sed '/PATTERN/{r file1
:a;n;ba}' file2
:a;n;ba is just a cycle that printouts the whole file content after the PATTERN till the end. and note, that this two lines are just one command, but newline is needed to delimit the next sed command after r.
additional info from info sed :
`n'
If auto-print is not disabled, print the pattern space, then,
regardless, replace the pattern space with the next line of input.
If there is no more input then `sed' exits without processing any
more commands.
`: LABEL'
[No addresses allowed.]
Specify the location of LABEL for branch commands. In all other
respects, a no-op.
`b LABEL'
Unconditionally branch to LABEL. The LABEL may be omitted, in
which case the next cycle is started.