SunLink Health Systems, Regional Health Properties revise merger agreement

Regional Health Properties and SunLink Health Systems (SSY) entered into an amended and restated agreement and plan of merger, pursuant to which SunLink will merge with and into Regional in exchange for the issuance of an aggregate of approximately 1,595,401 shares of Regional common stock and 1,408,121 shares of Regional’s newly-authorized Series D 8% Cumulative Convertible Redeemable Participating Preferred Shares with an initial liquidation preference of $12.50 per share. The merger agreement has been approved by each company’s board of directors and completion of the transaction remains subject to the receipt of the approvals of the shareholders of both Regional and SunLink, regulatory approvals and satisfaction of customary closing conditions. Subject to the terms and conditions of the merger agreement, Regional has agreed to provide for each five SunLink common shares: 1.1330 shares of Regional common stock and one share of Regional Series D Preferred Stock. As a result of the transaction, it is expected that SunLink shareholders will, at the closing of the merger, own approximately 45.92% of the combined company. The number of shares of Regional Series D Preferred Stock is subject to adjustment pursuant to the terms and conditions of the merger agreement for the existence of any Cash Surplus or Regional Debt Distress and the number of shares of Regional common stock and Regional Series D Preferred Stock each are subject to adjustment to reflect fully and equitably the effect of any reclassification, stock split, reverse split, stock dividend, reorganization, recapitalization or other like change prior to the closing. No fractional shares will be issued in the transaction. The Regional Series D Preferred Stock will be a new series of Regional preferred stock which will rank junior to the currently outstanding 12.5% Series B Cumulative Redeemable Preferred Shares of Regional, have an initial liquidation preference of $12.50 per share and be entitled to cumulative preferential dividends at an initial dividend rate of 8% per annum commencing with July 1, 2027 when, as and if approved and declared by the Regional board of directors out of funds of Regional legally available for the payment of distributions, subject in each case to the terms and conditions of the articles of amendment establishing the Regional Series D Preferred Stock. Each three shares of Regional Series D Preferred Stock will be convertible into 1.1330 shares of Regional common stock at the holder’s option and mandatorily if certain future conditions are met. If the Regional common stock is not listed on a National Market, as defined, on or before the last day of the sixth whole calendar month after closing. the twelfth whole calendar month after the closing, the eighteenth whole calendar month after the closing and the twenty-fourth whole calendar month after the closing, then on the First Milestone Date the conversion ratio shall be reduced, and on each succeeding Milestone Date further reduced, by one-half of a share of Regional Series D Preferred Stock in the number of shares of Regional Series D Preferred Stock required for conversion into a share of Regional common stock. SunLink may pay its shareholders one or two special dividend prior to the closing of the merger in an amount not to exceed in the aggregate the sum of $705,000, plus if certain conditions are met, an additional amount as calculated in the merger agreement calculated within five days of closing; provided that the total of such dividends shall not exceed in the aggregate $1,000,000 plus any additional amounts added thereto pursuant to the terms and conditions of the merger agreement. As of December 31, 2024, SunLink had approximately $17.8 million in total assets and no long-term debt. Regional expects pre-tax cost synergies of approximately $1.0 million by the end of its fiscal 2026 and believes that additional operating synergies may be achievable upon completion of the merger and integration of the companies. The merger is expected to close in the summer of 2025, following receipt of the approvals of the shareholders of both Regional and SunLink, regulatory approvals and satisfaction of customary closing conditions. The transaction is not expected to trigger any change of control provision under Regional’s outstanding mortgages.