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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________
FORM 10-K
(Mark One)
/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period from to .
COMMISSION FILE NUMBER 1-12040
SUN HEALTHCARE GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 85-0410612
(State of Incorporation) (I.R.S. Employer Identification No.)
101 SUN AVENUE NE
ALBUQUERQUE, NEW MEXICO 87109
(505) 821-3355
(Address and telephone number of Registrant)
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, par value $.01
per share, and Preferred New York Stock Exchange
Stock Purchase Rights
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in the definitive proxy statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
On March 30, 1999, Sun Healthcare Group, Inc. had 60,669,825 outstanding
shares of Common Stock. Of those, 53,294,347 shares of Common Stock were held by
nonaffiliates. The aggregate market value of such Common Stock held by
nonaffiliates, based on the average of the high and low sales prices of such
shares on the New York Stock Exchange on March 30, 1999, was approximately
$59,956,140.
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SUN HEALTHCARE GROUP, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
INDEX
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PAGE
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PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . 14
Item 4. Submission of Matters to a Vote of Security Holders . . . . . 15
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . 16
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . 16
Item 7A. Quantitative and Qualitative Disclosure About Market Risk. . . 16
Item 8. Financial Statements and Supplementary Data . . . . . . . . 16
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures . . . . . . . . . . . . . . . . . . 16
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . 17
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . 20
Item 12. Security Ownership of Certain Beneficial Owners and Management 24
Item 13. Certain Relationships and Related Transactions . . . . . . . . 26
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 27
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . 37
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SunSolution(R), SunDance(R), SunScript(R), SunRise Club(R) and
CareerStaff Unlimited(R) and related names herein are registered trademarks of
Sun Healthcare Group, Inc. and its subsidiaries.
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PART I
ITEM 1. BUSINESS
GENERAL
Sun Healthcare Group, Inc., through its direct and indirect subsidiaries
(collectively referred to herein as "Sun" or the "Company"), 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. The
Company also has operations in Spain, Germany and Australia. The Company
operates through four principal business segments: (i) inpatient facilities (ii)
rehabilitation therapy, (iii) pharmaceuticals and medical supplies and (iv)
international operations. The following describes the Company's business
segments and other operations. Financial information for the business segments
is set forth in the footnotes to the Company's financial statements included
under Item 8 herein.
INPATIENT FACILITIES. At December 31, 1998, Sun owned, leased or managed
397 long-term and subacute care facilities with 44,941 licensed beds in the
United States. The Company's long-term and subacute care facilities provide
inpatient skilled nursing and custodial services as well as rehabilitative,
restorative and transitional medical services. The Company provides 24-hour
nursing care in these facilities by registered nurses, licensed practical nurses
and certified nursing aides.
REHABILITATION AND RESPIRATORY THERAPY. Sun provides rehabilitation therapy
through SunDance Rehabilitation Corporation ("SunDance") and respiratory therapy
through SunCare Respiratory Services, Inc. ("SunCare"). At December 31, 1998,
Sun provided therapy services to 1,715 facilities in 46 states, 1,294 of which
were operated by nonaffiliated parties and 421 of which were affiliated
facilities.
PHARMACEUTICALS AND MEDICAL SUPPLIES. The Company provides pharmaceuticals
through SunScript Pharmacy Corporation ("SunScript") and medical supplies
through SunChoice Medical Supply, Inc. ("SunChoice"). Pharmaceutical services
include dispensing pharmaceuticals for such purposes as infusion therapy, pain
management, antibiotic therapy and parenteral nutrition. Additional services
include providing consultant pharmacists and assistance in preparation of
billing documentation. These services are typically provided to nonaffiliated
and affiliated facilities, including subacute and skilled nursing care
facilities, assisted living facilities, group houses, correctional facilities,
mental health facilities and home healthcare companies. As of December 31, 1998,
Sun operated 34 pharmacies and two pharmaceutical billing and consulting center
in the U.S., which together provided pharmaceutical products and services to a
total of 930 long-term and subacute care facilities in 21 states, 584 of which
were nonaffiliated.
INTERNATIONAL OPERATIONS. Sun is the second largest operator of long-term
care facilities in the United Kingdom, operating 155 facilities with 8,705
licensed beds as of December 31, 1998. The Company holds a majority interest in
Eurosar, S.A. ("Eurosar"), a privately-owned company that operated 10 long-term
care facilities in Spain with 1,604 licensed beds. Sun holds 38% of the equity
of Alpha Healthcare Limited ("Alpha"), a publicly held acute care provider in
Australia that as of December 31, 1998 operated nine facilities with 616
licensed beds. As of December 31, 1998, Sun also operated five hospitals in
Australia with 309 beds. Sun holds a majority interest in Heim
Plan--Uternehmensgruppe, an operator of 16 long-term care facilities with 1,135
licensed beds in Germany. Sun also provides pharmaceutical services in the
United Kingdom, Germany and Spain and medical supplies in Australia.
OTHER OPERATIONS. The Company is also a nationwide provider of temporary
therapy staffing through CareerStaff Unlimited, Inc. ("CareerStaff").
CareerStaff provides licensed therapists skilled in the areas of physical,
occupational and speech therapy, primarily to hospitals and nursing home
contract
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service providers. At December 31, 1998, Sun had 31 division offices
providing temporary therapy staffing services in major metropolitan areas and
four division offices specializing in placements of temporary traveling
therapists in smaller cities and rural areas.
Through SunBridge, Inc. ("SunBridge"), the Company also operated 31
assisted living facilities with 3,371 beds in the U.S. as of December 31, 1998.
These facilities serve the elderly who do not need the full-time nursing care
provided by long-term or subacute care facilities but who do need some
assistance with the activities of daily living.
SunSolution, Inc. ("SunSolution") provides ancillary services for a fixed
fee to nonaffiliated facilities. SunAlliance Healthcare Services, Inc. provides
mobile radiology and laboratory services.
RECENT DEVELOPMENTS
SIGNIFICANT ACQUISITIONS. On June 30, 1998, a wholly-owned subsidiary of
the Company merged with Retirement Care Associates, Inc. ("RCA"), an operator of
98 skilled nursing facilities and assisted living centers primarily in eight
states in the southeastern United States. The Company issued approximately 7.9
million shares of its common stock in exchange for all of the outstanding shares
of capital stock of RCA. The RCA merger was accounted for as a pooling of
interests. RCA also owned approximately 65% of Contour Medical, Inc.
("Contour"), a national provider of medical/surgical supplies. On June 30, 1998,
the Company also acquired the remaining 35% of Contour. The Company issued
approximately 1.9 million shares of its common stock in exchange for all of the
remaining outstanding capital stock of Contour. The Contour acquisition was
accounted for as a purchase.
PPS. In the Balanced Budget Act of 1997 (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 prospective payment system ("PPS") for skilled
nursing facilities over a four year period. PPS became effective for the
Company's facilities acquired with RCA on July 1, 1998 and for the Company's
remaining facilities on January 1, 1999. Under PPS, Medicare pays 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 also covers
substantially all items and services furnished during a covered stay for which
reimbursement was formerly made separately under Medicare. Prior to the
implementation of PPS, such services were reimbursed on a "pass through" basis.
During the phase-in, payments will be based on a blend of the facility's
historical costs (based on 1995 cost data) and federally established per diem
rates.
Sun's revenues from its inpatient facilities have been significantly and
adversely affected by the size of the federally established per diem rate. The
new per diem rate sets limits on the amount of certain types of care the
government will pay for per patient per day. The per diem reimbursement rate has
generally been less than the amount the Company's inpatient facilities received
on a daily basis under cost based reimbursement. Moreover, since Sun treats a
greater percentage of higher acuity
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patients than many nursing homes, Sun has also been adversely impacted
because the federal per diem rates for higher acuity patients do not adequately
compensate Sun for the additional expenses and risks for caring for such
patients. Although it is unclear what the long-term impact of PPS will be on
Sun, the transition to PPS negatively impacted Sun's earnings for the six months
ended December 31, 1998 and is expected to negatively impact earnings at least
through the first six months of 1999. There can be no assurance that the
imposition of PPS will not have a long-term material adverse effect on the
results of operations and financial condition of the Company. See "Item
7--Management's Discussion and Analysis of Financial Condition and Results of
Operations."
In addition, the implementation of PPS has resulted in a greater than
expected decline in demand for the Company's therapy and pharmaceutical
services. Prior to the implementation of PPS, Sun's ancillary services, such as
rehabilitation and respiratory therapy services and pharmaceutical services, had
significantly higher operating margins than the margins associated with Sun's
long-term and subacute care facilities and accordingly such services provided
most of Suns operating profits. See "Footnotes to the Financial Statements."
Although the Company has taken and continues to take actions to reduce its costs
of providing ancillary services, there can be no assurance that the Company will
be able to maintain its prior profit margins on its ancillary services.
The Company's response to the implementation of PPS included, among other
things, the establishment of SunSolution. SunSolution provides ancillary
services for a fixed fee to nonaffiliated facilities. As of January 31, 1999,
SunSolution had secured 85 contracts with nonaffiliated facilities and the
average revenue per contract was approximately 50% less than the Company had
previously projected. There can be no assurance that the Company will develop a
market for the SunSolution products and services. In addition, there can be no
assurance that the costs of providing the contracted services will be less than
the fee received by SunSolution for such services.
INCREASE IN SURVEY, CERTIFICATION AND ENFORCEMENT ACTIVITIES. In the Summer
of 1998 the United States General Accounting Office released a report that was
severely critical of the California state agency that inspects nursing homes.
Following the release of that report, President Clinton, Secretary of Health and
Human Services Donna E. Shalala and several Congressmen called for an
enforcement "crackdown" against nursing home regulatory violations. Although the
crackdown ostensibly was directed against the state agencies that inspect
nursing facilities and enforce federal Medicare and Medicaid certification
requirements, the crackdown resulted in a significant increase in the number of
inspections, citations of regulatory deficiencies, and regulatory sanctions,
including terminations from the Medicare and Medicaid Programs, bans on Medicare
and Medicaid payment for new admissions, and civil monetary penalties.
If a facility is terminated from the Medicare and Medicaid programs, its
Medicare and Medicaid reimbursement is interrupted pending recertification, a
process that can take several months. In the interim, the facility may continue
to provide care to its residents without Medicare and Medicaid reimbursement, or
the government may involuntarily relocate Medicare and Medicaid residents to
other facilities. Terminations, bans on admission and civil monetary penalties
can cause material adverse financial and operational effects on individual
facilities.
The federal government has proposed to terminate several of the Company's
facilities from the Medicare and Medicaid programs, and has imposed bans on
admissions and civil monetary penalties against several facilities, on the basis
of alleged regulatory deficiencies. The Company typically vigorously contests
such sanctions, and in several cases has sought and obtained federal court
injunctions against proposed terminations. While the Company has been successful
to date in preventing any Medicare and Medicaid termination that it has
contested, such cases require significant legal expenses and management
attention. There can be no assurance that the federal government will not
attempt to
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terminate additional facilities of the Company from the Medicare and
Medicaid programs, or that the Company will continue to be successful contesting
such terminations.
While the entire nursing home industry has been subject to the enhanced
enforcement policy, the Company believes that the federal government may be
focusing particular enforcement attention on large for-profit multi-facility
providers such as the Company. Such companies operate approximately 30% of the
facilities in the industry. The federal government has indicated that it may in
the future adopt a policy to subject multi-facility providers to enhanced
scrutiny and sanctions if any of the provider's facilities is cited for certain
"repeat" deficiencies. Given the large number of facilities the Company
operates, such a policy could have a material adverse impact on the Company.
Although the Company has participated in industry efforts to dissuade the
Department of Health and Human Services from adopting such a policy, no
assurance can be given that such policy will not be adopted or, if adopted, that
it will not have a material adverse affect on the Company.
RESTRUCTURING. The Company commenced a comprehensive restructuring in 1998.
The restructuring included the elimination of 2,700, or six percent, of its
inpatient services employees, 4,600, or 36 percent, of its rehabilitation
therapy employees, and 190, or 13 percent, of its corporate employees through
attrition, layoffs and the elimination of vacant positions as of February 1,
1999. The Company also restructured its domestic operations to more closely
align the inpatient, rehabilitation and pharmaceutical services divisions. At
the same time, the Company eliminated certain executive positions and decreased
the layers of the management structure. The Company also restructured all of its
international operations under one subsidiary, Sun Healthcare Group
International Corporation.
COMPETITION
The long-term and subacute care industry is highly competitive. The nature
of competition varies by location. The Company'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 the Company and provide services not offered by the Company, and some are
operated by entities having greater financial and other resources and longer
operating histories than the Company. 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 the
Company. Some hospitals that either currently provide long-term and subacute
care services or are converting their under utilized facilities into long-term
and subacute care facilities are also a potential source of competition to the
Company. The Company competes with other facilities based on key competitive
factors such as its reputation for the quality and comprehensiveness of care
provided; the commitment and expertise of its staff; the innovativeness of its
treatment programs; local physician and hospital support; marketing programs;
charges for services; and the physical appearance, location and condition of its
facilities. The range of specialized services, together with the price charged
for services, are also competitive factors in attracting patients from large
referral sources.
The Company 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 the Company. 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.
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EMPLOYEES
As of February 20, 1998, the Company had approximately 80,720 full-time and
part-time employees. Of this total, there were approximately 53,741 employees at
the long-term and subacute care facilities in the United States, 8,588 employees
at the long-term care facilities in the United Kingdom, 626 employees at the
long-term care facilities in Spain, 422 employees involved in providing
long-term care services in Germany, 239 employees involved in providing acute
care services in Australia, 7,873 employees involved in providing rehabilitation
therapy services in the United States, 168 employees providing rehabilitation
therapy services in Canada, 3,264 employees at the pharmaceutical operations in
the United States, 193 employees in foreign pharmaceutical operations, 2,852
employees in the temporary therapy staffing business, 1,158 employees of the
respiratory therapy services business, 1,300 employees at the corporate and
regional offices in the United States and 296 employees at the corporate and
regional offices in the United Kingdom.
Certain of the Company's employees in Alabama, California, Connecticut,
Georgia, Massachusetts, New Mexico, Ohio, Tennessee, Washington and West
Virginia are covered by collective bargaining contracts. The unions representing
certain of the Company's employees have from time to time gone on strike. There
can be no assurance that the unions will not go on strike in the future or that
such strikes will not have a material adverse effect on the Company's results of
operations or financial condition.
CERTAIN ADDITIONAL BUSINESS RISKS
The Company's business, financial condition and operating results can be
impacted by a number of factors, including but not limited to those set forth
below, any one of which could cause the Company's actual results to vary
materially from the Company's past results or anticipated future results.
AVAILABLE LIQUIDITY
The Company's available liquidity, including cash reserves and borrowing
capacity under its Senior Credit Facility, decreased from approximately $217
million at December 31, 1997 to approximately $150 million at September 30, 1998
and it has decreased substantially since September 30, 1998. Including changes
in working capital, the Company experienced positive cash flow from operations
of approximately $28.8 million for the year ended December 31, 1997 and a
negative cash flow from operations of $56.1 million for the nine months ended
September 30, 1998. The Company's liquidity position has been negatively
affected by, among other things, the implementation of PPS and an increase in
accounts receivable. See "Recent Developments--PPS" and "--Collectability of
Certain Accounts Receivable." If the Company's liquidity position continues to
decline, the Company may need to seek additional sources of financing, and there
can be no assurance that such financing will be available. See "--Compliance
with Senior Credit Facility; Borrowing Capacity under Senior Credit Facility"
and "Item 7--Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
COMPLIANCE WITH SENIOR CREDIT FACILITY; BORROWING CAPACITY UNDER SENIOR
CREDIT FACILITY
Although the Company has not completed its financial statements for the
year ended December 31, 1998, the Company believes that as of December 31, 1998
it was not in compliance with certain of the financial covenants contained in
its Senior Credit Facility. The Company is seeking from the lenders under the
Senior Credit Facility an amendment to the Senior Credit Facility to, among
other things, cure any non-compliance and amend the financial covenants. There
can be no assurance that the Company will obtain an amendment of the Senior
Credit Facility. If the Company is unable to obtain an amendment to its Senior
Credit Facility, or if it obtains such amendment but fails to remain in
compliance with the new financial covenants, then the lenders could accelerate
the loans due under the Senior Credit Facility
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which would cause the Company to cross-default under certain of its other
indebtedness. There can be no assurance that in the event of such an
acceleration the Company would have the financial resources to repay such loans.
See "--Liquidity; Borrowing Capacity under Senior Credit Facility."
As a result of the Company's expected noncompliance with the financial
covenants, the Company will be unable to borrow additional funds under the
Senior Credit Facility until it has obtained a waiver of the noncompliance or an
amendment of the Senior Credit Facility. Until such time, the Company believes
that its only sources of funds will be currently available cash and cash
generated from operations. See "--Available Liquidity."
SUBSTANTIAL LEVERAGE; NEED FOR ADDITIONAL FINANCING
Sun has substantial indebtedness. As of September 30, 1998, Sun had on a
consolidated basis approximately $1.7 billion of indebtedness, including capital
lease obligations and $790 million of indebtedness under the Senior Credit
Facility. The Company had approximately $612.4 million of stockholders' equity
at September 30, 1998. At September 30, 1998, Sun had outstanding commitments
for construction and development costs of approximately $54.0 million in the
United States and United Kingdom. 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 $142.8 million, $142.3
million, $141.2 million, $135.2 million and $132.4 million, respectively.
The degree to which Sun is leveraged could have important consequences to
holders of Sun's common stock, 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 and 9-3/8% Senior
Subordinated Notes due 2008 and the Company's Senior Credit Facility 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. The Company expects that it may need to raise additional equity or debt
financing in the future. There can be no assurance that Sun will be successful
in raising additional equity or debt financing on terms favorable to the
Company, if at all. See "Item 7--Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
REDUCED REVENUES RESULTING FROM PROSPECTIVE PAYMENT SYSTEM
For a description of certain risks related to PPS, see "Recent Developments
- -- PPS."
RISKS ASSOCIATED WITH REIMBURSEMENT PROCESS
The Company derives a substantial percentage of its total revenues from
Medicare, Medicaid and private insurance. 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. The Company recognizes revenues from
third-party payors and accrues estimated settlement amounts in the period in
which the related services are provided. The Company 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 two to three years following
the provision of services, although the Company has from time to time
experienced delays in receiving final settlement and reimbursement from
government agencies.
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The Company has also 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, the
Company recorded negative revenue adjustments totaling 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. The
Company currently has a number of outstanding cost reports, and there can be no
assurance that the settlement of these cost reports will not result in material
negative revenue adjustments to the Company. The Company's results of operations
would be materially and adversely affected if the amounts actually received from
third-party payors in any reporting period differs materially from the amounts
accrued in prior periods. See "Item 7--Management's Discussion and Analysis of
Financial Condition and Results of Operations--Effects from Changes in
Reimbursement."
COLLECTABILITY OF CERTAIN ACCOUNTS RECEIVABLE
The Company's accounts receivable increased from approximately $550.6
million at December 31, 1997 to approximately $651.6 million at September 30,
1998. The Company believes that the increase in accounts receivable is due to,
among other reasons, delays in the payment of reimbursements by the U.S. federal
government to the Company and to third parties to which the Company's
rehabilitation therapy subsidiary provided services. The Company believes that
such delays have occurred, in part, because HCFA has diverted management
attention from its normal business operations to addressing its Year 2000
compliance issues and the implementation of PPS. See "--Year 2000 Risk." There
can be no assurance that such delays in payment will not continue to occur in
the future. The Company also believes that accounts receivable have increased in
part because the ability of nonaffiliated facilities to provide timely payments
to the Company for the provision of ancillary services has been impacted by the
implementation of PPS and the delay in their receipt of payments from fiscal
intermediaries. The collectability of the Company's accounts receivable with
non-affiliated facilities could be impacted by the rates these facilities
receive under PPS. The Company's financial condition and results of operation
could be materially adversely affected by the inability to collect its accounts
receivable.
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 that have been introduced are further changes in
reimbursement by federal and state payors such as Medicare and Medicaid and
health insurance reforms. 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.
POTENTIAL LIABILITY FOR REIMBURSEMENTS PAID TO FORMER OPERATORS OF ACQUIRED
FACILITIES
Sun's growth strategy has relied 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, the Company, as the current operator of such
facilities, may be held financially responsible for such overpayments. At this
time the Company is unable to predict the outcome of any existing or future
examinations. See "--Difficulty of Integrating Acquired
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Operations" and "Item 7--Management's Discussion and Analysis of Financial
Condition and Results of Operations--Effects from Changes in Reimbursement."
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, could
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. 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 "--Risks Related to
Investigations and Legal Proceedings" and "--Risk of Adverse Effect of Future
Healthcare Reform."
RISKS RELATED TO INVESTIGATIONS AND LEGAL PROCEEDINGS
The Company's subsidiaries, including those which provide subacute and
long-term care, rehabilitation and respiratory therapy and pharmaceutical
services, are engaged in industries which are extensively regulated. See
"--Potential Adverse Impact from Extensive Regulation." As such, in the ordinary
course of business, the operations of these subsidiaries are continuously
subject to state and Federal regulatory scrutiny, supervision and control. Such
regulatory scrutiny often includes inquiries, investigations, examinations,
audits, site visits and surveys, some of which may be non-routine. The Company's
subsidiaries are currently the subject of several such investigations. If any of
the Company's subsidiaries is ever found to have engaged in improper practices,
it could be subjected to civil, administrative, or criminal fines, penalties or
restitutionary relief and reimbursement authorities could also seek the
suspension or exclusion of the subsidiary or individuals from participation in
their program. From time to time, the existence of regulatory investigations has
hindered or prevented the Company from pursuing certain business opportunities.
There can be no assurance that the existence of any such investigations will not
affect the Company's ability to pursue future business opportunities. See
"Recent Developments--Increase in Survey and Enforcement Activities" and "Item
7--Management's Discussion and Analysis of Financial Condition and Results of
Operations--Regulation."
For a description of certain risks related to legal proceedings, see "Item
3--Legal Proceedings."
POTENTIAL ADVERSE IMPACT FROM EXTENSIVE REGULATION
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 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 "--Risks Related to Investigations and Legal
Proceedings" and "Item 7--Management's Discussion and Analysis of Financial
Condition and Results of Operations--Regulation." 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. There can be no
assurance that Sun's business in the future will not be materially adversely
affected by licensing and certification requirements of state and Federal
authorities.
9
<PAGE>
Medicare and Medicaid antifraud and abuse laws prohibit certain business
practices and relationships that might affect the provision and cost of
healthcare 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.
DIFFICULTY OF INTEGRATING ACQUIRED OPERATIONS
Sun's growth strategy has relied heavily on the acquisition of long-term
and subacute care facilities. Significant acquisitions since October 1997
include Regency Health Services, Inc., RCA and Contour. 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. See
"Item 7--Management's Discussion and Analysis of Financial Condition and Results
of Operation."
RISK OF INTERNATIONAL OPERATIONS; FOREIGN EXCHANGE RISK
Sun currently conducts business in the United Kingdom, Spain, Germany and
Australia. Foreign operations accounted for approximately 4%, 9% and 8% of Sun's
total net revenues during the years ended December 31, 1996 and 1997 and the
nine months ended September 30, 1998, respectively, and 21% of Sun's
consolidated total assets as of September 30, 1998. Adverse results from Sun's
international operations could adversely effect Sun's financial condition and
results of operations. 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
also subject to foreign exchange risk.
RISKS RELATED TO YEAR 2000 DATE CHANGE
For a description of certain risks related to the Year 2000 date change,
see "Item 7--Management's Discussion and Analysis of Financial Condition and
Results of Operations--Year 2000 Issue."
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 and increased staffing levels in its long-term and subacute
care facilities due to greater patient acuity. Since under PPS and fee schedules
payment is no longer on a "pass-through" basis, increases in labor costs may no
longer result in increases in payment rates. See "Business--Employees."
10
<PAGE>
ANTI-TAKEOVER PROVISIONS; POSSIBLE ISSUANCE OF PREFERRED STOCK
Sun's certificate of incorporation and by-laws contain provisions that may
make it more difficult for a third party to acquire, or discourage acquisition
bids for, Sun. In addition, approximately 3.2% of the Company's common stock is
owned by a grantor stock trust (the "Grantor Trust"), which holds such shares
for issuance under the company's stock option plans and employee stock purchase
plan. Employees and nonemployee directors holding stock options and employee
stock purchase plan participants have the right to vote all of the shares held
by the Grantor Trust. The voting control of such shares of stock by employees
and management may make it more difficult for a third party to acquire (or such
ownership may discourage bids for) Sun. The provisions in the certificate of
incorporation and by-laws, together with ownership of such shares by the Grantor
Trust, could limit the price that certain investors might be willing to pay in
the future for shares of Common Stock. In addition, shares of Sun's preferred
stock may be issued in the future without further stockholder approval and upon
such terms and conditions and having such rights, voting powers, preferences and
relative, participating, optional and other special privileges as the board of
directors may determine. The rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of any holders of
preferred stock that may be issued in the future. The issuance of preferred
stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire, or discouraging a third party from
acquiring, a majority of the outstanding voting stock of Sun. Sun has no present
plans to issue any shares of its preferred stock. In addition, Sun has adopted a
stockholder rights plan that, along with certain provisions of Sun's certificate
of incorporation, have the effect of discouraging certain transactions involving
a change of control of Sun.
VOLATILITY OF STOCK PRICE
There has in the past been significant volatility, and more recently a
significant decline, in the market prices of securities of the Company and many
other publicly-owned long-term care companies. In particular, the market price
of Sun's common stock has in the past been subject to heightened volatility
resulting from, among other things, announcements of operating results and
uncertainties regarding certain Medicare reimbursement policies and government
investigations of Sun. Sun believes factors such as legislative and regulatory
developments, continuing uncertainties regarding certain Medicare reimbursement
policies and government investigations of Sun and quarterly variations in
financial results could cause the market price of Sun's common stock to
fluctuate substantially. See "Item 5--Market for Registrant's Common Equity and
Related Stockholder Matters."
ITEM 2. PROPERTIES
Facilities. The Company operated an aggregate of 614 long-term care,
subacute care, and assisted living facilities world-wide as of December 31,
1998, 504 of which are subject to long-term operating leases or subleases, 20 of
which are subject to long-term management agreements and 90 of which are owned.
The Company considers its properties to be in good operating condition and
suitable for the purposes for which they are being used. The Company's
facilities that are leased are subject to long-term operating leases or
subleases, the terms of which range from 5 to 23 years, and require the Company,
among other things, to fund all applicable capital expenditures, taxes,
insurance and maintenance costs. The Company's rights as lessee or sublessee
could be subject to termination upon a foreclosure by the underlying mortgage
lender or termination by the lessor. The annual rent payable under each of the
leases generally increases based on a fixed percentage or increases in the
Consumer Price Index. Many of the leases contain renewal options to extend the
term for between 5 to 40 consecutive years.
11
<PAGE>
The Company's management agreements for long-term and subacute care
facilities generally provide the Company with management fees based on a
percentage of the revenues of the managed facility and may also include a fixed
fee component. At December 31, 1998, the Company had an aggregate of $31.9
million of outstanding mortgages with Meditrust which contain cross-default
provisions with all of such mortgages and leases also financed by Meditrust.
The Company believes that the aggregate occupancy percentages for all of
its long term care, subacute care and assisted living facilities were 91%, 90%
and 90% in the United States and 86%, 78% and 80% in the United Kingdom for the
years ended December 31, 1996, 1997 and 1998, respectively. However, the Company
believes that occupancy percentages, either individually or in the aggregate,
should not be relied upon alone to determine the profitability of a facility.
Other factors include, among other things, the sources of payment, terms of
reimbursement and the acuity level for each of the patients in such facilities.
The Company also believes there is not a consistent industry standard as to how
occupancy is measured and that the information may not be comparable among
long-term care providers. See "Item 7--Management's Discussion and Analysis of
Financial Condition and Results of Operations--Effects from Changes in
Reimbursement." The Company computes average occupancy percentages by dividing
the total number of beds occupied by the total number of licensed beds available
for use during the periods indicated.
FACILITIES IN THE UNITED STATES. The following table sets forth certain
information concerning the long-term care, subacute care and assisted living
facilities owned, leased or managed by the Company in the United States as of
December 31, 1998. Unless otherwise indicated, all facilities listed below are
leased by the Company.
<TABLE>
<CAPTION>
STATE FACILITIES LICENSED BEDS(1)
- ----- ---------- ----------------
<S> <C> <C>
NUMBER OF NUMBER OF
California (2) 95 9,430
Georgia (3) 40 3,916
Massachusetts (4) 36 4,749
Tennessee (4) 34 3,661
Washington (5) 28 2,557
Texas 26 3,208
Florida (6) 23 3,075
North Carolina (5) 22 2,613
Arizona 15 2,148
Illinois 12 1,340
Connecticut (7) 11 1,680
Alabama (3) 10 1,069
Idaho (4) 9 933
New Hampshire 9 1,008
New Mexico 8 647
Ohio 8 980
Louisiana 7 1,135
West Virginia 6 619
Kentucky 5 441
New Jersey (4) 5 769
Virginia (8) 5 817
Colorado (9) 4 453
Maryland 2 353
Oklahoma 2 135
12
<PAGE>
Oregon 2 195
Indiana 1 99
Iowa 1 77
Kansas 1 102
Missouri 1 103
TOTAL 428 48,312
</TABLE>
- ---------------------
(1) "Licensed Beds" refers to the number of beds for which a license has
been issued, which may vary in some instances from licensed beds
available for use.
(2) Includes eight facilities owned by the Company and one facility managed
by the Company.
(3) Includes two facilities owned by the Company.
(4) Includes one facility managed by the Company.
(5) Includes one facility owned by the Company.
(6) Includes five facilities managed by the Company.
(7) Includes four facilities owned by the Company and one facility managed
by the Company.
(8) Includes three facilities managed by the Company.
(9) Includes two facilities owned by the Company and two facilities managed
by the Company.
FACILITIES IN THE UNITED KINGDOM. The following table sets forth certain
information concerning the long-term care facilities owned or leased by the
Company as of December 31, 1998. Unless otherwise indicated, all facilities
listed below are leased by the Company.
<TABLE>
<CAPTION>
<S> <C> <C>
NUMBER OF NUMBER OF
REGION FACILITIES LICENSED BEDS(1)
- --------- ---------- ----------------
England (2) 128 7,054
Scotland (3) 9 741
Wales (4) 8 493
Northern Ireland (4) 10 417
TOTAL 155 8,705
</TABLE>
- ----------------------------
(1) "Licensed Beds" refers to the number of beds for which a license has
been issued, which may vary in some instances from licensed beds
available for use.
(2) Includes 31 facilities owned by the Company.
13
<PAGE>
(3) Includes two facilities owned by the Company.
(4) Includes one facility owned by the Company.
FACILITIES IN GERMANY, SPAIN AND AUSTRALIA. The following table sets forth
certain information concerning the long-term care facilities owned or leased by
the Company as of December 31, 1998. Unless otherwise indicated, all facilities
listed below are leased by the Company.
<TABLE>
<CAPTION>
COUNTRY FACILITIES LICENSED BEDS(1)
- ---------- ---------- ----------------
<S> <C> <C>
Spain (2) 16 1,135
Germany (3) 10 1,604
Australia (4) 5 309
-- -----
TOTAL 31 3,048
</TABLE>
- ----------------------------
(1) "Licensed Beds" refers to the number of beds for which a license has
been issued, which may vary in some instances from licensed beds
available for use.
(2) Includes two facilities owned by the Company.
(3) Includes one facility owned by the Company and one facility managed
by the Company.
(4) Includes five facilities owned by the Company. Includes five facilities
owned by the Company.
PHARMACEUTICAL SERVICES. As of December 31, 1998, the Company operated 28
regional pharmacies, 6 in-house long-term care pharmacies, and 2 pharmaceutical
billing and consulting center in the United States. Also, as of December 31,
1998, the Company operated 18 pharmacies and 1 supply distribution center in the
United Kingdom.
ITEM 3. LEGAL PROCEEDINGS
In March 1999, a stockholder of the Company, Bernard L. Beck, filed a class
action lawsuit against the Company and three officers of the Company in the
United States District Court for the District of New Mexico. Several other
similar lawsuits may also have been filed in the same court in March 1999. The
lawsuits allege, among other things, that the Company did not disclose material
facts concerning the impact that PPS would have on the Company's results of
operations. The lawsuits seek compensatory damages and other relief for
stockholders who purchased the Company's common stock during the class-action
period. Although the Company intends to vigorously defend itself in this matter,
there can be no assurance that the outcome of this matter will not have a
material adverse effect on the results of operations and financial condition of
the Company.
In January 1999, the state of Florida filed criminal charges in the Circuit
Court of the Eighth Judicial Circuit for Alachua County, Florida against three
subsidiaries which were acquired by the Company on June 30, 1998: RCA, Capitol
Care Management Co, Inc. and Gainesville Health Care Center, Inc. All of the
allegations of wrongdoing relate to activities prior to June 30, 1998. Florida's
14
<PAGE>
allegations include violations of certain RICO laws, abuse or neglect of elderly
or disabled persons, grand theft and Medicaid fraud at a nursing home facility
in Florida. Also named as defendants were five individuals who were involved in
the operation of the facility in their capacities as officers, directors or
employees of the defendant entities. If the defendant entities are convicted,
they could be banned from participating in the Florida Medicaid program.
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 RCA Common
Stock, naming RCA and certain of its officers and directors as defendants. The
complaints have overlapping defendants and largely overlapping (although not
identical) class periods. The complaints allege violations of Federal securities
laws by the defendants for disseminating allegedly false and misleading
financial statements for RCA's fiscal year ended June 30, 1996 and its first
three quarters of fiscal year 1997, which the plaintiffs allege materially
overstated RCA'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, RCA, the Company and representatives of the
plaintiffs in the Actions entered into a Memorandum of Understanding ("MOU").
Pursuant to the MOU, the Company paid $9 million into an interest-bearing escrow
account maintained by the Company (the "Escrow Account") to settle the Actions
(the "Settlement"). RCA also agreed to assign coverage under its directors' and
officers' liability insurance policy for these specific claims to the
plaintiffs. All of the parties have signed the Settlement Agreement and it will
become final upon court approval. Upon court approval of the Settlement, all
claims by the class that were or could have been asserted by the plaintiffs
against RCA 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.
No assurance can be given that the Settlement will become final.
In 1997, the Company was notified by a law firm representing several
national insurance companies that these companies believed Sun had engaged in
improper billing and other practices in connection with the Company's delivery
of therapy and related services. In response, the Company began discussions
directly with these insurers and hopes to resolve these matters without
litigation; however, the Company is unable at this time to predict whether it
will be able to do so, what the eventual outcome may be or the extent of its
liability, if any, to these insurers.
The Company is a party to various other legal actions and administrative
proceedings and is subject to various claims arising in the ordinary course of
business. The Company does not believe that the ultimate disposition of these
other matters will have a material adverse effect on the financial position or
results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the New York Stock Exchange (the
"NYSE") under the symbol "SHG." The following table shows the high and low sales
prices for the common stock as reported by the NYSE for the periods indicated:
15
<PAGE>
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
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
1998
First Quarter . . . . . . . . . . . . . . . . $ 20.13 $ 18.13
Second Quarter . . . . . . . . . . . . . . . . 19.25 14.63
Third Quarter . . . . . . . . . . . . . . . . 17.69 6.50
Fourth Quarter . . . . . . . . . . . . . . . . 7.75 4.88
</TABLE>
There were approximately 6,500 holders of record as of March 26, 1999 of
the Company's common stock.
The Company has not paid nor declared any dividends on its common stock
since its inception and anticipates that its future earnings will be retained to
finance the continuing development of its business. The payment of any future
dividends will be at the discretion of the Company's Board of Directors and will
depend upon, among other things, future earnings, the success of the Company's
business activities, regulatory and capital requirements, the general financial
condition of the Company and general business conditions. The Company is
restricted from paying dividends under the Senior Credit Facility.
ITEM 6. SELECTED FINANCIAL DATA
To be filed by amendment.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
To be filed by amendment.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
To be filed by amendment.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
16
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of Sun as of March 31, 1999 were:
<TABLE>
<CAPTION>
NAME POSITION WITH SUN
- ---- --------------------------------------------
<S> <C>
Andrew L. Turner . . . . . . . . . Chairman of the Board of Directors and
Chief Executive Officer
Mark G. Wimer . . . . . . . . . . President, Chief Operating Officer and
Director
Robert D. Woltil . . . . . . . . Chief Financial Officer and Director
Warren C. Schelling . . . . . . . President and Chief Operating Officer of
Sun Healthcare Group International
Julie Collins . . . . . . . . . . Chief Administrative Officer
Robert F. Murphy . . . . . . . . . General Counsel, Compliance Officer
and Secretary
Kenneth C. Noonan . . . . . . . . President of SunSolution
Andrew P. Masetti . . . . . . . . Vice President - Finance
Matthew G. Patrick . . . . . . . . Vice President and Treasurer
Warren H. McInteer . . . . . . . . Chief Financial Officer of Sun Healthcare
Group International
William C. Warrick . . . . . . . . Vice President - Corporate Controller
John E. Bingaman . . . . . . . . . Director
Zev Karkomi . . . . . . . . . . . Director
Martin G. Mand . . . . . . . . . . Director
Lois E. Silverman . . . . . . . . Director
James R. Tolbert, III . . . . . . Director
R. James Woolsey . . . . . . . . . Director
</TABLE>
Set forth below are the names of the executive officers and directors of
Sun and their ages as of March 31, 1999. The Board of Directors is divided into
three classes elected for staggered terms. Each director holds office until the
next annual meeting of stockholders at which the class of directors of which he
is a member is elected or until his successor has been elected and qualified.
The terms of Messrs. Karkomi, Wimer and Schelling and Ms. Silverman expire in
1999, the terms of Messrs. Turner and Woltil expire in 2000 and the terms of
Messrs. Bingaman, Mand, Tolbert and Woolsey expire in 2001. The executive
officers of Sun are chosen annually to serve until the first meeting of the
Board of Directors following the next annual meeting of stockholders and until
their successors are elected and have qualified, or until death, resignation or
removal, whichever is sooner.
Andrew L. Turner, age 52, has been the Chairman of the Board of Directors
and Chief Executive Officer of the Company since its formation and served as
President of the Company from the Company's formation until September 1997. Mr.
Turner is also the founder of the Company and has overseen the development of
the Company's business since its inception in 1989. Mr. Turner was also a
founder and previously served as Chief Operating Officer of Horizon Healthcare
Corporation, a healthcare services provider, from 1986 to 1989. Prior to 1986,
Mr. Turner served as a Senior Vice President of Operations of The Hillhaven
Corporation ("Hillhaven"). Mr. Turner has over 20 years of experience in the
long-term care industry. Mr. Turner is also a member of the Board of Directors
of Watson Pharmaceuticals, Inc., a pharmaceutical products company, and of The
Sports Club Company, Inc., an operator of sports and fitness clubs.
17
<PAGE>
Mark G. Wimer, age 45, has been a director of the Company since 1993 and
the President and Chief Operating Officer of the Company since September 1997.
Mr. Wimer had previously served as Senior Vice President for Inpatient Services
from 1996 until September 1997, and as the President of SunRise Healthcare
Corporation ("SunRise"), the Company's subsidiary responsible for operations of
the Company's long-term care facilities, from 1993 until 1995. From 1988 to
1993, Mr. Wimer was President and Chief Executive Officer of Franciscan
Eldercare Corporation, a non-profit organization that develops and manages
long-term care facilities. From 1984 through 1988, Mr. Wimer was Regional Vice
President of Operations for Hillhaven and had responsibility for management of
long-term care facilities for Hillhaven in Washington, Oregon, Idaho and
Montana.
Robert D. Woltil, age 44, has been a director of the Company since 1996 and
the Chief Financial Officer of the Company since 1996. From 1982 to 1996, Mr.
Woltil served in various capacities for Beverly Enterprises, Inc. ("Beverly"), a
healthcare services provider. From 1995 until 1996, Mr. Woltil was President and
Chief Executive Officer of Pharmacy Corporation of America, a subsidiary of
Beverly. From 1992 to 1995, he was the Chief Financial Officer of Beverly, and
from 1990 to 1992, Mr. Woltil was the Vice President--Financial Planning and
Control for Beverly. Mr. Woltil is also a certified public accountant.
Warren C. Schelling, age 45, has been President and Chief Operating Officer
of Sun Healthcare Group International since February 1999. Previously, Mr.
Schelling was the Senior Vice President for Pharmaceuticals of the Company from
1996 to February 1999, a director of the Company from 1996 to 1998 and President
of SunScript from 1994 to 1995. Prior to joining the Company, Mr. Schelling was
the President and Chief Operating Officer of HPI Health Care Services, Inc., a
subsidiary of Diagnostek, Inc., which provides pharmacy management services to
hospitals, HMOs, long-term care facilities and health systems, from 1993 to July
1994. From January 1994 to July 1994, Mr. Schelling also served as the Executive
Vice President/Pharmacy Services Officer at Diagnostek, Inc. From 1985 to 1993,
Mr. Schelling was a manager in HPI Health Care Services, Inc.
Julie Collins, age 51, has been Chief Administrative Officer of the Company
since February 1999. From 1996 to February 1999 she was the Company's Senior
Vice President--Administrative Services and from 1994 to 1995, she was the
Company's Vice President Human Resources. Prior to joining the Company, Ms.
Collins was the Vice President of Human Resources and Support Services for St.
Joseph Health System in Atlanta, Georgia from 1993 to 1994. From 1991 to 1993,
Ms. Collins was the Vice President - Human Resources of SunRise. From 1990 to
1991, Ms. Collins was Director of Human Resources for Shepherd Spinal Center in
Atlanta, Georgia.
Robert F. Murphy, age 45, has been General Counsel of the Company since
1995, Compliance Officer of the Company since 1997 and Secretary of the Company
since 1996. From 1986 to 1995 Mr. Murphy served in several capacities as an
officer and legal counsel to FHP International Corporation, most recently as
Vice President and Associate General Counsel. Prior to 1986, Mr. Murphy was in
private practice for several years.
Kenneth C. Noonan, age 43, has been President of SunSolution since 1997.
From 1997 to February 1999, Mr. Noonan was Senior Vice President-Business
Development. Prior to joining Sun, Mr. Noonan was Vice President of Managed Care
and Business Development for Manor Care, Inc. from 1994 to 1997, Vice President
of Western Operations for Option Care, Inc. from 1992 to 1994 and Western Region
Manager for McGaw, Inc. from 1983 to 1990.
Andrew P. Masetti, age 41, has been Vice-President--Finance of the Company
since October 1997. From June 1997 to October 1997, Mr. Masetti was Vice
President and Controller of Rehab Services of Sun. Prior to joining Sun, Mr.
Masetti was Divisional Chief Financial Officer of Harte-Hanks from
18
<PAGE>
1996 to 1997, Chief Financial Officer of Vista Healthcare from 1995 to
1996, Chief Financial Officer of Diagnostek from 1994 to 1995 and he held
various financial management positions with Martin Marietta/General Electric
from 1979 to 1994.
Warren H. McInteer, age 39, has been Chief Financial Officer of Sun
Healthcare Group International since February 1999. Mr. McInteer was Vice
President of Mergers & Acquisitions from 1995 to February 1999 and Treasurer of
the Company from 1996 to 1998. Prior to joining the Company, Mr. McInteer was
the Vice President of Financial Planning for Continental Medical Systems
("Continental") in Mechanicsburg, Pennsylvania, from 1993 to 1995 and a
management consultant for Price Waterhouse from 1985 to 1993.
Matthew G. Patrick, age 39, has been Vice President and Treasurer of the
Company since 1998. From 1993 to 1998, Mr. Patrick was Vice President of the
Dallas Agency of The Sanwa Bank, Ltd. From 1992 to 1993, Mr. Patrick served as
financial consultant for Merrill, Lynch, Pierce, Fenner and Smith, Inc.'s
Private Client Group in Dallas and from 1985 to 1990 he held various financial
positions in the International Division of National Westminster Bank, PLC.
William C. Warrick, age 36, has been Vice President, Corporate Controller
of the Company since 1994. From 1991 to 1994, Mr. Warrick directed financial
reporting for Continental. From 1990 to 1991, Mr. Warrick held a similar
position with McCrory Stores, a retail chain store company. Prior to 1990, Mr.
Warrick was an accountant with KPMG Peat Marwick. Mr. Warrick is a certified
public accountant.
William R. Anixter, age 75, became a director of the Company in April 1998
to fill the vacancy on the Board created when Robert A. Levin stepped down as a
director. Mr. Anixter has been the President of Chama Resources, Inc., a
privately held real estate management company, since 1990. He was co-founder and
vice chairman of Anixter Bros., Inc., a publicly owned international distributor
of wire, cable, fiber optics and related networking products, which was sold to
an investor group in 1986. Mr. Anixter also serves on the boards of
Anicom, Inc., a publicly owned distributor of communications-related equipment,
the United World College and the Boys Club of Albuquerque.
John E. Bingaman, age 52, became a director of the Company in 1993.
Mr. Bingaman also served as a consultant to the Company from 1994 to 1996. Since
1993, Mr. Bingaman has been Vice President of BKS Properties. From 1991 to 1993,
Mr. Bingaman was the President of Four Seasons Healthcare Management, Inc.,
which was the Company's subsidiary that managed certain long-term care
facilities through management contracts. Between 1984 and July 1993,
Mr. Bingaman was Chief Executive Officer of Honorcare Corporation ("Honorcare"),
a provider of long-term care services, responsible for the overall management
and strategic planning of Honorcare. Mr. Bingaman has over 25 years of
experience in the long-term care industry.
Zev Karkomi, age 75, became a director of the Company in 1993. Mr. Karkomi
has over 25 years of experience in the real estate business, with a primary
emphasis on properties owned and leased to long-term healthcare operators. He
has served as President of Karell Capital Ventures, Inc., a corporation involved
in the acquisition, sale, leasing and management of long-term care facilities,
since 1980. Mr. Karkomi also serves as the President of Zevco Enterprises, Inc.
and Executive Vice President and Chairman of the Board of Progressive Health
Group, Inc., real estate investment companies.
Martin G. Mand, age 62, became a director of the Company in 1996. Since
1995, Mr. Mand has been Chairman, President and Chief Executive Officer of Mand
Associates, Limited, a financial consulting, speaking and writing firm. Mr. Mand
was previously Executive Vice President and Chief Financial Officer of Northern
Telecom, Ltd., a global manufacturer of telecommunications equipment, from 1990
to 1994. Mr. Mand also previously served as Vice President and Treasurer of E.I.
du Pont de
19
<PAGE>
Nemours & Co., a chemical, allied products and energy company. Mr. Mand
also serves on the Board of Directors of the Fuji Bank and Trust Company and CAI
Wireless Systems, Inc.
Lois E. Silverman, age 58, became a director of the Company in 1995.
Ms. Silverman is a director of CONCENTRA Managed Care, Inc., a publicly owned
provider of services to reduce the costs of workers' compensation, automobile,
disability and health insurance claims. Ms. Silverman was a co-founder, served
as the Chairman of the Board of CRA Managed Care, Inc. from 1994 to September
1997 and as its Chief Executive Officer from 1988 to 1995. Ms. Silverman is the
President of the Commonwealth Institute, a nonprofit organization she
established in 1997 for the advancement of women entrepreneurs. Ms. Silverman is
also a director of CareGroup and Immunetics, a member of the Dean's Council of
the Harvard School of Public Health, an overseer of Tufts University Medical
School and a Trustee at Simmous College.
James R. Tolbert, III, age 63, became a director of the Company in 1995 and
was appointed Lead Independent Director of the Board of Directors in 1998.
Mr. Tolbert has served as the Chairman, President, Chief Executive Officer and
Treasurer of First Oklahoma Corporation, a holding company, since 1986.
Mr. Tolbert has over 15 years of experience in the nursing home industry. In
addition, Mr. Tolbert is a member of the Board of Directors of Bonray Drilling
Corporation, a corporation engaged in domestic onshore contract drilling of oil
and gas wells.
R. James Woolsey, age 57, became a director of the Company in 1995.
Mr. Woolsey has been a partner in the law firm of Shea & Gardner since 1995,
where he previously had been a partner from 1980 to 1989 and from 1991 to 1993.
From 1993 to 1995, Mr. Woolsey served as the Director of Central Intelligence
for the United States government. From 1989 to 1991, Mr. Woolsey was the
Ambassador and U.S. Representative to the Negotiation on Conventional Armed
Forces in Europe.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act and the rules promulgated thereunder
require the Company's directors and executive officers and persons who own more
than ten percent of the Company's Common Stock to report their ownership and
changes in their ownership of Common Stock to the Securities and Exchange
Commission (the "Commission") and the New York Stock Exchange. Copies of the
reports must also be furnished to the Company. Specific due dates for the
reports have been established by the Commission and the Company is required to
report in this Proxy Statement any failure of its directors, executive officers
and more than ten percent stockholders to file by these dates.
Based solely on a review of the copies of such forms received by it, or
written representations from certain reporting persons, the Company believes
that during 1998 all Section 16(a) filing requirements applicable to its
directors, executive officers and greater than ten percent beneficial owners
were met with the exception of Zev Karkomi, who reported one transaction
reportable on Form 4 one week late due to an oversight.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table provides information concerning the annual and
long-term compensation for services as employees of the Company and its
subsidiaries for the fiscal years shown of those persons ("Named Executive
Officers") who were, during the year ended December 31, 1998, (i) the chief
executive officer and (ii) the other four most highly compensated executive
officers of the Company:
20
<PAGE>
<TABLE>
<CAPTION>
Long-Term Compensation Awards
Securities
Name and Annual Compensation Restricted Stock Underlying All Other
Principal Position Year Salary($) Bonus($) Awards($)(1) Options(#) Compensation($)
- ------------------ ---- --------- -------- ---------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Andrew L. Turner 1998 $659,634 $ - - 50,000 $26,873(2)
Chief Executive Officer 1997 537,312 550,000 $5,409,625 - 5,771
1996 500,000 250,000 - - 3,795
Mark G. Wimer 1998 443,274 - - 25,000 9,424(3)
President and Chief 1997 367,387 255,000 2,712,500 - 1,503
Operating Officer 1996 322,516 125,000 - 15,000 1,770
Robert D. Woltil 1998 418,288 - - 25,000 10,069(4)
Chief Financial Officer 1997 374,428 240,000 1,443,750 - 870
1996 296,164(5) 125,000 - 25,000 503
Robert A. Levin 1998 370,587(6) - - 100,000 4,223(7)
Senior Vice President- 1997 341,193 138,000 2,668,750 - 1,503
Ancillary Services 1996 330,202 - - 15,000 1,554
Robert F. Murphy 1998 280,973 - - 30,000 5,872(8)
General Counsel and 1997 267,469 108,000 1,299,625 - 685
Secretary 1996 260,000 100,000 - - 457
</TABLE>
___________
(1) Restricted stock awards are valued at the Company's closing stock price on
the date of grant. Dividends, if any, would be paid on restricted shares at
the same rate paid to all stockholders. The Named Executive Officers held
the following shares of restricted stock valued at December 31, 1998 at a
closing price of $6.5625 per share and at March 29, 1999 at a closing price
of $1.06 per share:
<TABLE>
<CAPTION>
NUMBER OF MARKET VALUE MARKET VALUE
SHARES AT 12/31/98 AT 3/29/99
--------- ------------ ------------
<S> <C> <C> <C>
Mr. Turner 200,800 $1,317,750 $212,848
Mr. Wimer 74,400 488,250 78,864
Mr. Woltil 39,600 259,875 41,976
Mr. Levin 73,200 480,375 77,592
Mr. Murphy 35,400 232,313 37,524
</TABLE>
(2) Consists of $1,200 of matching contributions under the Company's 401(k)
Plan, the payment of $6,173 of life insurance premiums, the vesting of
$2,500 of deferred compensation pursuant to a Supplemental Executive
Retirement Plan and the payment of approximately $17,000 on Mr. Turner's
behalf for legal representation in connection with the renegotiation of his
employment agreement in 1998.
(3) Consists of $1,200 of matching contributions under the Company's 401(k)
Plan, the payment of $5,724 of life insurance premiums and the vesting of
$2,500 of deferred compensation pursuant to a Supplemental Employee
Retirement Plan.
21
<PAGE>
(4) Consists of $1,200 of matching contributions under the Company's 401(k)
Plan, the payment of $6,369 of life insurance premiums and the vesting of
$2,500 of deferred compensation pursuant to a Supplemental Employee
Retirement Plan.
(5) Salary for 1996 represents amounts paid to Mr. Woltil in 1996 after the
commencement of his employment by the Company in February 1996.
Mr. Woltil's annualized salary for 1996 would have been $350,000.
(6) Mr. Levin's employment with the Company terminated in January 1999.
(7) Consists of $1,200 of matching contributions under the Company's 401(k)
Plan and the payment of $3,023 of life insurance premiums.
(8) Consists of $1,200 of matching contributions under the Company's 401(k)
Plan and the payment of $4,672 of life insurance premiums.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning individual
grants of stock options made to each of the Named Executive Officers during the
year ended December 31, 1998:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------
% OF TOTAL
OPTIONS
NUMBER OF GRANTED TO
SECURITIES EMPLOYEES EXERCISE OR GRANT DATE
UNDERLYING IN FISCAL BASE PRICE EXPIRATION PRESENT VALUE
NAME OPTIONS(1) YEAR(%) ($/SH)(2) DATE ($)(3)
---- ---------- ------- --------- ---- ------
<S> <C> <C> <C> <C> <C>
Andrew L. Turner 50,000 2.4% $19.375 03/06/08 $572,500
Mark G. Wimer 25,000 1.2 19.375 03/06/08 286,250
Robert D. Woltil 25,000 1.2 19.375 03/06/08 286,250
Robert A. Levin 100,000(4) 4.8 19.375 03/06/08 1,145,000
Robert F. Murphy 30,000 1.5 19.375 03/06/08 343,500
</TABLE>
- ------------------
(1) All options were granted under the Company's 1997 Incentive Stock Plan.
(2) All options were granted at an exercise price equal to the fair market
value of Common Stock on the option grant date. The closing price of the
Company's stock on March 29, 1999 was $1.06 per share. All options will
vest and become exercisable at a rate of one-third each year beginning on
the first anniversary of the date of grant. All options become fully
exercisable on the occurrence of a change in control as described in the
plan pursuant to which each option was granted.
(3) Grant date present values were calculated using the plain Black-Scholes
valuation model. Assumptions used in the calculation include a one-year
volatility of 36.18%, an interest rate of 5.68% and an exercise period of
10 years. Actual gains, if any, on stock option exercise are dependent on
the future performance of Common Stock as well as the option holder's
continued employment through the vesting period. The amounts reflected in
this table may not necessarily be achieved.
(4) These options terminated when Mr. Levin's employment terminated in January
1999.
22
<PAGE>
FISCAL YEAR-END OPTION VALUES
Set forth in the table below is information concerning the value of stock
options held as of December 31, 1998 by each of the Named Executive Officers.
None of the Named Executive Officers exercised any stock options during the year
ended December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS-AT-YEAR-END-(#) AT-YEAR-END-($)(1)
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Andrew L. Turner 200,000 50,000 $ -0- $ -0-
Mark G. Wimer 58,000 30,000 -0- -0-
Robert D. Woltil 16,667 33,333 -0- -0-
Robert A. Levin 58,000 105,000 -0- -0-
Robert F. Murphy 10,000 30,000 -0- -0-
</TABLE>
- -----------
(1) Based on the closing price of the Common Stock, as reported on the New York
Stock Exchange, at December 31, 1998, which was $6.5625 per share.
COMPENSATION OF DIRECTORS
Non-employee directors of the Company are entitled to receive an annual fee
of $24,000, which is payable in four equal quarterly installments. In addition,
each Chairperson of a committee of the Board of Directors is entitled to receive
an additional annual fee of $4,000, payable in four equal quarterly
installments. The Lead Independent Director of the Board of Directors is
entitled to an additional annual fee of $12,000, which is payable in four equal
quarterly installments. Non-employee directors and Committee Chairpersons have
the election of receiving (i) the entire annual retainer and Committee
Chairpersons fees, if applicable, in cash, or (ii) one-half of the retainer and
Committee Chairperson fees, if applicable, in cash and the remaining one-half in
the form of restricted common stock awards pursuant to the 1997 Non-Employee
Directors' Stock Plan. If restricted stock is elected, for every dollar of cash
given up, the recipient will receive restricted stock worth $1.10.
Non-employee directors are also entitled to receive fees of $1,750 for each
Board of Directors meeting attended in person. Directors are entitled to an
additional $500 for each subsequent meeting attended that same day. The fees for
any meetings that are attended by telephone are $500. Non-employee directors are
also reimbursed for out-of-pocket expenses for attendance at such meetings. In
addition, pursuant to the 1997 Non-Employee Directors' Stock Plan,
(i) non-employee directors already serving on the Board are awarded annually
2,000 shares of restricted common stock and non-qualified stock options to
purchase 4,000 shares of common stock and (ii) non-employee directors who are
elected to the Board for the first time or after a period of not serving on the
Board are entitled to one-time awards of 5,000 shares of restricted common stock
and non-qualified stock options to purchase 10,000 shares of common stock.
Pursuant to a decision by the Board of Directors to reduce the number of
employee-directors, Robert Levin and Warren Schelling resigned from the Board in
April 1998. On April 30, 1998, the Compensation Committee granted each of
Messrs. Levin and Schelling 2,000 shares of the Company's common stock in
recognition of the contributions they made to the Company while serving on the
Board.
23
<PAGE>
EMPLOYMENT AGREEMENT
Mr. Turner and the Company entered into a five-year Employment Agreement as
of June 2, 1998. The Employment Agreement provides for an annual salary of
$700,000 which was effective April 1, 1998. The Agreement provides for salary
increases of $150,000 on each of April 1, 1999 and 2000 and for an annual bonus
determined pursuant to a formula. Mr. Turner has elected to forego his salary
increase scheduled for April 1, 1999. The Agreement contains a two-year
noncompetition covenant and a covenant prohibiting Mr. Turner from disclosing
any confidential information of the Company. The Agreement also contains the
same general severance provisions described below under "Severance Agreements."
SEVERANCE AGREEMENTS
The Company has entered into severance agreements (the "Severance
Agreements") with certain executive officers, including the Named Executive
Officers. Each Severance Agreement provides that in the event of the
"involuntary termination" of the executive, he or she will be entitled to
receive any accrued but unpaid salary plus a pro rata portion of annual bonus.
An "involuntary termination" is defined as a termination by the Company for
reasons other than an executive's disability that do not constitute "cause" or
an executive's resignation for "good reason." In addition, the executive will be
entitled to a severance payment equal to two times salary at the rate in effect
at the time of the executive's involuntary termination, or, in the event that
such termination occurs within two years following a change in control of the
Company (as defined below), a severance payment equal to three times salary at
the rate then in effect. The executive will continue to receive health and other
benefits for a period of two years following his or her involuntary termination
(or for a period of three years in the event that such termination occurs
following a change in control of the Company). The Severance Agreements also
provide for a gross-up payment to be made to the executives, if necessary to
eliminate the effects of the imposition of the excise tax under Section 280G of
the Code on the payments made thereunder. The Severance Agreements contain
noncompetition and nondisclosure covenants.
For purposes of the Severance Agreements, "change in control" is generally
defined as (i) the acquisition by a person or group of beneficial ownership
representing 33-1/3% of the Company's then outstanding voting stock, (ii)
stockholder approval of a merger or consolidation of the Company other than a
merger or consolidation in which the voting securities of the Company
outstanding immediately prior thereto continues to represent at least 66-2/3% of
the combined voting power of the surviving entity's outstanding voting
securities, (iii) under certain conditions, a change in the majority of the
Board of Directors of the Company, or (iv) stockholder approval of a
reorganization of the Company or a sale of substantially all of the Company's
assets.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table and footnotes set forth certain information regarding
the beneficial ownership of Common Stock as of March 30, 1999 by (i) each
director, (ii) the Named Executive Officers (as defined below), (iii) all
directors and executive officers of the Company as a group, and each person
believed by the Company to be the beneficial owner of more than five percent of
Common Stock of the Company:
24
<PAGE>
<TABLE>
<CAPTION>
SHARES PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) CLASS(1)(%)
- ------------------------ --------------------- -----------
<S> <C> <C>
Andrew L. Turner 6,937,799(2)(3) 11.4%
101 Sun Avenue NE
Albuquerque, NM 87109
William R. Anixter 7,792(3) *
John E. Bingaman 193,361(3)(4) *
Zev Karkomi 191,080(3)(5) *
Robert A. Levin 64,167 *
Martin G. Mand 9,480(3)(6) *
Robert F. Murphy 68,742(3)(7) *
Lois E. Silverman 11,211(3)(8) *
James R. Tolbert, III 17,148(3)(8) *
Mark G. Wimer 170,934(3)(9) *
Robert D. Woltil 77,934(3)(10) *
R. James Woolsey 8,250(3)(11) *
All directors and executive officers 7,936,320(12) 13.0%
as a group (18 persons, including
those named above)
</TABLE>
__________
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect
to securities. Options exercisable within 60 days of March 30, 1999 are
deemed to be currently exercisable. Except as indicated in the footnotes to
this table and pursuant to applicable community property laws, the persons
named in the table have sole voting and investment power with respect to
all shares of Common Stock beneficially owned.
(2) Includes 353,000 shares of Common Stock owned by the Turner Children's
Trust, 74,267 shares of Common Stock held by the Andrew and Nora Turner
Trust and 261,065 shares of Common Stock owned by the Turner Family
Foundation (Mr. Turner disclaims beneficial ownership of these shares).
Also includes currently exercisable options to purchase 216,667 shares of
Common Stock.
(3) Includes restricted shares awarded under the Company's 1997 Stock Incentive
Plan and 1997 Non-Employee Directors' Plan which may be subject to a
substantial risk of forfeiture. The number of restricted shares included
for each person listed above as having restricted shares is as follows: Mr.
Turner - 150,600; Mr. Anixter - 5,396; Mr. Bingaman - 3,794; Mr. Karkomi -
3,729; Mr. Mand - 3,729; Mr. Murphy - 23,600; Ms. Silverman - 3,794; Mr.
Tolbert - 3,333; Mr. Wimer - 49,600; Mr. Woltil - 26,400; and Mr. Woolsey -
3,333.
(4) Includes currently exercisable options to purchase 44,334 shares of Common
Stock.
25
<PAGE>
(5) Includes 200 shares owned by Mr. Karkomi's grandson. Mr. Karkomi disclaims
beneficial ownership of these shares. Also includes currently exercisable
options to purchase 44,334 shares of Common Stock.
(6) Includes currently exercisable options to purchase 4,084 shares of Common
Stock.
(7) Includes currently exercisable options to purchase 20,000 shares of Common
Stock.
(8) Includes currently exercisable options to purchase 4,584 shares of Common
Stock.
(9) Includes currently exercisable options to purchase 66,334 shares of Common
Stock.
(10) Includes 5,000 shares owned by Mr. Woltil and his wife, as to which
Mr. Woltil has shared voting and investment power. Also includes currently
exercisable options to purchase 33,334 shares of Common Stock.
(11) Includes currently exercisable options to purchase 4,250 shares of Common
Stock.
(12) Includes an aggregate of 560,842 shares of Common Stock issuable upon the
exercise of options that are currently exercisable. Also includes an
aggregate of 339,308 restricted shares awarded under the 1997 Stock
Incentive Plan and 1997 Non-Employee Directors' Plan which may be subject
to a substantial risk of forfeiture.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Turner, the Chief Executive Officer of the Company, guarantees the
Company's obligations under a lease for a nursing home in Connecticut. Mr.
Turner is the guarantor of subleases on three facilities in Illinois, the
sublessor of which is a company co-owned by Mr. Karkomi, a member of the
Company's Board of Directors. Mr. Karkomi's company, in turn, is the guarantor
of the master lease. Mr. Turner also guarantees the Company's obligations under
one facility lease in Washington.
Kenneth C. Noonan, President - SunSolution, was indebted to the Company in
1998 in the amount of $197,798. The Company entered into a short-term loan with
Mr. Noonan in connection with his relocation in 1997 to the Company's
headquarters in Albuquerque. Mr. Noonan paid off the loan in full in August
1998.
Mr. Noonan's spouse, Jennifer Noonan, provided public speaking seminars to
the Company in 1998 through her wholly-owned business, SpeakWrite Executive
Development. The total amount paid to SpeakWrite in 1998 was $73,438.
Mr. Woolsey, in his capacity as a partner in the law firm of Shea &
Gardner, provided certain legal services to the Company in 1998. The total
amount paid to Shea & Gardner in 1998 for such services was approximately
$101,000.
As of December 31, 1998, the Company's nursing home subsidiary, SunRise,
was a lessee or sublessee of 61 facilities from partnerships or corporations in
which Mr. Karkomi was a general partner, stockholder or director. These
arrangements were entered into from February 1989 to June 1997, with varying
lease terms. Approximately 50% of the facilities are under ten-year terms. The
aggregate lease payments, including base rents, contingent rents and other
miscellaneous payments in connection with these leases, totaled approximately
$19.1 million in 1998.
26
<PAGE>
As of December 31, 1998, SunRise was a lessee or assignee of seven
facilities from partnerships in which Mr. Bingaman had an equity interest of
greater than ten percent. Each of these lease arrangements was entered into
prior to the closing of the acquisition of Honorcare. All of the leases
commenced on July 13, 1993 and terminate in 2001. The aggregate lease payments,
including base rents, contingent rents and other miscellaneous payments in
connection with these leases, totaled approximately $2.1 million in 1998.
The Company believes the terms of all of the foregoing transactions are as
favorable to the Company as those that could have been obtained from
non-affiliated parties in arm's-length transactions. However, the Company's
contractual relationship with entities affiliated with members of the Board of
Directors creates the potential for conflicts of interest.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements and Financial Statement Schedules
To be filed by amendment.
(b) Reports on Form 8-K
None.
(c) Exhibits
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS
- -------------- ------------------------
2.1(16) Agreement and Plan of Merger and Reorganization, dated
as of February 17, 1997 among Sun, Peach Acquisition
Corporation and Retirement Care Associates, Inc.
2.2(16) Agreement and Plan of Merger and Reorganization, dated
as of February 17, 1997 among Sun, Nectarine
Acquisition Corporation and Contour Medical, Inc.
2.3(21) Amendment No. 1 to the Agreement and Plan of Merger
and Reorganization dated as of February 17,1997 among
Sun, Retirement Care Associates, Inc. and Peach
Acquisition Corporation dated May 27, 1997
2.4(22) Amendment No. 2 to the Agreement and Plan of Merger
and Reorganization dated as of February 17,1997 among
Sun, Retirement Care Associates, Inc. and Peach
Acquisition Corporation dated August 21, 1997
27
<PAGE>
2.5(22) Amendment No. 1 to the Agreement and Plan of Merger
and Reorganization dated as of February 17, 1997 among
Sun, Contour Medical, Inc. and Nectarine Acquisition
Corporation dated August 21, 1997
2.6(23) Amendment No. 3 to the Agreement and Plan of Merger
and Reorganization dated as of February 17, 1997 among
Sun, Retirement Care Associates, Inc. and Peach
Acquisition Corporation dated November 25, 1997
2.7(23) Amendment No. 2 to the Agreement and Plan of Merger
and Reorganization dated as of February 17, 1997 among
Sun, Contour Medical, Inc. and Nectarine Acquisition
Corporation dated November 25, 1997
2.8(20) Agreement and Plan of Merger, dated as of July 26,
1997, among Sun, Sunreg Acquisition Corp. and Regency
Health Services, Inc.
2.9(28) Amendment No. 4 to the Agreement and Plan of Merger
and Reorganization dated as of February 17, 1997 among
Sun, Retirement Care Associates, Inc. and Peach
Acquisition Corporation, dated April 3, 1998.
2.10(28) Amendment No. 3 to the Agreement and Plan of Merger
and Reorganization dated as of February 17, 1997 among
Sun, Contour Medical, Inc. and Nectarine Acquisition
Corporation dated April 3, 1998.
3.1(26) Certificate of Incorporation of Sun, as amended
3.2(1)(8) Bylaws of Sun, as amended
4.1(2) Fiscal Agency Agreement dated as of March 1, 1994
between Sun and NationsBank of Texas, N.A., as Fiscal
Agent
4.2(10) Form of Rights Agreement, dated as of June 2, 1995,
between Sun and Boatmen's Trust Company, which
includes the form of Certificate of Designations for
the Series A Preferred Stock as Exhibit A, the form of
Right Certificate as Exhibit B and the form of Summary
of Preferred Stock Purchase Rights as Exhibit C
4.3(11) First Amendment to Rights Agreement, dated as of
August 11, 1995, amending the Rights Agreement, dated
as of June 2, 1995, between Sun and Boatmen's Trust
Company
4.4* Removal of Rights Agent, Appointment and Acceptance of
Successor Rights Agent and Amendment No. 2 to Rights
Agreement among Sun, ChaseMellon Shareholder Services,
LLC and American Stock Transfer & Trust Company
4.5(26) Certificate of Designations of Series A Preferred Stock
of the Company
4.6(25) Amended and Restated Declaration of Trust of Sun
Financing I among the Company, as sponsor, Robert F.
Murphy, Robert D. Woltil and William Warrick, as
trustees, the Bank of New York (Delaware), as trustee,
and the Bank of New York, dated as of May 4, 1998
28
<PAGE>
4.7(25) Preferred Securities Guarantee among the Company and
the Bank of New York, as trustee, dated as of May 4,
1998
4.8(25) Registration Rights Agreement among the Company,
certain guarantors and Bear, Stearns & Co., Inc.,
Donaldson, Lufkin & Jenrette Securities Corporation,
J.P. Morgan Securities, Inc., NationsBanc Montgomery
Securities LLC and Schroder & Co., Inc., dated as of
May 4, 1998 (7% Convertible Trust Issued Preferred
Securities)
4.9(25) Registration Rights Agreement among Sun Financing I,
the Company and Bear, Stearns & Co., Inc., Donaldson,
Lufkin & Jenrette Securities Corporation, J.P. Morgan
Securities, Inc., NationsBanc Montgomery Securities
LLC and Schroder & Co., Inc., dated as of May 4, 1998
(9-3/8% Senior Subordinated Debentures due 2008)
10.1(3) Lease Agreement dated as of August 31, 1986, by and
between Karan Associates (Lessee) and Campbell Care of
Wylie, Inc., Assignment of Lease dated November 20,
1989 by and between Campbell Care of Wylie, Inc. and
Honorcare Corporation (Lessee), with First Lease
Addendum dated August 31, 1986, Second Addendum dated
January 9, 1987, Third Addendum dated November 30,
1989 and Fourth Addendum dated July 12, 1993, and
Assignment Agreement dated as of July 13, 1993, by and
between Honorcare Corporation (Assignor) and Sun
Healthcare Corporation (Assignee) (Hillcrest Manor
Nursing Center)
10.2(13) Lease Agreement for West Magic Care Center dated as of
August 1, 1987, between Skyview Associates (Lessor)
and Don Bybee and A. Keith Holloway (Lessee)
10.3(1) Lease Agreement for East Mesa Care Center dated as of
September 30, 1990, between East Mesa Associates
Limited Partnership (Lessor) and SunRise (Lessee)
10.4(1) Assignment and Assumption of Lease with Consent of
Lessor for Torrington Extend-A-Care Center dated as of
November 1, 1990, between Beverly Enterprises
Connecticut, Inc. (Assignor/Lessee), Turner
Enterprises, Inc. (Assignee), Andrew L. Turner and
Nora Turner (Guarantors), Harvey J. Angell and Zev
Karkomi (Special Guarantors) and Beverly Investment
Properties, Inc. (Lessor) (Lease attached)
10.5(1) Lease Agreement for Mercer Island Care Center dated as
of July, 1991, among Mercer View Convalescent Center,
Tenants-in-Common (Lessor), SunRise (Lessee) and
Andrew L. Turner and Nora Turner, husband and wife
(Guarantor)
10.6(1) Lease Agreement for Bayside Health and Rehabilitation
Center dated as of July 26, 1991, between Bellingham
Associates Limited Partnership (Lessor) and SunRise
(Lessee)
10.7(1) Lease Agreement for Menlo Park Healthcare Center dated
as of November 1, 1991, between Oregon Associates
Limited Partnership (Lessor) and SunRise (Lessee)
29
<PAGE>
10.8(1) Sublease Agreement for Hillside Living Center d/b/a
Hillside Healthcare Center dated as of March 1, 1992,
between Elite Care Corporation (Sublessor) and Turner
Enterprises, Inc. (Sublessee) (Lease attached as
Exhibit)
10.9(1) Sublease Agreement for Crown Manor Living Center d/b/a
Crown Manor Healthcare Center dated as of March 1,
1992, between Elite Care Corporation (Sublessor) and
Turner Enterprises, Inc. (Sublessee) (Lease attached
as Exhibit)
10.10(1) Sublease Agreement for Colonial Manor Living Center
d/b/a Colonial Manor Healthcare Center dated as of
March 1, 1992, between Elite Care Corporation
(Sublessor) and Turner Enterprises, Inc. (Sublessee)
(Lease attached as Exhibit)
10.11(1) Sublease Agreement for Douglas Living Center d/b/a
Douglas Healthcare Center dated as of March 1, 1992,
between Elite Care Corporation (Sublessor) and Turner
Enterprises, Inc. (Sublessee) (Lease attached as
Exhibit)
10.12(1) Lease Agreement for Columbia View Nursing Home dated
as of June 30, 1992, between Columbia Associates
Limited Partnership (Lessor) and Turner Enterprises,
Inc. (Lessee)
10.13(1) Lease Agreement for Adams House Healthcare Center
dated as of October 1, 1992, between Adams Connecticut
Associates Limited Partnership (Lessor) and Turner
Enterprises, Inc. (Lessee)
10.14(1) Lease Agreement for San Juan Care Center and Burton
Care Center dated as of October 31, 1992, by and
between Zev Karkomi and Jerold Ruskin (collectively,
the Lessors) and SunRise (Lessee)
10.15(3) Lease Agreement dated as of July 13, 1993, by and
between Angelina Associates (Lessor) and Honorcare
Corporation (Lessee), with Assignment Agreement dated
as of July 13, 1993 by and between Honorcare
Corporation (Assignor) and Sun Healthcare Corporation
(Assignee) (Angelina Facility)
10.16(3) Lease Agreement dated as of July 13, 1993, by and
between July Associates IV (Lessor) and Honorcare
Corporation (Lessee), with Assignment Agreement dated
as of July 13, 1993, by and between Honorcare
Corporation (Assignor) and Sun Healthcare Corporation
(Assignee) (Park Plaza)
10.17(3) Lease Agreement dated as of July 13, 1993, by and
between Angelina Associates (Lessor) and Honorcare
Corporation (Lessee), with Assignment Agreement dated
as of July 13, 1993, by and between Honorcare
Corporation (Assignor) and Sun Healthcare Corporation
(Assignee) (Wells)
10.18(3) Lease Agreement dated as of July 13, 1993, by and
between Angelina Associates (Lessor) and Honorcare
Corporation (Lessee), with Assignment Agreement dated
as of July 13, 1993, by and between Honorcare
Corporation (Assignor) and Sun Healthcare Corporation
(Assignee) (Pineywood)
10.19(3) Lease Agreement dated as of July 13, 1993, by and
between Golden Age Associates (Lessor) and Honorcare
Corporation (Lessee) (Golden Age)
30
<PAGE>
10.20(3) Lease Agreement dated as of July 13, 1993, by and
between July Associates III (Lessor) and Honorcare
Corporation (Lessee) (High Plains)
10.21(7) Lease Agreement dated as of July 30, 1993 between Zev
Karkomi, Thunderbird Associated Limited Partnership
and SunRise Healthcare Corporation
10.22(7) Lease Agreement dated as of September 22, 1993, as
amended, between Carlinville Associates and SunRise
Healthcare Corporation
10.23(4) Lease Agreement dated October 1993, by and between
Salem Associates, Ltd. (Lessor) and SunRise (Lessee)
(Doctors Nursing Home)
10.24(4) Lease Agreement dated as of December 6, 1993, by and
between Massachusetts Nursing Homes Limited
Partnership (Lessor) and SunRise (Lessee)
10.25(3) Lease Assignment and Transfer of Operations Agreement
dated as of December 30, 1993, by and between HEA of
New Mexico, Inc. and SunRise (Lease attached) (Country
Life Manor)
10.26(3) Lease Agreement dated as of January 1, 1994, by and
between October Associates (Lessor) and SunRise
(Lessee) (Stanton Nursing Home)
10.27(3) Lease Agreement dated as of January 1, 1994, by and
between Whitewright Associates (Lessor) and SunRise
(Lessee) (Campbell Care of Whitewright)
10.28(3) Lease Agreement dated as of January 1, 1994, by and
between October Associates (Lessor) and SunRise
(Lessee) (Valley Mills Care Center)
10.29(3) Lease Agreement dated as of January 1, 1994, by and
between October Associates (Lessor) and SunRise
(Lessee) (Moody Care Center)
10.30(6) Lease Agreement dated as of April 26, 1994, by and
between Sumner Nursing Home, L.L.C. and SunRise
10.31(5) Lease Agreement by and between Bellingham II
Associates Limited Partnership and SunRise Healthcare
Corporation, dated May 31, 1994
10.32(12) Lease Agreement for Wheeler Care Center, dated as of
July 24, 1995, by and between Wheeler Healthcare
Associates, L.L.C., a Texas limited liability company
(Lessor) and SunRise Healthcare Corporation (Lessee).
10.33(12) Agreement with Respect to and Second Amendment of
Lease Agreement, dated as of September 1, 1995, by and
between Massachusetts Nursing Homes Limited
Partnership (Lessor) and SunRise Healthcare
Corporation (Lessee).
10.34(12) Third Amendment of Lease Agreement, dated as of
September 1, 1995, by and between Massachusetts
Nursing Homes Limited Partnership (Lessor) and SunRise
Healthcare Corporation (Lessee).
31
<PAGE>
10.35(12) Lease Agreement for Clifton Care Center, dated as of
September 13, 1995, between Missouri Associates
(Lessor) and SunRise Healthcare Corporation (Lessee).
10.36(17) Lease Agreement for Heritage Heights dated as of March
1, 1996, by and between Tor Associates (Lessor) and
SunRise Healthcare Corporation (Lessee).
10.37(15) Second Amendment to Lease, dated as of June 1, 1996,
by and between East Mesa Associates Limited
Partnership (Lesser) and SunRise Healthcare
Corporation (Lessee).
10.38(14) Lease Agreement dated July 1, 1996 between Oak/Jones,
Inc. and SunRise Healthcare Corporation for Oaks
Health & Rehabilitation Center.
10.39(14) Lease Agreement dated July 1, 1996 between Oak/Jones,
Inc. and SunRise Healthcare Corporation for Jones
Health & Rehabilitation Center.
10.40(15) Sub-Sublease Agreement, dated as of August 22, 1996,
by and between Yuba Nursing Homes, Inc. (Lessor) and
SunRise Healthcare Corporation (Lessee).
10.41(17) Lease Agreement for Casa del Sol Nursing Home dated as
of November 26, 1996, by and between Raton Property
Limited Company (Lessor) and SunRise Healthcare
Corporation (Lessee).
10.42(17) Lease Agreement for Blue Mountain Convalescent Center
dated as of November 30, 1996, by and between
Washington Associates (Lessor) and SunRise Healthcare
Corporation (Lessee).
10.43(17) Lease Agreement for Payette Lakes Care Center dated as
of November 30, 1996, by and between Idaho Associates
L.L.C. (Lessor) and SunRise Healthcare Corporation
(Lessee).
10.44(17) Lease Agreement for Valley Rehabilitation and Living
Center dated as of November 30, 1996, by and between
Idaho Associates L.L.C. (Lessor) and SunRise
Healthcare Corporation (Lessee).
10.45(17) Unconditional Guaranty of Lease dated as of November
30, 1996 given by Sun Healthcare Group, Inc.
(Guarantor) to Idaho Associates, L.L.C. (Lessor)
relating to Magic Valley Manor.
10.46(17) Unconditional Guaranty of Lease dated as of November
30, 1996 given by Sun Healthcare Group, Inc.
(Guarantor) to Idaho Associates, L.L.C. (Lessor)
relating to Valley Rehabilitation and Living Center.
10.47(3) Form of Management Agreement between GF/Massachusetts,
Inc. and SunRise
10.48(5) Amendment and Restatement of Loan Agreement
[Brookline] by and between Mediplex of Massachusetts,
Inc. and Meditrust Mortgage Investments, Inc., dated
June 23, 1994
32
<PAGE>
10.49(5) Amendment and Restatement of Loan Agreement [Columbus]
by and between Mediplex Rehabilitation of
Massachusetts, Inc. and Meditrust Mortgage
Investments, Inc., dated June 23, 1994
10.50(5) Loan Agreement [Denver] by and between Mediplex of
Colorado, Inc. and Valley View Psychiatric Services,
Inc. and Meditrust Mortgage Investments, Inc., dated
June 23, 1994
10.51(13) Omnibus Amendment to Loan Agreements, dated as of
March 28, 1996, by and between certain subsidiaries of
The Mediplex Group, Inc. and certain subsidiaries of
Sun
10.52(19) Credit Agreement among Sun, certain lenders, certain
co-agents, and NationsBank of Texas, N.A., as
Administrative Lender, dated October 8, 1997
10.53(19) Form of First Amendment to Credit Agreement dated
October 8, 1997 among Sun, certain lenders, certain
co-agents, and NationsBank of Texas, N.A., as
Administrative Lender, to be dated as of November 12,
1997
10.54(9) First Amendment to Sun 1992 Director Stock Option Plan
10.55(1) Sun 1993 Combined Incentive and Nonqualified Stock Option
Plan
10.56(1) Sun 1993 Directors Stock Option Plan
10.57(9) Amendments to Sun 1993 Combined Incentive and
Nonqualified Stock Option Plan
10.58(13) Sun 1995 Non-Employee Directors' Stock Option Plan
10.59(13) Sun Employee Stock Purchase Plan
10.60(13) 1996 Combined Incentive and Nonqualified Stock Option Plan
10.61(1) Tax Indemnity Agreement between Sun, SunDance
Rehabilitation Corporation, Turner Enterprises, Inc.
and Andrew L. Turner and Nora L. Turner
10.62(1) Form of Indemnity Agreement between Sun and each of
Sun's Directors before July 3, 1996
10.63(25) Form of Indemnity Agreement between Sun and each of
Sun's Directors from and after July 3, 1996
10.64(1) Agreement as of May 5, 1993, between SunDance
Rehabilitation Corporation and Andrew L. Turner
10.65(17) Form of Severance Agreement entered into between Sun
and its President, Chief Financial Officer and Senior
Vice Presidents
10.66(18) Sun 1997 Non-Employee Directors' Stock Plan
33
<PAGE>
10.67(18) Sun 1997 Stock Incentive Plan
10.68(18) Lease Agreement for Casa Loma Convalescent Center
dated as of February 24, 1997 by and between Idaho
Associates, LLC (Lessor) and SunRise Healthcare
Corporation (Lessee)
10.69(19) Lease Agreement for Evergreen Nursing and Convalescent
Centre dated as of June 5, 1997, between Effingham
Associates, L.L.C. (Lessor) and SunRise Healthcare
Corporation (Lessee)
10.70(25) Second Amendment to Credit Agreement dated October 8,
1997 among the Company, certain lenders, certain
co-agents, and NationsBank of Texas, N.A., as
Administrative Lender, dated as of March 27, 1998
10.71(27) Fourth Amendment to Credit Agreement dated October 8,
1997 among the Company, certain lenders, certain
co-agents, and NationsBank of Texas, N.A., as
Administrative Lender, dated as of October 30, 1998
10.72(27) Employment Agreement dated June 2, 1998 between Andrew
L. Turner and the Company.
10.73(24) Indenture dated July 8, 1997 by and between Sun, the
Guarantors named therein, and First Trust National
Association (9 1/2% Senior Subordinated Notes due 2007)
10.74(5) Amended and Restated Indenture, dated October 1, 1994,
among Sun, The Mediplex Group, Inc. and Fleet Bank of
Massachusetts, N.A. as Trustee (6% Convertible
Subordinated Debentures due 2004)
10.75(5) Amended and Restated First Supplemental Indenture to
Amended and Restated Indenture, dated October 1, 1994,
among Sun, The Mediplex Group, Inc. and Fleet Bank of
Massachusetts, N.A. as Trustee (6 1/2% Convertible
Subordinated Debentures due 2003)
10.76(25) Indenture dated May 4, 1998 among the Company, the
Bank of New York, as trustee (7% Convertible Junior
Subordinated Debentures due 2028)
10.77(25) Indenture dated May 4, 1998 among the Company, U.S.
Bank Trust National Association, as trustee, and
certain guarantors (9-3/8% Senior Subordinated Notes
due 2008)
21* Subsidiaries of the Registrant
23* Consent of Arthur Andersen LLP
27** Financial Data Schedule
- ---------------------------
* Filed herewith.
** To be filed by amendment.
34
<PAGE>
(1) Incorporated by reference from exhibits to the Company's
Registration Statement (No. 33-62670) on Form S-1.
(2) Incorporated by reference from exhibits to the Company's Form 8-K
dated March 11, 1994.
(3) Incorporated by reference from exhibits to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993.
(4) Incorporated by reference from exhibits to the Company's Form
10-Q/A-1 for the quarter ended September 30, 1993.
(5) Incorporated by reference from exhibits to the Company's Form 10-Q
for the quarter ended September 30, 1994.
(6) Incorporated by reference from exhibits to the Company's
Registration Statement (No. 33-77522) on Form S-1.
(7) Incorporated by reference from exhibits to the Company's
Registration Statement (No. 33-77272) on Form S-4.
(8) Incorporated by reference from exhibits to the Company's
Registration Statement (No. 33-77870) on Form S-1.
(9) Incorporated by reference from exhibits to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994.
(10) Incorporated by reference from exhibits to the Company's Form 8-A
filed June 6, 1995.
(11) Incorporated by reference from exhibits to the Company's Form
8-A/A-1 filed August 17, 1995.
(12) Incorporated by reference from exhibits to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995.
(13) Incorporated by reference from exhibits to the Company's Form 10-Q
for the quarter ended March 31, 1996.
(14) Incorporated by reference from exhibits to the Company's Form 10-Q
for the quarter ended June 30, 1996.
(15) Incorporated by reference from exhibits to the Company's Form 10-Q
for the quarter ended September 30, 1996.
(16) Incorporated by reference from exhibits to the Company's Form 8-K
dated February 17, 1997.
(17) Incorporated by reference from exhibits to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996.
(18) Incorporated by reference from exhibits to the Company's Form 10-Q
for the quarter ended March 31, 1997.
35
<PAGE>
(19) +Incorporated by reference from exhibits to the Company's Form 10-Q
for the quarter ended September 30, 1997
(20) Incorporated by reference from exhibits to the Company's Form 8-K
dated October 8, 1997.
(21) Incorporated by reference from exhibits to the Company's Form 8-K
dated May 27, 1997.
(22) Incorporated by reference from exhibits to the Company's Form 8-K
dated August 21, 1997.
(23) Incorporated by reference from exhibits to the Company's Form 8-K
dated November 25, 1997.
(24) Incorporated by reference from exhibits to the Company's Form 10-Q
for the quarter ended
June 30, 1997.
(25) Incorporated by reference from exhibits to the Company's Form 10-Q
for the quarter ended March 31, 1998.
(26) Incorporated by reference from exhibits to the Company's Form 10-Q
for the quarter ended June 30, 1998.
(27) Incorporated by reference from exhibits to the Company's Form 10-Q
for the quarter ended September 30, 1998.
(28) Incorporated by reference from exhibits to the Company's Form 8-K
dated April 3, 1998.
36
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SUN HEALTHCARE GROUP, INC.
By: /s/ ANDREW L. TURNER
---------------------------------
Andrew L. Turner
CHIEF EXECUTIVE OFFICER
March 31, 1999
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints each of Robert D.
Woltil and Robert F. Murphy, as his attorney-in-fact to sign this Report on his
behalf individually and in the capacity stated below and to file all supplements
and amendments to this Report and any and all instruments or documents filed as
a part of or in connection with this Report or any amendment or supplement
thereto, and any such attorney-in-fact may make such changes and additions to
this Report as such attorney-in-fact may deem necessary or appropriate.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
registrant on March 31, 1999 in the capacities indicated.
<TABLE>
<CAPTION>
Signatures Title
-------------- ------
<S> <C>
/s/ ANDREW L. TURNER Chairman of the Board of Directors and Chief
- ------------------------------- Executive Officer (Principal Executive Officer)
Andrew L. Turner
/s/ ROBERT D. WOLTIL Chief Financial Officer and Director (Principal
- ------------------------------- Financial Officer)
Robert D. Woltil
/s/ ANDREW P. MASETTI Vice President-Finance (Principal Accounting
- ------------------------------- Officer)
Andrew P. Masetti
- ------------------------------- Director
William R. Anixter
37
<PAGE>
/s/ JOHN E. BINGAMAN
- ------------------------------- Director
John E. Bingaman
/s/ ZEV KARKOMI
- ------------------------------- Director
Zev Karkomi
/s/ MARTIN G. MAND
- ------------------------------- Director
Martin G. Mand
/s/ LOIS SILVERMAN
- ------------------------------- Director
Lois Silverman
- ------------------------------- Director
James R. Tolbert
/s/ MARK G. WIMER
- ------------------------------- Director
Mark G. Wimer
/s/ R. JAMES WOOLSEY
- ------------------------------- Director
R. James Woolsey
</TABLE>
38
EXHIBIT 4.4
REMOVAL OF RIGHTS AGENT, APPOINTMENT
AND ACCEPTANCE OF SUCCESSOR RIGHTS AGENT
AND AMENDMENT NO. 2 TO RIGHTS AGREEMENT
SUN HEALTHCARE GROUP, INC., a Delaware corporation (the "Company"), and
ChaseMellon Shareholder Services LLC (as successor to Boatmen's Trust Company)
("ChaseMellon"), are parties to a Rights Agreement dated as of June 2, 1995 and
amended on August 11, 1995 (the "Rights Agreement"). Capitalized terms not
otherwise defined herein shall have the respective meanings given such terms in
the Rights Agreement.
The Company desires to remove ChaseMellon as Rights Agent, and to appoint
American Stock Transfer & Trust Company, a New York corporation ("ASTC"), as
successor Rights Agent, subject to and in accordance with the terms and
conditions thereof. ASTC desires to accept such appointment and to serve as
successor Rights Agent subject to and in accordance with such terms and
conditions.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the Company, ChaseMellon and ASTC hereby covenant and
agree as follows:
1. In the exercise of the authority vested in it pursuant to Section 21 of
the Rights Agreement, the Company hereby removes ChaseMellon as Rights Agent
under the Rights Agreement, such removal to become effective as of the close of
business on September 30, 1998 (the "Effective Time"). ChaseMellon hereby
consents to its removal as Rights Agent, and waives compliance with any period
of advance notice required by the Rights Agreement in connection with such
removal. In the exercise of the authority vested in it pursuant to Section 21 of
the Rights Agreement, the Company hereby appoints ASTC as successor Rights Agent
under the Rights Agreement, such appointment to become effective as of the
Effective Time, to succeed to all the rights, powers, duties, obligations and
immunities of ChaseMellon as Rights Agent under the Rights Agreement except as
provided for herein or in the Rights Agreement. From and after the Effective
Time, except as provided for herein or in the Rights Agreement, ChaseMellon
shall have no further responsibility for the exercise of the rights and powers
or for the performance of the duties and obligations vested in the Rights Agent
under the Rights Agreement.
2. ASTC hereby accepts its appointment, as of the Effective Time, as
successor Rights Agent under the Rights Agreement and accepts the rights,
powers, duties and obligations of the Rights Agent under the Rights Agreement,
upon the terms and conditions set forth therein and herein, all as contemplated
by Section 21 of the Rights Agreement. ASTC does hereby represent and warrant
that it is qualified and eligible to serve as successor Rights Agent under the
Rights Agreement.
<PAGE>
3. ChaseMellon does hereby represent and warrant that it holds no property
as Rights Agent under the Rights Agreement, that it has fully performed all the
duties and obligations required to be performed by it under the Rights
Agreement, and that it has received all amounts due to it as Rights Agent for
reasonable compensation, expenses and disbursements under Section 18 of the
Rights Agreement.
4. Each party hereto represents and warrants to each other party hereto
that all action necessary on its part to authorize the execution, delivery and
performance of the instrument, the resignation of ChaseMellon as Rights Agent
and the appointment of ASTC as successor Rights Agent has been duly taken.
5. The Company, for the purpose of more fully and certainly vesting in and
confirming to ASTC, as successor Rights Agent, the powers, rights, duties and
responsibilities vested or intended to have vested in ChaseMellon, as Rights
Agent, hereby vests ASTC, as successor Rights Agent, with all of the rights,
powers, duties and obligations of ChaseMellon under the Rights Agreement upon
the terms and conditions set forth therein and herein, such action to become
effective as of the Effective Time.
6. The Rights Agreement is hereby amended and supplemented by amending the
fifth sentence of Section 21 of the Rights Agreement to read in its entirety as
follows:
Any successor Rights Agent, whether appointed by the Company or by
such a court, shall be a corporation organized and doing business
under the laws of the United States or of the State of New York (or of
any other state of the United States so long as such corporation is
authorized to do business as a banking institution in the State of
New York), in good standing, having an office in the State of New
York, which is authorized under such laws to exercise corporate
trust or stock transfer powers and is subject to supervision or
examination by federal or state authority and which has at the time of
its appointment as Rights Agent a combined capital and surplus of at
least $5,000,000.
7. This Instrument may be executed in any number of counterparts, all of
which taken together shall constitute one and the same instrument.
8. This Instrument and the rights and obligations of the parties hereunder
shall be governed by the laws of the State of New York, both in interpretation
and performance.
9. Any notice, demand, request or instrument in writing authorized by the
Rights Agreement or herein to be given to the Rights Agent under the Rights
Agreement shall be sufficiently given for all purposes, if delivered or mailed
to ASTC at 40 Wall Street, 46th Floor, New York, New York 10005, Attention:
Carolyn O'Neill.
2
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Instrument to be duly
executed as of the date first above written.
SUN HEALTHCARE GROUP, INC.
By: /s/ Matthew G. Patrick
------------------------------
Its: Vice President and Treasurer
CHASEMELLON SHAREHOLDER
SERVICES, LLC
By: /s/ H. G. Bradford
-----------------------------
Its: Vice President
AMERICAN STOCK TRANSFER & TRUST
COMPANY, as successor Rights Agent
By: /s/ Herbert J. Lemmer
------------------------------
Its: Vice President
3
EXHIBIT 21
SUN HEALTHCARE GROUP, INC. SUBSIDIARIES
as of March 25, 1999
Jurisdiction of
Incorporation
---------------
CareerStaff Unlimited, Inc.......................................Delaware
CareerStaff Management, Inc....................................Delaware
Phoenix-Hudson Company.........................................Kansas
Phoenix-Hudson Corporation of Florida........................Florida
PRI, Inc.......................................................Delaware
Masthead Corporation.............................................New Mexico
Regency Health Services, Inc.....................................Delaware
Braswell Enterprises, Inc......................................California
Brittany Rehabilitation Center, Inc............................California
Care Enterprises, Inc..........................................Delaware
Americare Homecare, Inc......................................Ohio
Americare Homecare of West Virginia, Inc.....................West Virginia
Americare Midwest, Inc.......................................Ohio
Americare of West Virginia, Inc..............................West Virginia
Beckley Health Care Corp...................................West Virginia
Dunbar Health Care Corp....................................West Virginia
Putnam Health Care Corp....................................West Virginia
Salem Health Care Corp.....................................West Virginia
Care Enterprises West .......................................Utah
Care Home Health Services..................................California
Care Finance, Inc............................................California
Circleville Health Care Corp.................................Ohio
Glenville Health Care, Inc...................................West Virginia
Marion Health Care Corp......................................Ohio
Carmichael Rehabilitation Center...............................California
Casa de Vida Rehabilitation Center.............................California
Coalinga Rehabilitation Center.................................California
Covina Rehabilitation Center...................................California
Evergreen Rehabilitation Center................................California
Fairfield Rehabilitation Center................................California
First Class Pharmacy, Inc......................................California
Executive Pharmacy Services, Inc.............................North Carolina
Fullerton Rehabilitation Center ...............................California
Glendora Rehabilitation Center ................................California
Grand Terrace Rehabilitation Center............................California
Hallmark Health Services, Inc..................................Delaware
Harbor View Rehabilitation Center..............................California
Hawthorne Rehabilitation Center................................California
Heritage Rehabilitation Center.................................California
Heritage-Torrance Rehabilitation Center........................California
Huntington Beach Convalescent Hospital.........................California
Jackson Rehabilitation Center, Inc.............................California
Linda-Mar Rehabilitation Center................................California
Meadowbrook Rehabilitation Center..............................California
Meadowview Rehabilitation Center...............................California
Newport Beach Rehabilitation Center............................California
Oasis Mental Health Treatment Center, Inc......................California
Paradise Rehabilitation Center, Inc............................California
Paso Robles Rehabilitation Center .............................California
Regency High School, Inc.......................................California
Regency - North Carolina, Inc..................................North Carolina
Regency Occupational Medicine Services, Inc....................California
Regency Outpatient Services, Inc...............................California
Pacific Beach Physical Therapy, Inc..........................California
Peachwood Physical Therapy Corporation.......................California
Regency Rehab Hospitals, Inc...................................California
Orange Rehabilitation Hospital, Inc..........................Delaware
RehabWorks of California, Inc...............................California
San Bernardino Rehabilitation Hospital, Inc..................Delaware
Regency Rehabilitation Management
and Consulting Services, Inc................................California
Regency Rehab Properties, Inc..................................California
Regency - Tennessee, Inc.......................................Tennessee
RHS Management Corporation.....................................California
Rose Rehabilitation Center.....................................California
Rosewood Rehabilitation Center, Inc............................California
<PAGE>
Shandin Hills Rehabilitation Center .............................California
Stockton Rehabilitation Center, Inc...........................California
SunPlus Home Health Services, Inc.............................California
Vista Knoll Rehabilitation Center, Inc........................California
Willowview Rehabilitation Center .............................California
Retirement Care Associates, Inc..................................Colorado
Bibb Health & Rehabilitation, Inc..............................Georgia
Capitol Care Management Company, Inc...........................Georgia
Charlton Healthcare, Inc.......................................Georgia
Contour Medical, Inc...........................................Nevada
Ameridyne Corporation........................................Tennessee
Atlantic Medical Supply Company, Inc.........................Georgia
Americare Health Services Corp.............................Delaware
Facility Supply, Inc. (80% by Atlantic Medical
Supply, Inc., 20% by Contour Medical, Inc.)..............Florida
SunChoice.com, Inc.........................................Delaware
Contour Medical of Central Florida, Inc......................Florida
Contour Medical-Michigan, Inc................................Michigan
Quest Medical Supply, Inc....................................Georgia
Crescent Medical Services, Inc.................................Georgia
Duval Healthcare Center, Inc...................................Georgia
F&L Associates, Inc............................................Virginia
Gainesville Healthcare Center, Inc.............................Georgia
Gardendale Health Care Center, Inc.............................Georgia
Jeff Davis Healthcare, Inc.....................................Georgia
Lake Forest Healthcare Center, Inc.............................Georgia
Lake Health Care Center, Inc...................................Georgia
Libbie Rehabilitation Center, Inc..............................Virginia
Brent-Lox Hall Nursing Home, Inc.............................Virginia
Maplewood Health Care Center of Jackson, Tennessee, Inc........Tennessee
Mid-Florida, Inc...............................................Georgia
Phoenix Associates, Inc........................................Virginia
Pine Manor Rest Home, Incorporated.............................North Carolina
Pro-Scription, Inc.............................................Georgia
Quality NHF Leasing, Inc.......................................Georgia
Renaissance Retirement, Inc....................................Georgia
Retirement Management Corporation..............................Georgia
Riviera Retirement, Inc........................................Georgia
Roberta Health Care Center, Inc................................Georgia
Sea Side Retirement, Inc.......................................Georgia
Southside Health Care Center, Inc..............................Georgia
Statesboro Health Care Center, Inc.............................Georgia
Summers Landing, Inc...........................................Georgia
Sun Coast Retirement, Inc......................................Georgia
The Atrium Nursing Home, Inc. (RCA-75% interest;...............Florida
Jack C. Demetree-122% interest; William C. Demetree-122%
interest)
West Tennessee, Inc............................................Georgia
Willow Way, Inc................................................Georgia
Woodbury Health Care Center, Inc...............................Georgia
SHG International Holdings, Inc..................................Delaware
SHG Holdings Pty Limited (90% by
Sun Healthcare Group, Inc.) ....................................Australia
Sun Healthcare Group Australia Pty Limited....................Australia
Alpha Healthcare Limited (38.2% interest)...................Australia
Sun Moran Healthcare Group Australia Pty Limited..............Australia
Greenway Park Developments Pty Limited*.....................Australia
The Carmichael Private Hospital Pty Limited*................Australia
Shellharbour Private Hospital Pty Limited*..................Australia
Biggs Street Private Hospital & Clinic Pty Limited*.........Australia
Yalandl Pty Limited*........................................Australia
Sun Healthcare Holdings Pty Limited...........................Australia
Promedica Pty Limited.......................................Australia
* 99.9% interest held by Sun Moran Healthcare Group Australia Pty Limited and
.1% interest held by Sun Healthcare Group, Inc.
SHG Ireland Limited..............................................Ireland
SunBridge, Inc...................................................New Mexico
SunCare Respiratory Services, Inc................................Indiana
SunChoice Medical Supply, Inc....................................New Mexico
<PAGE>
SunDance Rehabilitation Corporation..............................Connecticut
Cal-Med, Inc...................................................California
Accelerated Care Plus, LLC (50% interest)....................Delaware
HC, Inc........................................................Kansas
Accelerated Care Plus, LLC (50% interest)....................Delaware
Kentucky Outpatient Rehabilitation Facility,
Bowling Green (50% interest)..................................Kentucky
SRT, Inc.......................................................New Mexico
SunAlliance Healthcare Services, Inc...........................Delaware
BioPath Clinical Laboratories, Inc...........................California
Golan Healthcare Group, Inc.................................Massachusetts
Pacific Health Care, Inc....................................Arizona
SunDelta Corporation ........................................Delaware
U.S. Laboratory Corp.........................................Delaware
SunDance Rehabilitation Services, Inc..........................New Mexico
SunFlex Corporation............................................New Mexico
Sun Financing I..................................................Delaware
Sun Financing II.................................................Delaware
Sun Healthcare (Europe) B.V......................................The Netherlands
Maccabi B Sun Ltd..............................................Israel
SHG Netherlands I, Inc.........................................New Mexico
Beheer en Beleggingsmaatschappij Hofeind B.V...................The Netherlands
Sun Healthcare Holding France E.U.R.L..........................France
Sun Healthcare (Deutschland) GmbH..............................Germany
Heim Plan Dienstleistungs GmbH (91.67% interest).............Germany
ProSenium Betreuungsgesellschaft GmbH......................Germany
ProVitalis Senioren Betreuungsgesellschaft GmbH............Germany
Alten- und Pflegeheim Sielhofe
Betriebsgesellschaft GmbH.................................Germany
ProSeWo Betreuungsgesellschaft GmbH........................Germany
Seniorenstift Haus Lessingstrasse GmbH.....................Germany
ProSeWo Seniorenbetreuungsgesellschaft
GmbH Alten -und Pflegeheim Maschen........................Germany
Seniorenresidenz Am Kurpark GmbH...........................Germany
Douwesstift Emden Alten- und Pflegeheim GmbH...............Germany
Arbeiter-Samariter-Bund Soziale
Betreuungsgesellschaft GmbH (75% interest)................Germany
ProSeWo Seniorenbetreuungs GmbH Seehof (50% interest)......Germany
EWR GmbH.................................................Germany
Sun Healthcare Group International Ltd.........................England/Wales
Careerstaff Ltd..............................................Scotland
Exceler Health Care Group Limited............................England/Wales
Cairncroft Limited (50% holding in
Cairncroft Partnership)...................................England/Wales
Community Care Management Services Limited.................England/Wales
Exceler Healthcare Services Limited........................England/Wales
Exceler Ireland Limited ...................................England/Wales
Firmprior Limited..........................................England/Wales
Forest Healthcare Limited..................................England/Wales
Glyndbourne Limited........................................Isle of Man
Gradeindex Limited.........................................England/Wales
Sun Healthcare Group Limited...............................England/Wales
Modelfuture Limited........................................England/Wales
Noblerevel Limited.........................................England/Wales
Sun Healthcare Europe Limited..............................England/Wales
Printdemand Limited........................................England/Wales
Tan-y-Bryn Limited.........................................England/Wales
Sun Healthcare Group UK Ltd................................England/Wales
Trimbit Limited............................................England/Wales
Manor Nursing Homes Limited (intermediate holding).......England/Wales
APTA Healthcare Ltd..........................................England/Wales
APTA Healthcare (Birmingham) plc...........................England/Wales
Integrated Rehabilitation Services Limited...............England/Wales
Lusby Webber Limited.....................................England/Wales
Oaklands Nursing Home Limited............................England/Wales
West Regent Healthcare Limited...........................England/Wales
Wyncroft House Limited...................................England/Wales
Exceler Healthcare Leasing Limited.........................England/Wales
APTA Healthcare (UK) Limited...............................England/Wales
Watercrest Developments Limited............................England/Wales
Ashbourne Limited...........................................Scotland
Elders Pharmacies Ltd. (51% interest)......................Scotland
Ashbourne Homes Limited....................................Scotland
Larstrike Ltd............................................England/Wales
United Healthcare Ltd....................................England/Wales
Uniscript Ltd..........................................England/Wales
Ashbourne Healthcare Ltd...............................England/Wales
<PAGE>
Openlink Ltd...........................................England/Wales
Sedbury Park Ltd.........................................England/Wales
Ashbourne Homes (Developments) Ltd.........................Scotland
Ashbourne Finance Ltd......................................Scotland
Elders PLC.................................................Scotland
Penilum Healthcare PLC.....................................England/Wales
Pentland Healthcare Limited..................................Scotland
Sunchoice UK Limited.........................................England/Wales
Sunscript UK Limited.........................................England/Wales
N & J Sampson Limited......................................England/Wales
Intervital Limited (50% interest)........................England/Wales
Park Chemist (Liverpool) Limited...........................England/Wales
P F Young Limited..........................................England/Wales
West End Pharmacy Limited..................................England/Wales
Sun Spain SRL..................................................Spain
Eurosar, S.A. (85.72% interest)..............................Spain
Camansar S.A. Castilla (La Mancha).........................Spain
Catsar S.A. (Cataluna).....................................Spain
Residencia Terraferma S.L. (Cataluna)
(51.0% interest) .........................................Spain
Coarasar S.A. (Aragon) ....................................Spain
Comansar S.A. (Andalucia) (90.93% interest)................Spain
Comasar S.A. (Madrid) (60.99% interest)....................Spain
Covalsar S.A. (Valencia)...................................Spain
Euskosar, S.A. (Pais Vasco)................................Spain
Sun Healthcare Group International Corporation...................Delaware
Sun Lane Purchase Corporation....................................New Mexico
SunMark Nevada, Inc..............................................Nevada
SHG Finance, LLC (Sun Healthcare Group, Inc.B50% member
SunMark Nevada, Inc. B 50% member)............................New Mexico
Sun Healthcare Group Finance Company.........................New Mexico
Sunmark of New Mexico, Inc.......................................New Mexico
SunRise Healthcare Corporation...................................New Mexico
Clipper Home of North Conway, Inc..............................New Hampshire
Clipper Home of Portsmouth, Inc................................New Hampshire
Clipper Home of Rochester, Inc.................................New Hampshire
Clipper Home of Wolfeboro, Inc.................................New Hampshire
Goodwin Nursing Home, Inc......................................New Hampshire
Living Services, Inc...........................................Washington
Mountain Care Management, Inc..................................West Virginia
Nursing Home, Inc..............................................Washington
SunHealth Specialty Services, Inc..............................New Mexico
Sunrise Healthcare of Colorado, Inc............................Colorado
Sunrise Rehab of Colorado, Inc.................................Colorado
Sunrise Healthcare of Florida, Inc...............................Florida
SunScript Pharmacy Corporation...................................New Mexico
SunFactors, Inc................................................Florida
Advantage Health Services, Inc...............................Florida
HoMed Convalescent Equipment, Inc............................New Jersey
Pharmacy Factors of California, Inc..........................California
Pharmacy Factors of Florida, Inc.............................Florida
Pharmacy Factors of Texas, Inc...............................Texas
SunScript/HRA, L.L.C. (60% member).............................Illinois
SunSolution, Inc.................................................Delaware
Suncoast Rehabilitation Management Services, L.L.C.
(73% member)..................................................New Jersey
Sun Healthcare Systems, Inc. (greater than 50%)..................Delaware
The Mediplex Group, Inc..........................................New Mexico
Bergen Eldercare, Inc..........................................New Jersey
Community Re-Entry Services of Cortland, Inc...................Delaware
G-WZ of Stamford, Inc..........................................Connecticut
HTA of New York, Inc...........................................New York
LTC Staffinders, Inc...........................................Connecticut
Manatee Springs Nursing Center, Inc............................Florida
Mediplex Atlanta Rehabilitation Institute, Inc.................Georgia
Mediplex Management, Inc.......................................Massachusetts
Mediplex Management B New Mexico, Inc..........................New Mexico
Mediplex Management of New Jersey, Inc.........................New Jersey
Mediplex Management of Palm Beach County, Inc..................Florida
Mediplex Management of Port St. Lucie, Inc.....................Florida
<PAGE>
Mediplex Management of Texas, Inc..............................Texas
Mediplex of Connecticut, Inc...................................Connecticut
Mediplex of Kentucky, Inc......................................Kentucky
Mediplex of Maryland, Inc......................................Maryland
Mediplex of Massachusetts, Inc.................................Massachusetts
Mediplex of Concord, Inc.....................................Massachusetts
Mediplex of New Hampshire, Inc.................................New Hampshire
Bay Colony Health Service, Inc...............................Massachusetts
Mediplex of New Jersey, Inc....................................New Jersey
P.M.N.F. Management, Inc.....................................New Jersey
Mediplex of Ohio, Inc..........................................Ohio
Mediplex of Tennessee, Inc.....................................Tennessee
Mediplex of Virginia, Inc......................................Virginia
Mediplex Rehabilitation of Massachusetts, Inc..................Massachusetts
New Bedford Nursing Center, Inc................................Massachusetts
Oakview Treatment Centers of Kansas, Inc.......................Kansas
Quality Care Holding Corp......................................Massachusetts
Quality Nursing Care of Massachusetts, Inc...................Massachusetts
Spofford Land, Inc.............................................New Hampshire
Sun Care Corp..................................................Delaware
Sun Healthcare, Inc............................................Colorado
Worcester Nursing Center, Inc..................................Massachusetts
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PARTNERSHIP INTERESTS
---------------------
<TABLE>
<CAPTION>
Name of Partnership Shareholders/Partners Jurisdiction of Organization
------------------- --------------------- ----------------------------
<S> <C> <C>
Cairncroft Nursing Homes Partnership Cairncroft Limited-50% owner England/Wales
Chico Real Estate Partners, a general SunRise Healthcare Corporation B 50% partner; Washington
partnership
Encore Retirement Partners, L.P. Sun Coast Retirement, Inc. B 1% general partner; Sun New York
Coast Retirement, Inc. B Class B limited partner
(73.25%)
HSR Partners, L.P. CareerStaff Management, Inc. B 1% general partner; Texas
PRI, Inc. B 89% Class A limited partner
Langdon Place of Dover, a New Hampshire SunRise Healthcare Corporation B 5% managing partner New Hampshire
General Partnership
Langdon Place of Keene Limited Partnership SunRise Healthcare Corporation B 5% general partner New Hampshire
L.P.E., a New Hampshire General Partnership SunRise Healthcare Corporation B 5% managing partner New Hampshire
San Joaquin Valley Rehabilitation Hospital Orange Rehabilitation Hospital, Inc. B 1% general Delaware
partner; Orange Rehabilitation Hospital, Inc. B 69%
limited partner
Savannas Hospital Limited Partnership Mediplex Management of Port St. Lucie, Inc. B 1% Florida
general partner; Mediplex Management, Inc. B 99%
limited partner
SunDance Rehabilitation Texas, Limited SunDance Rehabilitation Corporation B 1% general Texas
Partnership partner, SRT, Inc. B 99% limited partner
Sun Delta I Limited Partnership Sun Delta Corporation B 1% general partner; Texas
Sun Alliance Healthcare Services, Inc. B 50% limited
partner
Tall Pines Joint Venture Spofford Land, Inc. B 50% partner Connecticut
The Atrium of Jacksonville, Ltd. Retirement Care Associates, Inc. B 3% general Florida
partner; Retirement Care Associates, Inc. B 72%
limited partner
Therapists Unlimited B Baltimore/ Washington CareerStaff Management, Inc. B 1% general partner; Texas
D.C., L.P. PRI, Inc. B 89% Class A limited partner
Therapists Unlimited B Chicago II, L.P. CareerStaff Management, Inc. B 1% general partner; Texas
PRI, Inc. B 89% Class A limited partner
Therapists Unlimited B Detroit II, L.P. CareerStaff Management, Inc. B 1% general partner; Texas
PRI, Inc. B 89% Class A limited partner
Therapists Unlimited B Fresno, L.P. CareerStaff Management, Inc. B 1% general partner; Texas
PRI, Inc. B 89% Class A limited partner
Therapists Unlimited B Indianapolis, L.P. CareerStaff Management, Inc. B 1% general partner; Texas
PRI, Inc. B 89% Class A limited partner
Therapists Unlimited B Seattle, L.P. CareerStaff Management, Inc. B 1% general partner; Texas
PRI, Inc. B 89% Class A limited partner
W.R. Partners (Warner Robins), L.P. Retirement Care Associates, Inc. B 1% general Georgia
Partner; Retirement Care Associates, Inc. B 49%
limited partner
West Jersey/Mediplex Rehabilitation, L.P. Mediplex of New Jersey, Inc. B 89% general partner; New Jersey
Bergan Eldercare, Inc. B 11% Class A limited partner
</TABLE>
