========================================================================== SUN HEALTHCARE BANKRUPTCY NEWS Issue Number 1 -------------------------------------------------------------------------- Copyright 1999 (ISSN XXXX-XXXX) October 15, 1999 -------------------------------------------------------------------------- Bankruptcy Creditors' Service, Inc., Phone 609-392-0900 FAX 609-392-0040 -------------------------------------------------------------------------- SUN HEALTHCARE BANKRUPTCY NEWS is published by Bankruptcy Creditors' Service, Inc., 24 Perdicaris Place, Trenton, New Jersey 08618, on an ad hoc basis (generally every 10 to 20 days) as significant activity occurs in the Debtors' cases. Each issue is prepared by Peter A. Chapman, Editor. The subscription rate is US$45 per issue. Reproduction and redistribution of SUN HEALTHCARE BANKRUPTCY NEWS by any means is strictly prohibited without the permission of the publisher. ========================================================================== IN THIS ISSUE ------------- [00000] HOW TO ORDER A SUBSCRIPTION TO SUN HEALTHCARE BANKRUPTCY NEWS [00001] BACKGROUND & DESCRIPTION OF SUN HEALTHCARE [00002] COMPANY'S CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1999 [00003] COMPANY'S PRESS RELEASE CONCERNING CHAPTER 11 FILING [00004] SUN HEALTHCARE AND DEBTOR AFFILIATES CHAPTER 11 DATABASE [00005] LIST OF THE DEBTORS' 140 LARGEST UNSECURED CREDITORS [00006] DEBTORS' MOTION FOR JOINT ADMINISTRATION OF CASES [00007] DEBTORS STRIKE DEAL WITH OMEGA HEALTHCARE RE 50-PROPERTY LEASE [00008] WHAT HAPPENS TO VENCOR COMMON STOCK & PUBLIC BONDS? KEY DATE CALENDAR ----------------- 10/14/99 Voluntary Petition Date 10/29/99 Deadline for filing Schedules of Assets and Liabilities 10/29/99 Deadline for filing Statement of Financial Affairs 10/29/99 Deadline for filing List of Leases and Executory Contracts 11/03/99 Deadline to provide Utility Companies with adequate assurance 12/13/99 Deadline to assume or reject leases and executory contracts 01/12/00 Deadline for removal of actions pursuant to F.R.B.P. 9027 02/11/00 Expiration of Debtors' Exclusive Period to propose a Plan 04/11/00 Expiration of Debtors' Exclusive Solicitation Period 10/13/01 Deadline for Debtors' Commencement of Avoidance Actions Organizational Meeting with UST to form Official Committees Bar Date for filing Proofs of Claim First Meeting of Creditors pursuant to 11 U.S.C. Sec. 341(a) Expiration of DIP Financing Facility -------------------------------------------------------------------------- [00000] HOW TO ORDER A SUBSCRIPTION TO SUN HEALTHCARE BANKRUPTCY NEWS -------------------------------------------------------------------------- SUN HEALTHCARE BANKRUPTCY NEWS is distributed to paying subscribers by electronic mail or facsimile transmission. New issues are published on an ad hoc basis as significant activity occurs (generally every 10 to 20 days) in the Debtors' cases. The subscription rate is $45 per issue. Newsletters are delivered via e-mail; invoices, transmitted with each newsletter issue, arrive by fax. Distribution to multiple individuals at the same firm is provided at no additional charge. Prompt payment is always appreciated. Subscriptions may be canceled at any time without further obligation. To continue receiving SUN HEALTHCARE BANKRUPTCY NEWS, please complete the form below and return it by fax or e-mail to: Bankruptcy Creditors' Service, Inc. 24 Perdicaris Place Trenton, NJ 08618 Telephone (609) 392-0900 Fax (609) 392-0040 E-mail: peter@bankrupt.com We currently provide similar coverage of the chapter 11 cases involving Vencor, Inc., The Loewen Group, Inc., Harnischfeger Industries, Inc., Boston Chicken, Inc., Dow Corning Corporation, Edison Brothers Stores, Inc., Service Merchandise, Levitz Furniture, Bruno's, Inc., Montgomery Ward, APS Holding, Inc. and FoxMeyer Corporation. ========================================================================== [ ] YES! Please enter my personal subscription to SUN HEALTHCARE BANKRUPTCY NEWS. Name: ---------------------------------------------- Firm: ---------------------------------------------- Address: ---------------------------------------------- ---------------------------------------------- Phone: ---------------------------------------------- Fax: ---------------------------------------------- E-Mail: ---------------------------------------------- -------------------------------------------------------------------------- [00001] BACKGROUND & DESCRIPTION OF SUN HEALTHCARE, INC. -------------------------------------------------------------------------- SUN HEALTHCARE GROUP, INC. 101 Sun Avenue, N.E. Albuquerque, NM 87109 Phone: 505-821-3355 Fax: 505-858-4735 Toll Free: 800-729-6600 http://www.sunh.com Sun Healthcare Group, Inc., through its direct and indirect subsidiaries, 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. Sun also has operations in Spain, Germany and Australia. Sun operates through four principal business segments: A. INPATIENT FACILITIES. As of September 15, 1999, the Company owned, leased, or managed 376 long-term and subacute care facilities with 42,166 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. B. REHABILITATION AND RESPIRATORY THERAPY SERVICES: This segment provides, among other services, physical, occupational, speech and respiratory therapy services to affiliated and nonaffiliated skilled nursing facilities. As of June 30, 1999 the Company's rehabilitation and respiratory therapy services segment provided services to 1,500 facilities in 45 states, 1,047 of which were operated by nonaffiliated parties compared to 1,745 facilities as of June 30, 1998, 1,376 of which were nonaffiliated. C. PHARMACEUTICALS AND MEDICAL SUPPLIES. This segment is comprised of an institutional pharmaceutical subsidiary and a medical supply subsidiary. The pharmaceutical subsidiary provides pharmaceutical products primarily to long term and subacute care facilities for such purposes as infusion therapy, pain management, antibiotic therapy and parenteral nutrition as well as providing consultant pharmacist services. The medical supply subsidiary primarily provides medical supplies to long-term care and sub- acute care facilities. The Company's pharmaceutical subsidiary provided pharmaceutical products and services to 927 long term and sub-acute care facilities, including 586 nonaffiliated facilities, as of June 30, 1999 through its 43 pharmacies and 1 pharmaceutical billing and consulting center. At June 30, 1998, pharmaceutical products and services were provided to approximately 868 facilities, including 561 nonaffiliated facilities. The Company's medical supply subsidiary provided products to over 2,702 affiliated and nonaffiliated facilities as of June 30, 1999. D. INTERNATIONAL OPERATIONS. This segment consists of long-term care facilities in the United Kingdom, Spain and Germany, and acute care hospitals in Australia. This segment also provides pharmaceutical services in the United Kingdom, Germany and Spain, and medical supplies in Australia. At June 30, 1999, the Company operated 148 inpatient facilities with 8,370 licensed beds in the United Kingdom; 11 inpatient facilities with 1,604 beds in Spain; 16 facilities with 1,122 licensed beds in Germany and 5 hospitals with 338 licensed beds in Australia compared to 155 facilities with 8,731 licensed beds in the United Kingdom; 9 facilities with 1,530 licensed beds in Spain; 13 facilities with 996 licensed beds in Germany; and 6 hospitals with 353 licensed beds in Australia as of June 30, 1998. Sun is also a nationwide provider of temporary therapy staffing through CareerStaff Unlimited, Inc. CareerStaff provides licensed therapists skilled in the areas of temporary therapy and nursing staffing services, assisted living services, home health and hospice, software development and other ancillary services, primarily to hospitals and nursing home contract 2 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. The Company's temporary therapy service operations provided approximately 539,381 temporary therapy staffing hours to nonaffiliates for the six months ended June 30, 1999 compared to 1,323,882 hours for the six months ended June 30, 1998. Through SunBridge, Inc., the Company also operated 29 assisted living facilities with 3,549 beds in the U.S. as of June 30, 1999. 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., provides ancillary services for a fixed fee to nonaffiliated facilities. SunAlliance Healthcare Services, Inc. provides mobile radiology and laboratory services. The Company has announced that it is planning to divest itself of its assisted living facilities. No agreements have been entered into for the sale of these assets held for sale as of August 13, 1999. Common stock in Sun is traded in the over-the-counter market under the symbol SHGE. There were 7,612 stockholders of record as of March 9, 1999. As of December 31, 1998, Sun Healthcare Group, Inc., employed 83,500 people in all of its subsidiaries worldwide. Sun incurred net losses of $753.7 million in 1998 and fell out of compliance the financial covenants set forth in its Senior Credit Facility and various Mortgage Notes as of December 31, 1998. While agreeing to waive the defaults, Sun's banks restricted borrowings under the Senior Credit Facility and forbid payment of interest on the public bonds. While negotiations with banks and other lenders went forward, Sun posted another $701.7 million in losses. Sun management contends that the primary cause of the 1998 loss is the skilled nursing industry's transition to Medicare's Prospective Payment System. Under PPS, Medicare pays 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). For all Medicare patients not receiving post-hospital extended care services (i.e. Medicare Part B patients), reimbursement for ancillary services, including rehabilitation services, are made under fee schedules and are limited to certain per beneficiary caps. Prior to PPS, Medicare reimbursement was made primarily based on the provider's cost of services rendered with less extensive limitation. In the fourth quarter of 1998, a significant number of the ancillary divisions' customers reduced their use of the Company's services in transitioning to PPS or in preparation for their transition to PPS. The reduction in demand for ancillary services which the Company actually experienced was greater than the reduction anticipated by the Company. The adverse trend continued into 1999. In response to the significant losses experienced in the fourth quarter of 1998, the Company developed and undertook an operational and financial recovery plan. That four-part plan called for: -- COMPANY-WIDE REDUCTIONS IN OPERATING EXPENSES. During the fourth quarter of 1998 and the first quarter of 1999, Sun initiated company-wide reductions in operating expenses. The operating expense reductions are being achieved primarily through the elimination of personnel and the consolidation or elimination of regional and divisional operating units. On January 1, 1999, management also instituted a company-wide wage freeze and a reduction in certain personnel benefits packages. -- THE DIVESTITURE OF NON-CORE ASSETS AND THE REDUCTION OF OUTSTANDING DEBT. The Company targeted for sale several non-core assets to provide for the reduction of the Company's debt. -- NEW OPERATING STRATEGIES AND EFFICIENCIES FOR THE DELIVERY OF INPATIENT AND THERAPY SERVICES. In response to the impact of PPS and the significant decline in the demand for therapy services, the Company has reduced facility staffing levels within the bounds of regulatory requirements, changed the compensation for therapists from a salaried base to hourly pay, and cancelled approximately 75 unprofitable therapy contracts. The Company has also reviewed its case management system to assure that the proper level of ancillary services is provided to all patients. -- PROACTIVE GOVERNMENT RELATIONS FOCUSED ON IMPROVING MEDICARE AND MEDICAID REIMBURSEMENT. Since the fourth quarter of 1998, the Company has proactively engaged state and Federal government officials, and is spearheading industry-wide efforts, to achieve improved Medicare and Medicaid reimbursement rates. In close cooperation with the New Mexico Congressional delegation, and in several key states around the country, Company officials are actively proposing legislative and administrative solutions to the financial crisis now engulfing the long-term care industry. As of December 31, 1998 and June 30, 1999, the Company was in non- compliance with certain financial covenants contained in certain master lease agreements for 96 of its long-term care facilities in the United States and 33 of its long-term care facilities in the United Kingdom. As a result, the lessors under these master lease agreements have certain rights, including the right to require that the Company relinquish the leased facilities. As of August 18, 1999, the lessors had not exercised their rights under their respective agreements, although there can be no assurance that the lessors will not do so in the future. The Company was also in cross default under the terms of leases for 14 of its long-term care facilities in the United States as of December 31, 1998 and June 30, 1999. The Company has a substantial number of other leases which may contain similar default or cross default provisions. -------------------------------------------------------------------------- [00002] COMPANY'S CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1999 -------------------------------------------------------------------------- SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS at June 30, 1999 (Unaudited - in Thousands) ASSETS Current assets: Cash and cash equivalents ...................... $ 27,054 Accounts receivable, net of allowance for doubtful accounts of $89,620 ................ 386,525 Other receivables .............................. 73,186 Inventory, net ................................. 48,316 Prepaids and other assets ...................... 10,571 ---------- Total current assets .......................... 545,652 ---------- Property and equipment, net .................... 452,364 Goodwill, net .................................. 514,440 Notes receivable ............................... 29,587 Assets held for sale ........................... 184,547 Other assets, net .............................. 106,201 ---------- Total assets ............................. $1,832,791 ========== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Current portion of long-term debt ............ $1,310,147 Current portion of obligations under capital leases ...................... 3,391 Accounts payable ............................. 53,509 Accrued compensation and benefits ............ 105,366 Accrued interest ............................. 60,764 Accrued self-insurance obligations ........... 52,749 Other accrued liabilities .................... 142,693 ----------- Total current liabilities ............... 1,728,619 ----------- Long-term debt, net of current portion .............. 273,976 Obligations under capital leases, net of current portion ........................... 100,089 Other long-term liabilities ......................... 39,716 ----------- Total liabilities ....................... 2,142,400 ----------- Minority interest ................................... 6,294 Company-obligated mandatorily redeemable convertible preferred securities of a subsidiary trust holding solely 7% convertible junior subordinated debentures of the Company .... 344,833 Stockholders' equity: Common stock ................................. 630 Additional paid-in capital ................... 776,124 Retained deficit ............................. (1,397,793) Accumulated other comprehensive income ....... (4,748) ----------- $(625,787) ----------- Less: Unearned compensation ........................ 6,853 Treasury stock ............................... 27,378 Grantor stock trust, at market ............... 718 ----------- Total stockholders' deficit .............. (660,736) ----------- Total liabilities and stockholders' deficit ................ $ 1,832,791 =========== -------------------------------------------------------------------------- [00003] COMPANY'S PRESS RELEASE CONCERNING CHAPTER 11 FILING -------------------------------------------------------------------------- SUN HEALTHCARE GROUP FILES VOLUNTARY PETITION FOR BANKRUPTCY PROTECTION Company to Continue Normal Operations; Receives Commitment for up to $200 Million in DIP Financing ALBUQUERQUE, New Mexico -- October 14, 1999 -- Sun Healthcare Group, Inc. (SHGE:OTC-BB) announced today that Sun and its U.S. operating subsidiaries have filed voluntary petitions with the U.S. Bankruptcy Court for the District of Delaware to reorganize under chapter 11 of the U.S. Bankruptcy Code in order to restructure the company's debt obligations. The company elected to seek court protection in order to facilitate its efforts to restructure its capital and lease obligations. To ensure that the company has the short-term working capital necessary to operate its business, it has obtained a commitment for up to $200 million in debtor-in-possession ("DIP") financing with a group led by The CIT Group/Business Credit, Inc. and Heller Healthcare Finance, Inc. Sun has requested the Court's permission to access the DIP financing to fund normal business operations and other cash needs during the bankruptcy proceeding. "Deep cuts in Medicare reimbursement exceeded all industry expectations, and severely impacted the company's ability to service its current capital structure. This situation, coupled with a significant decline in the market demand for ancillary services, resulted in the need for us to lower our operating costs and significantly reduce our indebtedness," said Andrew L. Turner, Sun's chairman and chief executive officer. Mark Wimer, president, added, "Most important, court protection under chapter 11 ensures that we can continue to serve our patients and our customers' patients while we reorganize." Because of significant debt repayment obligations, the company has been in negotiations with its banks and senior bond holders in anticipation of the need to restructure its obligations. The company believes that it is close to reaching an agreement with the banks and bond holders on the key terms for a financial restructuring. The Court protection afforded by chapter 11 will enable the company to develop a plan of reorganization with the goal of emerging from bankruptcy in a stronger financial position. The company is also in discussions with some of the owners of the nursing homes it operates in an effort to renegotiate certain leases. Headquartered in Albuquerque, N.M., Sun Healthcare Group, Inc. is a diversified international long-term care provider. Sun companies operate long-term and postacute care facilities in the United States, the United Kingdom, Spain, Germany and Australia. Sun subsidiaries provide therapy and pharmacy services, fulfill the medical supply needs of nursing homes, and offer a comprehensive array of ancillary services for the healthcare industry. -------------------------------------------------------------------------- [00004] VENCOR, INC., AND DEBTOR AFFILIATES CHAPTER 11 DATABASE -------------------------------------------------------------------------- PARENT COMPANY: Sun Healthcare Group, Inc. DEBTOR AFFILIATES FILING SEPARATE CHAPTER 11 PETITIONS: Accelerated Care Plus, L.L.C. Advantage Health Services, Inc. Americare Health Services Corp. Americare Homecare, Inc. Americare Midwest, Inc. Americare of West Virginia, Inc. Ameridyne Corporation Atlantic Medical Supply Company, Inc. Bay Colony Health Service, Inc. Beckley Health Care Corp. Bergen Eldercare, Inc. Bibb Health & Rehabilitation, Inc. BioPath Clinical Laboratories, Inc. Braswell Enterprises, Inc. Brent-Lox Hall Nursing Home, Inc. Brittany Rehabilitation Center, Inc. Cal-Med, Inc. Capitol Care Management Company, Inc. Care Enterprises, Inc. Care Enterprises West Care Finance, Inc. Care Home Health Services CareerStaff Management, Inc. CareerStaff Unlimited, Inc. Carmichael Rehabilitation Center Charlton Healthcare, Inc. Circleville Health Care Corp. Clipper Home of North Conway, Inc. Clipper Home of Portsmouth, Inc. Clipper Home of Rochester, Inc. Clipper Home of Wolfeboro, Inc. Coalinga Rehabilitation Center Community Re-Entry Services of Cortland, Inc. Contour Medical, Inc. Contour Medical-Michigan, Inc. Contour Medical of Central Florida, Inc. Covina Rehabilitation Center Crescent Medical Services, Inc. Dunbar Health Care Corp. Duval Healthcare Center, Inc. Evergreen Rehabilitation Center Executive Pharmacy Services, Inc. Facility Supply, Inc. Fairfield Rehabilitation Center First Class Pharmacy, Inc. Fullerton Rehabilitation Center Gainesville Healthcare Center, Inc. Gardendale Health Care Center, Inc. Glendora Rehabilitation Center Glenville Health Care, Inc. Golan Healthcare Group, Inc. Goodwin Nursing Home, Inc. Grand Terrace Rehabilitation Center G-WZ of Stamford, Inc. Hallmark Health Services, Inc. Harbor View Rehabilitation Center Hawthorne Rehabilitation Center HC, Inc. Heritage Rehabilitation Center Heritage-Torrance Rehabilitation Center HSR Partners, L.P. HTA of New York, Inc. Huntington Beach Convalescent Hospital Jackson Rehabilitation Center, Inc. Jeff Davis Healthcare, Inc. Lake Forest Healthcare Center, Inc. Lake Health Care Center, Inc. Libbie Rehabilitation Center, Inc. Linda-Mar Rehabilitation Center Living Services, Inc. LTC Staffinders, Inc. Manatee Springs Nursing Center, Inc. Maplewood Health Care Center of Jackson, Tennessee, Inc. Marion Health Care Corp. Masthead Corporation Meadowbrook Rehabilitation Center Mediplex Atlanta Rehabilitation Institute, Inc. Mediplex Management, Inc. Mediplex Management of Palm Beach County, Inc. Mediplex Management of Texas, Inc. Mediplex of Concord, Inc. Mediplex of Connecticut, Inc. Mediplex of Kentucky, Inc. Mediplex of Maryland, Inc. Mediplex of Massachusetts, Inc. Mediplex of New Hampshire, Inc. Mediplex of New Jersey, Inc. Mediplex of Ohio, Inc. Mediplex of Tennessee, Inc. Mediplex of Virginia, Inc. Mediplex Rehabilitation of Massachusetts, Inc. Mid-Florida, Inc. Mountain Care Management, Inc. NeuroFlex, Inc. New Bedford Nursing Center, Inc. Newport Beach Rehabilitation Center Nursing Home, Inc. Oakview Treatment Centers of Kansas, Inc. Oasis Mental Health Treatment Center, Inc. Orange Rehabilitation Hospital, Inc. Pacific Beach Physical Therapy, Inc. Pacific Health Care, Inc. Paradise Rehabilitation Center, Inc. Paso Robles Rehabilitation Center Peachwood Physical Therapy Corporation Pharmacy Factors of California, Inc. Pharmacy Factors of Florida, Inc. Pharmacy Factors of Texas, Inc. Phoenix Associates, Inc. Phoenix-Hudson Company Pine Manor Rest Home, Incorporated P.M.N.F. Management, Inc. PRI, Inc. Pro-Scription, Inc. Putnam Health Care Corp. Quality Care Holding Corporation Quality NHF Leasing, Inc. Quality Nursing Care of Massachusetts, Inc. Quest Medical Supply, Inc. Regency Health Services, Inc. Regency High School, Inc. Regency - North Carolina, Inc. Regency Outpatient Services, Inc. Regency Rehab Hospitals, Inc. Regency Rehabilitation Management and Consulting Services, Inc. Regency - Tennessee, Inc. Retirement Care Associates, Inc. Retirement Management Corporation RHS Management Corporation Riviera Retirement, Inc. Roberta Health Care Center, Inc. Rosewood Rehabilitation Center, Inc. Salem Health Care Corp. San Bernardino Rehabilitation Hospital, Inc. Sea Side Retirement, Inc. Shandin Hills Rehabilitation Center SHG Finance, LLC SHG International Holdings, Inc. Southside Health Care Center, Inc. SRT, Inc. Statesboro Health Care Center, Inc. Stockton Rehabilitation Center, Inc. Summers Landing, Inc. SunAlliance Healthcare Services, Inc. SunBridge Healthcare Corporation SunBridge Healthcare of Colorado, Inc. SunBridge Healthcare of Florida, Inc. SunBridge, Inc. SunBridge Rehab of Colorado, Inc. Sun Care Corp. SunCare Respiratory Services, Inc. SunChoice.com, Inc. SunChoice Medical Supply, Inc. Sun Coast Retirement, Inc. SunDance Rehabilitation Corporation SunDance Rehabilitation Services, Inc. SunDance Rehabilitation Texas, Limited Partnership SunFactors, Inc. Sun Financing I Sun Healthcare Group Finance Company Sun Healthcare Group, Inc. Sun Healthcare Group International Corporation Sun Healthcare, Inc. SunHealth Specialty Services, Inc. Sun Lane Purchase Corporation SunMark Nevada, Inc. Sunmark of New Mexico, Inc. SunPlus Home Health Services, Inc. SunScript Pharmacy Corporation SunSolution, Inc. The Mediplex Group, Inc. Therapists Unlimited-Baltimore/Washington, D.C., L.P. Therapists Unlimited-Chicago II, L.P. Therapists Unlimited-Detroit II, L.P. Therapists Unlimited-Fresno, L.P. Therapists Unlimited -Indianapolis, L.P. Therapists Unlimited - Seattle, L.P. U.S. Laboratory Corp. Vista Knoll Rehabilitation Center, Inc. West Jersey/Mediplex Rehabilitation, L.P. West Tennessee, Inc. Willowview Rehabilitation Center Willow Way, Inc. Woodbury Health Care Center, Inc. Worcester Nursing Center, Inc. Bankruptcy Case Nos.: 99-3657 through 99-3841, inclusive Petition Date: October 14, 1999 Court: United States Bankruptcy Court District of Delaware Marine Midland Plaza Building 824 Market Street Wilmington, Delaware 19801 Judge: The Honorable Mary F. Walrath Circuit: Third Debtors' Lead Counsel: Michael F. Walsh, Esq. John J. Rapisardi, Esq., Paul D. Leake, Esq. Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, NY 10153 Telephone 212-310-8000 Fax 212-310-8007 Debtors' Local Counsel: Thomas L. Ambro, Esq. Mark D. Collins, Esq. Richards, Layton & Finger, P.A. One Rodney Square P.O. Box 551 Wilmington, DE 19899 (302) 658-6541 U.S. Trustee: John D. "Jack" McLaughlin, Esq. Office of the United States Trustee Curtis Center, 9th Floor West 901 Walnut Street Philadelphia, PA 19106 (215) 597-4411 Reported Financial Condition as of June 30, 1999: Total Consolidated Assets: $1,832,791,000 Total Consolidated Liabilities $2,142,400,000 -------------------------------------------------------------------------- [00005] LIST OF THE DEBTORS' 140 LARGEST UNSECURED CREDITORS -------------------------------------------------------------------------- Creditors Under the Senior Credit Facility Holding 20 Largest Claims Thereunder Creditor Principal and Interest -------- --------------------- Van Kampen American Capital $67,418,237 Bank of America $66,074,587 General Electric Capital $53,252,712 Foothill Partners II $49,705,751 PAM Capital Funding Highland Capital Management $40,987,322 Credit Lyonnais $33,045,897 Finova Capital $33,045,729 Chase Manhattan Bank $31,463,579 ScotiaBanc $28,915,012 Sumitomo Bank $28,915,012 RaboBank Nederland $28,356,919 Foothill Income Trust $20,653,581 Industrial Bank of Japan $20,653,581 Wells Fargo Bank $20,653,581 Banque Paribas $20,653,580 Dresdner $20,653,580 Credit Suisse First Boston $20,653,580 Pamco Cayman Ltd $18,738,161 Ares Leveraged Investment Fund $17,613,664 Senior Debt Portfolio (Eaton Vance) $15,118,397 Bondholders Holding 20 Largest Claims Creditor Bond Issue Claim -------- ---------- ----- U.S. Bank Trust, as Indenture Trustee 9 1/2% Notes $250,000,000 U.S. Bank Trust, as Indenture Trustee 9 3/8% Notes $150,000,000 Bank of New York, as Indenture Trustee 6.0% Notes $83,300,000 Sentinel Trust Company Walton IRB $11,640,000 First Union National Bank Ohio RRHRRB $9,500,000 Sentinel Trust Company Jacksonville IRB $8,470,000 First Union National Bank Okaloosa RRHRRB $6,700,000 Sentinel Trust Company Dade City IRB $6,230,000 Bank of New York Mediplex 11.75% $6,161,000 Sentinel Trust Company Houston 1996 Ser. $7,814,176 Sentinel Trust Company Roane HEFB First $4,185,000 Sentinel Trust Company Highlands Co. IRB $4,165,000 Sentinel Trust Company Jackson 1989 Ser. $2,985,000 Sentinel Trust Company Dublin IRB $2,645,000 Sentinel Trust Company Sumner Co. 1989 $2,515,000 SunTrust Bank, Central Florida Nursing Fac. RRB $2,504,785 Sentinel Trust Company Jackson 1997 Ser. $2,440,000 Sentinel Trust Company Rome-Floyd 96 $2,405,000 Sentinel Trust Company Jacksonville 1994 $1,900,000 Sentinel Trust Company Americus-Sumter $1,840,000 100 Largest Unsecured Creditors Excluding Bank Debt, Bond Debt and Lessors Creditor Nature of Claim Amount -------- --------------- ------ Crestwood Hospitals, Inc. Debt Instrument $6,460,856 Portsbridge Hospice, Ga, Earnouts $3,900,000 Continental Medical Systems, Inc. Note $3,702,544 Biopath Clinical Laboratories Earnouts $3,300,000 Portsbridge Debt Instrument $2,967,100 Accelerated Care Plus Earnouts $2,400,000 Homed Convalescent Earnouts $1,900,000 Contour Medical Supply Trade Debt $1,618,923 TLC Mobile Med Earnouts $1,500,000 Trestles Healthcare, Inc. Promissory Note $1,050,000 Jewel F. Cooper, et al. Debt Instrument $863,415 Med Services, Inc. Earnouts $800,000 Alliant Trade Debt $715,835 Med Services, Inc. Promissory Note $700,000 York Promissory Note Promissory Note $676,112 Valley Digital X-Ray, Inc. Earnouts $600,000 Nuroflex Earnouts $600,000 Bank Of America Trade Debt $577,599 Hewlett Packard Trade Debt $525,376 Select Medical Corporation Trade Debt $439,653 Air Sep Corporation Trade Debt $378,000 Nations Bank, Federal Tax Deposit Trade Debt $365,808 Inacom West Area Trade Debt $343,639 Blue Cross Of California Trade Debt $330,125 Network Services Co Trade Debt $309,513 Norwest Bank New Mexico NA Trade Debt $242,060 Gulf South Med Supply Trade Debt $231,770 Hill Rom Trade Debt $220,846 Kaiser Foundation Health Plan Trade Debt $219,457 Lintex Trade Debt $207,033 CMS Therapies Inc. Trade Debt $194,264 Colony Of NC LLOC Trade Debt $191,998 Vrable Healthcare Service Trade Debt $190,643 Home Care Pharmacy Of WV Trade Debt $181,444 Linc Capital Trade Debt $159,853 Briggs Corp Trade Debt $150,563 MCI World Com Advanced Networks Trade Debt $150,182 Direct Supply Trade Debt $146,632 Commonwealth Of Mass Mass Dept. Of Rev. Taxes $143,091 Alexander And Alexander of Texas Trade Debt $138,806 Honor Care Note Campbell Care, Inc. Note $135,441 NE Healthcare Employees Union Trade Debt $134,350 JWT Specialized Communications Trade Debt $116,335 Lawrence Development And Support Services Trade Debt $111,654 Liquid Cryogenic Transport Trade Debt $105,938 Lexington SNF Trestles Healthcare, Inc. Earnouts $100,000 Princeton Pharmacy Earnouts $100,000 Georgia Dept Of Medical Assistance Trade Debt $96,866 Neighbor Care Trade Debt $93,693 Healthcare Svcs Group Inc. Trade Debt $92,530 U.S. Benefits Ins Srvcs Inc. Trade Debt $91,352 Biopath Clinical, Laboratories Inc. Trade Debt $88,042 TPHC Inc. Trade Debt $86,243 Citrus Valley Medical Center Trade Debt $85,768 Riverview AML Debt Instrument $83,356 National American Ins Co Trade Debt $83,177 Alliant Foodservice Inc. Trade Debt $78,690 Inacom Trade Debt $71,255 Angel Arciero Trade Debt $70,333 Assured Transportation and Delivery Inc. Trade Debt $70,043 Bob Owings Patterns Trade Debt $69,587 Ganot Corporation Trade Debt $66,249 Camsys Communications Inc. Trade Debt $59,945 Neighborcare Pharmacy Trade Debt $59,612 Cloneys Pharmacy Trade Debt $58,599 Office Depot/Edi Trade Debt $58,243 Best Computer Consultants, Inc. Trade Debt $56,142 Alliant Foodservice Inc. Trade Debt $54,631 Aloha Temporary Svc Inc. Trade Debt $52,859 McKesson Dist Ctr #149 Trade Debt $52,203 Mediq Prn Life Support Svcs Inc. Trade Debt $50,437 Sweger Construction Inc. Trade Debt $49,688 Comm Air Mechanical Svc. Trade Debt $49,516 Nationwide Hlth Prop Inc. Trade Debt $48,538 Carrs Pharmacy Inc. Trade Debt $48,134 ADP - Proxy Services Trade Debt $47,707 Wilshire Credit Corporation Trade Debt $45,241 Smith & Nephew Inc. Trade Debt $44,963 Summit Services Group Inc. Trade Debt $43,682 Redi Dos Inc. Trade Debt $43,496 Neuman Distributors Inc. Trade Debt $43,200 North Carolina Dept. Of Revenue Taxes $42,918 Medline Industries Inc. Trade Debt $42,735 Customfab, Inc. Trade Debt $42,359 Unitex Textile Rental Service Trade Debt $41,796 Massachusetts Dept Of Rev. Taxes $41,496 Xerox Corporation Trade Debt $40,638 TPR Of North Carolina Inc. Trade Debt $40,488 Multipoint National Property Tax Info. Trade Debt $40,400 Resource Pharmaceutical Services Trade Debt $39,954 Resource Pharm Services Trade Debt $39,703 Topicare Trade Debt $39,297 Senior Technologies, Inc. Trade Debt $39,224 First Choice Bus Machines Trade Debt $38,811 Pharmerica Trade Debt $36,516 Bombardier Capital Inc. Trade Debt $36,472 Medsource Inc. Trade Debt $36,181 Sisters Management Corp. Trade Debt $36,000 St. Jeans Credit Union Trade Debt $35,588 -------------------------------------------------------------------------- [00006] DEBTORS' MOTION FOR JOINT ADMINISTRATION OF CASES -------------------------------------------------------------------------- The Debtors requested, pursuant to Rule 1015(b)(4) of the Federal Rules of Bankruptcy Procedure, that the Court order their chapter 11 cases be jointly administered in order to reduce costs and facilitate a more efficient administrative process, unencumbered by the procedural problems otherwise attendant to the administration of multiple chapter 11 cases. Judge Walrath granted the Debtors' Motion, ordering that these cases be administered jointly under Bankruptcy Case No. 99-3657. Judge Walrath made it clear that this is for procedural purposes only, neither contemplating nor impairing the right of any party-in-interest to seek a substantive consolidation of the Debtors' estates. -------------------------------------------------------------------------- [00007] DEBTORS STRIKE DEAL WITH OMEGA HEALTHCARE RE 50-PROPERTY LEASE -------------------------------------------------------------------------- ANN ARBOR, Michigan -- October 14, 1999 -- Omega Healthcare Investors, Inc. (NYSE:OHI) ("Omega") announced it has entered into a comprehensive property agreement with Sun Healthcare Group, Inc., Albuquerque, New Mexico ("Sun"). The agreement was reached in anticipation of and in connection with Sun's filing today for Chapter 11 reorganization with the Federal Bankruptcy Court at Wilmington, Delaware. Omega owns and leases fifty-four properties to Sun under long-term operating leases involving an original Omega investment of $239 million and annual current rents of $25.3 million. The agreement will be promptly submitted for bankruptcy court approval and is intended to result in confirmation of master leases with respect to fifty healthcare properties in fourteen states. The agreement provides that Omega will forbear from taking action to recover possession of the properties or otherwise enforce its rights, pending action by the bankruptcy court approving the agreement. The fifty properties, whose leases are to be confirmed by the court, have current operating coverages of 2.0, an original investment of $219 million and $23.2 million in annual rents. Four facilities involving an original investment of $19.8 million and annual rents of $2.1 million will be transitioned to other operators after entry of the court order. All four properties are the subject of negotiations with new operators and will be managed for the account of Omega if operating leases are not in place upon entry of the court order. The re-acquired properties have coverages under 1.0 and the near term FFO impact from the agreement is expected to be approximately $1.8 million annually, beginning in the fourth quarter. Sun is current in its rental payments to Omega through the month of October on all fifty-four properties and Omega holds security deposits of $ 3.4 million in cash or letters of credit. Omega will actively monitor and manage its position pending receipt of the confirming court order. Omega also holds mortgages on four properties currently owned and leased by third parties to Sun, which are not affected by the agreement. These properties have interest coverage of 2.0. Essel W. Bailey, Jr., Chief Executive Officer, stated: "We are pleased to reach agreement to define our ongoing relationship with Sun. Sun executives have been forthright and decisive and have managed the process well. Both Omega and Sun want this reorganization to occur in a manner least likely to disrupt patients or adversely affect patient care. We expect Sun to maintain the high standards of patient care which it has always delivered, and this agreement assures us and regulatory authorities that care of patients will continue to receive high focus." Mr. Bailey continued: "The present operating environment is a challenge to all operators and investors in the healthcare industry. To illustrate the turmoil, two of the re-acquired properties operated profitably with satisfactory coverages prior to the implementation of PPS rates in January. Our ability to quickly bring matters to closure with Sun will benefit the company and free Omega executives to concentrate on other opportunities and challenges, avoiding time-consuming litigation. We expect that our agreement will be confirmed by the court within approximately 45 days." Omega is a Real Estate Investment Trust investing in and providing financing to the long-term care industry. As of September 30, 1999, its portfolio includes 241 healthcare and assisted living facilities with more than 25,000 beds located in 29 states and operated by 28 independent healthcare operating companies. -------------------------------------------------------------------------- [00008] WHAT HAPPENS TO SUN COMMON STOCK & PUBLIC BONDS? -------------------------------------------------------------------------- After a public company files for bankruptcy, its debt and equity securities will continue to trade so long as there's a market (i.e., willing buyers and sellers) for those securities. In the bankruptcy process, there is a hornbook principle known as the absolute priority rule. That principle dictates that unless and until all creditors are paid in full, shareholders do not recover anything from a debtor's estate. For a year now, stock in SHGE has traded for less than $1 per share, falling to $0.15 in over the counter trading this morning. The Company did not make its semi-annual interest payments of $7.3 million on the Company's $150.0 million 9 3/8% Subordinated Notes that was due on May 1, 1999 and of $11.9 million on the Company's $250.0 million 9-1/2% Subordinated Notes that was due on July 1, 1999. Now that the Company has entered the chapter 11 process, it is prohibited from paying pre-petition debts except pursuant to the terms of a plan of reorganization or with the express permission of the Bankruptcy Judge. The DIP Financing will not be used to pay interest to bondholders. Bondholders, vendors, service providers, etc., whose claims rank equally, must be treated equally under any plan of reorganization. With this in mind, the Company will not make further interest payments on the 9-1/2% and 9-3/8% Notes. The so-called absolute priority rule applies among creditors as well. The general rule dictates that unless and until all senior creditors are paid in full, junior creditors will not realize a recovery from a debtor's estate on account of those junior claims. *** End of Issue No. 1 ***