dealers, if any, in connection with the
offering and sale of the Transfer Restricted Securities covered by such
Prospectus and any amendment or supplement thereto;
(h) prior to any public offering of Transfer Restricted Securities,
use their reasonable best efforts to register or qualify, and to cooperate with
the selling Holders of Transfer Restricted Securities, the underwriters, if any,
and their respective counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of such
Transfer Restricted Securities for offer
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and sale under the securities or Blue Sky laws of such jurisdictions as any
selling Holder, or the managing underwriters reasonably request in writing; keep
each such registration or qualification (or exemption therefrom), effective
during the period such Registration Statement is required to be kept effective
and do any and all other acts or things reasonably necessary or advisable to
enable the disposition in such jurisdictions of the Transfer Restricted
Securities covered by the applicable Registration Statement; PROVIDED that the
Issuer and the Guarantor shall not be required to (A) qualify as a foreign
corporation or as a dealer in securities in any jurisdiction where they are not
then so qualified, (B) take any action that would subject them to general
service of process in any such jurisdiction where they are not then so subject
or (C) subject themselves to taxation in any such jurisdiction where they are
not then so subject;
(i) if a Shelf Registration Statement is filed pursuant to Section 2
hereof, cooperate with the selling Holders of Transfer Restricted Securities and
the managing underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Transfer Restricted Securities to be sold,
which certificates shall not bear any restrictive legends and shall be in a form
eligible for deposit with The Depository Trust Company ("DTC"), and enable such
Transfer Restricted Securities to be in such denominations and registered in
such names as the managing underwriters, if any, or Holders may reasonably
request at least two business days prior to any sale of the Transfer Restricted
Securities;
(j) if a Shelf Registration Statement is filed pursuant to Section 2
hereof, upon the occurrence of any event contemplated by paragraph 4(c)(iv) or
4(c)(v) above, as promptly as practicable prepare and (subject to Section 4(a)
hereof), file with the SEC, at the expense of the Issuer, a supplement or post-
effective amendment to the Registration Statement or a supplement to the related
Prospectus or any document incorporated or deemed to be incorporated therein by
reference, or file any other required document so that, as thereafter delivered
to the purchasers of the Transfer Restricted Securities being sold thereunder,
any such Prospectus will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading;
(k) prior to the effective date of the first Registration Statement
relating to the Transfer Restricted Securities, (i) provide the Trustee with
certificates for the Transfer Restricted Securities in a form eligible for
deposit with DTC and (ii)
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use its reasonable best efforts to provide a CUSIP number for the Transfer
Restricted Securities;
(l) in connection with an underwritten offering of Transfer Restricted
Securities pursuant to a Shelf Registration Statement, enter into an
underwriting agreement as is customary in underwritten offerings and take all
other customary and appropriate actions as are reasonably requested by the
managing underwriters in order to expedite or facilitate the registration or the
disposition of such Transfer Restricted Securities, and in such connection, (i)
make such representations and warranties to the underwriters, with respect to
the business of the Issuer, the Guarantor and the Registration Statement,
Prospectus and documents, if any, incorporated or deemed to be incorporated by
reference therein, in each case, as are customarily made by issuers to
underwriters in underwritten offerings; (ii) use their reasonable best efforts
to obtain opinions of counsel to the Issuer and Guarantor and updates thereof in
form and substance reasonably satisfactory to the managing underwriters,
addressed to the underwriters covering the matters customarily covered in
opinions requested in underwritten offerings and such other matters as may be
reasonably requested by underwriters; (iii) use their reasonable best efforts to
obtain "cold comfort" letters and updates thereof in form and substance
reasonably satisfactory to the managing underwriters from the independent
certified public accountants of the Issuer and the Guarantor (and, if necessary,
any other independent certified public accountants of any subsidiary of the
Issuer or the Guarantor or of any business acquired by any of them for which
financial statements and financial data are, or are required to be, included in
the Registration Statement), addressed to each of the underwriters, such letters
to be in customary form and covering matters of the type customarily covered in
"cold comfort" letters in connection with underwritten offerings and such other
matters as are reasonably requested by underwriters as permitted by STATEMENT ON
AUDITING STANDARDS NO. 72; and (iv) if an underwriting agreement is entered
into, the same shall contain indemnification provisions and procedures no less
favorable than those set forth in Section 6 hereof with respect to all parties
to be indemnified pursuant to said Section. The above shall be done at each
closing under such underwriting agreement, or as and to the extent required
thereunder;
(m) if a Shelf Registration Statement is filed pursuant to Section 2
hereof, make available for inspection by any selling Holder of such Transfer
Restricted Securities being sold, any underwriter participating in any such
disposition of Transfer Restricted Securities, if any, and any attorney,
accountant or other agent retained by any such selling Holder, or underwriter
(collectively, the "Inspectors"), at the offices where normally kept, during
reasonable business hours, all financial and
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other records, pertinent corporate documents and properties of the Issuer, the
Guarantor and their subsidiaries (collectively, the "Records"), as shall be
reasonably necessary to enable them to exercise any applicable due diligence
responsibilities, and cause the officers, directors and employees of the Issuer,
the Guarantor and their subsidiaries to supply all relevant information
reasonably requested by any such Inspector in connection with such Registration
Statement as is customary for due diligence examinations; provided, however,
that the foregoing inspection and information gathering shall, to the extent
reasonably possible, be coordinated on behalf of the Inspectors by one counsel
designated by and on behalf of all such Inspectors. Records which the Issuer
determines, in good faith, to be confidential and any Records which it notifies
the Inspectors are confidential shall not be disclosed by the Inspectors, unless
(i) the release of such Records is ordered pursuant to a subpoena or other order
from a court of competent jurisdiction and only to the extent required thereby
or (ii) the information in such Records has been made generally available to the
public, other than as a result of the disclosure or failure to safeguard by such
Inspector;
(n) provide an indenture trustee for the Transfer Restricted
Securities and cause the Indenture to be qualified under the TIA not later than
the effective date of the Exchange Offer or the first Registration Statement
relating to the Transfer Restricted Securities; and in connection therewith,
cooperate with the trustee under any such indenture and the Holders of the
Transfer Restricted Securities, to effect such changes to such indenture as may
be required for such indenture to be so qualified in accordance with the terms
of the TIA; and execute, and use their reasonable best efforts to cause such
trustee to execute, all customary documents as may be required to effect such
changes, and all other forms and documents required to be filed with the SEC to
enable such indenture to be so qualified in a timely manner;
(o) use their reasonable best efforts to comply with all applicable
rules and regulations of the SEC and, as soon as reasonably practicable after
the effective date of the applicable Registration Statement, make generally
available to the Holders, if any, a consolidated earning statement of the Issuer
that satisfies the provisions of Section 11(a) of the Securities Act and Rule
158 thereunder;
(p) cooperate with each seller of Transfer Restricted Securities
covered by any Registration Statement and each underwriter, if any,
participating in the disposition of such Transfer Restricted Securities and
their respective counsel in
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connection with any filings required to be made with the National Association of
Securities Dealers, Inc. (the "NASD");
(q) use their reasonable best efforts to take all other steps
necessary to effect the registration of the Transfer Restricted Securities
covered by a Registration Statement contemplated hereby; and
(r) use their reasonable best efforts to cause the Underlying Common
Stock issuable upon conversion of the Convertible Preferred Securities to be
listed for quotation on the New York Stock Exchange or other stock exchange or
trading system on which the Sun Common Stock primarily trades on or as promptly
as practicable after the Effective Time of the Shelf Registration Statement
hereunder.
(s) The Issuer and the Guarantor may require each seller of Transfer
Restricted Securities as to which any registration is being effected to furnish
to the Issuer such information regarding such seller and the distribution of
such Transfer Restricted Securities as the Issuer may, from time to time,
reasonably request. The Issuer may exclude from such registration the Transfer
Restricted Securities of any seller who fails to furnish such information within
a reasonable time after receiving such request.
Each Holder of Transfer Restricted Securities agrees by acquisition of
such Transfer Restricted Securities that, upon receipt of any notice from the
Issuer of the happening of any event of the kind described in Section 4(c)(ii),
4(c)(iv), 4(c)(v) or 4(c)(vi) hereof, such Holder shall forthwith discontinue
disposition of such Transfer Restricted Securities covered by such Registration
Statement or Prospectus until such Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 4(j) hereof, or until
it is advised in writing by the Issuer that the use of the applicable Prospectus
may be resumed, and has received copies of any amendments or supplements
thereto.
5. REGISTRATION EXPENSES
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Issuer and the Guarantor shall be borne by
the Issuer and the Guarantor, whether or not a Shelf Registration Statement is
filed or becomes effective, including, without limitation, (i) all registration
and filing fees (including, without limitation, (A) fees with respect to filings
required to be made with the NASD in connection with an underwritten offering
and (B) fees and expenses of compliance
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with state securities or Blue Sky laws (including, without limitation,
reasonable fees and disbursements of counsel in connection with Blue Sky
qualifications of the Transfer Restricted Securities), (ii) printing expenses
(including, without limitation, expenses of printing certificates for Transfer
Restricted Securities in a form eligible for deposit with DTC and of printing
Prospectuses, (iii) fees and disbursements of counsel for the Issuer and the
Guarantor, (iv) fees and disbursements of all independent certified public
accountants referred to in Section 4(l)(iii) hereof (including, without
limitation, the expenses of any special audit and "cold comfort" letters
required by or incident to such performance), (v) the fees and expenses of any
"qualified independent underwriter" or other independent appraiser participating
in an offering pursuant to Section 3 of Schedule E to the By-laws of the NASD,
(vi) rating agency fees, (vii) fees and expenses of all other Persons retained
by the Issuer and the Guarantor, (viii) internal expenses of the Issuer and the
Guarantor (including, without limitation, all salaries and expenses of officers
and employees of the Issuer and the Guarantor performing legal or accounting
duties), (ix) the expense of any annual audit and (x) the fees and expenses
incurred in connection with the listing of the securities to be registered on
any securities exchange. Nothing contained in this Section 5 shall create an
obligation on the part of the Issuer or the Guarantor to pay or reimburse any
Holder for any underwriting commission or discount attributable to any such
Holder's Transfer Restricted Securities included in an underwritten offering
pursuant to a Registration Statement filed in accordance with the terms of this
Agreement, or to guarantee such Holder any profit or proceeds from the sale of
such Convertible Preferred Securities.
(b) In connection with any Shelf Registration Statement hereunder,
the Issuer and the Guarantor shall reimburse the Holders of the Transfer
Restricted Securities being registered in such registration for the reasonable
fees and disbursements of not more than one counsel chosen by the Holders of a
majority in aggregate principal amount of the Transfer Restricted Securities to
be included in such Registration Statement.
6. INDEMNIFICATION
In connection with any Registration Statement, the Issuer and the
Guarantor jointly and severally agree to indemnify and hold harmless (i) the
Initial Purchasers, (ii) each Holder covered thereby and (iii) each person, if
any, who controls (within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act), any such Person (any of the persons referred to
in this clause (ii) being hereinafter referred to as a "controlling person"),
and (iv) the respective
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officers, directors, partners, employees, representatives and agents of any of
such Person or any controlling person (any person referred to in clause (i),
(ii), (iii) or (iv) may hereinafter be referred to as an "Indemnified Person"),
to the fullest extent lawful, from and against any and all losses, claims,
damages, liabilities and judgments (including, without limitation, any legal or
other expenses incurred in connection with defending and investigating any
matter, including any action that could give rise to any such losses, claims,
damages, liabilities or judgments) directly or indirectly based upon or arising
out of any untrue statement or alleged untrue statement of a material fact
contained in such Registration Statement or any Prospectus (as amended or
supplemented if the Issuer shall have furnished to such Indemnified Person any
amendments or supplements thereto), or any preliminary prospectus, arising out
of or based upon any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, except
insofar as such losses, claims, damages or liabilities arise out of or are based
upon (i) any untrue statement or omission or alleged untrue statement or
omission made in reliance upon and in conformity with information relating to
any Indemnified Person furnished to the Issuer, the Guarantor or any underwriter
in writing by such Indemnified Person expressly for use therein, or (ii) any
untrue statement contained in or omission from a preliminary Prospectus or
Prospectus if a copy of the Prospectus (as then amended or supplemented, if the
Issuer shall have furnished to or on behalf of the Holder participating in the
distribution relating to the relevant Registration Statement any amendments or
supplements thereto) was not sent or given by or on behalf of such Holder to the
person asserting any such losses, liabilities, claims, damages or expenses who
purchased Convertible Preferred Securities, if such Prospectus (or Prospectus as
amended or supplemented), is required by law at or prior to the written
confirmation of the sale of such Convertible Preferred Securities to such person
and the untrue statement contained in or omission from such preliminary
Prospectus or Prospectus was corrected in the Prospectus (or the Prospectus as
amended or supplemented) or (iii) the Holder has not complied with the last
paragraph of Section 4 of this Agreement.
In connection with any Registration Statement in which a Holder of
Transfer Restricted Securities is participating, such Holder of Transfer
Restricted Securities agrees, severally and not jointly, to indemnify and hold
harmless the Issuer, each Guarantor, each person who controls the Issuer or the
Guarantor within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act and the respective partners, directors, officers,
representatives, employees and agents of such person or controlling person to
the same extent as the foregoing indemnity from
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the Issuer and the Guarantor to each Indemnified Person, but only with reference
to information relating to such Holder furnished to the Issuer in writing by or
on behalf of such Holder expressly for use in any Registration Statement or
Prospectus, any amendment or supplement thereto, or any preliminary Prospectus.
The liability of any Indemnified Person pursuant to this paragraph shall in no
event exceed the net proceeds received by such Indemnified Person from sales of
Transfer Restricted Securities giving rise to such obligations.
If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any person in respect of which indemnity may be sought pursuant to either of the
two preceding paragraphs, such person (the "Indemnified Party"), shall promptly
notify the person against whom such indemnity may be sought (the "Indemnifying
Person"), in writing (enclosing a copy of all papers served on such indemnified
party), and the Indemnifying Person, upon request of the Indemnified Party,
shall assume promptly the defense of such action, including the employment of
counsel reasonably satisfactory to the Indemnified Party to represent the
Indemnified Party and any others the Indemnifying Person may reasonably
designate in such proceeding and shall pay the reasonable fees and expenses
actually incurred by such counsel related to such proceeding. In any such
proceeding, any Indemnified Party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Party, unless (i) the employment of such counsel shall have
been specifically authorized in writing by the Indemnifying Person (ii) the
Indemnifying Person failed promptly to assume the defense and employ counsel
reasonably satisfactory to the Indemnified Party or (iii) the named parties to
any such action (including any impleaded parties) include both such Indemnified
Party and the Indemnifying Person, or any affiliate of the Indemnifying Person,
and such Indemnified Party shall have been reasonably advised by counsel that
there may be one or more legal defenses available to it which are different from
or additional to those available to the Indemnifying Person or such affiliate of
the Indemnifying Person (in which case the Indemnifying Person shall not have
the right to assume the defense of such action on behalf of such Indemnified
Party). In any such case, the Indemnifying Person shall not, in connection with
any one such action or separate but substantially similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more than one separate
firm of attorneys (in addition to any local counsel), for all such indemnified
parties, which firm shall be designated in writing by those indemnified parties
who sold a majority in outstanding aggregate principal amount of Transfer
Restricted Securities sold by all such indemnified parties, and any such
separate firm
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for the Issuer and the Guarantor, their directors, their officers and such
control persons of the Issuer and the Guarantor shall be designated in writing
by the Guarantor. The Indemnifying Person shall not be liable for any
settlement of any proceeding effected without its written consent, which consent
shall not be unreasonably withheld, but if settled with such consent or if there
be a final judgment for the plaintiff, the Indemnifying Person agrees to
indemnify any Indemnified Party from and against any loss or liability by reason
of such settlement or judgment. No Indemnifying Person shall, without the prior
written consent of the Indemnified Party, effect any settlement of any pending
or threatened proceeding in respect of which any Indemnified Party is or could
have been a party and indemnity could have been sought hereunder by such
Indemnified Party, unless such settlement includes an unconditional release of
such Indemnified Party from all liability on claims that are the subject matter
of such proceeding.
If the indemnification provided for in the first and second paragraphs
of this Section 6 is unavailable to an Indemnified Party in respect of any
losses, claims, damages, liabilities, judgments, actions or expenses referred to
therein (other than by reason of the exceptions provided therein), then each
Indemnifying Person under such paragraphs, in lieu of indemnifying such
Indemnified Party thereunder, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such losses, claims, damages, liabilities,
or expenses (i) in such proportion as is appropriate to reflect the relative
benefits of the Indemnified Party on the one hand and the Indemnifying Person(s)
on the other in connection with the statements or omissions that resulted in
such losses, claims, damages, liabilities or expenses or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Indemnifying Person(s)
and the Indemnified Party, as well as any other relevant equitable
considerations. The relative fault of the Issuer and the Guarantor on the one
hand and any Indemnified Party(s) on the other shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Issuer and the Guarantor or by such
Indemnified Party(s) and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The parties agree that it would not be just and equitable if
contribution pursuant to this Section 6 were determined by PRO RATA allocation
(even if such indemnified parties were treated as one entity for such purpose),
or by any other
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<PAGE>
method of allocation that does not take account of the equitable considerations
referred to in the immediately preceding paragraph. The amount paid or payable
by an Indemnified Party as a result of the losses, liabilities, claims, damages,
judgments, actions and expenses referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any reasonable legal or other expenses actually incurred by such
Indemnified Party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 6, in no event shall
an Indemnified Person be required to contribute any amount in excess of the
amount by which proceeds received by such Indemnified Person from sales of
Transfer Restricted Securities exceeds the amount of any damages that such
Indemnified Person has otherwise been required to pay by reason of such untrue
or alleged untrue statement or omission or alleged omission. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act), shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section 6
will be in addition to any liability which the indemnifying parties may
otherwise have to the indemnified parties referred to above. The Indemnified
Persons' obligations to contribute pursuant to this Section 6 are several in
proportion to the respective principal amount of Convertible Preferred
Securities sold by each of the Indemnified Persons hereunder and not joint.
7. RULES 144 AND 144A
The Issuer and the Guarantor covenant that they will file the reports
required to be filed by them pursuant to the Securities Act and the Exchange Act
and the rules and regulations adopted by the SEC thereunder in a timely manner
and, if at any time the Issuer and the Guarantor are not required to file such
reports, they will, upon the request of any Holder of Transfer Restricted
Securities, make available information required by Rule 144 and Rule 144A under
the Securities Act in order to permit sales pursuant to Rule 144 and Rule 144A.
The Issuer and the Guarantor further covenant that they will take such further
action as any Holder of Transfer Restricted Securities may reasonably request,
all to the extent required from time to time to enable such Holder to sell
Transfer Restricted Securities without registration under the Securities Act
within the limitation of the exemptions provided by (a) Rule 144 and Rule 144A
or (b) any similar rule or regulation hereafter adopted by the SEC.
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<PAGE>
8. UNDERWRITTEN REGISTRATIONS
(a) If any of the Transfer Restricted Securities covered by any Shelf
Registration Statement are to be sold in an underwritten offering, the
investment banker or investment bankers and manager or managers that will manage
the offering will be selected by the Holders of a majority in aggregate
principal amount of such Transfer Restricted Securities included in such
offering and shall be reasonably acceptable to the Issuer and the Guarantor.
The Issuer and the Guarantor shall not be obligated to arrange for more than one
underwritten offering during the Effectiveness Period.
No Holder of Transfer Restricted Securities may participate in any
underwritten registration hereunder, unless such Holder (a) agrees to sell such
Holder's Transfer Restricted Securities on the basis provided in any
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements.
(b) Each Holder of Transfer Restricted Securities agrees, if requested
(pursuant to a timely written notice) by the managing underwriters in an
underwritten offering or by a placement agent in a private offering of the
Issuer's or the Guarantor's securities, not to effect any private sale or
distribution (including a sale pursuant to Rule 144(k) or Rule 144A under the
Securities Act, but excluding non-public sales to any of its affiliates,
officers, directors, employees and controlling persons), of any of the
Convertible Preferred Securities, Convertible Debentures or Underlying Common
Stock or securities convertible into or exercisable or exchangeable therefor,
during the period beginning 10 days prior to, and ending 90 days after, the
closing date of the underwritten offering.
The foregoing provisions shall not apply to any Holder of Transfer
Restricted Securities if such Holder is prevented by applicable statute or
regulation from entering into any such agreement.
The Guarantor agrees not to offer, sell, contract to sell or otherwise
transfer or dispose of any debt securities of the Issuer or the Guarantor or any
warrants, rights or options to purchase or otherwise acquire securities of the
Guarantor (other than (i) the Convertible Preferred Securities, (ii) commercial
paper issued in the ordinary course of business, (iii) securities issued in
transactions not registered
20
<PAGE>
under the Securities Act (although they may be subject to registration rights
agreements) in connection with acquisitions by the Guarantor or any of its
subsidiaries or pursuant to agreements of the Guarantor entered into prior to
the 10 day period referred to below which were not entered into in contemplation
of these restrictions, (iv) securities issued pursuant to employee benefit plans
and (v) securities issued upon exercise of stock options or convertible or
exchangeable securities outstanding prior to the 10 day period referred to
below ), during such reasonable and customary period beginning 10 days prior to,
and ending 60 days after the closing date of each underwritten offering made
pursuant to such Registration Statement as the managing underwriters therefor
request, without the prior written consent of such managing underwriters of an
underwritten offering of Transfer Restricted Securities covered by a
Registration Statement filed pursuant to Section 2 hereof; PROVIDED, HOWEVER,
that the Guarantor shall not be obligated to comply with the last paragraph of
this Section 8 more than once unless certain Holders of Transfer Restricted
Securities have not been given the benefit of this provision because of some
action on the part of the Guarantor (and in no case shall the Guarantor be
obligated to comply with this provision on more than one occasion in any 12-
month period.
9. MISCELLANEOUS
(a) OTHER REGISTRATION RIGHTS. The Guarantor may grant registration
rights that would permit any Person that is a third party the right to piggyback
on any Shelf Registration Statement; PROVIDED that if the managing underwriter,
if any, of such offering delivers an opinion to the selling Holders that the
total amount of securities which they and the holders of such piggyback rights
intend to include in any Shelf Registration Statement is so large as to
materially adversely affect the success of such offering (including the price at
which such securities can be sold), then only the amount, number or kind of
securities to be offered for the account of holders of such piggyback rights
will be reduced to the extent necessary to reduce the total amount of securities
to be included in such offering to the amount, number or kind recommended by the
managing underwriter prior to any reduction in the amount of Transfer Restricted
Securities to be included.
(b) REMEDIES. In the event of a breach by the Issuer or the
Guarantor of any of its obligations under this Agreement, each Holder of
Transfer Restricted Securities, in addition to being entitled to exercise all
rights provided herein, in the Indenture or, in the case of the Initial
Purchasers, in the Purchase Agreement, or granted by law, including recovery of
damages, will be entitled to specific performance of its rights under this
Agreement. Subject to Section 3, the Issuer and
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<PAGE>
the Guarantor agree that monetary damages would not be adequate compensation for
any loss incurred by reason of a breach by any of them of any of the provisions
of this Agreement and hereby further agree that, in the event of any action for
specific performance in respect of such breach, they shall waive the defense
that a remedy at law would be adequate.
(c) NO INCONSISTENT AGREEMENTS. The Issuer and the Guarantor have
not, as of the date hereof, and they shall not, after the date of this
Agreement, enter into any agreement with respect to any of their respective
securities that is inconsistent with the rights granted to the Holders of
Transfer Restricted Securities in this Agreement or otherwise conflicts with the
provisions hereof.
(d) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to or departures from the provisions
hereof may not be given, unless the Issuer has obtained the written consent of
Holders of at least a majority of the then outstanding aggregate principal
amount of Transfer Restricted Securities. Notwithstanding the foregoing, a
waiver or consent to or departure from the provisions hereof with respect to a
matter that relates exclusively to the rights of Holders whose securities are
being sold pursuant to a Registration Statement and that does not directly or
indirectly affect, impair, limit or compromise the rights of other Holders may
be given by Holders of at least a majority in aggregate principal amount of the
Transfer Restricted Securities being sold by such Holders pursuant to such
Registration Statement; PROVIDED that the provisions of this sentence may not be
amended, modified or supplemented except in accordance with the provisions of
the immediately preceding sentence.
(e) NOTICES. All notices and other communications (including,
without limitation, any notices or other communications to the Trustee),
provided for or permitted hereunder shall be made in writing by hand-delivery,
registered first-class mail, next-day air courier or telecopier:
(i) if to a Holder of Transfer Restricted Securities, at the most
current address given by the Trustee to the Issuer;
22
<PAGE>
(ii) if to the Issuer or the Guarantor, Sun Healthcare Group, Inc.,
101 Sun Avenue, N.E., Albuquerque, New Mexico 87109, Attention: Chief
Financial Officer, with a copy to Shearman & Sterling, 555 California
Street, Suite 2000, San Francisco, California 94104, Attention: William H.
Hinman, Esq.; and
(iii) if to any Initial Purchasers, c/o 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 at 300 South Grand
Avenue, Suite 3400, Los Angeles, California 90071, Attention: Jonathan H.
Grunzweig, Esq.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; five business days after
being deposited in the mail, postage prepaid, if mailed; one business day after
being timely delivered to a nationally recognized next-day air courier, if made
by next-day air courier; and when receipt is acknowledged by the addressee, if
telecopied on a business day on such business day, if not on a business day, on
the first business day thereafter.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee under the
Indenture at the address specified in such Indenture.
(f) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the parties
hereto, including, without limitation and without the need for an express
assignment, subsequent Holders of Transfer Restricted Securities. The Issuer
and the Guarantor agree that the Holders of the Transfer Restricted Securities
shall be third party creditor beneficiaries to the agreements made hereunder by
the Initial Purchasers, the Issuer and the Guarantor, and each Holder shall have
the right to enforce such agreements directly to the extent it deems such
enforcement necessary or advisable to protect its rights hereunder.
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
23
<PAGE>
(h) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(j) SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties hereto that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
(k) ENTIRE AGREEMENT. This Agreement, together with the Purchase
Agreement, is intended by the parties hereto as a final expression of their
agreement, and is intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein and therein.
(l) SECURITIES HELD BY THE ISSUER, THE GUARANTOR OR THEIR RESPECTIVE
AFFILIATES. Whenever the consent or approval of Holders of a specified
percentage of Transfer Restricted Securities is required hereunder, Transfer
Restricted Securities held by the Issuer, the Guarantor, or their respective
affiliates (as such term is defined in Rule 405 under the Securities Act) (other
than the Initial Purchasers or subsequent Holders of Transfer Restricted
Securities if such subsequent Holders are deemed to be affiliates solely by
reason of their holdings of such Transfer Restricted Securities), shall not be
counted in determining whether such consent or approval was given by the Holders
of such required percentage.
(m) SURVIVAL. This Agreement is intended to survive the consummation
of the transactions contemplated by the Purchase Agreement. The indemnification
and contribution obligations under Section 7 of this Agreement shall survive the
termination of the Issuer's and the Guarantor's obligations under Section 2 of
this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
SUN FINANCING I
By: /s/ Robert F. Murphy
-----------------------------------------
Name: Robert F. Murphy
Title: Administrative Trustee
SUN HEALTHCARE GROUP, INC.
By: /s/ Robert D. Woltil
-----------------------------------------
Name: Robert D. Woltil
Title: Chief Financial Officer
<PAGE>
The foregoing Registration Rights
Agreement is hereby confirmed and
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 4F
COMMON SECURITIES PURCHASE AGREEMENT
COMMON SECURITIES SUBSCRIPTION AGREEMENT, dated as of May 4, 1998
(this "Agreement"), between Sun Financing I, a statutory business trust
organized under the laws of the State of Delaware (the "Trust"), and Sun
Healthcare Group, Inc., a Delaware corporation (the "Buyer"), relating to the
Trust's 7% Common Securities (liquidation amount $25 per common security)
representing undivided beneficial interests in the Trust (the "Common
Securities").
WHEREAS, the Buyer, as sponsor of the Trust, desires to purchase from
the Trust, and the Trust desires to sell to the Buyer, certain of the Trust's
securities.
NOW, THEREFORE, the parties hereto agree as follows:
i. The Buyer hereby subscribes for and offers to purchase and the
Trust hereby accepts such offer and agrees to issue and sell to the Buyer
contemporaneous with the Closing Date (as defined in the Purchase Agreement,
dated April 28, 1998, among the Buyer, the Trust and each of the underwriters
named therein), 426,805.25 Common Securities with an aggregate liquidation
amount with respect to the assets of the Trust of $10,670,131.25 in
consideration of the payment on or before the date hereof of $10,670,131.25 in
immediately available funds.
ii. The Trust represents and warrants that, upon execution and
delivery to the Buyer, the Common Securities will be duly authorized, validly
issued, fully paid and non-assessable and entitled to the benefits and subject
to the terms of the Amended and Restated Declaration of Trust, dated as of May
4, 1998, between the Buyer, as sponsor, The Bank of New York, as Property
Trustee, The Bank of New York (Delaware), as Delaware Trustee, and Robert D.
Woltil, William C. Warrick and Robert F. Murphy, as Administrative Trustees.
iii. THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE
LAWS OF THE STATE OF NEW YORK, AND FOR ALL PURPOSES SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF SAID STATE, WITHOUT REGARD TO CONFLICTS
OF LAW PRINCIPLES THEREOF.
<PAGE>
IN WITNESS WHEREOF, each of the Trust and the Buyer has caused this
Agreement to be signed by its duly authorized officers as of the date first
above written.
SUN FINANCING I,
as the Trust
By: /s/ Robert F. Murphy
-------------------------------------
Name: Robert F. Murphy
Title: Administrative Trustee
SUN HEALTHCARE GROUP, INC.,
as the Buyer
By: /s/ Robert D. Woltil
-------------------------------------
Name: Robert D. Woltil
Title: Chief Financial Officer
<PAGE>
------------------------------------
------------------------------------
COMMON SECURITIES GUARANTEE AGREEMENT
SUN HEALTHCARE GROUP, INC.
DATED AS OF MAY 4, 1998
------------------------------------
------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1. Definitions and Interpretation. . . . . . . . . . . . . . . . . . . .2
ARTICLE II
GUARANTEE
SECTION 2.1. Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
SECTION 2.2. Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
SECTION 2.3. Waiver of Notice and Demand . . . . . . . . . . . . . . . . . . . . .4
SECTION 2.4. Obligations Not Affected. . . . . . . . . . . . . . . . . . . . . . .4
SECTION 2.5. Rights of Holders . . . . . . . . . . . . . . . . . . . . . . . . . .5
SECTION 2.6. Guarantee of Payment. . . . . . . . . . . . . . . . . . . . . . . . .6
SECTION 2.7. Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
SECTION 2.8. Independent Obligations . . . . . . . . . . . . . . . . . . . . . . .6
SECTION 2.9. Acknowledgment by Guarantor. . . . . . . . . . . . . . . . . . . . ..6
ARTICLE III
LIMITATION OF TRANSACTIONS; RANKING
SECTION 3.1. Limitation of Transactions. . . . . . . . . . . . . . . . . . . . . .7
SECTION 3.2. Ranking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
ARTICLE IV
TERMINATION
SECTION 4.1. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
ARTICLE V
MISCELLANEOUS
SECTION 5.1. Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . .8
SECTION 5.2. Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
SECTION 5.3. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
SECTION 5.4. Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 5.5. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
<PAGE>
COMMON SECURITIES GUARANTEE AGREEMENT
This COMMON SECURITIES GUARANTEE AGREEMENT (the "Common Securities
Guarantee"), dated as of May 4,1998, is executed and delivered by Sun Healthcare
Group, Inc., a Delaware corporation (the "Guarantor"), for the benefit of the
Holders (as defined herein) from time to time of the Common Securities (as
defined herein) of Sun Financing I, a Delaware statutory business trust (the
"Trust").
WHEREAS, pursuant to an Amended and Restated Declaration of Trust (the
"Declaration"), dated as of May 4, 1998, among the trustees of the Trust named
therein, the Guarantor, as sponsor, and the Holders from time to time of
undivided beneficial interests in the assets of the Trust, the Trust is issuing
on the date hereof 426,805.25 Common Securities, having a stated liquidation
amount of $25 per Common Security, designated the 7% Trust Issued Common
Securities (the "Common Securities"), designated the "7% Common Securities";
WHEREAS, as incentive for the Holders to purchase the Common
Securities, the Guarantor desires irrevocably and unconditionally to agree, to
the extent set forth in this Common Securities Guarantee, to guarantee the
obligations of the Trust to the Holders on the terms and conditions set forth
herein;
WHEREAS, the Guarantor is also executing and delivering a guarantee
agreement (the "Convertible Preferred Securities Guarantee") in substantially
identical terms to this Common Securities Guarantee for the benefit of the
holders of the Convertible Preferred Securities (as defined herein), except that
if an Event of Default (as defined in the Indenture), has occurred and is
continuing, the rights of Holders to receive Guarantee Payments (as defined
herein) under this Common Securities Guarantee shall be subordinated to the
rights of holders of Convertible Preferred Securities to receive Guarantee
Payments (as defined in the Convertible Preferred Securities Guarantee) under
the Convertible Preferred Securities Guarantee; and
NOW, THEREFORE, in consideration of the purchase by each Holder, which
purchase the Guarantor hereby agrees shall benefit the Guarantor, the Guarantor
executes and delivers this Common Securities Guarantee for the benefit of the
Holders.
<PAGE>
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1. DEFINITIONS AND INTERPRETATION
In this Common Securities Guarantee, unless the context otherwise
requires:
(a) Capitalized terms used in this Common Securities Guarantee but
not defined in the preamble above have the respective meanings assigned to
them in this Section 1.1;
(b) terms defined in the Declaration as at the date hereof have the
same meaning when used in this Common Securities Guarantee unless otherwise
defined in the Common Securities Guarantee;
(c) a term defined anywhere in this Common Securities Guarantee has
the same meaning throughout;
(d) all references to "the Common Securities Guarantee" or "this
Common Securities Guarantee" are to this Common Securities Guarantee as
modified, supplemented or amended from time to time;
(e) all references in this Common Securities Guarantee to Articles
and Sections are to Articles and Sections of this Common Securities
Guarantee unless otherwise specified;
(f) a term defined in the Trust Indenture Act of 1939, as amended,
has the same meaning when used in this Common Securities Guarantee, unless
otherwise defined in this Common Securities Guarantee or unless the context
otherwise requires;
(g) a reference to the singular includes the plural and vice versa;
(h) a reference to any Person shall include its successors and
assigns;
(i) a reference to any agreement or instrument shall mean such
agreement or instrument as supplemented, modified, amended, or amended and
restated, and in effect from time to time; and
2
<PAGE>
(j) a reference to any statute, law, rule or regulation, shall
include any amendments thereto applicable to the relevant Person, and any
successor statute, law, rule or regulation.
"Convertible Preferred Securities" means the securities representing
preferred undivided beneficial interests in the assets of the Trust.
"Guarantee Payments" means the following payments or distributions,
without duplication, with respect to the Common Securities, to the extent not
paid or made by the Trust: (i) any accrued and unpaid Distributions (as defined
in the Declaration) that are required to be paid on the Common Securities to the
extent the Trust has funds available therefor, (ii) the redemption price, with
respect to any Common Securities called for redemption by the Trust (the
"Redemption Price"), to the extent the Trust has funds available therefor, and
(iii) upon a voluntary or involuntary dissolution, winding-up or termination of
the Trust (other than in connection with the distribution of Convertible
Debentures to the Holders or the redemption of all the Common Securities (as
provided in the Declaration)), the lesser of (a) the aggregate of the
liquidation amount and all accrued and unpaid Distributions on the Common
Securities to the date of payment to the extent the Trust has funds available
therefor and (b) the amount of assets of the Trust remaining available for
distribution to Holders upon the liquidation of the Trust (in either case, the
"Liquidation Distribution").
"Holder" shall mean any holder, as registered on the books and records
of the Trust, of any Common Securities.
"Indenture" means the Indenture dated as of May 4, 1998, among the
Guarantor and The Bank of New York, as trustee, pursuant to which the
Convertible Debentures are to be issued to the Property Trustee (as defined in
the Indenture) of the Trust.
"Indenture Event of Default" means an event of default as defined in
the Indenture.
3
<PAGE>
ARTICLE II
GUARANTEE
SECTION 2.1. GUARANTEE
The Guarantor irrevocably and unconditionally agrees to pay in full to
the Holders (except to the extent paid by the Trust), as and when due,
regardless of any defense, right of set-off or counterclaim that the Trust may
have or assert, the Guarantee Payments, without duplication. The Guarantor's
obligation to make a Guarantee Payment may be satisfied by direct payment of the
required amounts by the Guarantor to the Holders or by causing the Trust to pay
such amounts to the Holders.
SECTION 2.2. SUBORDINATION
Upon the occurrence and during the continuation of an Event of Default
under the Indenture, holders of Convertible Preferred Securities shall have
priority over Holders with respect to distributions and payments on liquidation,
redemption and otherwise.
SECTION 2.3. WAIVER OF NOTICE AND DEMAND
The Guarantor hereby waives notice of acceptance of this Common
Securities Guarantee and of any liability to which it applies or may apply,
presentment, demand for payment, any right to require a proceeding first against
the Trust or any other Person before proceeding against the Guarantor, protest,
notice of nonpayment, notice of dishonor, notice of redemption and all other
notices and demands.
SECTION 2.4. OBLIGATIONS NOT AFFECTED
The obligations, covenants, agreements and duties of the Guarantor
under this Common Securities Guarantee shall in no way be affected or impaired
by reason of the happening from time to time of any of the following:
(a) the release or waiver, by operation of law or otherwise, of the
performance or observance by the Trust of any express or implied agreement,
covenant, term or condition relating to the Common Securities to be
performed or observed by the Trust;
4
<PAGE>
(b) the extension of time for the payment by the Trust of all or any
portion of the Distributions, Redemption Price, Liquidation Distribution or
any other sums payable under the terms of the Common Securities or the
extension of time for the performance of any other obligation under,
arising out of, or in connection with, the Common Securities (other than an
extension of time for payment of Distributions, Redemption Price,
Liquidation Distribution or other sum payable that results from the
extension of any interest payment period on the Convertible Debentures or
any extension of the maturity date of the Convertible Debentures permitted
by the Indenture);
(c) any failure, omission, delay or lack of diligence on the part of
the Holders to enforce, assert or exercise any right, privilege, power or
remedy conferred on the Holders pursuant to the terms of the Common
Securities, or any action on the part of the Trust granting indulgence or
extension of any kind;
(d) the voluntary or involuntary liquidation, dissolution, sale of
any collateral, receivership, insolvency, bankruptcy, assignment for the
benefit of creditors, reorganization, arrangement, composition or
readjustment of debt of, or other similar proceedings affecting, the Trust
or any of the assets of the Trust;
(e) any invalidity of, or defect or deficiency in, the Common
Securities;
(f) the settlement or compromise of any obligation guaranteed hereby
or hereby incurred; or
(g) any other circumstance whatsoever that might otherwise constitute
a legal or equitable discharge or defense of a guarantor, it being the
intent of this Section 2.4 that the obligations of the Guarantor hereunder
shall be absolute and unconditional under any and all circumstances.
There shall be no obligation of the Holders or any other Persons to
give notice to, or obtain consent of, the Guarantor with respect to the
happening of any of the foregoing.
SECTION 2.5. RIGHTS OF HOLDERS
The Guarantor expressly acknowledges that any Holder may directly
institute a legal proceeding against the Guarantor to enforce the obligations of
the
5
<PAGE>
Guarantor under this Common Securities Guarantee without first instituting a
legal proceeding against the Trust, the Guarantee Trustee or any other Person or
entity.
SECTION 2.6. GUARANTEE OF PAYMENT
This Common Securities Guarantee creates a guarantee of payment and
not of collection.
SECTION 2.7. SUBROGATION
The Guarantor shall be subrogated to all (if any) rights of the
Holders against the Trust in respect of any amounts paid to such Holders by the
Guarantor under this Common Securities Guarantee; PROVIDED, HOWEVER, that the
Guarantor shall not (except to the extent required by mandatory provisions of
law) be entitled to enforce or exercise any rights that it may acquire by way of
subrogation or any indemnity, reimbursement or other agreement, in all cases as
a result of payment under this Common Securities Guarantee, if, at the time of
any such payment, any amounts are due and unpaid under this Common Securities
Guarantee. If any amount shall be paid to the Guarantor in violation of the
preceding sentence, the Guarantor agrees to hold such amount in trust for the
Holders and to pay over such amount to the Holders.
SECTION 2.8. INDEPENDENT OBLIGATIONS
The Guarantor acknowledges that its obligations hereunder are
independent of the obligations of the Trust with respect to the Common
Securities and that the Guarantor shall be liable as principal and as debtor
hereunder to make Guarantee Payments pursuant to the terms of this Common
Securities Guarantee notwithstanding the occurrence of any event referred to in
subsections (a) through (g), inclusive, of Section 2.4 hereof.
SECTION 2.9. ACKNOWLEDGMENT BY GUARANTOR
The Guarantor acknowledges its obligation to issue and deliver common
stock upon the conversion of the Common Securities.
6
<PAGE>
ARTICLE III
LIMITATION OF TRANSACTIONS; RANKING
SECTION 3.1. LIMITATION OF TRANSACTIONS
So long as any Common Securities remain outstanding, if (i) the
Company has exercised its option to defer interest payments on the Convertible
Debentures by extending the interest payment period and such extension shall be
continuing, (ii) if there shall have occurred any Event of Default under this
Common Securities Guarantee, or (iii) there shall have occurred and be
continuing any event that, with the giving of notice or the lapse of time or
both, would constitute an Indenture Event of Default, then the Guarantor has
agreed (a) not to declare or pay dividends on, make a distribution with respect
to, or redeem, purchase, acquire or make a liquidation payment with respect to,
any of its capital stock (other than (i) purchases or acquisitions of shares of
common stock in connection with the satisfaction by the Guarantor of its
obligations under any employee benefit plans or the satisfaction by the
Guarantor of its obligations pursuant to any contract or security requiring the
Guarantor to purchase shares of common stock, (ii) as a result of a
reclassification of the Guarantor's capital stock or the exchange or conversion
of one class or series of the Guarantor's capital stock for another class or
series of the Guarantor's capital stock or (iii) the purchase of fractional
interests in shares of the Guarantor's capital stock pursuant to the conversion
or exchange provisions of such capital stock or the security being converted or
exchanged (or make any guarantee payments with respect to the foregoing), (b)
not to make any payment of interest, principal or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank PARI PASSU
with or junior to the Convertible Debentures (except by conversion into or
exchange for shares of its capital stock), and (c) not to make any guarantee
payments with respect to the foregoing (other than pursuant to this Common
Securities Guarantee).
SECTION 3.2. RANKING
(a) This Common Securities Guarantee will constitute an unsecured
obligation of the Guarantor and will rank (i) subordinate and junior to all
other liabilities of the Guarantor except any liabilities that may be PARI PASSU
expressly by their terms, (ii) PARI PASSU with the most senior preferred stock
issued from time to time by the Guarantor and with any guarantee now or
hereafter entered into by the Guarantor in respect of any preferred or
preference stock or preferred securities of any affiliate of the Guarantor and
(iii) senior to the Guarantor's common stock.
7
<PAGE>
(b) The holders of any obligations of the Guarantor that are senior in
priority to the obligations under this Common Securities Guarantee will be
entitled to all of the rights inuring to the holders of "Senior Indebtedness"
under Article 12 of the Indenture, and the holders of the Common Securities will
be subject to all of the terms and conditions of such Article 12 with respect to
any claims or rights hereunder with the same effect as though fully set forth
herein.
ARTICLE IV
TERMINATION
SECTION 4.1. TERMINATION
This Common Securities Guarantee will terminate as to each Holder upon
(i) full payment of the Redemption Price of the Common Securities;(ii) the
distribution of the Guarantor's common stock to the Holders in respect of the
conversion of the Convertible Preferred Securities into the Guarantor's common
stock or the distribution of the Convertible Debentures (as defined in the
Declaration) to the Holders of all of the Common Securities; or (iii) full
payment of the amounts payable in accordance with the Declaration upon
liquidation of the Trust. Notwithstanding the foregoing, this Common Securities
Guarantee will continue to be effective or will be reinstated, as the case may
be, if at any time any Holder must restore payment of any sums paid under the
Common Securities or under this Common Securities Guarantee.
ARTICLE V
MISCELLANEOUS
SECTION 5.1. SUCCESSORS AND ASSIGNS
All guarantees and agreements contained in this Common Securities
Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Guarantor and shall inure to the benefit of the Holders
of the Common Securities then outstanding.
SECTION 5.2. AMENDMENTS
Except with respect to any changes that do not materially adversely
affect the rights of Holders (in which case no vote will be required), this
Common Securities
8
<PAGE>
Garantee may be amended only with the prior approval of the Holders of at
least a majority in liquidation amount of all the outstanding Common
Securities. The provisions of Section 11.2 of the Declaration with respect
to meetings of Holders of the Securities apply to the giving of such approval.
SECTION 5.3. NOTICES
All notices provided for in this Common Securities Guarantee shall be
in writing, duly signed by the party giving such notice, and shall be delivered,
sent by facsimile or courier or mailed by registered or certified mail, as
follows:
(a) if given to the Trust, in care of the Administrative Trustees at
the Trust's mailing address set forth below (or such other address as the
Trust may give notice of to the Holders):
Sun Financing I
101 Sun Avenue, N.E.
Albuquerque, New Mexico 87109
Attention: Robert F. Murphy, Esq.
Senior Vice President,
General Counsel and Secretary
(b) if given to the Guarantor, at the Guarantor's mailing address set
forth below (or such other address as the Guarantor may give notice of to
the Holders):
Sun Healthcare Group, Inc.
101 Sun Avenue, N.E.
Albuquerque, New Mexico 87109
Attention: Robert F. Murphy, Esq.
Senior Vice President,
General Counsel and Secretary
(c) if given to any Holder, at the address set forth on the books and
records of the Trust.
9
<PAGE>
All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by registered or certified
first class mail, postage prepaid except that if a notice or other document is
refused delivery or cannot be delivered because of a changed address of which no
notice was given, such notice or other document shall be deemed to have been
delivered on the date of such refusal or inability to deliver.
SECTION 5.4. BENEFIT
This Common Securities Guarantee is solely for the benefit of the
Holders and is not separately transferable from the Common Securities.
SECTION 5.5. GOVERNING LAW
THIS COMMON SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK AND ALL
RIGHTS AND REMEDIES SHALL BE GOVERNED BY SUCH LAWS WITHOUT REGARD TO ITS
PRINCIPLES OF CONFLICTS OF LAWS.
10
<PAGE>
THIS COMMON SECURITIES GUARANTEE AGREEMENT is executed as of the day
and year first above written.
SUN HEALTHCARE GROUP, INC.,
as Guarantor
By: /s/ Robert D. Woltil
--------------------------------
Name: Robert D. Woltil
Title: Chief Financial Officer
<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(A)
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>
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) / /
-----------------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
One Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
-----------------------------
Sun Healthcare Group, Inc.
(Exact name of obligor as specified in its charter)
Delaware 85-0410612
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
101 Sun Avenue, N.E.
Albuquerque, NM 87109
(Address of principal executive offices) (Zip code)
-----------------------------
Convertible Subordinated Debentures
(Title of the indenture securities)
<PAGE>
1. General information. Furnish the following information as to the
Trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
- ------------------------------------------------------------------------------
Name Address
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Superintendent of the Banks of the 2 Rector Street, New York,
State of New York N.Y. 10006, and Albany, N.Y.
12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
</TABLE>
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the Commission,
are incorporated herein by reference as an exhibit hereto, pursuant to
Rule 7a-29 under the Trust Indenture Act of 1939 (the "Act") and 17
C.F.R. 229.10(d).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains
the authority to commence business and a grant of powers to
exercise corporate trust powers. (Exhibit 1 to Amendment No. 1 to
Form T-1 filed with Registration Statement No. 33-6215, Exhibits
1a and 1b to Form T-1 filed with Registration Statement No.
33-21672 and Exhibit 1 to Form T-1 filed with Registration
Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form
T-1 filed with Registration Statement No. 33-31019.)
2
<PAGE>
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
3
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of
New York, a corporation organized and existing under the laws of the State of
New York, has duly caused this statement of eligibility to be signed on its
behalf by the undersigned, thereunto duly authorized, all in The City of New
York, and State of New York, on the 30th day of July, 1998.
THE BANK OF NEW YORK
By: /s/ ILIANA ACEVEDO
----------------------------------
Name: ILIANA ACEVEDO
Title: ASSISTANT TREASURER
4
<PAGE>
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) / /
-----------------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
One Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
-----------------------------
Sun Financing I
(Exact name of obligor as specified in its charter)
Delaware 85-0452046
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
101 Sun Avenue, N.E.
Albuquerque, NM 87109
(Address of principal executive offices) (Zip code)
-----------------------------
Convertible Trust Issued Preferred Securities
(Title of the indenture securities)
<PAGE>
1. General information. Furnish the following information as to the
Trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
- ------------------------------------------------------------------------------
Name Address
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Superintendent of the Banks of the 2 Rector Street, New York,
State of New York N.Y. 10006, and Albany, N.Y.
12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
</TABLE>
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the Commission,
are incorporated herein by reference as an exhibit hereto, pursuant to
Rule 7a-29 under the Trust Indenture Act of 1939 (the "Act") and 17
C.F.R. 229.10(d).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains
the authority to commence business and a grant of powers to
exercise corporate trust powers. (Exhibit 1 to Amendment No. 1 to
Form T-1 filed with Registration Statement No. 33-6215, Exhibits
1a and 1b to Form T-1 filed with Registration Statement No.
33-21672 and Exhibit 1 to Form T-1 filed with Registration
Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form
T-1 filed with Registration Statement No. 33-31019.)
2
<PAGE>
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
3
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of
New York, a corporation organized and existing under the laws of the State of
New York, has duly caused this statement of eligibility to be signed on its
behalf by the undersigned, thereunto duly authorized, all in The City of New
York, and State of New York, on the 30th day of July, 1998.
THE BANK OF NEW YORK
By: /s/ ILIANA ACEVEDO
----------------------------------
Name: ILIANA ACEVEDO
Title: ASSISTANT TREASURER
4
<PAGE>
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) / /
-----------------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
One Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
-----------------------------
Sun Healthcare Group, Inc.
(Exact name of obligor as specified in its charter)
Delaware 85-0410612
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
101 Sun Avenue, N.E.
Albuquerque, NM 87109
(Address of principal executive offices) (Zip code)
-----------------------------
Guarantees of Convertible Trust Issued Preferred Securities
of Sun Fiancing I
(Title of the indenture securities)
<PAGE>
1. General information. Furnish the following information as to the
Trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
- ------------------------------------------------------------------------------
Name Address
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Superintendent of the Banks of the 2 Rector Street, New York,
State of New York N.Y. 10006, and Albany, N.Y.
12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
</TABLE>
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the Commission,
are incorporated herein by reference as an exhibit hereto, pursuant to
Rule 7a-29 under the Trust Indenture Act of 1939 (the "Act") and 17
C.F.R. 229.10(d).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains
the authority to commence business and a grant of powers to
exercise corporate trust powers. (Exhibit 1 to Amendment No. 1 to
Form T-1 filed with Registration Statement No. 33-6215, Exhibits
1a and 1b to Form T-1 filed with Registration Statement No.
33-21672 and Exhibit 1 to Form T-1 filed with Registration
Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form
T-1 filed with Registration Statement No. 33-31019.)
2
<PAGE>
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
3
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of
New York, a corporation organized and existing under the laws of the State of
New York, has duly caused this statement of eligibility to be signed on its
behalf by the undersigned, thereunto duly authorized, all in The City of New
York, and State of New York, on the 30th day of July, 1998.
THE BANK OF NEW YORK
By: /s/ ILIANA ACEVEDO
----------------------------------
Name: ILIANA ACEVEDO
Title: ASSISTANT TREASURER
4
