CREDIT SUISSE SECURITIES (USA) LLC Eleven Madison Avenue New York, NY 10010 CREDIT SUISSE Eleven Madison Avenue New York, NY 10010

 

 

CREDIT SUISSE SECURITIES (USA) LLC Eleven Madison Avenue New York, NY 10010   CREDIT SUISSE Eleven Madison Avenue New York, NY 10010

CIBC WORLD MARKETS CORP. 300 Madison Avenue New York, NY 10017   CIBC INC. 300 Madison Avenue New York, NY 10017

 

 

 

October 19, 2006

Sun Healthcare Group, Inc.

18831 Von Karman, Suite 400

Irvine, CA 92612

Attention:  L. Bryan Shaul

                     Executive Vice President and Chief Financial Officer

 

 

Ladies and Gentlemen:

 

You have advised Credit Suisse (“CS”), Credit Suisse Securities (USA) LLC (“CS Securities” and, together with CS and their respective affiliates, “Credit Suisse”) CIBC World Markets Corp. (“CIBC WM”) and CIBC Inc. (“CIBC” and, together with Credit Suisse and CIBC WM, “we” or “us”, and, together with CS, the “Initial Lenders”) that you intend to acquire (the “Acquisition”) all the equity interests of Harborside Healthcare Corporation, a Delaware corporation (the “Company”), and to consummate the other Transactions (such term and each other capitalized term used but not defined herein having the meaning assigned to such term in the Summary of Principal Terms and Conditions attached hereto as Exhibit A (the “Senior Facilities Term Sheet”) or in the Summary of Principal Terms and Conditions attached hereto as Exhibit B (the “Bridge Facility Term Sheet” and, together with the Senior Facilities Term Sheet, the “Term Sheets”)).

 

You have further advised us that, in connection therewith, (a) Sun Healthcare Group, Inc. (the “Borrower”) will obtain the senior secured credit facilities (the “Senior Facilities”) described in the Senior Facilities Term Sheet, in an aggregate principal amount of up to $505,000,000 (subject to reduction as described in the Senior Facilities

 

 

Term Sheet) and (b) the Borrower will either (i) issue up to $250,000,000 in aggregate principal amount of its senior subordinated notes (the “Senior Subordinated Notes”) in a public offering or in a Rule 144A or other private placement or (ii) if the Borrower does not to issue the Senior Subordinated Notes on or prior to the Closing Date and all conditions precedent to borrowing under the Bridge Facility (defined below) have been satisfied, borrow up to $250,000,000 (subject to reduction as described in the Bridge Facility Term Sheet) in aggregate principal amount of senior subordinated increasing rate loans under the senior subordinated credit facility (the “Bridge Facility”) described in the Bridge Facility Term Sheet. The Senior Facilities and the Bridge Facility are collectively referred to herein as the “Facilities”.

 

1.  Commitments.

 

In connection with the foregoing, (a) CS is pleased to advise you of its commitment to provide 50% of the principal amount of the Facilities and (b) CIBC is pleased to advise you of its commitment to provide 50% of the principal amount of the Facilities, in each case, upon the terms and subject to the conditions set forth or referred to in this commitment letter (including the Term Sheets and other attachments hereto, this “Commitment Letter”). The commitments of CS and CIBC hereunder will be allocated ratably among the Facilities and are several and not joint.

 

2.  Titles and Roles.

 

You hereby appoint (a) CS Securities and CIBC WM (together, in such capacity, the “Lead Arrangers”) to act, and the Lead Arrangers hereby agree to act, as joint-bookrunners and joint-lead arrangers for the Facilities, (b) CS to act, and CS hereby agrees to act, as sole administrative agent and sole collateral agent for the Facilities and (c) CIBC WM to act, and CIBC WM hereby agrees to act, as sole syndication agent for the Facilities, in each case upon the terms and subject to the conditions set forth or referred to in this Commitment Letter. Each of CS Securities, CS and CIBC WM in such capacities, will perform the duties and exercise the authority customarily performed and exercised by it in such roles. You agree that Credit Suisse will have “left” placement in any and all marketing materials or other documentation used in connection with the Facilities. You further agree that no other titles will be awarded and no compensation (other than that expressly contemplated by this Commitment Letter and the Fee Letter referred to below) will be paid in connection with the Facilities unless you and we shall so agree.¹  

 

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3.     Syndication.

 

The Lead Arrangers reserve the right, prior to and/or after the execution of definitive documentation for the Facilities, to syndicate all or a portion of the commitments of the Initial Lenders with respect to the Facilities to a group of banks, financial institutions and other institutional lenders (together with the Initial Lenders and any Additional Lender, the “Lenders”) identified by us in consultation with you (which shall not include those banks, financial institutions or other persons separately identified by you to us prior to the date hereof and reasonably acceptable to us (the “Disqualified Institutions”)), and you agree to provide the Lead Arrangers with a period of at least 21 consecutive days following the launch of the general syndication of the Facilities and immediately prior to the Closing Date to syndicate the Facilities (provided that such period shall not include any day from and including December 16, 2006 through and including January 1, 2007). We intend to commence syndication efforts promptly upon your execution of this Commitment Letter, and you agree to actively assist us in completing a satisfactory syndication. Such assistance shall include (a) your using commercially reasonable efforts to ensure that any syndication efforts benefit materially from your existing lending and investment banking relationships and the existing lending and investment banking relationships of the Company, (b) direct contact between senior management, representatives and advisors of the Borrower (and your using commercially reasonable efforts to cause direct contact between senior management, representatives and advisors of the Company) and the proposed Lenders, (c) assistance by the Borrower (and your using commercially reasonable efforts to cause the assistance by the Company) in the preparation of a Confidential Information Memorandum for each of the Facilities and other marketing materials to be used in connection with the syndication, (d) your providing or causing to be provided a detailed business plan or projections of the Borrower and its subsidiaries in customary form for the years 2006 through 2013 and for the eight quarters beginning with the third quarter of 2006, (e) prior to the launch of the syndication (in the case of the Senior Facilities and the Borrower’s corporate rating) and as soon thereafter as practicable (but in any event prior to the Closing Date, in the case of the Senior Subordinated Notes), the obtaining of a corporate rating and ratings for each of the Facilities and the Senior Subordinated Notes from each of Standard & Poor’s Ratings Service and Moody’s Investors Service, Inc. and (f) the hosting, with the Lead Arrangers, of one or more meetings of prospective Lenders. You agree, at the request of the Lead Arrangers, to assist in the preparation of a version of the Confidential Information Memorandum and other marketing materials and presentations to be used in connection with the syndication of the Facilities, consisting exclusively of information and

 

_______________________________

documentation that is either (i) publicly available or contained in the prospectus or other offering memorandum for the Senior Subordinated Notes or (ii) not material with respect to the Borrower, the Company or their respective subsidiaries or any of their respective securities for purposes of foreign, United States Federal and state securities laws (all such information and documentation being “Public Lender Information”). Any information and documentation that is not Public Lender Information is referred to herein as “Private Lender Information”. Any document provided by you and not identified by you as containing solely Public Lender Information will be deemed to contain Private Lender Information.

 

The Lead Arrangers will manage all aspects of any syndication in consultation with you, including decisions as to the selection of institutions (which shall not include the Disqualified Institutions) to be approached (subject to our consultation with you prior to approaching such institutions) and when they will be approached, when their commitments will be accepted, which institutions will participate, the allocation of the commitments among the Lenders, any naming rights (subject to footnote 1 of this Commitment Letter) and the amount and distribution of fees among the Lenders. To assist the Lead Arrangers in their syndication efforts, you agree promptly to prepare and provide (and to use commercially reasonable efforts to cause the Company to provide) to the Lead Arrangers all information with respect to the Borrower, the Company and their respective subsidiaries, the Transactions and the other transactions contemplated hereby, including all financial information and projections (the “Projections”), as the Lead Arrangers may reasonably request.

 

4.  Information.

 

You hereby represent and covenant (and it shall be a condition to the Initial Lenders’ respective commitments hereunder, and our agreements to perform the services described herein) that (a) all information, taken as a whole, other than the Projections (the “Information”) that has been or will be made available to us by or on behalf of you or any of your representatives is or will be (and with respect to any information relating to the Company with respect to any period prior to the Acquisition, to the best of your knowledge, is or will be), when furnished, complete and correct in all material respects and does not or will not, when furnished, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein not materially misleading in light of the circumstances under which such statements are made and (b) the Projections that have been or will be made available to us by or on behalf of you or any of your representatives have been or will be prepared in good faith based upon assumptions that are believed by you to be reasonable at the time made and at the time the related Projections are made available to us. You agree that if at any time prior to the closing of the Facilities any of the representations in the preceding sentence would be incorrect in any material respect if the Information and Projections were being furnished, and such representations were being made, at such time, then you will promptly supplement the Information and the Projections so that such representations will be correct under those circumstances. In arranging and syndicating

the Facilities, we will be entitled to use and rely primarily on the Information and the Projections without responsibility for independent verification thereof. Although the Projections that have been or will be made available to the Lead Arrangers by or on behalf of you or any of your representatives have been or will be prepared in good faith based upon assumptions that are believed to be reasonable at the time made and at the time such Projections are made available to the Lead Arrangers, the Lead Arrangers acknowledge that you can give no assurance that the Projections will be achieved.

 

       5.  Fees.

 

As consideration for the Initial Lenders’ respective commitments hereunder, and our agreements to perform the services described herein, you agree to pay (or to cause the Borrower to pay) to us the fees set forth in this Commitment Letter and in the fee letter dated the date hereof and delivered herewith with respect to the Facilities (the “Fee Letter”) at the times specified therein.

 

6.  Conditions Precedent.

 

The commitments of each Initial Lender hereunder, and our agreements to perform the services described herein, are subject to (a) there not having occurred any material adverse effect or any event or circumstance that, individually or in the aggregate, would be reasonably expected to cause a material adverse effect, (b) our satisfaction that, prior to and during the syndication of the Facilities, there shall be no other issues of debt securities or commercial bank or other credit facilities of the Borrower, the Company or their respective subsidiaries being announced, offered, placed or arranged (other than the Senior Subordinated Notes), (c) the negotiation, execution and delivery of definitive documentation with respect to the Facilities reasonably satisfactory to us and our counsel, (d) your compliance with the terms of this Commitment Letter and the Fee Letter and (e) the other conditions set forth or referred to in the Term Sheets and the other exhibits hereto. For purposes of this paragraph, “material adverse effect”²  means any event, change, circumstance, effect or state of facts that is materially adverse to (i) the business, financial condition or results of operations of the Company and its Subsidiaries (as defined in the Merger Agreement), taken as a whole or (ii) the ability of the Company to perform its obligations under the Merger Agreement or to consummate the transactions contemplated thereby, except in the case of clause (i) for any event, change, circumstance, effect or state of facts arising out of or attributable to any of the following, either alone or in combination: (a) general national, international or regional economic, political or financial conditions, including any such event, change, circumstance, effect or state of facts resulting from acts of war (whether or not declared) or terrorism or other force majeure events, but only if they do not materially disproportionately affect the Company and its Subsidiaries (as defined in the Merger Agreement) taken as a whole

_____________________________

relative to the industry in which the Company and its Subsidiaries (as defined in the Merger Agreement) operate generally, (b) generally affecting the industry in which the Company and its Subsidiaries (as defined in the Merger Agreement) operate generally (including legislative, legal and regulatory changes), but only if they do not materially disproportionately affect the Company and its Subsidiaries (as defined in the Merger Agreement) taken as a whole relative to the industry in which the Company and its Subsidiaries (as defined in the Merger Agreement) operate generally, (c) actions taken pursuant to or in accordance with the Merger Agreement or at the request of the Borrower (and the Borrower agrees that it shall not request that the Company take any actions that would cause, or would reasonably be expected to cause, a material adverse effect), (d) changes in Laws or GAAP (each as defined in the Merger Agreement) and (e) the execution or delivery of the Merger Agreement or the announcement or pending status of the transactions contemplated by the Merger Agreement. Without limiting your obligations to assist with syndication efforts as set forth herein, it is understood that the commitment of each Initial Lender hereunder is not subject to the completion of the syndication of the Facilities.

 

7.  Indemnification; Expenses.

 

You agree (a) to indemnify and hold harmless each of us and our officers, directors, employees, agents, advisors, controlling persons, members and successors and assigns (each, an “Indemnified Person”) from and against any and all losses, claims, damages, liabilities and expenses (including expenses incurred in connection with investigating or defending any of the foregoing), joint or several, to which any such Indemnified Person may become subject arising out of or in connection with this Commitment Letter, the Fee Letter, the Transactions, the Facilities or any related transaction or any claim, litigation, investigation or proceeding relating to any of the foregoing, regardless of whether any such Indemnified Person is a party thereto (and regardless of whether such matter is initiated by a third party or by the Borrower, the Company or any of their respective affiliates), and to reimburse each such Indemnified Person upon demand for any reasonable legal or other expenses incurred in connection with investigating or defending any of the foregoing, provided that the foregoing indemnity will not, as to any Indemnified Person, apply to losses, claims, damages, liabilities or related expenses to the extent they are found in a final, non-appealable judgment of a court of competent jurisdiction to have resulted from the willful misconduct or gross negligence of such Indemnified Person, and (b) to reimburse each of us from time to time, upon presentation of a summary statement, for all reasonable out-of-pocket expenses (including but not limited to reasonable expenses of our due diligence investigation, consultants’ fees, syndication expenses, travel expenses and fees, disbursements and other charges of counsel), in each case, incurred in connection with the Facilities and the preparation, negotiation and enforcement of this Commitment Letter, the Fee Letter, the definitive documentation for the Facilities and any ancillary documents or security arrangements in connection therewith. Notwithstanding any other provision of this Commitment Letter, no Indemnified Person shall be liable for any

 

 

indirect, special, punitive or consequential damages in connection with its activities related to the Facilities.

 

8.  Sharing Information; Absence of Fiduciary Relationship; Affiliate Activities.

 

You acknowledge that the Lead Arrangers and their affiliates may be providing debt financing, equity capital or other services (including financial advisory services) to other companies in respect of which you may have conflicting interests regarding the transactions described herein or otherwise, including to other potential purchasers of the Company. You agree that the Lead Arrangers and their affiliates may provide such services or other functions to such other companies without regard to the Lead Arrangers’ relationships to you hereunder. We will not furnish confidential information obtained from you by virtue of the transactions contemplated by this Commitment Letter or our other relationships with you to other companies. You also acknowledge that we do not have any obligation to use in connection with the transactions contemplated by this Commitment Letter, or to furnish to you, confidential information obtained by us from other companies.

 

You further acknowledge and agree that (a) no fiduciary, advisory or agency relationship between you and us is intended to be or has been created in respect of any of the transactions contemplated by this Commitment Letter, irrespective of whether any of us has advised or is advising you on other matters, (b) we, on the one hand, and you, on the other hand, have an arms-length business relationship that does not directly or indirectly give rise to, nor do you rely on, any fiduciary duty on the part of any of us, (c) you are capable of evaluating and understanding, and you understand and accept, the terms, risks and conditions of the transactions contemplated by this Commitment Letter, (d) you have been advised that we are engaged in a broad range of transactions that may involve interests that differ from your interests and that we have no obligation to disclose such interests and transactions to you by virtue of any fiduciary, advisory or agency relationship, and (e) you waive, to the fullest extent permitted by law, any claims you may have against any of us for breach of fiduciary duty or alleged breach of fiduciary duty and agree that we shall have no liability (whether direct or indirect) to you in respect of such a fiduciary duty claim or to any person asserting a fiduciary duty claim on behalf of or in right of you, including your stockholders, employees or creditors.

 

You further acknowledge that we are full service securities firms engaged in securities trading and brokerage activities as well as providing investment banking and other financial services. In the ordinary course of business, we may provide investment banking and other financial services to, and/or acquire, hold or sell, for its own accounts and the accounts of customers, equity, debt and other securities and financial instruments (including bank loans and other obligations) of, the Borrower, the Company and other companies with which the Borrower or the Company may have commercial or other relationships. With respect to any securities and/or financial instruments so held by any of Credit Suisse, CIBC or CIBC WM or any of their respective customers, all rights in

respect of such securities and financial instruments, including any voting rights, will be exercised by the holder of the rights, in its sole discretion.

 

9.  Assignments; Amendments; Governing Law, Etc.

 

This Commitment Letter shall not be assignable by you without the prior written consent of the Lead Arrangers and the Initial Lenders (and any attempted assignment without such consent shall be null and void), is intended to be solely for the benefit of the parties hereto (and Indemnified Persons), and is not intended to confer any benefits upon, or create any rights in favor of, any person other than the parties hereto (and Indemnified Persons). The Initial Lenders may assign, with your consent (not to be unreasonably withheld or delayed), their respective commitments hereunder to one or more prospective Lenders that will become agents, co-agents, arrangers or co-arrangers hereunder, in which case, upon the closing of the Facilities, such assigning Initial Lender shall be released from the portion of its commitment hereunder so assigned; provided that the Initial Lenders shall be immediately released from the portion of their respective commitments hereunder assigned to any Additional Lender. Any and all obligations of, and services to be provided by, the Lead Arrangers or the Initial Lenders hereunder (including, without limitation, the Initial Lenders’ respective commitments) may be performed and any and all rights of the Lead Arrangers or the Initial Lenders hereunder may be exercised by or through any of their respective affiliates or branches; provided, however, that the Lead Arrangers shall remain responsible for their respective obligations under this Commitment Letter notwithstanding any such use of their respective affiliates or branches. This Commitment Letter may not be amended or any provision hereof waived or modified except by an instrument in writing signed by the Lead Arrangers, the Initial Lenders and you. This Commitment Letter may be executed in any number of counterparts, each of which shall be an original and all of which, when taken together, shall constitute one agreement. Delivery of an executed counterpart of a signature page of this Commitment Letter by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof. Section headings used herein are for convenience of reference only, are not part of this Commitment Letter and are not to affect the construction of, or to be taken into consideration in interpreting, this Commitment Letter. You acknowledge that information and documents relating to the Facilities may be transmitted through Syndtrak, Intralinks, the internet, e-mail, or similar electronic transmission systems, and that we shall not be liable for any damages arising from the unauthorized use by others of information or documents transmitted in such manner. Any of us may place advertisements in financial and other newspapers and periodicals or on a home page or similar place for dissemination of information on the Internet or worldwide web as it may choose, and circulate similar promotional materials, after the closing of the Transactions in the form of a “tombstone” or otherwise describing the names of the Borrower and its affiliates (or any of them), and the amount, type and closing date of such Transactions, all at our expense. This Commitment Letter and the Fee Letter supersede all prior understandings, whether written or oral, between us with respect to the Facilities. THIS COMMITMENT LETTER SHALL BE GOVERNED

 

 

10.  Jurisdiction.

 

Each of the parties hereto hereby irrevocably and unconditionally (a) submits, for itself and its property, to the exclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Commitment Letter, the Fee Letter or the transactions contemplated hereby or thereby, and agrees that all claims in respect of any such action or proceeding may be heard and determined only in such New York State court or, to the extent permitted by law, in such Federal court, (b) waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Commitment Letter, the Fee Letter or the transactions contemplated hereby or thereby in any New York State court or in any such Federal court, (c) waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court, and (d) agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Service of any process, summons, notice or document by registered mail addressed to you at the address above shall be effective service of process against you for any suit, action or proceeding brought in any such court.

 

11.  Waiver of Jury Trial.

 

EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY OR ON BEHALF OF ANY PARTY RELATED TO OR ARISING OUT OF THIS COMMITMENT LETTER, THE FEE LETTER OR THE PERFORMANCE OF SERVICES HEREUNDER OR THEREUNDER.

 

12.  Confidentiality.

 

This Commitment Letter and the Fee Letter are delivered to you on the understanding that neither this Commitment Letter nor the Fee Letter nor any of their terms or substance, nor the activities of any of us pursuant hereto, shall be disclosed, directly or indirectly, to any other person except (a) to your officers, directors, employees, attorneys, accountants and advisors on a confidential and need-to-know basis or (b) as required by applicable law or compulsory legal process (in which case you agree to inform us promptly thereof); provided that you may disclose this Commitment Letter and the contents hereof (but not the Fee Letter or the contents thereof) (i) to the Company and the Seller and their respective officers, directors, employees, attorneys, accountants and advisors on a confidential and need-to-know basis, and (ii) in any prospectus or other offering memorandum relating to the Senior Subordinated Notes.

We will treat as confidential all confidential information provided to us by or on behalf of you hereunder; provided that nothing herein shall prevent us from disclosing any such information (a) pursuant to the order of any court or administrative agency or in any pending legal or administrative proceeding, or otherwise as required by applicable law or compulsory legal process, (b) upon the request or demand of any regulatory authority having jurisdiction over us, (c) to the extent that such information becomes publicly available other than by reason of disclosure by us in violation of this paragraph, (d) to our affiliates and to our and their respective employees, legal counsel, independent auditors and other experts or agents who are informed of the confidential nature of such information, (e) to assignees or participants or potential assignees or participants who agree to be bound by the terms of this paragraph or substantially similar confidentiality provisions, (f) to the extent permitted by Section 9, or (g) for purposes of establishing a “due diligence” defense.

 

Notwithstanding anything herein to the contrary, any party to this Commitment Letter (and any employee, representative or other agent of such party) may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the transactions contemplated by this Commitment Letter and the Fee Letter and all materials of any kind (including opinions or other tax analyses) that are provided to it relating to such tax treatment and tax structure, except that (i) tax treatment and tax structure shall not include the identity of any existing or future party (or any affiliate of such party) to this Commitment Letter or the Fee Letter, and (ii) no party shall disclose any information relating to such tax treatment and tax structure to the extent nondisclosure is reasonably necessary in order to comply with applicable securities laws. For this purpose, the tax treatment of the transactions contemplated by this Commitment Letter and the Fee Letter is the purported or claimed U.S. Federal income tax treatment of such transactions and the tax structure of such transactions is any fact that may be relevant to understanding the purported or claimed U.S. Federal income tax treatment of such transactions.

 

13.  Surviving Provisions.

 

The compensation, reimbursement, indemnification, confidentiality, absence of fiduciary relationships, affiliate activities, syndication, jurisdiction, governing law and waiver of jury trial provisions contained herein and in the Fee Letter shall remain in full force and effect regardless of whether definitive financing documentation shall be executed and delivered and (other than in the case of the syndication provisions) notwithstanding the termination of this Commitment Letter or the Initial Lenders’ respective commitments hereunder and our agreements to perform the services described herein; provided that if definitive financing documentation is executed and delivered, the reimbursement and indemnification provisions contained herein shall terminate and be replaced by the reimbursement and indemnification provisions in such definitive financing documentation.

       14.     PATRIOT Act Notification.

 

We hereby notify you that, pursuant to the requirements of the USA PATRIOT Act, Title III of Pub. L. 107-56 (signed into law October 26, 2001) (the “PATRIOT Act”), the Lead Arrangers and each Lender are required to obtain, verify and record information that identifies the Borrower, which information includes the name, address, tax identification number and other information regarding the Borrower that will allow the Lead Arrangers or such Lender to identify the Borrower in accordance with the PATRIOT Act (collectively, the “Patriot Act Information”). This notice is given in accordance with the requirements of the PATRIOT Act and is effective as to the Lead Arrangers and each Lender. It is understood and agreed that notwithstanding any other provision contained in this Commitment Letter to the contrary, the Lead Arrangers may provide Patriot Act Information to Lenders and prospective Lenders in connection with the syndication of the Facilities (including by posting such information through SyndTrak or Intralinks).

 

15.  Acceptance and Termination.

 

If the foregoing correctly sets forth our agreement with you, please indicate your acceptance of the terms of this Commitment Letter and of the Fee Letter by returning to us executed counterparts hereof and of the Fee Letter not later than 5:00 p.m., New York City time, on October 31, 2006. The Initial Lenders’ respective commitments hereunder, and our agreements to perform the services described herein, will expire automatically and without further action or notice and without further obligation to you at such time in the event that each of us has not received such executed counterparts in accordance with the immediately preceding sentence. In the event that the Closing Date does not occur on or before 5:00 p.m., New York City time, on April 30, 2007³  (or such earlier date on which the Merger Agreement terminates), then this Commitment Letter and the Initial Lenders’ respective commitments hereunder, and our agreements to perform the services described herein, shall automatically terminate without further action or notice and without further obligation to you unless each of us shall, in its discretion, agree to an extension.

 

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We are pleased to have been given the opportunity to assist you in connection with the financing for the Acquisition.

 

 

Very truly yours,

CREDIT SUISSE SECURITIES (USA) LLC

By: /s/ Richard B. Carey

Name:  Richard B. Carey

Title:  Managing Director

 

CREDIT SUISSE, CAYMAN ISLANDS BRANCH

By: /s/ Joel Glodowski

Name:  Joel Glodowski

Title:  Managing Director

 

Accepted and agreed to as of

the date first above written:

 

SUN HEALTHCARE GROUP, INC.

By:  /s/ Richard K. Matros

Name:  Richard K. Matros

Title:  Chief Executive Officer

CONFIDENTIAL
October 19, 2006

EXHIBIT A

 

Sources and Uses:		The approximate sources and uses of the funds necessary to consummate the Transactions are set forth in Exhibit C to the Commitment Letter (the “Commitment Letter”) to which this Term Sheet is attached.
Agent:		Credit Suisse, acting through one or more of its branches or affiliates (“CS”), will act as sole administrative agent and collateral agent (collectively, in such capacities, the “Agent”) for a syndicate of banks, financial institutions and other institutional lenders (together with CS and CIBC Inc., the “Lenders”), and will perform the duties customarily associated with such roles.
Joint-Bookrunners and Joint-Lead Arrangers:		Credit Suisse Securities (USA) LLC and CIBC World Markets Corp. (“CIBC WM”) will act as joint-bookrunners and joint-lead arrangers for the Senior Facilities described below (collectively, in such capacities, the “Arrangers”), and will perform the duties customarily associated with such roles.
Syndication Agent:		CIBC WM will act as sole syndication agent (in such capacity, the “Syndication Agent”) and will perform the duties customarily associated with such role.
Other Titles:		Subject to the terms and conditions specified in footnote 1 of the Commitment Letter, the Borrower may award the title of joint bookrunner, joint lead arranger, documentation agent and co-documentation agent (in such capacity, a “Documentation Agent”) to one financial institution that is a Lender under the Facilities.

 

 

 

	(B)	Revolving Facility   The Revolving Facility will mature and the commitments thereunder will terminate on the date that is six years after the Closing Date.
Guarantees:		All obligations of the Borrower under the Senior Facilities and under any interest rate protection or other hedging arrangements entered into with the Agent, the Arrangers, an entity that is a Lender at the time of such transaction, or any affiliate of any of the foregoing (“Hedging Arrangements”) will be unconditionally guaranteed (the “Guarantees”) by each existing and subsequently acquired or organized domestic and, to the extent no adverse tax consequences to the Borrower would result therefrom, foreign subsidiary of the Borrower (including the Company and its subsidiaries) (the “Subsidiary Guarantors”), in each case (x) subject to any prohibitions or limitations under any applicable law or regulation and (y) other than Inactive Subsidiaries and Special Purpose Vehicles (to the extent any HUD-guaranteed or mortgage financings of such Special Purpose Vehicle would prevent such guarantees). “Inactive Subsidiaries” means subsidiaries of the Borrower that own an insubstantial amount of assets, have an insubstantial amount of revenues and conduct no business operations (with individual and aggregate thresholds of total assets and revenues to be agreed). “Special Purpose Vehicles” means subsidiaries of the Borrower that are formed for the sole purpose of becoming obligors under HUD-guaranteed or mortgage financings. Any guarantees to be issued in respect of the Senior Subordinated Notes or the Bridge Facility shall be subordinated to the obligations under the Guarantees on terms reasonably satisfactory to the Lead Arrangers.
Security:		The Senior Facilities, the Guarantees and any Hedging Arrangements will be secured by substantially all the assets of the Borrower and each Subsidiary Guarantor, whether owned on the Closing Date or thereafter acquired (collectively, the “Collateral”), including but not limited to: (a) a perfected first-priority pledge of all the equity interests held by the Borrower or any Subsidiary Guarantor, other than the equity interests of the Inactive Subsidiaries and Special Purpose Vehicles (to the extent any HUD-guaranteed or mortgage financings of such Special Purpose Vehicle would prevent such pledge) (which pledge, in the case of any foreign subsidiary, shall be limited to 100% of the non-voting equity interests (if any) and 66% of the voting equity interests of such foreign subsidiary to the extent the pledge of any greater percentage would result in adverse tax consequences to the Borrower) and (b) perfected first-priority security interests in, and mortgages on (with minimum thresholds and/or jurisdictions to be agreed), substantially all tangible and intangible assets of the Borrower and each Subsidiary Guarantor (including but not limited to accounts receivable, inventory, equipment, general intangibles, investment property, intellectual property, fee-owned real property (excluding currently-mortgaged real property as and to the extent such existing mortgages are not terminated), cash, deposit and securities accounts (to the extent permitted under applicable healthcare laws), commercial tort claims, letter of credit rights, intercompany notes and proceeds of the foregoing).

 

 

		All the above-described pledges, security interests and mortgages shall be created on terms, and pursuant to documentation, reasonably satisfactory to the Lenders (including, in the case of real property, by customary items such as reasonably satisfactory title insurance), and none of the Collateral shall be subject to any other liens (subject to customary exceptions to be agreed upon).
Mandatory Prepayments:		Loans under the Term Facility shall be prepaid with (a) 75% of Excess Cash Flow (to be defined), with a reduction to be agreed upon based upon achievement and maintenance of a leverage ratio to be agreed upon, (b) 100% of the net cash proceeds of all asset sales or other dispositions of property by the Borrower and its subsidiaries (including proceeds from the sale of stock of any subsidiary of the Borrower and insurance and condemnation proceeds) (subject to exceptions and reinvestment provisions to be agreed upon), (c) 100% of the net cash proceeds of issuances, offerings or placements of debt obligations of the Borrower and its subsidiaries (except the net cash proceeds of any Refinancing Debt (to be defined) to the extent used to prepay Bridge Loans and subject to other exceptions to be agreed upon), (d) 100% (or 50% in the event the Senior Leverage Ratio is no greater than 3.75 to 1.0) of the net cash proceeds of issuances of equity securities of the Borrower and its subsidiaries (except to the extent used to prepay Bridge Loans and subject to other exceptions to be agreed upon), with a further reduction to be agreed upon based upon achievement and maintenance of a leverage ratio to be agreed upon and (e) 100% of Extraordinary Receipts (to be defined) (subject to exceptions to be agreed upon).

 

 

			Notwithstanding the foregoing, each Lender under the Term Facility shall have the right to reject its pro rata share of any mandatory prepayments described above, in which case the amounts so rejected shall be offered to each non-rejecting Lender thereunder. Any mandatory prepayments remaining after being reoffered to such non-rejecting Lenders may be retained by the Borrower.
			The above-described mandatory prepayments shall be applied pro rata to the remaining amortization payments under the Term Facility.
Voluntary Prepayments and Reductions in Commitments:			Voluntary reductions of the unutilized portion of the commitments under the Senior Facilities and prepayments of borrowings thereunder will be permitted at any time, in minimum principal amounts to be agreed upon, without premium or penalty, subject to reimbursement of the Lenders’ redeployment costs in the case of a prepayment of Adjusted LIBOR borrowings other than on the last day of the relevant interest period. All voluntary prepayments of the Term Facility will be applied pro rata to the remaining amortization payments under the Term Facility.

 

 

Representations and Warranties:

To consist of the following (subject to the last two sentences of Exhibit D to the Commitment Letter) (subject to customary exceptions to be agreed upon): corporate status; legal, valid and binding documentation; no consents; accuracy of financial statements, confidential information memorandum and other information; no material adverse change (which, for purposes of the Closing Date, shall be consistent with the material adverse effect condition of the Commitment Letter); absence of undisclosed liabilities, litigation and investigations; no violation of agreements or instruments; compliance with laws (including Medicare and Medicaid regulations, ERISA, margin regulations, environmental laws and laws applicable to sanctioned persons); payment of taxes; ownership of properties; inapplicability of the Investment Company Act; solvency; effectiveness of governmental approvals; labor matters; environmental and other regulatory matters; validity, priority and perfection of security interests in the Collateral; and treatment of the Senior Facilities as senior debt under all subordinated debt and as sole designated senior debt thereunder.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ANNEX I

 

 

 

 

 

 

CONFIDENTIAL
October 19, 2006

EXHIBIT B

 

 

 

 

	The Senior Subordinated Term Loans will be governed by the provisions of the Bridge Loan Documents (as defined below) and will have the same terms as the Bridge Loans except as expressly set forth on Annex I hereto. The Senior Subordinated Exchange Notes will be issued pursuant to an indenture that will have the terms set forth on Annex II hereto.
Conversion Fee:	On the Conversion Date, the Borrower shall pay to the holders of the Bridge Loans a conversion fee (the “Conversion Fee”) in an amount equal to 2.75% of the aggregate principal amount of the Bridge Loans outstanding on such date (as determined immediately prior to the conversion of such Bridge Loans to Senior Subordinated Term Loans).
Mandatory Prepayments:	The Bridge Loans shall be prepaid with, subject to certain exceptions to be agreed upon, (i) the net proceeds from the issuance, offering or placement of any debt obligations or equity securities by the Borrower or any of its subsidiaries (with such proceeds being applied to repay the Bridge Loans prior to the repayment of loans outstanding under the Senior Facilities other than with respect to net proceeds of any equity issuances occurring at such time as and only to the extent that the Senior Leverage Ratio is greater than 3.75 to 1.0) (subject to exceptions to be agreed upon); and (ii) the net proceeds from any asset sales by the Borrower or any of its subsidiaries (including proceeds from the sale of stock of any subsidiary of the Borrower) in excess of the amount required to be paid to the lenders under the Senior Facilities. The Borrower will also be required to prepay the Bridge Loans following the occurrence of a Change of Control (to be defined) at 100% of the outstanding principal amount thereof.

 

 

 

 

In case an Event of Default shall occur and be continuing, the holders of at least 33⅓% (a majority when the Initial Lenders, or their respective affiliates, holds a majority of the aggregate principal amount of the Bridge Loans) in aggregate principal amount of the Bridge Loans then outstanding, by notice in writing to the Borrower, may declare the principal of, and all accrued interest on, all Bridge Loans to be due and payable immediately. If a bankruptcy event of the Borrower occurs, the principal of and accrued interest on the Bridge Loans will be immediately due and payable without any notice, declaration or other act on the part of the holders of the Bridge Loans. An acceleration notice may be annulled and past defaults (except for monetary defaults not yet cured) may be waived by the holders of a majority in aggregate principal amount of the Bridge Loans.

Voting:

Amendments and waivers of the Bridge Loan Documents will require the approval of Lenders holding more than 50% of the aggregate amount of the Bridge Loans, except that the consent of each Lender shall be required with respect to, among other things, (a) reductions of principal, interest or fees payable to such Lender, (b) extensions of final maturity of the Bridge Loans and (c) releases of all or substantially all of the value of the Guarantees.

 

 

Cost and Yield Protection:	Usual for facilities and transactions of this type, including customary tax gross-up provisions.
Expenses and Indemnification:	The Borrower will indemnify the Arrangers, the Agent, the Syndication Agent, the Documentation Agent, the Lenders, their respective affiliates, successors and assigns and the officers, directors, employees, agents, advisors, controlling persons and members of each of the foregoing (each an “Indemnified Person”) and hold them harmless from and against all costs, expenses (including reasonable fees, disbursements and other charges of counsel) and liabilities of such Indemnified Person arising out of or relating to any claim or any litigation or other proceeding (regardless of whether such Indemnified Person is a party thereto and regardless of whether such matter is initiated by a third party or by the Borrower, the Company or any of their respective affiliates) that relates to the Transactions, including the financing contemplated hereby, the Acquisition or any transactions connected therewith, provided that no Indemnified Person will be indemnified for any cost, expense or liability to the extent determined in the final, non-appealable judgment of a court of competent jurisdiction to have resulted from its gross negligence or willful misconduct. In addition, all out-of-pocket expenses (including, without limitation, fees, disbursements and other charges of counsel) of the Arrangers, the Agent, the Syndication Agent, the Documentation Agent and the Lenders for enforcement costs and documentary taxes associated with the Bridge Facility will be paid by the Borrower.
Governing Law:	New York.
Counsel to the Agent and the Arrangers:	Cravath, Swaine & Moore LLP.

 

 

 

ANNEX I

 

 

ANNEX II

 

 

 

 

If a Shelf Registration Statement is filed, the Borrower will keep such Shelf Registration Statement effective and available (subject to customary exceptions) until it is no longer needed to permit unrestricted resales of the Senior Subordinated Exchange Notes; provided that in no event shall the Borrower be required to keep such Shelf Registration Statement effective and available for more than two years after the date on which the interest rate applicable to the Senior Subordinated Term Loans would have been equal to the Total Cap. The Borrower shall cause (i) the Registration Statement with respect to the Senior Subordinated Exchange Notes issued on the first Issue Date to be declared effective by the date (the “First Effectiveness Date”) that is 120 days from the first Issue Date and, in the case such Registration Statement is an Exchange Registration Statement, the Registered Exchange Offer effected thereunder to be consummated by the First Effectiveness Date and (ii) each Registration Statement with respect to any Senior Subordinated Exchange Note issued subsequent to the first Issue Date to be declared effective by the date (each, a “Subsequent Effectiveness Date” and, together with the First Effectiveness Date, an “Effectiveness Date”) that is the later of (A) 90 days from the date of issue of such Senior Subordinated Exchange Note and (B) the First Effectiveness Date and, in the case such Registration Statement is an Exchange Registration Statement, the Registered Exchange Offer effected thereunder to be consummated by such Subsequent Effectiveness Date, provided that any Subsequent Effectiveness Date shall be extended to 120 days from the date of issue of such Senior Subordinated Exchange Note to the extent that the Borrower receives written notice that the Registration Statement to which such Senior Subordinated Exchange Note relates will be reviewed by the Securities and Exchange Commission. Any failure on the part of the Borrower to cause any Registration Statement to be declared effective, and any Registered Exchange Offer to be consummated, in accordance with the time periods in the preceding sentence is referred to

 

 

 

 

 

EXHIBIT C

 

 

EXHIBIT D