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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1998
or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number: 1-12040
SUN HEALTHCARE GROUP, INC.
(Exact name of Registrant as specified in its charter)
Delaware 85-0410612
(State of Incorporation) (I.R.S. Employer
Identification No.)
101 Sun Avenue, NE
Albuquerque, New Mexico 87109
(505) 821-3355
(Address and telephone number of Registrant)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past ninety days.
Yes X No
---- ----
As of August 10, 1998, there were 62,293,745 shares of the Registrant's $.01
par value Common Stock outstanding, net of treasury shares.
Items 1 and 2 of this Form 10-Q have been omitted and will be filed by
amendment within five calendar business days pursuant to Rule 12b-25 of the
Securities Exchange Act of 1934.
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<PAGE>
SUN HEALTHCARE GROUP, INC.
Index
Form 10-Q for the Quarter Ended June 30, 1998
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PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page Numbers
----------------
<S> <C> <C>
Item 1. Consolidated Financial Statements [to be filed by
amendment]
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations [to be filed by
amendment]
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 3
Item 2. Changes in Securities and Use of Proceeds 4
Item 4. Submission of Matters to a Vote of Security
Holders 5
Item 6. Exhibits and Reports on Form 8-K 5
Signatures 7
</TABLE>
2
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
On or about January 23, 1996, two former stockholders of
SunCare Respiratory Services, Inc. ("SunCare"), John Brennan and Susan Bird,
filed a lawsuit (the "SunCare Litigation") against Sun Healthcare Group,
Inc. ("the Company") and certain of its officers and directors in the
United States District Court for the Southern District of Indiana.
Plaintiffs allege, among other things, that the Company did not disclose
material facts concerning the investigation by the United States Department
of Health and Human Services' Office of Inspector General ("OIG") and that
the Company's financial results were misstated. The complaints purport to
state claims, inter alia, under Federal and state securities laws and
for breach of contract, including a breach of a registration rights
agreement pursuant to which the Company agreed to register the shares of
the Company's common stock issued to such former stockholders of SunCare
in the acquisition. On May 21, 1998, the parties agreed to settle the
action for $7.4 million. On June 9, 1998, the Court approved the
settlement and entered an order of dismissal.
The Company was notified in 1997 by a law firm representing
several national insurance companies that these companies believed
that the Company had engaged in improper billing and other
practices in connection with the Company's delivery of therapy and
related services. In response, the Company began discussions
directly with these insurers and hopes to resolve these matters
without litigation; however, the Company is unable at this time to
predict whether it will be able to do so, what the eventual outcome
may be or the extent of its liability, if any, to these insurers.
Between August 25, 1997 and October 24, 1997, ten putative
class action lawsuits (the "Actions") were filed in the United
States District Court for the Northern District of Georgia on
behalf of persons who purchased Retirement Care Associates, Inc. ("RCA")
Common Stock, naming RCA and certain of its officers and directors
as defendants. The complaints have overlapping defendants and largely
overlapping (although not identical) class periods. The complaints allege
violations of Federal securities laws by the defendants for
disseminating allegedly false and misleading financial statements
for RCA s fiscal year ended June 30, 1996 and its first three
quarters of fiscal year 1997, which the plaintiffs allege
materially overstated RCA s profitability. Generally, each of the
Actions seeks unspecified compensatory damages, pre-judgment and
post-judgment interest, attorneys fees and costs and other
equitable and injunctive relief.
On November 25, 1997, RCA, the Company and representatives of
the plaintiffs entered into a Memorandum of Understanding ("MOU").
Pursuant to the MOU, the Company paid $9 million into an interest-
bearing escrow account maintained by the Company (the "Escrow
Account") to settle the Actions (the Settlement ). RCA also
agreed to assign coverage under its directors and officers
liability insurance policy for these specific claims to the
plaintiffs. The Settlement is contingent upon confirmatory
discovery and is subject to the execution of definitive
documentation and court approval. Upon satisfaction of the
conditions precedent to the Settlement, all claims by the class
that were or could have been asserted by the plaintiffs against RCA
or any of the other defendants in the Actions will be settled and
released, and the Actions will be dismissed in their entirety with
prejudice in exchange for the release of all funds from the Escrow
Account to the Plaintiffs. Plaintiffs commenced their confirmatory
discovery in July 1998. No assurance can be given that the
Settlement will become final. There can be no assurance that
additional actions will not be filed against RCA and its officers
and directors. However, the Actions are styled as class actions,
and should the Settlement become final, any additional class
actions would be precluded, although individual plaintiffs may opt
out of the Settlement.
3
<PAGE>
Other information with respect to government investigations will be
found in Management's Discussion and Analysis of Financial Condition and
Results of Operations to be filed by amendment and will be incorporated
herein by reference.
Item 2. Changes in Securities and Use of Proceeds.
(a) Not applicable.
(b) Not applicable.
(c) 1. On May 4, 1998, Sun Financing I, a statutory business
trust formed under the laws of the State of Delaware and
a wholly owned subsidiary of the Company, completed a
private placement of 13.8 million 7% Convertible Trust
Issued Preferred Securities ("Convertible Preferred
Securities") for an aggregate offering price of $345.0
million. The initial purchasers of the Convertible
Preferred Securities were Bear, Stearns & Co., Inc.,
Donaldson, Lufkin & Jenrette Securities Corporation, J.P.
Morgan & Co., NationsBanc Montgomery Securities LLC and
Schroder & Co., Inc. The aggregate fees paid to the
initial purchasers were approximately $10.4 million. The
Convertible Preferred Securities were offered to
qualified institutional buyers in reliance on Rule 144A
under the Securities Act of 1933, as amended (the
"Securities Act"), and to a limited number of
institutional accredited investors under Rule 501(a)(1),
(2), (3) or (7) under the Securities Act. Each
Convertible Preferred Security is convertible at the
option of the holder into 1.2419 shares of the Company's
common stock (equivalent to a conversion price of $20.13
per share of Company Common Stock). The proceeds from
the offering of Convertible Preferred Securities were
used by the Company to repay outstanding borrowings under
the term loan portion of the Company's credit facility
and to reduce borrowings under the revolving credit
portion of the Company's credit facility.
2. On May 14, 1998, the Company issued 124,382 shares of its
common stock in the Company's acquisition of Pacific
Health Care, Inc. The shares were valued at $2.2
million. The shares were issued in reliance on Section
4(2) of the Securities Act
3. On May 14, 1998, the Company issued approximately $2.9
million of convertible promissory notes (the "Convertible
Notes") in connection with the Company's acquisition of
certain assets of Portsbridge, Inc. The Convertible
Notes are convertible into a maximum of 179,991 shares of
the Company's Common Stock (equivalent to a conversion
price of approximately $16.48 per share). The Convertible Notes
were issued in reliance on Section 4(2) of the Securities Act.
4. On June 12, 1998, the Company issued 212,120 shares of its
common stock in the Company's acquisition of OMC Home Health-
care, Inc. and Advantage Health Services, Inc. The shares were
valued at $3.5 million. The shares were issued in reliance on
Section 4(2) of the Securities Act.
(d) Not applicable.
4
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
(a) A special meeting of the Company s Stockholders was held June 30, 1998.
(b) Not applicable.
(c) The matters voted at the special meeting and the results were as follows:
1. The approval and adoption of the Agreement and Plan of
Merger and Reorganization, dated as of February 17, 1997,
as amended by Amendments No. 1, 2, 3 and 4 thereto, among
the Company, Retirement Care Associates, Inc. and Peach
Acquisition Corporation (the "RCA Merger Agreement") and
the merger of Peach Acquisition Corporation with and into
Retirement Care Associates, Inc. (the "RCA Merger")
pursuant to the RCA Merger Agreement and the issuance of
Company s Common Stock and Series B Convertible Preferred
Stock pursuant to the RCA Merger.
<TABLE>
<CAPTION>
For Against Abstain Non-Vote
---------- --------- ------- ---------
<S> <C> <C> <C>
25,067,398 2,459,889 226,514 9,907,912
</TABLE>
2. The approval and adoption of the Agreement and Plan of
Merger and Reorganization, dated as of February 17, 1997,
as amended by Amendments No. 1, 2 and 3 thereto, among
the Company, Contour Medical, Inc. and Nectarine
Acquisition Corporation (the "Contour Merger Agreement")
and the merger of Nectarine Acquisition Corporation with
and into Contour Medical, Inc. (the "Contour Merger")
pursuant to the Contour Merger Agreement and the issuance
of Company's Common Stock pursuant to the Contour Merger.
<TABLE>
<CAPTION>
For Against Abstain Non-Vote
---------- --------- ------- ---------
<S> <C> <C> <C>
25,075,338 2,467,836 210,628 9,908,912
</TABLE>
3. The approval of amendment to the Company s Certificate of
Incorporation to increase the number of authorized shares
of the Company's Common Stock from 100,000,000 to
150,000,000.
<TABLE>
<CAPTION>
For Against Abstain Non-Vote
---------- -------- -------- ---------
<S> <C> <C> <C>
37,052,393 473,267 137,052 0
</TABLE>
(d) Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
<S> <C>
(3.1) Certificate of Incorporation, as amended, of the Company.
(4.1) Certificate of Designations of Series A Preferred Stock
of the Company.
(4.2) Certificate of Designations of Series B Convertible
Preferred Stock of the Company.
5
<PAGE>
(27.1) Financial Data Schedule.*
</TABLE>
*To be filed by amendment.
(b) Reports on Form 8-K
Report dated April 3, 1998 and filed April 10, 1998 reporting
an Amendment to the Agreement and Plan of Merger and
Reorganization, dated as of February 17, 1997, as amended by
Amendment No. 1 thereto dated as of May 27, 1997, by Amendment
No. 2 thereto dated as of August 21, 1997 and by Amendment No.
3 thereto dated as of November 27, 1997, by and among the Company,
Retirement Care Associates, Inc. and Peach Acquisition
Corporation.
Report dated April 14, 1998 and filed April 16, 1998 reporting
that Sun has commenced marketing two private placements of its
securities. The Company and Sun Financing I, a Delaware statutory
business trust and subsidiary of the Company, will offer $300 million
($345 million if the initial purchasers' overallotment is
exercised in full) of convertible trust issued preferred
securities and the Company will offer $125 million of Senior
Subordinated Notes due 2008.
Report dated October 8, 1997 and filed April 16, 1998
reporting the financial statements of Regency Health Services,
Inc.
Report dated April 29, 1998 and filed April 29, 1998 reporting
the pricing of two private placements of $150 million of
Senior Subordinated Notes due 2008 and $345 million of
convertible trust issued preferred securities.
Report dated May 5, 1995 and filed May 15, 1998 to delete and
replace Exhibit 23.1, Consent of Accountant.
Report dated August 15, 1996 and filed May 15, 1998 to delete
and replace exhibit 23.1, Consent of Accountant.
Report dated March 31, 1998 and filed on June 25, 1998 to
include Summarized Consolidating Information for the Company
and the Company's guarantor and non-guarantor subsidiaries
with respect to the Company's 9-1/2% Senior Subordinated Notes
due 2007 and 9-3/8% Senior Subordinated Notes due 2008 as of and
for the three months ended March 31, 1998.
Report dated June 30, 1998 and filed on July 21, 1998
reporting the acquisition of Retirement Care Associates, Inc.
and Contour Medical, Inc.
6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUN HEALTHCARE GROUP, INC.
August 14, 1998 /s/ Robert D. Woltil*
Date: _______________ By: _______________________
Robert D. Woltil
Chief Financial Officer
*Signing on the behalf of the Registrant and as principal financial
officer.
7
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Document
- -------------- -------------------------------------
<S> <C>
3.1 Certificate of Incorporation of Sun Healthcare
Group, Inc. as amended
4.1 Sun Healthcare Group, Inc. Certificate of
Designations of Series A Preferred Stock
4.2 Sun Healthcare Group, Inc. Certificate of
Designations of Series B Convertible Preferred
Stock
27.1 Financial Data Schedule*
</TABLE>
*To be filed by amendment.
<PAGE>
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
SUN HEALTHCARE GROUP, INC.
as amended
FIRST. The name of the corporation is Sun Healthcare Group,
Inc.
SECOND. The address of the corporation s registered office in
the State of Delaware is Corporation Trust Center, 1209 Orange St.,
Wilmington, DE 19801, County of New Castle. The name of its
registered agent at such address is The Corporation Trust Company.
THIRD. The purpose of the corporation is to engage in any
lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
FOURTH. The aggregate number of shares of capital stock which
the corporation shall have authority to issue is One Hundred Fifty-
Five Million (155,000,000) shares, divided into One Hundred Fifty
Million (150,000,000) shares of common stock with One Penny ($.01)
par value, and Five Million (5,000,000) shares of preferred stock
with One Penny ($.01) par value.
FIFTH. The Board of Directors is authorized, subject to
limitations prescribed by law and the provisions of the Article
FOURTH, to provide for the issuance of the shares of preferred
stock in one or more series, and by filing a certificate pursuant
to the applicable law of the State of Delaware, to establish from
time to time the number of shares to be included in each such
series, and to fix or alter the designation, number, voting powers,
preferences and relative, participating, optional and other special
rights of the shares of each such series and the qualifications,
limitations or restrictions thereof.
The authority of the Board of Directors with respect to each
series shall include, but not be limited to, determination of the
following:
(a) The number of shares constituting that series and the
distinctive designation of that series;
(b) The rights in respect of dividends, if any, of the shares
of that series, whether dividends shall be cumulative, and, if so,
from which date or dates, and the relative right of priority, if
any, of payment of dividends on shares of that series;
(c) Whether that series shall have voting rights, in addition
to the voting rights provided by law, and, if so, the terms of such
voting rights;
(d) Whether the series shall have a right to elect one or
more directors, and if so, the term or terms of such directors;
(e) Whether that series shall have conversion privileges,
and, if so, the terms and conditions of such conversion, including
provision for adjustment of the conversion rate in such events as
the Board of Directors shall determine;
(f) Whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such
redemption, including the date upon or after which they shall be
redeemable, and the amount per share payable in case of redemption,
which amount may vary under different conditions and at different
redemption dates;
(g) Whether that series shall have a sinking fund for the
redemption of purchase of shares of that series, and, if so, the
terms and amount of such sinking fund;
(h) The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of
the corporation, and the relative rights of priority, if any, of
payment of shares of that series; and
(i) Any other relative rights, preferences and limitations of
that series.
SIXTH. The name and mailing address of the incorporator is
Andrew L. Turner, 5600 Wyoming Blvd. NE, Suite 140, Albuquerque, NM
87109. The powers of the incorporator end upon the filing of this
Certificate of Incorporation.
SEVENTH. The number of directors constituting the initial
Board of Directors is one (1). The name and address of the person
who is to serve as director until the first annual meeting of the
stockholders or until his successor is elected and shall qualify,
or if the Board of Directors fixes the number of directors prior to
the first annual meeting of stockholders, until the end of his term
of office as fixed by the Board of Directors, is:
<TABLE>
<CAPTION>
Name Address
---------------- --------------------------------
<S> <C>
Andrew L. Turner 5600 Wyoming Blvd. NE, Suite 140
Albuquerque, New Mexico 87109
</TABLE>
Upon the earlier of the first annual meeting of stockholders
or action by the Board of Directors fixing the number of directors:
(a) The number of directors constituting the entire Board of
Directors, other than those directors who may be elected by the
holders of any series of preferred stock as provided for by or
fixed pursuant to the provisions of Article Fifth of this
Certificate of Incorporation, shall be not less than three as fixed
from time to time by a resolution passed by the affirmative vote of
a majority of the then-authorized number of directors. Only
directors who serve by virtue of the provisions of Article Seventh
of this Certificate of Incorporation shall have the power to vote
on such resolutions. The number of directors shall not be reduced
so as to shorten the term of any director at the time in office.
(b) The Board of Directors, other than those directors who
may be elected by the holders of any series of preferred stock as
provided for by or fixed pursuant to the provisions of Article
Fifth of this Certificate of Incorporation, shall be divided into
three classes, as nearly equal in numbers as the then total number
of directors constituting the entire Board permits, with the term
of office of one class expiring each year at the annual meeting of
stockholders.
(c) If the Board of Directors fixes the number of directors
prior to the first annual meeting of stockholders, the director
then in office shall elect directors of the first class to hold
office for a term expiring at the first annual meeting, directors
of the second class to hold office for a term expiring at the
second annual meeting and directors of the third class to hold
office for a term expiring at the third annual meeting. If the
Board of Directors does not fix the number of directors prior to
the first annual meeting of stockholders, directors of the first
class shall be elected to hold office for a term expiring at the
next succeeding annual meeting, directors of the second class shall
be elected to hold office for a term expiring at the second
succeeding annual meeting and directors of the third class shall be
elected to hold office for a term expiring at the third succeeding
annual meeting.
(d) Except as otherwise provided for by or fixed pursuant to
the provisions of Article Fifth of this Certificate of
Incorporation relating to the rights of the holders of any series
of preferred stock to elect additional directors, and subject to
the provisions hereof, newly created directorships resulting from
any increase in the authorized number of directors, and any
vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal, or other cause, may be
filled only by the affirmative vote of a majority of the remaining
directors then in office, even though less than a quorum of the
Board of Directors. Only directors who serve by virtue of the
provisions of Article Seventh of this Certificate of Incorporation
shall have the power to vote to fill directorships established
pursuant to this Article Seventh. Any director elected in
accordance with this paragraph shall hold office for the remainder
of the full term of the class of directors in which the new
directorship was created or in which the vacancy occurred, and
until such director s successor shall have been duly elected and
qualified, subject to his earlier death, disqualification,
resignation or removal.
(e) Upon commencement and during the continuation of any
period when the holders of any series of preferred stock have the
right to elect additional directors as provided for by or fixed
pursuant to the provisions of Article Fifth of this Certificate of
Incorporation (i) the total number of directors of the corporation
shall automatically be increased by such specified number of
directors, and the holders of such preferred stock shall be
entitled to elect the additional directors so provided for or fixed
pursuant to said provisions, and (ii) each such additional director
shall serve until such director s successor shall have been duly
elected and qualified, or until such director s right to hold such
office terminates pursuant to said provisions, whichever occurs
earlier, subject to his earlier death, disqualification,
resignation or removal. Except as otherwise provided by the Board
of Directors in the resolution or resolutions establishing such
series, whenever the holders of any series of preferred stock
having such right to elect additional directors are divested of
such right pursuant to the provisions of such stock, the terms of
office of all such additional directors elected by the holders of
such stock, or elected to fill any vacancies resulting from the
death, resignation, disqualification or removal of such additional
directors, shall forthwith terminate and the total number of
directors of the corporation shall be reduced accordingly.
(f) Except for such additional directors, if any, as are
elected by the holders of any series of preferred stock as provided
for by or fixed pursuant in the provisions of Article Fifth of this
Certificate of Incorporation, any director may be removed from
office with or without cause by the affirmative vote of the holders
of a majority of all of the then-outstanding shares of stock
entitled to vote thereon voting together as a single class.
(g) Subject to the foregoing and except for such additional
directors, if any, as are elected by the holders of any series of
preferred stock as provided for by or fixed pursuant to the
provisions of Article Fifth of this Certificate of Incorporation,
at each annual meeting of stockholders the successors to the class
of directors whose term shall then expire shall be elected to hold
office for a term expiring at the third succeeding annual meeting.
(h) Throughout this Certificate of Incorporation, then-
authorized number of directors shall initially mean the directors
constituting the initial Board of Directors as set forth in this
Certificate of Incorporation, and thereafter, the directors fixed
by resolution pursuant to the provisions of Article Seventh of this
Certificate of Incorporation and shall not include any directors
who may be elected by the holders of any series of preferred stock
as provided for by or fixed pursuant to the provisions of Article
Fifth of this Certificate of Incorporation.
EIGHTH. The Board of Directors is expressly authorized to
make, alter or repeal bylaws of the corporation by the affirmative
vote of at least a majority of the then-authorized number of
directors. Only directors who serve by virtue of the provisions of
Article Seventh of this Certificate of Incorporation shall have the
power to vote on this matter. In addition to any other vote
required by law, the stockholders may make additional bylaws and
may alter or repeal any bylaw whether adopted by them or otherwise
by the affirmative vote of shares of stock having at least sixty
percent (60%) of the votes which could be cast by the holders of
all shares of stock entitled to vote thereon.
NINTH. Elections of directors need not be by written ballot
except and to the extent provided in the bylaws of the corporation.
TENTH. No action that is required or permitted to be taken by
the stockholders of the corporation may be effected by written
consent of stockholders in lieu of a meeting of stockholders,
unless the action to be effected by written consent of stockholders
and the taking of such action by such written consent have
expressly been approved in advance by the Board of Directors of the
corporation.
ELEVENTH. Meetings of stockholders of the corporation may be
held within or without the State of Delaware, as the bylaws of the
corporation may provide. Except as otherwise provided for by or
fixed pursuant to the provisions of Article Fifth of this
Certificate of Incorporation relating to the rights of the holders
of any series of preferred stock, special meetings of stockholders
of the corporation may be called only by the Chairman of the Board
of Directors, the President or the Board of Directors pursuant to
a resolution adopted by the affirmative vote of a majority of the
then-authorized number of directors of the corporation. Only
directors who serve by virtue of the provisions of Article Seventh
of this Certificate of Incorporation shall have the power to vote
on this matter.
TWELFTH. The personal liability of a director to the
corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director shall be limited to the fullest extent
authorized by the General Corporation Law of the State of Delaware
as it now exists or may hereafter be amended. Neither the
amendment or repeal of this Article, nor the adoption of any
provision of this Certificate of Incorporation inconsistent with
this Article shall adversely affect any right or protection of a
director of the corporation existing at the time of such amendment
or repeal.
THIRTEENTH. The corporation shall not be governed by Section
203 of the General Corporation Law of the State of Delaware
("Section 203") as said Section is presently in effect and as it
may hereafter be amended from time to time, and the restrictions
contained in Section 203 shall not apply to the corporation, until
such time, if ever, as both of the following conditions exist:
(a) Section 203 by its terms would, but for the provisions of this
Article Twelfth, apply to the corporation; and (b) there exists no
person that is the owner of more than forty percent (40%) of the
outstanding voting stock of the corporation excluding for purposes
of determining outstanding voting stock of the corporation any
shares of preferred stock issued pursuant to the provisions of
Article Fifth of this Certificate of Incorporation. Once the
corporation shall become governed by Section 203 pursuant to the
preceding sentence the corporation shall be governed by Section 203
for so long as Section 203 by its terms shall apply to the
corporation, regardless of whether any person shall thereafter
become the owner of more than forty percent (40%) of the
outstanding voting stock of the corporation. For purposes of this
Article Twelfth, the terms person, owners and voting stock
shall have the meanings ascribed to them in Section 203, as Section
203 may be amended from time to time.
The undersigned incorporator hereby acknowledges under
penalties of perjury that the foregoing certificate of
incorporation is his act and deed and that the facts stated therein
are true.
/s/ Andrew L. Turner
--------------------
Andrew L. Turner
<PAGE>
EXHIBIT 4.1
SUN HEALTHCARE GROUP, INC.
CERTIFICATE OF DESIGNATIONS
OF
SERIES A PREFERRED STOCK
(Pursuant to Section 151 of the
Delaware General Corporation Law)
---------------------------------
Sun Healthcare Group, Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware
(the "Company"), hereby certifies that the following resolution was
adopted by the Board of Directors of the Company as required by
Section 151 of the General Corporation Law at a meeting duly called
and held on June 2, 1995:
RESOLVED, that pursuant to the authority granted to and
vested in the Board of Directors of the Company (the "Board of
Directors or the "Board") in accordance with the provisions of the
Company's Certificate of Incorporation, as amended to date (the
"Certificate of Incorporation"), the Board of Directors hereby
creates a series of preferred stock, par value $.01 per share, of
the Company and hereby states the designation and number of shares,
and fixes the relative rights, preferences, and limitations thereof
as follows:
Section 1. Designation and Amount. The shares of such
series shall. be designated as "Series A Preferred Stock" (the
"Series A Preferred Stock") and the number of shares constituting
the Series A Preferred Stock shall be 1,000,000. Such number of
shares may be increased or decreased by resolution of the Board of
Directors; provided, that no decrease shall reduce the number of
shares of Series A Preferred Stock to a number less than the number
of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or
warrants or upon the conversion of any outstanding securities
issued by the Company convertible into Series A Preferred Stock.
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares
of any series of preferred stock of the Company (the "Preferred
Stock") (or any similar stock) ranking prior and superior to the
Series A Preferred Stock with respect to dividends, the holders of
shares of Series A Preferred Stock, in preference to the holders of
common stock, par value $.01 per share of the Company (the Common
Stock ), and of any other stock of the Company ranking junior to
the Series A Preferred Stock, shall be entitled to receive, when,
as and if declared by the Board of Directors out of funds legally
available for the purpose, semiannual dividends payable in cash on
the first day of June and December in each year (each such date
being referred to herein as a "Dividend Payment Date ), commencing
an the first Dividend Payment Date after the first issuance of a
share or fraction of a share of Series A Preferred Stock, in an
amount per share (rounded to the nearest cent) equal to the greater
of (a) $1 or (b) subject to the provision for adjustment
hereinafter set forth, 100 times the aggregate per share amount of
all cash dividends, and 100 times the aggregate per share amount
(payable in kind) of all non-cash dividends or other distributions
other than a dividend payable in shares of Common Stock, declared
on the Common Stock since the immediately preceding Dividend
Payment Date or, with respect to the first Dividend Payment Date,
since the first issuance of any share or fraction of a share of
Series A Preferred Stock. In the event the Company shall at any
time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by the
classification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of
Common Stock, then in each such case the amount to which holders of
shares of Series A Preferred Stork were entitled immediately prior
to such event under clause (b) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction, the numerator of
which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately
prior to such event.
(B) The Company shall declare a dividend or distribution
on the Series A Preferred Stock as provided in paragraph (A) of
this Section immediately after it declares a dividend or
distribution on the Common Stock (other than a dividend payable in
shares of Common Stock); provided that, in the event no dividend or
distribution shall have been declared on the Common Stock during
the period between any Dividend Payment Date and the next
subsequent Dividend Payment Date, a dividend of $1 per share on the
Series A Preferred Stock shall nevertheless be payable on such
subsequent Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from the Dividend
Payment Date next preceding the date of issue of such shares,
unless the date of issue of such shares is prior to the record date
for the first Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Dividend Payment Date or
is a date after the record date for the determination of holders of
shares of Series A Preferred Stock entitled to receive a quarterly
dividend and before such Dividend Payment Date, in either of which
events such dividends shall begin to accrue and be cumulative from
such Dividend Payment Date. Accrued but unpaid dividends shall not
bear interest. Dividends paid on the shares of Series A Preferred
Stock in an amount less than the total amount of such dividends at
the time accrued and payable on such shares shall be allocated pro
rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the
determination of holders of shares of Series A Preferred Stock
entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be not more than 60 days prior to
the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of
Series A Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter
set forth and except as otherwise provided in the Certificate of
Incorporation or required by law, each share of Series A Preferred
stock shall entitle the holder thereof to 100 votes on all matters
upon which the holders of the Company are entitled to vote. In the
event the Company Shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or
lesser number of shares of Common Stock, then in each such case the
number of votes per share to which holders of shares of Series A
Preferred stock were entitled immediately prior to such event shall
be adjusted by multiplying such number by a fraction, the numerator
of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately
prior to such event.
(B) Except as otherwise provided herein, in the
Certificate of Incorporation or in any other Certificate of
Designations creating a series of Preferred Stock or any similar
stock, and except as otherwise required by law, the holders of
shares of Series A Preferred Stock and the holders of shares of
Common Stock and any other capital stock of the Company having
general voting rights shall vote together as one class on all
matters submitted to a vote of stockholders of the Company.
(C) Except as set forth herein, or as otherwise provided
by law, holders of Series A Preferred Stock shall have no special
voting rights and their consent shall not be required (except to
the extent they are entitled to vote with holders of Common Stock
as set forth herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever semi-annual dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided
in Section 2 are in arrears, thereafter and until all accrued and
unpaid dividends and distributions, whether or not declared, on
shares of Series A Preferred Stock outstanding shall have been paid
in full, the Company shall not:
(i) declare or pay dividends, or make
any other distributions, on any shares of
stock ranking junior (as to dividends) to the
Series A Preferred Stock;
(ii) declare or pay dividends, or make
any other distributions, on any shares of
stock tanking on a parity (as to dividends)
with the Series A Preferred Stock, except
dividends paid ratably on the Series A
Preferred Stock and all such parity stock on
which dividends are payable or in arrears in
proportion to the total amounts to which the
holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise
acquire for consideration shares of any stock
ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the
Series A Preferred Stock, provided that the
Company may at any time redeem, purchase or
otherwise acquire shares of any such junior
stock in exchange for shares of any stock of
the Company ranking junior (as to dividends
and upon dissolution, liquidation or winding
up) to the Series A Preferred Stock;
(iv) redeem or purchase or otherwise
acquire for consideration any shares of Series
A Preferred Stock, or any shares of stock
ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up)
with the Series A Preferred Stock, except in
accordance with a purchase offer made in
writing or by publication (as determined by
the Board of Directors) to all holders of such
shares upon such terms as the Board of
Directors, after consideration of the
respective annual dividend rates and other
relative rights and preferences of the
respective series and classes, shall determine
in good faith will result in fair and
equitable treatment among the respective
series or classes.
(B) The Company shall not permit any subsidiary of
the Company to purchase or otherwise acquire for consideration any
shares of stork of the Company unless the Company could, under
paragraph (A) of this Section 4, purchase or otherwise acquire such
shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A
Preferred Stock purchased or otherwise acquired by the Company in
any manner whatsoever shall be retired and canceled promptly after
the acquisition thereof.
Section 6. Liquidation, Dissolution or Winding Up. Upon
any liquidation, dissolution or winding up of the Company, no
distribution shall be made (A) to the holders of the Common Stock
or of shares of any other stock of the Company ranking junior upon
liquidation, dissolution or winding up to the Series A Preferred
Stock unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received $100 per share plus an amount
equal to accrued and unpaid dividends and distributions thereon,
whether or not declared, to the date of such payment, provided that
the holders of shares of Series A Preferred Stock shall be entitled
to receive an aggregate amount per share, subject to the provision
for adjustment hereinafter set forth, equal to 100 times the
aggregate amount to be distributed per share to holders of shares
of Common Stock, or (B) to the holders of shares of stock ranking
an a parity upon liquidation, dissolution or winding up with the
Series A Preferred Stock, except distributions made ratably on the
Series A Preferred Stock and all such parity stock in proportion to
the total amounts to which the holders of all such shares are
entitled upon such liquidation, dissolution or winding up. In the
event the Company shall at any time declare or pay any dividend on
the Common Stock (by reclassification or otherwise than by payment
of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the
aggregate amount to which holders of shares of Series A Preferred
Stock were entitled immediately prior to such event under the
proviso in clause (A) of the preceding sentence shall be adjusted
by multiplying such amount by a fraction the numerator of which is
the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of
Common Stock that were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In each case
the Company shall enter into any consolidation, merger, combination
or other transaction in which the shares of Common Stock are
exchanged for or changed into other stock or securities, cash
and/or any other property, then in any such case each share of
Series A Preferred Stock shall at the same time be similarly
exchanged or changed into an amount per share (subject to the
provision for adjustment hereinafter set forth) equal to 100 times
the aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, into which or for
which each share of Common Stock is changed or exchanged. In the
event the Company shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or
lesser number of shares of Common Stock, then in each such case the
amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Preferred Stock shall be
adjusted by multiplying such amount by a fraction, the numerator of
which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately
prior to such event.
Section 8. No Redemption. The shares of Series A
Preferred Stock shall not be redeemable from any holder.
Section 9. Rank. The Series A Preferred Stock shall
rank, with respect to the payment of dividends and the distribution
of assets upon liquidation, dissolution or winding up of the
Company, junior to all series of any other class of Preferred Stock
and senior to the Common Stock.
Section 10. Amendment. If any proposed amendment to the
Certificate of Incorporation (including this Certificate of
Designations) would alter, change or repeal any of the preferences,
powers or special rights given to the Series A Preferred Stock so
as to affect the Series A Preferred Stock adversely, then the
holders of the Series A Preferred Stock shall be entitled to vote
separately as a class upon such amendment, and the affirmative vote
of two-thirds of the outstanding shares of the Series A Preferred
Stock, voting separately as a class, shall be necessary for the
adoption thereof, in addition to such other vote as may be required
by the General Corporation Law of the State of Delaware,
IN WITNESS WHEREOF, this Certificate of Designations is
executed on behalf of the Company by its Vice President - Corporate
Controller this 8th day of June, 1995
/s/ William C. Warrick
By: ________________________
William C. Warrick
Vice President - Corporate Controller
<PAGE>
EXHIBIT 4.2
SUN HEALTHCARE GROUP, INC.
CERTIFICATE OF DESIGNATIONS
OF
SERIES B CONVERTIBLE PREFERRED STOCK
Sun Healthcare Group, Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware
(the "Corporation"), hereby certifies that the following resolution
was adopted by the Board of Directors of the Company as required by
Section 151 of the General Corporation Law at a meeting duly called
and held on February 13, 1997:
RESOLVED, that pursuant to the authority granted to and vested
in the Board of Directors of the Company (the "Board of Directors"
or the "Board") in accordance with the Company s Certificate of
Incorporation, as amended to date (the "Certificate of
Incorporation"), the Board of Directors hereby creates a series of
preferred stock, par value $.01 per share, of the Corporation and
hereby states the designation and number of shares, and fixes the
relative rights, preferences, and limitations thereof as follows:
Section 1. Designation and Amount. There is hereby
established a series of Preferred Stock of the Corporation
designated Series B Convertible Preferred Stock. The number of
shares of this series of Convertible Preferred Stock shall be
300,000 shares.
Section 2. Conversion Rights.
a. Right to Convert. Each share of Series B Convertible
Preferred Stock may be converted at the option of the holder
thereof at any time and from time to time, and without the payment
of any additional consideration thereof, into the number of fully
paid, nonassessable shares of Common Stock, par value $.01 per
share, of the Corporation (the Common Stock ) equal to (x) $10
divided by the lesser of (i) $7.638125 or (ii) 85% of the average
closing bid price of the Common Stock, par value $.0001 per share,
of Retirement Care Associates, Inc. ("RCA") for the five trading
days prior to June 30, 1998, plus (y) additional shares equal to
$10.00 per share of Series F Convertible Preferred Stock of RCA
multiplied by 8% per annum from September 25, 1996 divided by the
conversion price set forth in (x) (the "Conversion Price").
b. Automatic Conversion. Each share of Series B Convertible
Preferred Stock not previously converted at the election of the
holder thereof shall automatically be converted into shares of
Common Stock on October 2, 1998.
c. Mechanics of Conversion.
(i) No fractional shares of Common Stock shall be issued
upon conversion of Series B Convertible Preferred Stock. In lieu
of any fractional shares to which the holder would otherwise be
entitled, the Corporation shall round up to the nearest whole
share. In the case of a dispute as to the calculation of the
Conversion Price, the Corporation's calculations shall be deemed
conclusive absent manifest error. In order to convert Series B
Convertible Preferred Stock into full shares of Common Stock, the
holder shall surrender the certificate or certificates therefor,
duly endorsed, either by overnight courier or 2-day courier, to the
Corporation or its designated representative, and shall give
written notice to the Corporation, with a copy to such
representative that the holder elects to convert the same, the
number of shares of Series B Convertible Preferred Stock so
converted and a calculation of the Conversion Price (with an
advance copy of the certificate(s) and the notice by facsimile to
the Corporation, with a copy to such representative); provided,
however, that the Corporation shall not be obligated to issue
certificates evidencing shares of Common Stock issuable upon such
conversion unless certificates evidencing such shares of Series B
Convertible Preferred Stock are delivered to the Corporation or its
designated representative as provided above, or the holder notifies
the Corporation that such certificates have been lost, stolen or
destroyed and executes an agreement satisfactory to the Corporation
to indemnify the Corporation from any loss incurred by it in
connection with such certificates.
(ii) The Corporation shall use its best efforts to issue
and deliver within three (3) business days after delivery to the
Corporation or its designated representative of such Series B
Convertible Preferred Stock certificates, or after such agreement
and indemnification, to such holder of Series B Convertible
Preferred Stock at the address of the holder on the stock books of
the Corporation, a certificate or certificates for the number of
shares of Common Stock to which the holder shall be entitled as
aforesaid, free of any restrictive legend. The Corporation shall
not be deemed to have used its best efforts if its failure so to
deliver such certificates is caused by (x) a lack of sufficient
authorized but unissued shares of Common Stock available to effect
conversion or (y) non-compliance with the New York Stock Exchange s
requirements as to the listing of additional shares or shareholder
approval of additional issuances of stock. The date on which
conversion occurs (the "Date of Conversion") shall be deemed to be
the date on which such notice of conversion is telecopied to the
Corporation or its designated representative, provided the original
certificates representing the shares of Series B Convertible
Preferred Stock to be converted are received by the Corporation or
its designated representative within three (3) business days
thereafter, and the person or persons entitled to receive the
shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such
shares of Common Stock on the Date of Conversion. If the original
certificates representing the shares of Series B Convertible
Preferred Stock to be converted are not so received by the
Corporation or its designated representative within such three (3)
business day period, the notice of conversion shall become null and
void.
Section 3. Corporate Events.
a. Notices of Record Date. In the event of (i) any
declaration by the Corporation of a record date of the holders of
any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other
distribution or (ii) any capital reorganization of the Corporation,
any reclassification or recapitalization of the capital stock of
the Corporation, any merger or consolidation of the Corporation and
any other entity or person, or any voluntary or involuntary
dissolution, liquidation or winding up of the Corporation, the
Corporation shall mail to each holder of Series B Convertible
Preferred Stock at least twenty (20) days prior to the record date
specified herein, a notice specifying (A) the date on which any
such record date is to be declared for the purpose of such dividend
or distribution and a description of such dividend or distribution,
(B) the date on which any such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective, and (C) the time, if
any, that is to be fixed, as to when the holders of record of
Common Stock (or other securities) become eligible to receive
securities or other property deliverable upon such reorganization,
reclassification, transfer, consolidation, merger, dissolution or
winding up.
b. Corporate Changes. The Conversion Price shall be
appropriately adjusted to reflect, as deemed equitable and
appropriate by the corporation, any stock dividend, stock split or
share combination of the Common Stock. In the event of a merger,
reorganization, recapitalization or similar event of or with
respect to the Corporation (a "Corporate Change") (other than a
Corporate Change in which all or substantially all of the
consideration received by the holders of the Corporation s equity
securities upon such Corporate Change consists of cash or assets
other than securities issued by the acquiring entity or any
affiliate thereof), the Series B Convertible Preferred Stock shall
be assumed by the acquiring entity and thereafter the Series B
Convertible Preferred Stock shall be convertible into such class
and type of securities as the holder would have received had the
holder converted the Series B Convertible Preferred Stock
immediately prior to such Corporate Change, as appropriately
adjusted to equitably reflect the Conversion Price and any stock
dividend, stock split or share combination of the Common Stock
after such corporate event, and in any such case appropriate
provisions shall be made with respect to the rights and interests
of the holders of the Series B Convertible Preferred Stock to the
end that the provisions hereof (including, without limitation,
provisions for the adjustment of the Conversion Price and of the
number of shares issuable upon conversion of the Series B
Convertible Preferred Stock) shall thereafter be applicable, as
nearly as may be practicable in relation to any securities
thereafter deliverable upon the exercise hereof
Section 4. Spin Offs, Liquidating Distributions. In the
event that the Corporation shall make any distribution of its
assets upon or with respect to its Common Stock, as a liquidating
or partial liquidating dividend, or other than as a dividend
payable out of earnings or any surplus legally available for
dividends under the laws of the state of incorporation of the
Corporation, each holder of any Series B Convertible Preferred
Stock then outstanding shall receive the amount of such assets
which would be distributed to such holder if he had exercised his
right to convert immediately prior to the record date for such
distribution or, in the absence of a record date, immediately prior
to the date of such distribution.
Section 5. Reservation of Stock Issuable upon Conversion.
The Corporation shall at all times reserve and keep available out
of its authorized but unissued shares of Common Stock solely for
the purpose of effecting the conversion of the shares of Series B
Convertible Preferred Stock such number of its shares of Common
Stock as shall from time to time be sufficient to effect the
conversion of all then outstanding shares of Series B Convertible
Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to affect
the conversion of all then outstanding shares of the Series B
Convertible Preferred Stock, the Corporation will take such
corporate action as may be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose.
Section 6. Liquidation Preference.
a. In the event of any liquidation, dissolution or winding up
of the Corporation (other than a partial liquidation described in
Section 3(b)), either voluntary or involuntary, the holders of
shares of Series B Convertible Preferred Stock shall be entitled to
receive, immediately after distributions of senior securities
required by the Corporation s Certificate of Incorporation, and
prior and in preference to any distribution to junior securities
but in parity with any distribution to parity securities, an amount
per share equal to the sum of (i) $10.00 and (ii) an amount equal
to $0.40 per annum for the period from October 2, 1996 to the date
of such liquidation, dissolution or winding up. If upon the
occurrence of such event the assets and funds thus distributed
among the holders of the Series B Convertible Preferred Stock and
parity securities shall be insufficient to permit the payment to
such holders of the full preferential amounts due to the holders of
the Series B Convertible Preferred Stock and the parity securities,
respectively, then the entire assets and funds of the Corporation
legally available for distribution shall be distributed among the
holders of the Series B Convertible Preferred Stock and the parity
securities, pro rata, based on the respective liquidation amounts
to which such series of stock is entitled by the Corporation s
Certificate of Incorporation.
b. Upon the completion of the distribution required by
subsection 6(a), if assets remain in this Corporation, they shall
be distributed to holders of parity securities (unless holders of
parity securities have received distributions pursuant to
subsection 6(a) above) and junior securities in accordance with the
Corporation's Certificate of Incorporation.
c. A consolidation or merger of the Corporation with or into
any other corporation or corporations, or a sale, conveyance or
distribution of all or substantially all of the assets of the
Corporation or the effectuation by the Corporation of a transaction
or series of related transactions in which more than 50% of the
voting power of the Corporation is disposed of, shall not be deemed
to be a liquidation, dissolution or winding up within the meaning
of this Section 6, but shall instead be treated pursuant to Section
3 hereof.
Section 7. Voting Rights.
a. The holders of Series B Convertible Preferred Stock will
have the same voting rights as holders of the Common Stock, except
as set forth below or as otherwise from time to time required by
law.
b. The holders of Series B Convertible Preferred Stock shall
be entitled to vote with the holders of Common Stock, voting
together with such holders as one class, on all matters for which
the holders of Common Stock are entitled to vote, with each share
of Series B Convertible Preferred Stock entitled to a number of
votes equal to the number of shares of Common Stock into which it
is then convertible using the record date for the taking of such
vote of stockholders as the date as of which the Conversion Price
is calculated.
c. The affirmative vote or consent of the holders of at least
a majority of the outstanding shares of Series B Convertible
Preferred Stock, voting separately as a class, will be required for
an amendment, alteration or repeal of the Corporation s Certificate
of Incorporation if, and only if, the amendment, alteration or
repeal adversely affects the powers, preferences or special rights
of the Series B Convertible Preferred Stock.
d. To the extent that under Delaware law the vote of the
holders of the Series B Convertible Preferred Stock, voting
separately as a class, is required to authorize a given action of
the Corporation, the affirmative vote or consent of the holders of
at least a majority of the outstanding shares of the Series B
Convertible Preferred Stock shall constitute the approval of such
action by the class. Holders of the Series B Convertible Preferred
Stock shall be entitled to notice of all shareholders meetings or
written consents with respect to which they would be entitled to
vote, which notice would be provided pursuant to the Corporation s
by-laws and applicable statutes.
Section 8. Protective Provisions. So long as shares of
Series B Convertible Preferred Stock are outstanding, the
Corporation shall not take any action that would impair the rights
of the holders of the Series B Convertible Preferred Stock set
forth herein and shall not without first obtaining the approval (by
vote or written consent, as provided by law) of all of the holders
of the then outstanding shares of Series B Convertible Preferred
Stock;
a. alter or change the rights, preferences or privileges of
the shares of the Series B Convertible Preferred Stock or any other
securities so as to affect adversely the Series B Convertible
Preferred Stock;
b. create any new class of stock having a preference over, or
being on a parity with, the Series B Convertible Preferred Stock
with respect to distributions pursuant to Section 6 above; or
c. do any act or thing which would result in taxation of the
holders of shares of the Series B Convertible Preferred Stock under
Section 305 of the Internal Revenue Code of 1986, as amended (or
any comparable provision of the Internal Revenue Code as
hereinafter from time to time amended).
Section 9. Status of Converted or Reacquired Stock. In case
any shares of Series B Convertible Preferred Stock shall be
converted Pursuant to Section 2 hereof the shares so converted
shall cease to be a part of the authorized capital stock of the
Corporation
Section 9. Dividend Provisions. The holders of shares of the
Series B Convertible Preferred Stock are not entitled to receive
any dividends.
Section 10. Notices. Any notice required to be given to
holders of shares of Series B Convertible Preferred Stock shall be
deemed given upon deposit in the United States mail, postage
prepaid, addressed to such bolder of record at his address
appearing on the books of the Corporation, or upon personal
delivery at the aforementioned address.
IN WITNESS WHEREOF, this Certificate of Designations is
executed on behalf of the Corporation by its Chief Financial
Officer this 30th day of June, 1998.
/s/ Robert D. Woltil
By: _______________________
Name: Robert D. Woltil
Title: Chief Financial Officer
<PAGE>
CERTIFICATE OF CORRECTION
OF
SUN HEALTHCARE GROUP, INC.
CERTIFICATE OF DESIGNATIONS
OF SERIES B CONVERTIBLE PREFERRED STOCK
It is hereby certified that:
1. The name of the corporation (the "Corporation") is Sun
Healthcare Group, Inc.
2. The Certificate of Designations of Series B Convertible
Preferred Stock of the Corporation which was filed with the
Secretary of State of Delaware on June 30, 1998, is an inaccurate
record of the corporate action therein referred to and is hereby
corrected pursuant to Section 103(f) of the Delaware General Corporation
Law.
3. The inaccuracy to be corrected in said instrument is as
follows:
Section 2. Conversion Rights.
a. Right to Convert. Each share of Series B Convertible
Preferred Stock may be converted at the option of the holder
thereof at any time and from time to time, and without the
payment of any additional consideration thereof, into the
number of fully paid, nonassessable shares of Common Stock,
par value $.01 per share, of the Corporation (the "Common
Stock") equal to (x) $10 divided by the lesser of (i)
$7.638125 or (ii) 85% of the average closing bid price of the
Common Stock, par value $.0001 per share, of Retirement Care
Associates, Inc. ( RCA ) for the five trading days prior to
June 30, 1998, plus (y) additional shares equal to $10.00 per
share of Series F Convertible Preferred Stock of RCA
multiplied by 8% per annum from September 25, 1996 divided by
the conversion price set forth in (x) (the "Conversion
Price").
4. The portion of the instrument in corrected form is as
follows:
Section 2. Conversion Rights.
a. Right to Convert. Each share of Series B Convertible
Preferred Stock may be converted at the option of the holder
thereof at any time and from time to time, and without the
payment of any additional consideration thereof, into fully
paid, nonassessable shares of Common Stock, par value $.01 per
share, of the Corporation (the "Common Stock") (the "Conversion
Price"), which represents the number of shares of Common Stock
as shall be determined by (i) dividing (A) $10.00 by (B) the
lesser of (a) $7.638125 or (b) 85% of the average closing bid
price of the Common Stock, par value $.0001 per share, of
Retirement Care Associates, Inc. ( RCA ) as reported by the
New York Stock Exchange for the five consecutive trading days
immediately prior to June 30, 1998, (ii) adding (x) $10.00 per
share multiplied by 8% per annum from September 25, 1996
through June 30, 1998 (y) divided by the number determined
pursuant to (i)(B) above, and (iii) multiplying such number by
0.505.
The undersigned further declares, under penalty of perjury,
that this instrument is the act and deed of the Corporation and
that the facts stated herein are true.
IN WITNESS WHEREOF, this Certificate of Correction is executed
on behalf of the Corporation on this 10th day of July, 1998.
/s/ Robert D. Woltil
By: _______________________
Name: Robert D. Woltil
Title: Chief Financial Officer
