<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 28, 1996
REGISTRATION NO. 333-2582
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SUNRISE ASSISTED LIVING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 8361 54-1746596
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
9401 LEE HIGHWAY, SUITE 300
FAIRFAX, VIRGINIA 22031
(703) 273-7500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
PAUL J. KLAASSEN
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER
SUNRISE ASSISTED LIVING, INC.
9401 LEE HIGHWAY, SUITE 300
FAIRFAX, VIRGINIA 22031
(703) 273-7500
(NAME AND ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
ROBERT J. WALDMAN, ESQ. J. VAUGHAN CURTIS, ESQ.
GEORGE P. BARSNESS, ESQ. NILS H. OKESON, ESQ.
HOGAN & HARTSON L.L.P. ALSTON & BIRD
555 THIRTEENTH STREET, N.W. 1201 WEST PEACHTREE STREET
WASHINGTON, D.C. 20004 ATLANTA, GA 30309-3424
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------
If any of the securities being registered on this Form are to offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement. /
/
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
SUNRISE ASSISTED LIVING, INC.
CROSS-REFERENCE SHEET PURSUANT TO REGULATION S-K,
ITEM 501(b), SHOWING THE LOCATION IN THE PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS OF FORM S-1
<TABLE>
<CAPTION>
FORM S-1 LOCATION OR
ITEM NO. CAPTION CAPTION IN PROSPECTUS
-------- --------------------------------------------- -----------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus..... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus................................. Inside Front and Outside Back Cover
Pages; Additional Information
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............... Prospectus Summary; Risk Factors;
Business
4. Use of Proceeds.............................. Use of Proceeds
5. Determination of Offering Price.............. Underwriting
6. Dilution..................................... Dilution
7. Selling Security Holders..................... Outside Front Cover Page; Principal
and Selling Stockholders
8. Plan of Distribution......................... Outside Front Cover Page;
Underwriting
9. Description of Securities to be Registered... Description of Capital Stock
10. Interests of Named Experts and Counsel....... Legal Matters; Experts
11. Information with Respect to the Registrant... Outside Front Cover; Prospectus
Summary; The Company and its
Predecessors; Risk Factors;
Business; Use of Proceeds;
Dividend Policy; Capitalization;
Dilution; Selected Financial
Data; Management's Discussion and
Analysis of Financial Condition
and Results of Operations;
Business; Management; Certain
Transactions; Principal and
Selling Stockholders; Description
of Capital Stock; Shares Eligible
for Future Sale; Consolidated and
Combined Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ Not applicable
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY
SUCH STATE.
PROSPECTUS SUBJECT TO COMPLETION, DATED MAY 28, 1996
, 1996
5,000,000 SHARES
[SUNRISE LOGO]
COMMON STOCK
All of the 5,000,000 shares of common stock, $0.01 par value per share
(the "Common Stock"), offered hereby are being sold by Sunrise Assisted Living,
Inc. ("Sunrise" or the "Company"). Up to 750,000 additional shares may be sold
by certain stockholders of the Company (the "Selling Stockholders") if the
Underwriters exercise their over-allotment option. See "Principal and Selling
Stockholders" and "Underwriting." The Company will not receive any of the
proceeds from the sale of shares by the Selling Stockholders.
Prior to this offering (the "Offering"), there has been no public market
for the Common Stock. It is currently estimated that the initial public offering
price will be between $17.00 and $19.00 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price.
The Common Stock has been approved for quotation on the Nasdaq National
Market under the symbol "SNRZ."
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE COMMON STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
Per Share................................ $ $ $
Total(3)................................. $ $ $
</TABLE>
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(1) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933.
(2) Before deducting expenses payable by the Company estimated at $1,500,000.
(3) The Selling Stockholders have granted to the Underwriters an option,
exercisable within 30 days hereof, to purchase up to an aggregate of 750,000
additional shares of Common Stock at the price to the public less
underwriting discounts and commissions for the purpose of covering
over-allotments, if any. If the Underwriters exercise such option in full,
the total Price to the Public, Underwriting Discounts and Commissions, and
Proceeds to the Selling Stockholders will be $ , $ , and
$ , respectively. See "Underwriting."
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain prior conditions including the right of the Underwriters to
reject orders in whole or in part. It is expected that delivery of such shares
will be made in New York, New York, on or about , 1996.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
ALEX. BROWN & SONS
INCORPORATED
NATWEST SECURITIES LIMITED
<PAGE> 4
Sunrise Assisted Living Logo
SUNRISE MISSION STATEMENT
To serve with kindness, love and professionalism, while
demonstrating our commitment to the following principles:
<TABLE>
<S> <C> <C>
[Resident [Resident
Photo] Photo]
Nurturing the Spirit Personalizing Services
[Resident
Photo] [Resident
Enabling Freedom of Photo]
Choice [Facility Photo] Protecting Privacy
[Resident
[Resident Photo]
Photo] Encouraging
Fostering Individuality Independence
[Resident
[Resident Photo]
Photo] Involving Family and
Preserving Dignity Sunrise of Bluemont Park, VA (owned) Friends
</TABLE>
For United Kingdom Purchasers: The shares of Common Stock offered hereby may
not be offered or sold in the United Kingdom other than to persons whose
ordinary activities involve them in acquiring, holding, managing or disposing of
investments, whether as principal or agent (except in circumstances that do not
constitute an offer to the public within the meaning of the Public Offers of
Securities Regulations 1995 or the Financial Services Act 1986) and this
Prospectus may only be issued or passed on to any person in the United Kingdom
if that person is of a kind described in Article 11(3) of the Financial Services
Act 1986 (Investment Advertisements) (Exemptions) Order 1995.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE> 5
[LEFT FACING PAGE OF GATEFOLD]
[SUNRISE ASSISTED LIVING LOGO]
[PHOTO OF REGISTERED NURSE [PHOTO OF SUNRISE CARE MANAGER
ASSISTING RESIDENT WITH TAKING HELPING RESIDENT WITH BATHING]
MEDICATION]
[PHOTO OF SUNRISE CARE MANAGER [PHOTO OF RESIDENTS ENJOYING
ASSISTING RESIDENT WITH EATING] AFTERNOON COFFEE AT SUNRISE OF
ANNAPOLIS]
[PHOTO OF EXTERIOR OF [PHOTO OF SITTING ROOM [PHOTO OF EXTERIOR OF
SUNRISE OF ANNAPOLIS] AT SUNRISE OF FALLS CHURCH] SUNRISE OF FALLS CHURCH]
<PAGE> 6
[RIGHT FACING PAGE OF GATEFOLD]
[SUNRISE ASSISTED LIVING LOGO]
TOP, LEFT TO RIGHT: Sunrise Registered
Nurse assists resident with taking
medication; Sunrise Care Managers help
residents with bathing and dressing
CENTER, LEFT TO RIGHT: Sunrise Care
Manager assists resident with eating; [PHOTO OF SUNRISE CARE MANAGER
Residents enjoy afternoon coffee at HELPING RESIDENT WITH DRESSING]
Sunrise of Annapolis, Maryland; Residents
in lobby at Sunrise of Annapolis; Sunrise
Registered Nurse takes a resident's blood
pressure.
BOTTOM, LEFT TO RIGHT: Signature Sunrise
Assisted Living facilities in Maryland and
Virginia (Sunrise of Annapolis, MD (joint
venture); sitting room, exterior and ice
cream parlor at Sunrise of Falls Church, VA
(owned); and Sunrise of Arlington, VA (owned)
[PHOTO OF RESIDENTS IN LOBBY AT [PHOTO OF REGISTERED NURSE TAKING
SUNRISE OF ANNAPOLIS] A RESIDENT'S BLOOD PRESSURE]
[PHOTO OF ICE CREAM PARLOR AT [PHOTO OF EXTERIOR OF SUNRISE
SUNRISE OF FALLS CHURCH] OF ARLINGTON]
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated and combined financial statements, including the
notes thereto, appearing elsewhere in this Prospectus. Except as otherwise
specified, all information in this Prospectus reflects (i) conversion of
2,444,444 shares of Series A Convertible Preferred Stock of the Company (the
"Series A Preferred Stock") into an equal number of shares of Common Stock upon
completion of the Offering and (ii) redemption of 1,000,000 shares of Series B
Exchangeable Preferred Stock of the Company (the "Series B Preferred Stock") at
a redemption price of $10.00 per share (plus any accrued but unpaid dividends)
using a portion of the net proceeds of the Offering. Unless the context suggests
otherwise, references in this Prospectus to the "Company" or "Sunrise" mean
Sunrise Assisted Living, Inc. and its subsidiaries and predecessor entities.
THE COMPANY
Sunrise Assisted Living, Inc. ("Sunrise" or the "Company") is a leading
provider of assisted living services to the elderly. The Company currently
operates 30 assisted living facilities in nine states with a capacity of
approximately 2,500 residents, including 16 facilities wholly owned by the
Company, seven facilities in which it has ownership interests and seven
facilities managed for third parties. The Company had revenues of $37.3 million
in 1995 and $9.7 million for the three months ended March 31, 1996, and incurred
net losses of $10.1 million and $1.7 million, respectively, for these periods.
Approximately 98% of these revenues were derived from private pay sources. The
Company's three-year growth objective is to develop and own at least 40 new
Sunrise assisted living facilities with a capacity of approximately 3,600
residents. To date, the Company has obtained zoning approval for 17 new
facilities with a total resident capacity of 1,560, including five facilities
currently under construction. The Company has also entered into contracts to
purchase 13 additional sites and is negotiating purchase terms for the remaining
identified sites. Since the first Sunrise facility opened in 1981, the Company
has developed 24 facilities, 16 of which it currently owns, and has completed
all facilities for which it obtained zoning approval. In addition to its
construction and development plans, the Company plans to acquire up to 15
additional facilities over the next three years.
The Company believes that the assisted living industry is emerging as a
preferred alternative to meet the growing demand for a cost-effective setting in
which to care for the elderly who do not require the more intensive medical
attention provided by a skilled nursing facility but cannot live independently
due to physical or cognitive frailties. In general, assisted living represents a
combination of housing and 24-hour a day personal support services designed to
aid elderly residents with activities of daily living, such as bathing, eating,
personal hygiene, grooming and dressing. Certain assisted living facilities may
also provide assistance to residents with low acuity medical needs, or may offer
higher levels of personal assistance for incontinent residents or residents with
Alzheimer's disease or other forms of dementia. The assisted living industry is
highly fragmented and characterized by numerous small operators. The Company
believes that few assisted living operators provide a comprehensive range of
assisted living services which permit elderly residents to "age in place."
Annual expenditures in the assisted living industry have been estimated to be
approximately $12 billion, including facilities ranging from "board and care" to
full-service assisted living facilities such as those operated by the Company.
The Company believes that consumer preference and demographic trends will allow
assisted living to remain one of the fastest growing segments of elder care.
The Company's objective is to capitalize on its 15-year history as a pioneer
and leading provider in the assisted living industry and on the growing demand
for assisted living as the preferred setting for elderly care. The Company's
strategy is to: (i) provide high-quality personalized resident care and
services; (ii) provide a full range of assisted living services; (iii) rapidly
develop the Sunrise model in targeted markets; (iv) maintain the depth and
quality of its management team; (v) pursue acquisitions and contract management
opportunities; and (vi) achieve the benefits of regional density by clustering
facilities.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company... 5,000,000 shares
Common Stock to be outstanding after
the Offering........................ 13,516,419 shares(1)
Use of Proceeds....................... To finance the development and
acquisition of additional assisted
living facilities, to prepay a 25%
mortgage participation interest and
certain other indebtedness, to redeem
the Series B Preferred Stock held by
persons who may be considered affiliates
of the Company and for working capital
and other general corporate purposes.
See "Use of Proceeds."
Nasdaq National Market symbol......... SNRZ
</TABLE>
- ---------------
(1) Does not include (i) 1,315,266 shares of Common Stock subject to outstanding
options at March 31, 1996 at a weighted average exercise price of $7.76 per
share, (ii) 120,000 shares of Common Stock subject to options that the
Company has agreed to grant prior to completion of the Offering at an
exercise price per share equal to the initial public offering price, (iii)
up to 250,000 shares of Common Stock subject to options that the Company
expects to grant prior to completion of the Offering at an exercise price
per share equal to the initial public offering price, and (iv) outstanding
warrants for 50,000 shares of Common Stock at an exercise price per share
equal to 85% of the initial public offering price. Under the treasury stock
method of computation, outstanding options and warrants represent 755,902
common stock equivalents. See "Management -- 1996 Directors' Stock Option
Plan," "-- 1995 Stock Option Plan" and "-- Non-Plan Stock Option Grant" and
"Description of Capital Stock -- Warrants."
3
<PAGE> 8
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------------------- -----------------------
1991 1992 1993 1994 1995 1995 1996
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA(1):
Operating revenue:
Resident fees................ $10,358 $15,801 $23,994 $32,139 $ 34,752 $ 8,396 $ 9,096
Management services income... 605 1,078 1,604 1,830 2,506 498 642
------- ------- ------- ------- --------- ------- ----------
10,963 16,879 25,598 33,969 37,258 8,894 9,738
Operating expenses:
Facility operating
expenses................... 8,386 11,824 17,761 17,983 21,010 5,346 6,064
Facility development and pre-
opening expenses........... 189 231 474 263 1,172 204 184
General and administrative... 993 1,655 2,034 4,183 6,875 1,322 2,121
Depreciation and
amortization............... 618 1,355 2,799 3,160 3,009 760 811
------- ------- ------- ------- --------- ------- ----------
Income from operations......... 777 1,814 2,530 8,380 5,192 1,262 558
Interest income.............. 267 350 317 566 1,229 330 277
GECC mortgage interest
expense.................... -- -- -- (5,529) (15,296) (2,465) (2,339)
Other interest expense....... (1,115) (2,212) (3,808) (3,060) (1,260) (268) (285)
Equity in (losses) earnings on
investments in unconsolidated
partnerships................. (754) (299) (104) 33 (9) 26 29
Minority interest.............. 87 176 428 172 7 6 52
------- ------- ------- ------- --------- ------- ----------
(Loss) income before
extraordinary item........... (738) (171) (637) 562 (10,137) (1,109) (1,708)
Extraordinary item............. -- -- -- 850 -- -- --
------- ------- ------- ------- --------- ------- ----------
Net (loss) income.............. $ (738) $ (171) $ (637) $ 1,412 $ (10,137) $(1,109) $ (1,708)
======= ======= ======= ======= ========= ======= ==========
PRO FORMA DATA(2):
Net loss per common share...... $ (1.15) $ (0.21)
Weighted average common shares
and equivalents
outstanding.................. 8,826,127 9,022,321
OPERATING AND OTHER DATA:
Facilities (at end of period):
Owned (3).................... 9 14 16 19 20 19 22
Managed...................... 2 5 7 9 8 8 8
------- ------- ------- ------- --------- ------- ----------
Total...................... 11 19 23 28 28 27 30
======= ======= ======= ======= ========= ======= ==========
Resident capacity (at end of
period):
Owned (3).................... 575 1,067 1,289 1,473 1,557 1,469 1,770
Managed...................... 143 549 652 772 712 712 712
------- ------- ------- ------- --------- ------- ----------
Total...................... 718 1,616 1,941 2,245 2,269 2,181 2,482
======= ======= ======= ======= ========= ======= ==========
Occupancy rate (4)............. 94.0% 94.8% 91.7% 91.8% 91.5%
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 1996
------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED(5)
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................... $ 6,046 $ 6,046 $ 60,646
Working capital..................................................... 2,459 2,459 57,059
Total assets........................................................ 139,793 139,793 195,211
Total debt.......................................................... 130,129 130,129 113,529
Series A convertible preferred stock................................ 24,464 -- --
Series B exchangeable preferred stock............................... 10,000 10,000 --
Total common stockholders' (deficit) equity......................... (34,420) (9,956) 72,189
</TABLE>
- ---------------
(1) The historical financial data for years prior to 1995 represent combined
historical financial data for the Company's predecessor entities. See Note 1
of Notes to Consolidated and Combined Financial Statements.
(2) Gives effect to conversion of the Series A Preferred Stock into 2,444,444
shares of Common Stock upon completion of the Offering.
(3) Includes all facilities wholly owned by the Company or in which the Company
owns interests. Prior to 1994, several of the owned facilities were leased
from predecessor entities.
(4) Based on monthly occupancy for owned facilities operated for at least 12
months, excluding facilities with temporary vacancies due to renovations or
resident relocation. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business--Government Regulation."
(5) Gives effect to the receipt and application of an estimated $82.2 million of
net proceeds of the Offering and the issuance of 52,500 shares of Common
Stock in exchange for additional partnership interests in one facility upon
completion of the Offering. See "Certain Transactions." Also includes an
anticipated charge to earnings of approximately $1.0 million in the quarter
in which the Offering is completed. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Anticipated
Charge to Earnings."
4
<PAGE> 9
RISK FACTORS
Prospective investors should carefully consider the factors set forth
below, as well as the other information contained in this Prospectus, in
evaluating an investment in the Common Stock offered hereby.
RECENT NET LOSSES AND ANTICIPATED NET LOSS; STOCKHOLDERS' DEFICIT
The Company incurred a net loss of $10.1 million in 1995, compared to net
income (after a $0.9 million extraordinary gain) of $1.4 million in 1994 and a
net loss of $0.6 million in 1993. The Company incurred a net loss of $1.7
million for the three months ended March 31, 1996, compared to a net loss of
$1.1 million for the three months ended March 31, 1995. As a result of expenses
incurred to support its growth strategy, the Company anticipates that it will
incur a net loss in 1996 and may continue to do so thereafter if the Company
does not achieve its development objectives, a significant number of newly
developed assisted living facilities do not achieve break-even operating results
within the time expected or development, construction or operating expenses
exceed expectations. At March 31, 1996, the Company had a stockholders' deficit
of $34.4 million. After giving effect to the receipt and application of the net
proceeds of the Offering (estimated to be $82.2 million assuming an initial
public offering price of $18.00 per share and after deducting estimated
underwriting discounts and commissions and offering expenses payable by the
Company), pro forma stockholders' equity would have been $72.2 million. See
"Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
DEVELOPMENT AND CONSTRUCTION RISKS
During the next three years, the Company plans to develop at least 40 new
Sunrise assisted living facilities with a capacity of approximately 3,600
residents. The Company's ability to achieve its development plans will depend
upon a variety of factors, many of which are beyond the Company's control. There
can be no assurance that the Company will not suffer delays in its development
program, which could slow the Company's growth. The successful development of
additional assisted living facilities will involve a number of risks, including
the possibility that the Company may be unable to locate suitable sites at
acceptable prices or may be unable to obtain, or may experience delays in
obtaining, necessary zoning, land use, building, occupancy, licensing and other
required governmental permits and authorizations. The Company may also incur
construction costs that exceed original estimates, may not complete construction
projects on schedule and may experience competition in the search for suitable
development sites. The Company relies on third-party general contractors to
construct its new assisted living facilities. There can be no assurance that the
Company will not experience difficulties in working with general contractors and
subcontractors, which could result in increased construction costs and delays.
Further, facility development is subject to a number of contingencies over which
the Company will have little control and that may adversely affect project cost
and completion time, including shortages of, or the inability to obtain, labor
or materials, the inability of the general contractor or subcontractors to
perform under their contracts, strikes, adverse weather conditions and changes
in applicable laws or regulations or in the method of applying such laws and
regulations. Accordingly, if the Company is unable to achieve its development
plans, its business, financial condition and results of operations could be
adversely affected. See "Business -- The Sunrise Strategy" and "-- Facility
Development."
ACQUISITION RISKS; DIFFICULTIES OF INTEGRATION
In addition to developing additional assisted living facilities, over the
next three years the Company currently plans to acquire up to 15 additional
assisted living facilities or other properties that can be repositioned as
Sunrise assisted living facilities. The Company is actively pursuing acquisition
opportunities and has had discussions with a number of potential sellers
regarding potential acquisition transactions. Possible acquisition transactions
are in the early stage of review by the Company. The Company has not entered
into any agreements with respect to any material acquisitions. There can be no
assurance that the Company's acquisition of assisted living facilities will be
completed at the rate currently expected, if at all. The success of the
Company's acquisitions will be determined by numerous factors, including the
Company's ability to identify suitable acquisition candidates, competition for
such acquisitions, the purchase price, the financial performance of the
facilities after acquisition and the ability of the Company to integrate
effectively the
5
<PAGE> 10
operations of acquired facilities. Any failure by the Company to integrate or
operate acquired facilities effectively may have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business -- The Sunrise Strategy" and "-- Facility Acquisitions."
NEED FOR ADDITIONAL FINANCING
To achieve its growth objectives, the Company will need to obtain
sufficient financial resources to fund its development, construction and
acquisition activities. The estimated cost to complete and lease up the 40 new
Sunrise model facilities targeted for completion over the next three years is
between $300 million and $400 million, which substantially exceeds the net
proceeds of the Offering. Accordingly, the Company's future growth will depend
on its ability to obtain additional financing on acceptable terms. The Company
currently estimates that the net proceeds of the Offering, together with
existing financing commitments and financing expected to be available, will be
sufficient to fund its development and acquisition programs for at least the
next 12 months. The Company will from time to time seek additional funding
through public or private financing sources, including equity or debt financing.
If additional funds are raised by issuing equity securities, the Company's
stockholders may experience dilution. There can be no assurance that adequate
funding will be available as needed or on terms acceptable to the Company. A
lack of funds may require the Company to delay or eliminate all or some of its
development projects and acquisition plans. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
ADVERSE CONSEQUENCES OF INDEBTEDNESS AND OTHER OBLIGATIONS OF THE COMPANY
LEVERAGE. The Company was subject to mortgage, construction and other
indebtedness in an aggregate principal amount of approximately $128.4 million at
March 31, 1996. The Company intends to continue financing its properties through
mortgage financing and possibly operating leases or other financing vehicles,
including lines of credit. The amount of mortgage indebtedness and other debt
and debt related payments is expected to increase substantially as the Company
pursues its growth strategy. As a result, an increasing portion of the Company's
cash flow will be devoted to debt service and related payments and the Company
will continue to be subject to risks normally associated with leverage. The
consequences of such leverage include, but are not limited to, compliance with
financial covenants and other restrictions that (i) require the Company to meet
certain financial tests and maintain certain escrows of funds, (ii) require that
the Company's founders, Paul Klaassen and Teresa Klaassen (the "Founders" or
"Selling Stockholders"), maintain ownership of at least 25% of the Common Stock
and that one of them serve as Chairman of the Board and President of the
Company, (iii) limit, among other things, the ability of the Company and certain
Company subsidiaries to borrow additional funds, dispose of assets and engage in
mergers or other business combinations, and (iv) prohibit the Company from
operating competing facilities within certain distances from mortgaged
facilities. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and Note 8 of Notes to
Consolidated and Combined Financial Statements.
RISK OF RISING INTEREST RATES. At March 31, 1996, approximately $42.2
million in principal amount of the Company's indebtedness bore interest at
floating rates. In addition, indebtedness that the Company may incur in the
future may also bear interest at a floating rate. Therefore, increases in
prevailing interest rates could increase the Company's interest payment
obligations and could have an adverse effect on the Company's business,
financial condition and results of operations. For example, a one-eighth of one
percent increase in interest rates would increase the Company's annual interest
expense by approximately $53,000. Approximately $8.0 million of floating rate
indebtedness will be prepaid using a portion of the net proceeds of the
Offering.
CONSEQUENCES OF DEFAULT. There can be no assurance that the Company will
generate sufficient cash flow from operations to cover required interest,
principal and any operating lease payments. Any payment or other default could
cause the lender to foreclose upon the facilities securing such indebtedness or,
in the case of an operating lease, could terminate the lease, with a consequent
loss of income and asset value to the Company. In certain cases, indebtedness
secured by a facility is also secured by a pledge of the Company's interests in
the facility. In the event of a default with respect to any such indebtedness,
the lender could avoid
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the judicial procedures required to foreclose on real property by foreclosing on
the pledge instead, thus accelerating the lender's acquisition of the facility.
Further, because of cross-default and cross-collateralization provisions in
certain of the Company's mortgages, a default by the Company on one of its
payment obligations could adversely affect a significant number of the Company's
other properties.
BOND FINANCING. Two facilities have been financed by bonds. In order to
continue to qualify for favorable tax treatment of the interest payable on these
bonds, the facilities must comply with certain federal income tax requirements,
principally pertaining to the maximum income level of a specified portion of the
residents. Failure to satisfy these requirements constitutes an event of default
under the bonds, thereby accelerating their maturity.
COMPETITION
The long-term care industry is highly competitive and the Company believes
that the assisted living segment, in particular, will become even more
competitive in the future. The Company will be competing with numerous other
companies providing similar long-term care alternatives such as home health care
agencies, facility-based service programs, retirement communities and
convalescent centers. In general, regulatory and other barriers to competitive
entry in the assisted living industry are not substantial. In pursuing its
growth strategy, the Company expects to face competition in its efforts to
develop and acquire assisted living facilities. Some of the Company's present
and potential competitors are significantly larger and have, or may obtain,
greater financial resources than the Company. Consequently, there can be no
assurance that the Company will not encounter increased competition that could
limit its ability to attract residents or expand its business and that could
have a material adverse effect on its business, financial condition and results
of operations. Moreover, if the development of new assisted living facilities
outpaces demand for those facilities in certain markets, such markets may become
saturated. Such an oversupply of facilities could cause the Company to
experience decreased occupancy, depressed margins and lower operating results.
See "Business -- Competition."
DIFFICULTIES OF MANAGING RAPID GROWTH
The Company expects that the number of owned and operated facilities will
increase substantially as it pursues its development and acquisition programs
for new assisted living facilities. This rapid growth will place significant
demands on the Company's management resources. The Company's ability to manage
its growth effectively will require it to continue to expand its operational,
financial and management information systems and to continue to attract, train,
motivate, manage and retain key employees. If the Company is unable to manage
its growth effectively, its business, financial condition and results of
operations could be adversely affected. See "Business -- The Sunrise Strategy"
and "-- Facility Development" and "Management."
DEPENDENCE ON SENIOR MANAGEMENT AND SKILLED PERSONNEL
The Company depends on the services of Paul J. Klaassen, its Chairman of
the Board, President, Chief Executive Officer and co-founder; Teresa M.
Klaassen, its Executive Vice President and co-founder; and David W. Faeder, its
Executive Vice President and Chief Financial Officer. The loss of the services
of any such officers could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company also
depends on its ability to continue to attract and retain management personnel
who will be responsible for the day-to-day operations of its assisted living
facilities. If the Company is unable to hire qualified management personnel to
operate its assisted living facilities, the Company's business, financial
condition and results of operations could be adversely affected. See
"Management."
STAFFING AND LABOR COSTS
The Company competes with various health care services providers, including
other elderly care providers, in attracting and retaining qualified or skilled
personnel. A shortage of nurses or other trained personnel or general
inflationary pressures may require the Company to enhance its wage and benefits
package to compete effectively for personnel. In anticipation of the Company's
growth plans, the Company's general
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and administrative expenses (which consist primarily of staffing and labor
expenses, including hiring additional staff and increasing the salary and
benefits of existing staff) have increased from 7.9% of operating revenue for
1993 to 12.3% of operating revenue for 1994 and 18.5% of operating revenue for
1995. General and administrative expenses were 21.8% of operating revenue for
the three months ended March 31, 1996. There can be no assurance that the
Company's labor costs will not continue to increase as a percentage of operating
revenue. Any significant failure by the Company to attract and retain qualified
employees, to control its labor costs or to match increases in its labor
expenses with corresponding increases in revenues could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
GOVERNMENT REGULATION
The Company's assisted living facilities are subject to regulation and
licensing by state and local health and social service agencies and other
regulatory authorities, although requirements vary from state to state. In
general, these requirements address, among other things: personnel education,
training, and records; facility services, including administration of
medication, assistance with self-administration of medication, and limited
nursing services; monitoring of resident wellness; physical plant
specifications; furnishing of resident units; food and housekeeping services;
emergency evacuation plans; and resident rights and responsibilities, including
in some states the right to receive certain health care services from providers
of a resident's choice. In several states in which the Company operates or
intends to operate, assisted living facilities also require a certificate of
need before the facility can be opened. In most states, assisted living
facilities also are subject to state or local building code, fire code and food
service licensure or certification requirements. Like other health care
facilities, assisted living facilities are subject to periodic survey or
inspection by governmental authorities. From time to time in the ordinary course
of business, the Company receives deficiency reports. The Company reviews such
reports and seeks to take appropriate corrective action. Although most
inspection deficiencies are resolved through a plan of correction, the reviewing
agency typically is authorized to take action against a licensed facility where
deficiencies are noted in the inspection process. Such action may include
imposition of fines, imposition of a provisional or conditional license or
suspension or revocation of a license or other sanctions. In March 1996,
Maryland state officials imposed a $3,000 civil money fine against the Company
for survey deficiencies at the Kensington facilities managed by the Company. The
Company is appealing such fine, which is the first fine assessed against the
Company in its 15-year history. On May 23, 1996, one of the Pennsylvania nursing
home facilities managed by the Company received notice from the Pennsylvania
Department of Health of a survey report stating that the facility was not in
compliance with the requirements of participation for the Medicare and Medicaid
programs. Therefore, the Pennsylvania survey agency report stated that a civil
monetary penalty of $50 to $3,000 per day will be imposed for the period
beginning March 12, 1996, the date the facility was first alleged to be out of
compliance, until the date the alleged deficiencies are corrected. The report
also stated that the agency will recommend a ban on payment for new
Medicare/Medicaid admissions if substantial compliance is not achieved within
three months after the last day of the survey identifying the alleged
non-compliance. The facility has not received confirmation or verification from
the Health Care Financing Administration of whether such remedies will be
imposed, or what the amount of any such penalty would be. The Company has
engaged counsel and intends to vigorously contest the survey report and the
imposition of a civil monetary penalty. Any failure by the Company to comply
with applicable requirements could have a material and adverse effect on the
Company's business, financial condition and results of operations. Regulation of
the assisted living industry is evolving and the Company's operations could also
be adversely affected by, among other things, future regulatory developments
such as mandatory increases in scope and quality of care to be afforded
residents and revisions to licensing and certification standards. Increased
regulatory requirements could increase costs of compliance with such
requirements.
Virginia state and local authorities initiated actions in 1995 alleging
that the Company permitted non-ambulatory residents to reside at the Company's
Gunston and Countryside facilities in violation of state licensure requirements
and the state building code. The Company entered into consent decrees, pursuant
to which it agreed to permit only ambulatory residents to reside at the
facilities until the buildings had been upgraded to meet more stringent fire
code requirements for non-ambulatory residents. During 1995, the
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Company made capital improvements to these two facilities at an aggregate cost
of approximately $1.1 million. The Company is awaiting the issuance of new
licenses that would enable non-ambulatory residents to reside at these
facilities. During 1995, the Company also relocated non-ambulatory residents
from another Company-owned facility in Virginia whose license prohibits
non-ambulatory residents. During 1995, as a result of survey deficiencies,
Pennsylvania officials rescinded the regular licenses for the two Company-
managed skilled nursing facilities located in Pennsylvania and issued six-month
provisional licenses. The regular facility licenses have been reinstated. Also
in 1995, a local Maryland housing agency, citing a number of factors, including
a desire to seek competitive pricing bids, consideration of other uses for the
property and past survey results, advised the Company that it will put the
management contract for the Kensington facilities out for bid when the existing
management contract with the Company expires in September 1996.
Federal and state anti-remuneration laws, such as the Medicare/Medicaid
anti-kickback law, govern certain financial arrangements among health care
providers and others who may be in a position to refer or recommend patients to
such providers. These laws prohibit, among other things, certain direct and
indirect payments that are intended to induce the referral of patients to, the
arranging for services by, or the recommending of, a particular provider of
health care items or services. The Medicare/Medicaid anti-kickback law has been
broadly interpreted to apply to certain contractual relationships between health
care providers and sources of patient referral. Similar state laws vary from
state to state, are sometimes vague and seldom have been interpreted by courts
or regulatory agencies. Violation of these laws can result in loss of licensure,
civil and criminal penalties, and exclusion of health care providers or
suppliers from participation in (i.e., furnishing covered items or services to
beneficiaries of) the Medicare and Medicaid programs. Although the Company is
not a Medicare or Medicaid provider or supplier, it is subject to these laws
because (i) the state laws typically apply regardless of whether Medicare or
Medicaid payments are at issue, (ii) the Company manages two nursing homes in
Pennsylvania which are certified to participate in Medicare and Medicaid, and
(iii) as required under some state licensure laws, and for the convenience of
its residents, some of the Company's assisted living facilities maintain
contracts with certain health care providers and practitioners, including
pharmacies, visiting nurse organizations and hospices, through which the health
care providers make their health care items or services (some of which may be
covered by Medicare or Medicaid) available to facility residents. There can be
no assurance that such laws will be interpreted in a manner consistent with the
practices of the Company. See "Business -- Government Regulation."
DISCRETIONARY USE OF PROCEEDS
The Company will use approximately $8.6 million of the net proceeds of the
Offering to prepay a 25% mortgage participation interest and $8.0 million of the
net proceeds to prepay a portion of outstanding variable rate indebtedness.
Approximately $10.0 million of the net proceeds of the Offering will be used to
redeem the Series B Preferred Stock currently held by persons who may be
considered affiliates of the Company. The Company expects to use the remaining
net proceeds (estimated to be $55.6 million) to fund the development and
acquisition of additional assisted living facilities and for working capital and
general corporate purposes. The Company's management will, therefore, retain
broad discretion in allocating a significant portion of the net proceeds of the
Offering. See "Use of Proceeds."
ENVIRONMENTAL RISKS
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
held liable for the cost of removal or remediation of certain hazardous or toxic
substances, including, without limitation, asbestos-containing materials, that
could be located on, in or under such property. Such laws and regulations often
impose liability whether or not the owner or operator knew of, or was
responsible for, the presence of the hazardous or toxic substances. The costs of
any required remediation or removal of these substances could be substantial and
the liability of an owner or operator as to any property is generally not
limited under such laws and regulations and could exceed the property's value
and the aggregate assets of the owner or operator. The presence of these
substances or failure to remediate such substances properly may also adversely
affect the owner's ability to sell or rent the property, or to borrow using the
property as collateral. Under these laws and regulations, an owner, operator or
an entity
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that arranges for the disposal of hazardous or toxic substances, such as
asbestos-containing materials, at a disposal site may also be liable for the
costs of any required remediation or removal of the hazardous or toxic
substances at the disposal site. In connection with the ownership or operation
of its properties, the Company could be liable for these costs, as well as
certain other costs, including governmental fines and injuries to persons or
properties. As a result, the presence, with or without the Company's knowledge,
of hazardous or toxic substances at any property held or operated by the
Company, or acquired or operated by the Company in the future, could have an
adverse effect on the Company's business, financial condition and results of
operations. Environmental audits performed on the Company's properties have not
revealed any significant environmental liability that management believes would
have a material adverse effect on the Company's business, financial condition or
results of operations. No assurance can be given that existing environmental
audits with respect to any of the Company's properties reveal all environmental
liabilities.
LIABILITY AND INSURANCE
The Company's business entails an inherent risk of liability. In recent
years, participants in the long-term care industry, including the Company, have
become subject to an increasing number of lawsuits alleging negligence or
related legal theories, many of which involve large claims and significant legal
costs. The Company is from time to time subject to such suits as a result of the
nature of its business. The Company currently maintains insurance policies in
amounts and with such coverage and deductibles as it believes are adequate,
based on the nature and risks of its business, historical experience and
industry standards. The Company currently maintains professional liability
insurance and general liability insurance. The Company's medical professional
liability coverage is limited to $1,000,000 per occurrence and $3,000,000 in the
aggregate for all claims per annual policy period. The non-medical professional
liability insurance coverage is limited to $1,000,000 per wrongful act and
$2,000,000 in the aggregate. The general liability insurance is limited to
$1,000,000 per facility/per event, with additional specific limitations of
$100,000 per event (premises damage), $5,000 per event (medical expenses) and
$1,000 per event (patient's property damage). The Company also has an umbrella
excess liability protection policy in the total amount of $25,000,000. There can
be no assurance that claims will not arise which are in excess of the Company's
insurance coverage or are not covered by the Company's insurance coverage. A
successful claim against the Company not covered by, or in excess of, the
Company's insurance could have a material adverse effect on the Company's
financial condition and results of operations. Claims against the Company,
regardless of their merit or eventual outcome, may also have a material adverse
effect on the Company's ability to attract residents or expand its business and
would require management to devote time to matters unrelated to the operation of
the Company's business. In addition, the Company's insurance policies must be
renewed annually and there can be no assurance that the Company will be able to
continue to obtain liability insurance coverage in the future or, if available,
that such coverage will be available on acceptable terms.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 13,516,419 shares of
Common Stock outstanding. Of these shares, the 5,000,000 shares sold in the
Offering (or a maximum of 5,750,000, if the Underwriters' over-allotment option
is exercised in full) will be freely tradable without restriction or limitation
under the Securities Act of 1933, as amended (the "Securities Act"), except for
any shares purchased by "affiliates" of the Company, as such term in defined in
Rule 144 promulgated under the Securities Act. The remaining 8,516,419 shares
are "restricted securities" within the meaning of Rule 144. Subject to certain
exceptions, the Company and all holders of outstanding shares of Common Stock
and optionees holding options to purchase a total of 908,331 shares of Common
Stock have agreed with the Underwriters, subject to certain exceptions, not to
sell or otherwise dispose of any shares of Common Stock, any options to purchase
Common Stock or any securities convertible into or exchangeable for shares of
Common Stock for a period of 180 days after the date of this Prospectus without
the prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ"), except as to shares held by affiliates of DLJ, which require the prior
written consent of the representatives of the Underwriters other than DLJ. Up to
8,516,419 shares may be sold, subject to the limitations of Rule 144, beginning
in January 1997. After expiration of the lock-up period, the holders of all of
the restricted securities will be entitled to certain demand and/or incidental
registration rights with respect to such shares. If such holders, by exercising
their demand registration rights, cause a large
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number of shares to be registered and sold in the public market, such sales
could have an adverse effect on the market price for the Common Stock. Further,
the Company intends to register promptly following completion of the Offering
1,748,065 shares of Common Stock reserved for issuance pursuant to the Company's
stock option programs, under which options to purchase 1,435,266 shares will be
outstanding upon completion of the Offering, of which options for 300,000 shares
will vest and become exercisable effective upon completion of the Offering and
options for 246,316 shares will vest and become exercisable upon effectiveness
of such registration. In addition, warrants to purchase 50,000 shares of Common
Stock are outstanding. Sales of substantial amounts of shares of Common Stock in
the public market after the Offering or the perception that such sales could
occur could adversely affect the market price of the Common Stock and the
Company's ability to raise equity. See "Shares Eligible for Future Sale,"
"Management -- 1996 Directors' Stock Option Plan", "-- 1995 Stock Option Plan"
and "-- Non-Plan Stock Option Grant" and "Underwriting."
ABSENCE OF PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock
and there can be no assurance that an active trading market will develop or be
sustained after the Offering. The initial public offering price of the Common
Stock will be determined by negotiation between the Company and the
representatives of the Underwriters and may bear no relationship to the price at
which the Common Stock will trade after completion of the Offering. For factors
that will be considered in determining the initial public offering price, see
"Underwriting." After completion of the Offering, the market price of the Common
Stock could be subject to significant fluctuations in response to various
factors and events, including the liquidity of the market for the shares of
Common Stock, variations in the Company's operating results, changes in earnings
estimates by securities analysts, publicity regarding the industry or the
Company and the adoption of new statutes or regulations (or changes in the
interpretation of existing statutes or regulations) affecting the health care
industry in general or the assisted living industry in particular. In addition,
the stock market in recent years has experienced broad price and volume
fluctuations that often have been unrelated to the operating performance of
particular companies. These market fluctuations may adversely affect the market
price of the shares of Common Stock.
CONTROL BY EXISTING STOCKHOLDERS AND MANAGEMENT
The Founders will beneficially own an aggregate of approximately 44.5% of
the outstanding Common Stock after completion of the Offering (39.0%, if the
Underwriters' over-allotment option is exercised in full). Executive officers
and directors as a group (including the Founders) will beneficially own
approximately 63.9% of the outstanding Common Stock after the Offering (58.6%,
if the Underwriters' over-allotment option is exercised in full). As a result,
the Founders and the Company's other executive officers and directors will have
significant influence over all matters requiring approval by the Company's
stockholders, including business combinations and the election of directors. See
"Principal and Selling Stockholders."
ANTI-TAKEOVER PROVISIONS
The Company's Restated Certificate of Incorporation (the "Certificate") and
the Company's Amended and Restated Bylaws (the "Bylaws"), as well as Delaware
corporate law, contain certain provisions that could have the effect of making
it more difficult for a third party to acquire, or discouraging a third party
from attempting to acquire, control of the Company. These provisions could limit
the price that certain investors might be willing to pay in the future for
shares of Common Stock. Certain of these provisions allow the Company to issue,
without stockholder approval, preferred stock having rights senior to those of
the Common Stock. Other provisions impose various procedural and other
requirements, including advance notice and super-majority voting provisions,
that could make it more difficult for stockholders to effect certain corporate
actions. In addition, the Company's Board of Directors is divided into three
classes, each of which serves for a staggered three-year term, which may make it
more difficult for a third party to gain control of the Board of Directors. As a
Delaware corporation, the Company is subject to Section 203 of the Delaware
General Corporation Law which, in general, prevents an "interested stockholder"
(defined generally as a person owning 15% or more of a corporation's outstanding
voting stock) from engaging in a "business combination" (as defined) for three
years following the date such person became an interested stockholder unless
certain conditions are satisfied. Pursuant to a Board resolution adopted at the
time of formation of the Company, the
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Section 203 limits do not apply to any "business combination" between the
Company and the Founders, their respective "affiliates" or their respective
estates. The Company also has adopted a Stockholder Rights Agreement. See
"Description of Capital Stock -- Stockholder Rights Agreement."
IMMEDIATE AND SUBSTANTIAL DILUTION
The existing stockholders of the Company acquired their shares of Common
Stock at an average cost substantially below the assumed initial public offering
price set forth on the cover page of this Prospectus. Therefore, purchasers of
Common Stock in the Offering will experience immediate and substantial dilution
in net tangible book value per share of approximately $13.03, assuming an
initial public offering price of $18.00 per share. See "Dilution."
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THE COMPANY AND ITS PREDECESSORS
The Company's predecessor was founded in 1981, and Sunrise Assisted Living,
Inc. was incorporated in Delaware on December 14, 1994. In January 1995, in
order to combine various activities relating to the development, ownership and
operation of the Sunrise assisted living facilities, the Founders contributed
all of their interests in various predecessor entities to the Company in
exchange for 100% of the Common Stock of the Company (the "Contribution
Transaction"). The predecessor entities consisted of a management company, a
development company, and various entities that held 100% ownership interests in
15 facilities, 50% ownership interests in five facilities and minority ownership
interests in two facilities (collectively, the "Sunrise Entities"). The net
assets contributed by the Founders in the Contribution Transaction had a
negative book value of $17.6 million after giving effect to: (i) the historical
cost, less depreciation, of the assets contributed; (ii) the GECC Mortgage (as
defined below); (iii) cash distributions totaling $9.6 million made in 1995 by
the Sunrise Entities to the Founders, a portion of which is expected to be used
to satisfy certain tax liabilities incurred by the Founders in the Contribution
Transaction; and (iv) $1.4 million of indebtedness (representing the discounted
value of $2.1 million of interest-free indebtedness) of the Founders assumed by
the Company as part of the Contribution Transaction. Immediately prior to the
Contribution Transaction in 1994, Sunrise Entities made distributions totaling
$5.9 million to the Founders. In addition, in January 1995, the Company issued
2,444,444 shares of Series A Convertible Preferred Stock in a private placement
to certain institutional investors (the "Series A Investors") for which the
Company received net proceeds of $20.2 million. See "Certain Transactions."
Prior to June 1994, 15 assisted living facilities now owned by the Company
were held in separate limited partnerships and other entities partially owned by
other parties. In June 1994, proceeds from the GECC Mortgage were used to
refinance $71.5 million of existing mortgages and to finance the $5.5 million
cash portion of the $48.3 million aggregate purchase price for all minority
ownership interests in these 15 facilities. After the minority ownership
interests in such facilities were acquired, the facilities were transferred to a
newly formed limited partnership, Sunrise Assisted Living Limited Partnership
("SALLP"), in exchange for limited partnership interests in that entity. The
carrying value of the net operating assets of the 15 facilities was stepped-up
by $12.1 million to reflect the excess of the purchase price over the original
book basis of $36.2 million of the interests acquired. The transfer of the
Founders' interests in the 15 facilities was recorded using their historical
book value. The Founders' interests in SALLP were contributed to the Company in
the Contribution Transaction. See "Certain Transactions."
Through SALLP, the Company currently has a $95.0 million principal amount
term loan (the "GECC Mortgage") in place with General Electric Capital
Corporation ("GECC"). The GECC Mortgage is evidenced by a single mortgage note
that has two portions, a $65.0 million fixed rate portion (the "Fixed Rate
Portion") and a $30.0 million floating rate portion (the "Floating Rate
Portion"). Repayment of the GECC Mortgage is secured by mortgages on the 15
facilities owned by SALLP (the "SALLP Properties") and by assignments of all of
SALLP's interest in the leases and rents at each of such mortgaged properties.
Each mortgage is cross-collateralized and cross-defaulted allowing GECC to
declare a default under any or all of the mortgages if SALLP fails to make any
payment of principal, interest, premium or any other sum due under the GECC
Mortgage.
The Fixed Rate Portion bears interest at 8.56%, matures May 31, 2001 and
requires periodic payments of interest only. The Floating Rate Portion bears
interest at 5.75% in excess of LIBOR (London interbank offered rate), matures
May 31, 2001 and requires periodic payments of interest only though June 1997,
after which time principal and interest payments are due using a 20-year
amortization schedule. If the debt service coverage ratio falls below 1.25:1 for
six consecutive months after September 30, 1996, principal payments accelerate
to the lesser of monthly net cash flow or amortization of the GECC Mortgage over
a 20-year period. In addition, GECC is entitled to a 25% participation interest
in the appreciation in value of the SALLP Properties at scheduled maturity or
upon prepayment and a monthly participation interest of 25% of cash flow in
excess of property operating expenses for the SALLP Properties, all of which
participation interest will be prepaid upon completion of the Offering. The GECC
Mortgage documents contain various representations, affirmative and negative
covenants and events of default, including a requirement that the Founders
maintain ownership of 25% of the Common Stock outstanding from time to time and
that one of the
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Founders serve as Chairman of the Board and President of the Company. See "Risk
Factors -- Adverse Consequences of Indebtedness and Other Obligations of the
Company."
In May 1996, the Company entered into a Loan Modification Agreement
regarding the GECC Mortgage whereby, upon consummation of the Offering, the
Company will pay GECC approximately $8.6 million as payment in full of GECC's
25% participating interest in cash flow and appreciation in the value of the
SALLP Properties. In addition, the Company will prepay $8.0 million of the
Floating Rate Portion. The interest rate applicable to the remaining balance of
the Floating Rate Portion will be reduced from LIBOR plus 5.75% to LIBOR plus
3.75%. See "Use of Proceeds." Had the Company modified the GECC loan documents
effective January 1, 1995, GECC Mortgage interest expense for 1995 would have
been approximately $7.8 million as compared to $15.3 million.
The Company's executive offices are located at 9401 Lee Highway, Suite 300,
Fairfax, Virginia 22031, and its telephone number is (703) 273-7500.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 5,000,000 shares of
Common Stock offered hereby are estimated to be approximately $82.2 million,
assuming an initial public offering price of $18.00 per share and after
deducting the estimated underwriting discounts and commissions and offering
expenses payable by the Company. The Company expects to use approximately $55.6
million of the net proceeds to finance development and acquisition of additional
assisted living facilities and for working capital and general corporate
purposes. The Company will use approximately $8.6 million of the net proceeds of
the Offering to prepay the 25% GECC Mortgage participation interest and $8.0
million of the net proceeds to prepay a portion of the outstanding variable rate
indebtedness on the GECC Mortgage. The Company will use the remaining $10.0
million of net proceeds of the Offering to redeem the Series B Preferred Stock
held by the Series A Investors, some of whom may be considered affiliates of the
Company. See "Certain Transactions." Pending such uses, the Company intends to
invest the net proceeds in short-term, investment-grade, interest-bearing
securities or certificates of deposit. The Company will not receive any proceeds
from the sale of shares of Common Stock by the Selling Stockholders if the
Underwriters' exercise the over-allotment option. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Business -- The Sunrise Strategy."
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock and currently plans to retain future earnings, if any, to finance the
growth of the Company's business rather than to pay cash dividends. Payments of
any cash dividends in the future will depend on the financial condition, results
of operations and capital requirements of the Company as well as other factors
deemed to be relevant by the Board of Directors. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
14
<PAGE> 19
CAPITALIZATION
The following table sets forth at March 31, 1996 (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the Company,
giving effect to the conversion of 2,444,444 shares of Series A Preferred Stock
into an equal number of shares of Common Stock upon completion of the Offering,
and (iii) the pro forma capitalization as adjusted to reflect the receipt and
application of the estimated net proceeds from the Offering (assuming an initial
public offering price of $18.00 per share and after deducting the estimated
underwriting discounts and commissions and offering expenses payable by the
Company), the issuance of 52,500 shares of Common Stock in exchange for an
additional ownership interest in one facility upon the completion of the
Offering and an anticipated charge to earnings of approximately $1.0 million in
the quarter in which the Offering is completed. The table should be read in
conjunction with the Consolidated and Combined Financial Statements and the
related notes thereto contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT MARCH 31, 1996
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents..................................... $ 6,046 $ 6,046 $ 60,646
========= ======== ========
Long-term debt (including current portion).................... 128,413 128,413 111,813
Minority interests............................................ 578 578 451
Redeemable preferred stock:
Preferred Stock, par value $.01 per share,
10,000,000 shares authorized:
2,444,444 shares of Series A Preferred Stock
issued and outstanding................................... 24,464 -- --
1,000,000 shares of Series B Preferred Stock issued and
outstanding.............................................. 10,000 10,000 --
Common stockholders' deficit:
Common Stock, $.01 par value, 60,000,000 shares
authorized; 6,019,475 shares issued and outstanding,
actual; 8,463,919 shares issued and outstanding,
pro forma; and 13,516,419 issued and outstanding,
pro forma as adjusted(1)................................. 60 85 135
Additional paid-in capital.................................. (19,598) 4,841 87,936
Accumulated deficit......................................... (14,882) (14,882) (15,882)
--------- -------- --------
Total common stockholders' (deficit) equity.............. (34,420) (9,956) 72,189
--------- -------- --------
Total capitalization................................ $ 129,035 $ 129,035 184,453
========= ======== ========
</TABLE>
- ---------------
(1) Does not include (i) 1,315,266 shares of Common Stock subject to outstanding
options at March 31, 1996 at a weighted average exercise price of $7.76 per
share, (ii) 120,000 shares of Common Stock subject to options that the
Company has agreed to grant prior to completion of the Offering at an
exercise price per share equal to the initial public offering price, (iii)
up to 250,000 shares of Common Stock subject to options that the Company
expects to grant prior to completion of the Offering at an exercise price
per share equal to the initial public offering price, and (iv) outstanding
warrants for 50,000 shares of Common Stock at an exercise price per share
equal to 85% of the initial public offering price. Under the treasury stock
method of computation, outstanding options and warrants represent 755,902
common stock equivalents. See "Management -- 1996 Directors' Stock Option
Plan," "-- 1995 Stock Option Plan" and "-- Non-Plan Stock Option Grant" and
"Description of Capital Stock -- Warrants."
15
<PAGE> 20
DILUTION
The Company's net deficit in tangible book value at March 31, 1996 was
approximately $40.3 million, or $6.71 per share. Net deficit in tangible book
value per share at March 31, 1996 is equal to the Company's total tangible
assets less its total liabilities, divided by the total number of outstanding
shares of Common Stock at that date. Pro forma net deficit tangible book value
at that date was $15.9 million or $1.88 per share, after giving effect to the
conversion of the Series A Preferred Stock into 2,444,444 shares of Common Stock
upon completion of the Offering. After giving effect to the sale of the
5,000,000 shares of Common Stock offered by the Company hereby at an assumed
initial public offering price of $18.00 per share and the issuance of 52,500
shares of Common Stock in exchange for an additional ownership interest in one
facility, the pro forma net tangible book value of the Common Stock at March 31,
1996 would have been approximately $67.2 million, or $4.97 per share. This
represents an immediate increase in pro forma net tangible book value of $11.68
per share to existing stockholders and immediate dilution of $13.03 per share to
purchasers of Common Stock in the Offering. The following table illustrates this
dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price(1)............................ $18.00
Net deficit in tangible book value prior to the Offering....... $(6.71)
Increase attributable to conversion of Series A Preferred
Stock......................................................... 4.83
--
Pro forma net deficit in tangible book value prior to the
Offering...................................................... (1.88)
Increase attributable to new investors......................... 6.85
Pro forma net tangible book value after the Offering................ 4.97
--
Dilution to new investors in the Offering........................... $13.03
==
</TABLE>
The following table summarizes the differences between the existing
stockholders and the new investors with respect to the number of shares of
Common Stock purchased from the Company, the total consideration paid and the
average price per share paid (based upon an assumed initial public offering
price of $18.00 per share):
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing stockholders(2)................. 8,516,419 63.0% $ 5,373,407 5.6% $ 0.63
New investors............................ 5,000,000 37.0 90,000,000 94.4 18.00
---------- ------- ----------- -------
Total.......................... 13,516,419 100.0% $95,373,407 100.0% $ 7.06
========= ===== ========== =====
</TABLE>
- ---------------
(1) Before deducting underwriting discounts and commissions and offering
expenses to be paid by the Company.
(2) Includes 2,444,444 shares of Common Stock to be issued upon conversion of
the Series A Preferred Stock and 52,500 shares of Common Stock to be issued
in exchange for an additional ownership interest in one facility upon
completion of the Offering. Also includes $22.0 million of consideration
paid by the Series A Investors and the $17.6 million negative book value of
the assets contributed by the Founders in the Contribution Transaction. See
"The Company and its Predecessors."
The foregoing tables assume no exercise of: options to purchase 1,315,266
shares of Common Stock (i) at exercise prices ranging from $3.00 to $18.00 per
share (assuming an initial public offering price of $18.00 per share), with a
weighted average exercise price of $7.76 per share; (ii) options to purchase
120,000 shares of Common Stock to be outstanding upon completion of the Offering
at an exercise price per share equal to the initial public offering price; (iii)
up to 250,000 shares of Common Stock subject to options that the Company expects
to grant prior to completion of the Offering at an exercise price per share
equal to the initial public offering price; and (iv) outstanding warrants to
purchase 50,000 shares of Common Stock at an exercise price per share of 85% of
the initial public offering price. To the extent that options or warrants are
exercised, there will be further dilution to new investors. See
"Management -- 1996 Directors' Stock Option Plan," "-- 1995 Stock Option Plan"
and "-- Non-Plan Stock Option Grant" and "Description of Capital
Stock -- Warrants."
16
<PAGE> 21
SELECTED FINANCIAL DATA
The following table sets forth selected financial data and other operating
information of the Company. The selected financial data for the three-month
periods ended March 31, 1995 and 1996 and for the year ended December 31, 1995
are derived from consolidated financial statements of the Company. The selected
financial data for the four years ended December 31, 1994 are derived from the
combined financial statements of Sunrise Entities. The financial statements of
the Company for the year ended December 31, 1995 and the combined financial
statements of Sunrise Entities for the year ended December 31, 1994 have been
audited by Ernst & Young LLP, independent auditors. The financial statements of
Sunrise Entities for the year ended December 31, 1993 have been audited by
Hoffman, Morrison & Fitzgerald P.C., independent auditors. The selected
financial data for the years ended December 31, 1991 and 1992 are derived from
unaudited combined financial statements of Sunrise Entities. The selected
financial data for the three-month periods ended March 31, 1995 and 1996 were
derived from unaudited consolidated financial statements of the Company. The
unaudited financial statements include all adjustments, consisting of normal
recurring accruals, which the Company considers necessary for a fair
presentation of the financial position and the results of operations for these
periods. The data should be read in conjunction with the Consolidated and
Combined Financial Statements and related notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (1):
Operating revenue:
Resident fees.................... $10,358 $15,801 $23,994 $ 32,139 $ 34,752 $ 8,396 $ 9,096
Management services income....... 605 1,078 1,604 1,830 2,506 498 642
------- ------- ------- -------- ---------- ------- ----------
10,963 16,879 25,598 33,969 37,258 8,894 9,738
Operating expenses:
Facility operating expenses...... 8,386 11,824 17,761 17,983 21,010 5,346 6,064
Facility development and
preopening expenses............ 189 231 474 263 1,172 204 184
General and administrative....... 993 1,655 2,034 4,183 6,875 1,322 2,121
Depreciation and amortization.... 618 1,355 2,799 3,160 3,009 760 811
------- ------- ------- -------- ---------- ------- ----------
Income from operations............. 777 1,814 2,530 8,380 5,192 1,262 558
Interest income.................. 267 350 317 566 1,229 330 277
GECC mortgage interest expense... -- -- -- (5,529) (15,296) (2,465) (2,339)
Other interest expense........... (1,115) (2,212) (3,808) (3,060) (1,260) (268) (285)
Equity in (losses) earnings on
investments in unconsolidated
partnerships..................... (754) (299) (104) 33 (9) 26 29
Minority interest.................. 87 176 428 172 7 6 52
------- ------- ------- -------- ---------- ------- ----------
(Loss) income before extraordinary
item............................. (738) (171) (637) 562 (10,137) (1,109) (1,708)
Extraordinary item................. -- -- -- 850 -- -- --
------- ------- ------- -------- ---------- ------- ----------
Net (loss) income (3).............. $ (738) $ (171) $ (637) $ 1,412 $ (10,137) $(1,109) $ (1,708)
======== ======== ======== ========= ========== ======== ==========
PRO FORMA DATA (4):
Net loss per common share........ $ (1.15) $ (0.21)
Weighted average common shares
and equivalents outstanding.... 8,826,127 9,022,321
OPERATING AND OTHER DATA (5):
Facilities (at end of period):
Owned (6)........................ 9 14 16 19 20 19 22
Managed.......................... 2 5 7 9 8 8 8
------- ------- ------- -------- ---------- ------- ----------
Total.......................... 11 19 23 28 28 27 30
======== ======== ======== ========= ========== ======== ==========
Resident capacity (at end of
period):
Owned (6)........................ 575 1,067 1,289 1,473 1,557 1,469 1,770
Managed.......................... 143 549 652 772 712 712 712
------- ------- ------- -------- ---------- ------- ----------
Total.......................... 718 1,616 1,941 2,245 2,269 2,181 2,482
======== ======== ======== ========= ========== ======== ==========
Occupancy rate (7)................. 94.0% 94.8% 91.7% 91.8% 91.5%
</TABLE>
17
<PAGE> 22
<TABLE>
<CAPTION>
AT DECEMBER 31, AT MARCH 31,
-------------------------------------------------
1991 1992 1993 1994 1995 1996
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (1):
Cash and cash equivalents.......... $ 640 $ 2,499 $ 3,268 $ 8,089 $ 6,252 $ 6,046
Working capital (deficit) (8)...... (468) 741 1,288 (7,305) 2,050 2,459
Total assets....................... 18,146 50,866 61,159 109,003 123,321 139,793
Total debt......................... 13,997 45,405 55,207 110,029 122,290 130,129
Series A convertible preferred
stock............................ -- -- -- -- 23,963 24,464
Series B exchangeable preferred
stock............................ -- -- -- -- -- 10,000
Total common stockholders'
deficit.......................... (513) (1,716) (2,925) (16,391) (31,774) (34,420)
</TABLE>
- ---------------
(1) The historical financial data for years prior to 1995 represent combined
historical financial data for Sunrise Entities. See Note 1 of Notes to
Consolidated and Combined Financial Statements.
(2) Includes $0.5 million of debt discount amortization, $5.4 million of
expense related to the 25% GECC participating interest in cash flow and
appreciation in the value of the SALLP Properties and $9.4 million of
additional interest expense related to the GECC Mortgage. Upon
consummation of the Offering, the Company will pay GECC approximately
$8.6 million to prepay GECC's 25% participating interest. In addition,
the Company will prepay $8.0 million of the floating rate portion of the
GECC Mortgage and the interest rate will be reduced on the floating rate
portion from LIBOR plus 5.75% to LIBOR plus 3.75%. See "Use of Proceeds"
and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Year Ended December 31, 1995 Compared to Year
Ended December 31, 1994."
(3) Sunrise Entities comprised partnerships, limited liability companies or
corporations that elected to be treated as S Corporations under Section
1362 of the Internal Revenue Code of 1986, as amended. Therefore, no
provision or benefit for income taxes was included in their financial
statements because taxable income or loss passed through pro rata to the
owners. Pro forma tax provision is not provided for the years 1991-1994
because it is assumed that accumulated losses from 1991, 1992, and 1993
were utilized to offset any tax expense attributed to 1994 net income.
(4) Gives effect to conversion of the Series A Preferred Stock into
2,444,444 shares of Common Stock upon completion of the Offering.
(5) Operating and other data for 1994 reflect the purchase of all outside
interests in six previously leased and managed facilities and all
minority interests in seven consolidated facilities.
(6) Includes all facilities wholly owned by the Company or in which the
Company owns interests. Prior to 1994, several of the owned facilities
were leased from Sunrise Entities.
(7) Based on monthly occupancy for owned facilities operated for at least 12
months, excluding facilities with temporary vacancies due to renovations
or resident relocation. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Government
Regulation."
(8) Working capital (deficit) at December 31, 1994 included a liability for
distributions made in connection with the formation of the Company. See
"Certain Transactions."
18
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the information
contained in the Consolidated and Combined Financial Statements, including the
related notes thereto, and the other financial information appearing elsewhere
in this Prospectus.
OVERVIEW
The Company presently operates 30 assisted living facilities in nine states
with a capacity of approximately 2,500 residents, including 23 facilities owned
by the Company or in which it has ownership interests and seven facilities
managed for third parties. The Company also operates two skilled nursing
facilities owned by a third party. As a leading provider of assisted living
services, the Company provides assistance with the activities of daily living
and other personalized support services ("Basic Care") in a residential setting
for elderly residents who cannot live independently but who do not need the
level of medical care provided in a skilled nursing facility. The Company also
provides additional specialized care and services to residents with certain low
acuity medical needs ("Extended Care") and residents with Alzheimer's disease or
other forms of dementia ("Alzheimer's Care"). By offering this full range of
services, the Company is able to accommodate the changing needs of residents as
they age within a facility and develop further physical or cognitive frailties.
The Company's Founders opened the first Sunrise assisted living facility in
1981. In January 1995, the Founders contributed all of their interests in the
Sunrise Entities to the Company in exchange for 100% of the Common Stock and
simultaneously raised $32.0 million in a private placement of Preferred Stock
($22.0 million funded at closing and $10.0 million subject to a call exercised
by the Company in January 1996). See "The Company and its Predecessors."
During the next three years, the Company plans to develop at least 40 of
its model facilities in major metropolitan and suburban markets throughout the
United States. The estimated cost to complete and lease up the 40 new Sunrise
model facilities is between $300 million and $400 million. The Company
anticipates that it will use a combination of net proceeds of the Offering,
existing construction lines of credit, equity and debt financing and cash
generated from operations to fund this development activity. During the next
three years, the Company also plans to acquire up to 15 additional assisted
living facilities or other properties that can be repositioned as Sunrise
assisted living facilities. Since 1993, the total capitalized cost to develop,
construct and open a Sunrise model facility, including land acquisition and
construction costs, has ranged from approximately $5.5 million to $9.2 million.
The cost of any particular facility may vary considerably based on a variety of
site-specific factors. In order to achieve its growth plans, the Company will be
required to obtain a substantial amount of additional financing. The Company
currently estimates that the net proceeds to the Company of the Offering,
together with existing financing commitments and financing expected to be
available, will be sufficient to fund its development and acquisition programs
for at least the next 12 months. See "-- Liquidity and Capital Resources" and
"Risk Factors -- Need for Additional Financing."
The Company derives its revenues from two primary sources: (i) resident
fees for the delivery of assisted living services and (ii) management services
income for management of facilities owned by third parties. Historically, most
of the Company's operating revenue has come from resident fees, which in 1995
and for the three months ended March 31, 1996 comprised 93.3% and 93.4%,
respectively, of total operating revenues. Resident fees typically are paid
monthly by residents, their families or other responsible parties. In 1995 and
for the three months ended March 31, 1996, approximately 98% of the Company's
revenue was derived from private pay sources. Resident fees include revenue
derived from Basic Care, community fees, Extended Care, Alzheimer's Care and
other sources. Community fees are one-time fees generally payable by a resident
upon admission, and Extended Care and Alzheimer's Care fees are paid by
residents who require personal care in excess of services provided under the
Basic Care program. Management services income, which in 1995 and for the three
months ended March 31, 1996 accounted for the remaining 6.7% and 6.6%,
respectively, of revenues, consists of management fees which are generally in
the range of 4% to 6% of a managed facility's total operating revenues. Resident
fees (excluding community fees) and management fees are recognized as
19
<PAGE> 24
revenues when services are provided. Community fees (generally equal to 60 times
the daily resident fee) are recognized ratably over a three-month period.
The Company classifies its operating expenses into the following
categories: (i) facility operating expenses, which include labor, food,
marketing and other direct facility expenses; (ii) facility development and
pre-opening expenses, which include non-capitalized development expenses and
pre-opening labor and marketing expenses; (iii) general and administrative
expenses, which primarily include headquarters and regional staff expenses and
other overhead costs; and (iv) depreciation and amortization. In anticipation of
its growth plans, the Company made significant investments in its infrastructure
in 1994 and, to a greater extent, in 1995 and the three months ended March 31,
1996 through the addition of headquarters and regional staff.
ANTICIPATED CHARGE TO EARNINGS
In order to avoid a possible change in the Company's ability to continue to
manage the Annapolis and Pikesville facilities resulting from the reduction in
the Founders' ownership interest in the Company following completion of the
Offering, the Company has agreed to make a $1.0 million cash payment to the
third-party limited partner in these two facilities in exchange for the transfer
to the Company by the third party of additional 1% partnership interests in each
facility and the elimination of any requirement for the Founders to maintain a
specified ownership interest in the Company. Substantially all of such cash
payment will be reflected as a charge to general and administrative expense in
the quarter in which the Offering is completed.
RESULTS OF OPERATIONS
The following table sets forth certain data from the respective
consolidated or combined statements of operations expressed as a percentage of
operating revenue:
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED ENDED
DECEMBER 31, MARCH 31,
------------------------- ---------------
1993 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating revenue................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Facility operating expenses..................... 69.4(1) 52.9 56.4 60.1 62.3
Facility development and pre-opening expenses... 1.9 0.8 3.1 2.3 1.9
General and administrative...................... 7.9 12.3 18.5 14.9 21.8
Depreciation and amortization................... 10.9 9.3 8.1 8.5 8.3
----- ----- ----- ----- -----
Income from operations............................ 9.9 24.7 13.9 14.2 5.7
Other income (expense):
Interest income................................. 1.2 1.7 3.3 3.7 2.8
Interest expense:
GECC mortgage interest expense............... -- (16.3) (41.1) (27.7) (24.0)
Other interest expense....................... (14.9) (9.0) (3.4) (3.0) (2.9)
----- ----- ----- ----- -----
Total interest expense.......................... (14.9) (24.5) (45.1) (30.7) (26.9)
----- ----- ----- ----- -----
Equity in (losses) earnings on investments in
unconsolidated partnerships.................. (0.4) 0.1 -- 0.3 0.3
Minority interest............................... 1.7 0.5 -- 0.1 0.5
----- ----- ----- ----- -----
(Loss) income before extraordinary item........... (2.5) 1.7 (27.2) (12.5) (17.5)
Extraordinary item.............................. -- 2.5 -- -- --
----- ----- ----- ----- -----
Net (loss) income................................. (2.5)% 4.2% (27.2)% (12.5)% (17.5)%
===== ===== ===== ===== =====
</TABLE>
- ---------------
(1) Includes $2.7 million of rent expense related to six facilities leased in
1993 that were acquired in 1994. Excluding such rent expense, facility
operating expenses as a percentage of operating revenue would have been
58.9%.
20
<PAGE> 25
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1995
Operating Revenues. Operating revenue for the three months ended March 31,
1996 increased 9.5% to $9.7 million from $8.9 million for the three months ended
March 31, 1995 due primarily to the growth in resident fees. Resident fees
(including community fees and fees for Basic Care, Extended Care, Alzheimer's
Care and other services) for the three months ended March 31, 1996 increased
8.3% to $9.1 million from $8.4 million in the three months ended March 31, 1995.
This increase was due primarily to an increase in the average daily resident fee
($0.5 million), inclusion of the Raleigh and Chanate Lodge facilities ($0.3
million) and, to a lesser extent, the stabilization of the Gardner Park facility
which had been operated by the Company for more than 12 months, and was offset
partially by a decline in average resident occupancy. Resident occupancy
declined from 91.8% in the three months ended March 31, 1995 to 91.5% in the
three months ended March 31, 1996 for owned facilities operated by the Company
for at least 12 months, excluding facilities with temporary vacancies due to
renovations or resident relocations ("Same Facilities"). Resident occupancy was
88.8% in the three months ended March 31, 1996, including vacancies attributable
to renovations at two facilities in order to meet requirements for accepting
non-ambulatory residents and the relocation of non-ambulatory residents at a
third facility.
The average daily resident fee (excluding community fees) for Same
Facilities increased 6.4% to $83 in the three months ended March 31, 1996 from
$78 in the three months ended March 31, 1995 primarily due to a 5.8% increase in
the average Basic Care rate to $73 in the three months ended March 31, 1996 from
$69 in the three months ended March 31, 1995 and an increase in the number of
residents receiving Extended Care and Alzheimer's Care services.
Management services income in the three months ended March 31, 1996
increased by $0.1 million, or 29.0%, to $0.6 million due primarily to the
increase in development consulting fees received.
Operating Expenses. Operating expenses in the three months ended March 31,
1996 increased 20.3% to $9.2 million from $7.6 million in the three months ended
March 31, 1995. The increase in operating expenses in the three months ended
March 31, 1996 was attributable primarily to growth in facility operating
expenses and general and administrative expenditures related to building the
Company's infrastructure in connection with growth plans.
Facility operating expenses for the three months ended March 31, 1996
increased 13.4% to $6.1 million from $5.3 million in the three months ended
March 31, 1995. As a percentage of operating revenue, facility operating
expenses in the three months ended March 31, 1996 increased to 62.3% from 60.1%
in the three months ended March 31, 1995. Salary increases for existing staff,
increased facility based staffing required to handle the increased number of
residents receiving Extended Care or Alzheimer's Care and training of
facility-based personnel comprised $0.3 million of the increase. The opening of
the Raleigh facility and, to a lesser extent, the acquisition of the Chanate
Lodge facility comprised $0.3 million of the increase. The balance of $0.2
million is comprised of a $0.2 million decrease in loss and legal accruals
combined with an aggregate $0.4 million increase in bad debt expense,
professional fees, maintenance and repairs, real estate taxes and other general
expenses.
General and administrative expenses in the three months ended March 31,
1996 increased 60.5% to $2.1 million from $1.3 million in the three months ended
March 31, 1995. As a percentage of operating revenue, general and administrative
expenses in the three months ended March 31, 1996 increased to 21.8% from 14.9%
in the three months ended March 31, 1995. Of the $0.8 million increase in
general and administrative expenses in the three months ended March 31, 1996,
$0.5 million relates to the hiring subsequent to March 31, 1995 of 30 additional
headquarters and regional office management staff in anticipation of the
Company's growth plans. The remaining $0.3 million is attributable to marketing,
consulting, and public relations, and the combination of accounting, rent,
office supplies, postage, telephone, travel and lodging.
Depreciation and amortization in the three months ended March 31, 1996
compared to the three months ended March 31, 1995 remained stable at $0.8
million.
21
<PAGE> 26
Other income (expense). Interest income remained relatively constant in
the three months ended March 31, 1996 compared to the three months ended March
31, 1995. Interest expense decreased $0.1 million in the three months ended
March 31, 1996 compared to the three months ended March 31, 1995 as a result of
a decrease in GECC Mortgage interest.
Net (loss) income. The Company incurred a net loss of $1.7 million in the
three months ended March 31, 1996, compared to a net loss of $1.1 million in the
three months ended March 31, 1995. The increased loss was primarily attributable
to the $1.5 million increase in operating expenses, which was offset, in part,
by the $0.8 million increase in operating revenue. The Company did not recognize
any income tax expense in the three months ended March 31, 1996 because of such
net loss.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE YEAR ENDED DECEMBER 31, 1994
Operating Revenue. Operating revenue for 1995 increased 9.7% to $37.3
million from $34.0 million in 1994 due primarily to the growth in resident fees.
Resident fees (including community fees and fees for Basic Care, Extended Care,
Alzheimer's Care and other services) for 1995 increased 8.1% to $34.8 million
from $32.1 million in 1994. This increase was due primarily to $1.9 million of
additional revenue generated by an increase in the Basic Care rate and the
inclusion of a full year of resident fees of $1.4 million for the Gardner Park
facility (opened in September 1994), and was offset partially by $0.8 million
due to a decline in average resident occupancy. Resident occupancy fell from
94.8% to 91.7% in 1995 for Same Facilities. Resident occupancy was 89.6% in 1995
including vacancies attributable to renovating two facilities in order to meet
requirements for accepting non-ambulatory residents and relocating
non-ambulatory residents at a third facility. Same Facility resident occupancy
declined in 1995 largely as a result of a decline in resident occupancy at two
facilities. At these two facilities, the Company has made management changes and
instituted new marketing programs. In addition, the Company strengthened its
senior management team by hiring a new chief operating officer. See
"Management."
The average daily resident fee (excluding community fees) for Same
Facilities increased 6.7% to $80 in 1995 from $75 in 1994 primarily due to a
4.4% increase in the average Basic Care rate from $68 in 1994 to $71 in 1995 and
an increase in the number of residents receiving Extended Care and Alzheimer's
Care services.
Management services income for 1995 increased by $0.7 million, or 37.0%, to
$2.5 million from $1.8 million in 1994 due to a $0.4 million, or 26.8%, increase
in management fees related to a full year of income from four management
contracts entered into in 1994, and from ancillary services totaling $0.3
million.
Operating Expenses. Operating expenses for 1995 increased 25.3% to $32.0
million from $25.6 million in 1994. The increase in operating expenses in 1995
is attributable primarily to growth in facility operating expenses, facility
development and pre-opening expenses and general and administrative expenditures
related to building the Company's infrastructure in connection with its growth
plans.
Facility operating expenses for 1995 increased 16.8% to $21.0 million from
$18.0 million in 1994. As a percentage of operating revenue, facility operating
expenses in 1995 increased to 56.4% from 52.9% in 1994. Of the $3.0 million
increase in facility operating expenses in 1995, $1.2 million was attributable
to combination of salary increases for existing staff, increased facility-based
staffing required to handle the increased number of residents receiving Extended
Care or Alzheimer's Care and training of facility-based personnel. The balance
of the increase, $1.8 million, was due to the inclusion of a full year of
operations at the Gardner Park facility, other facility expenses such as food,
marketing, and legal, the renovation and opening of a portion of the Village
House facility providing assisted living services.
Facility development and pre-opening expenses for 1995 increased $0.9
million to $1.2 million from $0.3 million in 1994. The increase was due to an
increase in development activities. Labor costs increased $0.4 million,
unrecoverable direct costs increased $0.6 million, and pre-opening expenses
increased $0.1 million. These increases were offset by an increase in
capitalized development expenses of $0.4 million.
General and administrative expenses in 1995 increased 64.4% to $6.9 million
from $4.2 million in 1994. As a percentage of operating revenue, general and
administrative expenses in 1995 increased to 18.5% from
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<PAGE> 27
12.3% in 1994. Of the $2.7 million increase in general and administrative
expenses in 1995, approximately 70.8% was related to labor costs including a
$1.0 million increase in salary and benefits expenses relating to the hiring in
1995 of 33 additional headquarters and regional office management staff in
anticipation of the Company's growth plans, and $0.9 million related to salary
increases and benefits for existing staff. The remaining $0.8 million increase
is attributable to marketing, consulting, and public relations and other general
expenses.
The provision for bad debt was $0.2 million and $0.1 million in 1995 and
1994, respectively. Receivable balances are reviewed on a monthly basis and a
provision for bad debts is established as needed for those balances that in the
judgment of management are uncollectible. During 1994, the Company also accrued
$0.3 million to recognize anticipated losses on one of its management contracts.
Also in 1994, the Company accrued $0.1 million in anticipation of actions taken
by Virginia state and local authorities regarding licensure and state building
code violations. No loss accruals were recorded in 1995. See "Risk
Factors -- Government Regulation."
Depreciation and amortization in 1995 decreased 4.8% to $3.0 million from
$3.2 million in 1994. In 1994, certain predecessor limited partnerships wrote
off $0.2 million of deferred financing costs. These costs were expensed prior to
June 8, 1994 when the Company acquired all minority ownership interests in the
SALLP Properties utilizing a new debt facility.
Other income (expense). Interest income for 1995 increased 117.3% to $1.2
million from $0.6 million in 1994 primarily due to a $0.4 million increase
related to the purchase in 1995, for $5.0 million, of revenue bonds secured by a
Company-managed facility and a $0.2 million increase due to higher cash balances
related to the January 1995 private placement of Series A Preferred Stock.
Interest expense for 1995 increased 92.8% to $16.6 million from $8.6 million in
1994. The increase in interest expense primarily was attributable to the GECC
Mortgage. The GECC Mortgage interest expense increased by $4.2 million, or
79.4%, in 1995 reflecting the inclusion of an additional five months of interest
compared to 1994. Interest expense for 1994 and 1995 includes $0.3 million and
$0.5 million, respectively, of amortization expense, which relates to a $3.2
million loan discount recorded on the GECC Mortgage. Such discount is being
amortized over the term of the GECC Mortgage. GECC Mortgage interest expense for
1995, totaling $5.4 million, represents accrual of interest expense relating to
the 25% participation interest and is based upon an increase during 1995 in the
estimated market value of facilities securing the GECC Mortgage.
A Loan Modification Agreement with GECC was entered into in May 1996. The
terms of the agreement provide that upon consummation of Offering, the Company
will pay GECC approximately $8.6 million as payment in full of all participation
interest due and payable pursuant to the GECC Mortgage. In addition, the Company
will pay GECC $8.0 million to be applied to prepay a portion of the variable
rate indebtedness. GECC will reduce the interest rate applicable to the
outstanding portion of variable rate indebtedness from LIBOR plus 5.75% to LIBOR
plus 3.75%. Had the Company modified the GECC loan documents effective January
1, 1995, GECC Mortgage interest expense for 1995 would have been approximately
$7.8 million as compared to $15.6 million.
Interest expense related to other debt for 1995 decreased 58.8% to $1.3
million from $3.1 million in 1994, due to the repayment of $71.5 million of debt
with a portion of the proceeds from the GECC Mortgage.
Net (loss) income. The Company incurred a net loss of $10.1 million in
1995, compared to net income of $1.4 million (after a $0.9 million extraordinary
item) in 1994. The net loss in 1995 resulted primarily from the $6.1 million of
expense recorded in 1995 relating to the GECC Mortgage loan discount and
participation interest and the $6.5 million increase in operating expenses,
which were offset, in part, by the $3.3 million increase in operating revenue.
The Company did not recognize any income tax expense in 1995 because of such net
loss. At December 31, 1995, the Company had net operating loss carryforwards for
income tax purposes of approximately $3.9 million which expire in 2010. See Note
9 of Notes to Consolidated and Combined Financial Statements.
23
<PAGE> 28
YEAR ENDED DECEMBER 31, 1994 COMPARED TO THE YEAR ENDED DECEMBER 31, 1993
Operating Revenue. Operating revenue for 1994 increased 32.7% to $34.0
million from $25.6 million in 1993 due primarily to the growth in resident fees.
Resident fees for 1994 increased 33.9% to $32.1 million from $24.0 million in
1993. This increase was primarily due to the inclusion of a full year of
resident fees from the Falls Church and Village House facilities, and the
acquisition of the majority ownership interest in the Mercer Island facility
which contributed $2.5 million and $1.9 million, respectively, to this increase.
The remaining increase was a result of higher average resident occupancy. The
average daily resident fee (excluding community fees) and the average Basic Care
rate for Same Facilities of $75 and $68, respectively, was unchanged from 1993.
Management services income for 1994 increased 14.0% to $1.8 million from
$1.6 million in 1993 due to an increase in the number of facilities managed by
the Company to 11 in 1994 from seven in 1993.
Operating Expenses. Operating expenses for 1994 increased 10.9% to $25.6
million from $23.1 million in 1993. The increase in operating expenses in 1994
was primarily attributable to growth in general and administrative expenses and
depreciation and amortization. Facility-based expenses were essentially flat in
1994 compared to 1993.
Facility operating expenses for 1994 were $18.0 million compared to $17.8
million in 1993. Facility operating expenses for 1993 included $2.7 million of
rental expense related to six facilities leased by the Company in 1993 that were
acquired in 1994. Excluding such rent expense, facility operating expenses would
have been $15.0 million in 1993, or 58.9% of operating revenue for that year
compared to 52.9% for 1994. Before such rent expense in 1993, the facility
operating expenses increased 19.4% to $18.0 million from $15.0 million in 1993.
Of such increase, approximately $1.1 million was attributable to the inclusion
of a full year of operations of the Falls Church and Village House facilities,
$1.1 million was attributable to the acquisition of the Mercer Island facility
that was managed by the Company in 1993 and $0.3 million was attributable to the
opening of the Gardner Park facility in 1994. The remaining balance consists of
a $0.9 million increase in labor costs offset, in part, by a $0.4 million
decline in other operating expenses such as professional fees, advertising,
taxes and utilities.
Facility development and pre-opening expenses for 1994 decreased to $0.3
million from $0.5 million. This decrease was attributable to a $0.5 million
increase in development labor costs offset by an increase of $0.7 million in
capitalized costs. There were no capitalized costs in 1993 because there was
limited internal development activity.
General and administrative expenses in 1994 increased 105.6% to $4.2
million from $2.0 million in 1993 primarily due to an increase in salary and
benefits expenses. As a percentage of operating revenue, general and
administrative expenses in 1994 increased to 12.3% from 7.9% in 1993. Of the
increase in general and administrative expenses in 1994, approximately 40.1% was
related to salary and benefits expenses relating to salary increases and hiring
of additional headquarters and regional office management staff. The additional
increase was related to $0.4 million of bad debt and legal expense accruals, a
$0.1 million increase in training and consulting fees, and increases in other
general and corporate expenses such as marketing, telephone and rent.
Depreciation and amortization for 1994 increased by 12.9% to $3.2 million
from $2.8 million in 1993. The majority of this increase was related to $1.0
million of depreciation expense on the six facilities leased by the Company in
1993 that were acquired in 1994. In 1994, the Sunrise Entities increased the
estimated useful life of property and equipment, which had the effect of
reducing depreciation expense by $0.4 million.
Other income (expense). Interest income for 1994 increased by $0.3 million
to $0.6 million from $0.3 million in 1993. The increase in interest income is
primarily attributable to higher cash balances from funds received as a result
of the creation of a new debt facility in June 1994. Interest expense for 1994
increased by 125.5% to $8.6 million from $3.8 million in 1993, and is primarily
attributable to seven months of interest expense on the GECC Mortgage. Interest
expense on other debt declined 19.7% to $3.1 million from $3.8 million in 1993,
primarily due to the repayment of $71.5 million of debt with a portion of the
proceeds from the GECC Mortgage.
24
<PAGE> 29
Extraordinary item. In 1994, $3.4 million of second-trust mortgages
related to two predecessor limited partnerships were pre-paid in full for $2.5
million. The prepayment at a discount was reflected as a $0.9 million
extraordinary gain.
Net (loss) income. The Company had net income (after the $0.9 million
extraordinary item) of $1.4 million in 1994 compared to a net loss of $0.6
million in 1993. The improvement in operating results for 1994 resulted
primarily from the $0.9 million gain recorded on the prepayment at a discount of
the two second-trust mortgages and an $8.4 million increase in operating
revenue, which were offset, in part, by $4.8 million of additional interest
expense. For 1994 and prior periods, Sunrise Entities consisted of partnerships,
limited liability companies or corporations that elected to be treated as S
Corporations under the Internal Revenue Code of 1986, as amended. Accordingly,
no provision or benefit for income taxes was made because taxable income or loss
passed through to the owners of those entities.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has financed its operations from long-term borrowings,
the private placement of equity securities and cash generated from operations.
In June 1994, the Company obtained the GECC Mortgage and used the proceeds to
consolidate $71.5 million of debt on 15 facilities, as well as to finance the
acquisition of all other interests in the limited partnerships and other
entities that previously held such facilities. At March 31, 1996, the Company
had $128.4 million of outstanding debt (at a weighted average interest rate of
9.0%). Of such amount, the Company had $80.0 million of fixed rate debt at a
weighted average interest rate of 8.31%, $42.2 million of variable rate debt at
a weighted average interest rate of 10.19% and an accrued participation interest
obligation of approximately $8.6 million relating to the GECC Mortgage, less a
$2.4 million loan discount on the GECC Mortgage. The GECC Mortgage includes a
requirement that the Founders continue to own at least 25% of the outstanding
shares of Common Stock and that one of the Founders serve as Chairman of the
Board and President of the Company. See Note 8 of Notes to Consolidated and
Combined Financial Statements. In January 1995, the Company issued and sold
2,444,444 shares of Series A Preferred Stock in a private placement for which
the Company received gross proceeds of $22.0 million. In January 1996, the
Company issued and sold 1,000,000 shares of Series B Preferred Stock, receiving
$10.0 million in net proceeds. The Series B Preferred Stock, which has a
cumulative 9% dividend payable quarterly when, as and if declared by the Board
of Directors, will be redeemed with a portion of the net proceeds of the
Offering. Cash provided by operations in 1995 totaled $0.9 million. At March 31,
1996, the Company had working capital of $2.5 million. In February 1996, the
Company acquired Chanate Lodge, a 120-unit assisted living facility located in
Santa Rosa, California. The acquisition price was $8.5 million, including the
assumption of $5.3 million of existing mortgage indebtedness.
Cash provided by operating activities was $0.9 million for 1995, as
compared to $2.7 million for 1994 and $3.1 million for 1993. Cash used for
operating activities was $1.9 million for the three months ended March 31, 1996.
Unrestricted cash balances were $6.3 million, $8.1 million and $3.3 million at
December 31, 1995, 1994 and 1993, respectively. At March 31, 1996, the
unrestricted cash balance was $6.0 million.
Net cash used in investing activities totaled $17.9 million, $17.0 million
and $4.2 million in 1995, 1994 and 1993, respectively. Net cash used in
investing activities was $15.2 million for the three months ended March 31,
1996. The Company's investing activities included $12.8 million, $10.6 million
and $4.3 million in 1995, 1994 and 1993, respectively, and $14.5 million for the
three months ended March 31, 1996, related to the Company's development
activities. Investing activities in 1995 included the purchase of $5.4 million
carrying value of tax exempt mortgage revenue bonds. Investing activities in
1994 included the purchase of minority interests in 15 facilities using net
proceeds of $5.5 million from the GECC Mortgage. See Note 4 of Notes to
Consolidated and Combined Financial Statements.
During 1995, the Company's financing activities provided net cash of $15.1
million compared to $19.1 million and $1.9 million provided in 1994 and 1993,
respectively. Financing activities provided net cash of $16.9 million for the
three months ended March 31, 1996, including $10.0 million of net proceeds from
the sale of the Series B Preferred Stock and $7.8 million in additional
borrowings. In 1995, $16.8 million was provided by additional borrowings
relating primarily to the construction of facilities, and $20.2 million in net
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<PAGE> 30
proceeds was provided by the issuance of Series A Preferred Stock. In addition,
$9.6 million in cash distributions were made in 1995. During 1994, the Company
consolidated its permanent financing on 15 facilities. Net cash provided by
additional borrowings amounted to $25.1 million. The Company received cash
contributions of $3.6 million and paid out dividends and distributions during
1994 totaling $10.5 million. In 1993, amortization of principal amounts
outstanding exceeded new borrowings by $0.7 million. See Note 6 of Notes to
Consolidated and Combined Financial Statements.
The Company's growth strategy contemplates the development during the next
three years of at least 40 of its model facilities with a capacity of
approximately 3,600 residents. To date, the Company has obtained zoning approval
for 17 new facilities with a resident capacity of 1,560 residents, including
five facilities under construction, and has entered into contracts to purchase
13 additional sites. During the next three years the Company also plans to
acquire up to 15 assisted living facilities or other properties that can be
repositioned as Sunrise assisted living facilities. In March 1996, the Company
obtained a $13.0 million unsecured credit facility to be used for development
and acquisitions and working capital needs. The credit facility is for a term of
five years. Advances under the facility bear interest at a rate per annum,
fluctuating daily, equal to the greater of (i) the lender's prime lending rate
and (ii) the Federal funds rate plus one-half of one percent.
In April 1996, the Company obtained a commitment from a financial
institution for an $80 million line of credit for construction and interim loans
to finance the development of up to 10 assisted living facilities by a wholly
owned subsidiary of the Company. The Company will guaranty repayment of all
amounts outstanding under this line of credit. The line of credit will be for a
term of five years and will be secured by cross-collateralized first mortgages
on the real property and improvements and first liens on all other assets of the
borrower subsidiary. With respect to each advance, payments of interest only are
required for the first two years and payments of interest and principal are
required thereafter, based on a 20-year amortization schedule. Advances under
the line of credit bear interest at a rate per annum, fluctuating daily,
depending upon the stabilization level of each developed facility. The interest
rate will range from LIBOR plus 2.9% to LIBOR plus 1.7%. Construction of all 10
facilities to be financed by the line of credit must be commenced within 18
months of the closing of the line of credit.
The Company's financing documents contain financial covenants and other
restrictions that (i) require the Company to meet certain financial tests and
maintain certain escrows of funds, (ii) require that the Founders maintain
ownership of at least 25% of the Common Stock and that one of them serve as
Chairman of the Board and President of the Company, (iii) limit, among other
things, the ability of the Company and certain of its subsidiaries to borrow
additional funds, dispose of assets and engage in mergers or other business
combinations, and (iv) prohibit the Company from operating competing facilities
within certain distances from mortgaged facilities. See "Risk Factors -- Adverse
Consequences of Indebtedness and Other Obligations of the Company."
The estimated cost to complete and lease up the 40 new Sunrise model
facilities targeted for completion over the next three years is between $300
million and $400 million, which substantially exceeds the net proceeds of the
Offering. The Company expects that the net proceeds of the Offering, together
with existing financing commitments and additional financing the Company
anticipates will be available, will be sufficient to fund its development and
acquisition programs for at least the next 12 months. Substantial additional
financing will be required to complete the Company's growth plans and to
refinance existing indebtedness if cash flows from operations do not increase as
a result of planned growth. There can be no assurance that such financing will
be available on acceptable terms. See "Risk Factors -- Need for Additional
Financing."
At March 31, 1996, the Company had a stockholders' deficit of $34.4
million, which resulted primarily from the aggregate net losses of $11.8 million
recorded in 1995 and the three months ended March 31, 1996, the $16.1 million
negative book value of the net assets contributed by the Founders in the
Contribution Transaction and $1.4 million of indebtedness (representing the
discounted value of $2.1 million of interest-free indebtedness) of the Founders
assumed by the Company in the Contribution Transaction. After giving effect to
the receipt and application of the net proceeds from the Offering (estimated to
be $82.2 million assuming an initial public offering price of $18.00 per share
and after deducting estimated underwriting
26
<PAGE> 31
discounts and commissions and offering expenses payable by the Company), pro
forma stockholders' equity would have been $72.2 million at that date. See
"Capitalization."
IMPACT OF CERTAIN ACCOUNTING STANDARDS
In March 1995, the Company purchased all of the outstanding mortgage
revenue bonds used to finance a facility managed by the Company. At March 31,
1996, these bonds had an aggregate carrying value of $5.6 million and are
classified as available for sale in accordance with Financial Accounting
Standards Board Statement No. 115, Accounting for Certain Investments in Debt
and Equity Securities. As a result of such classification, unrealized holding
gains or losses, net of the related tax effect, is recorded as a separate
component of stockholders' (deficit) equity. At March 31, 1996, the net carrying
cost of the bonds approximated market value and, accordingly, there were no
unrealized holding gains or losses, net of the related tax effect, on these
bonds at that date. See Note 5 of Notes to Consolidated and Combined Financial
Statements.
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, Accounting for Stock-Based Compensation, which provides an alternative
to APB Opinion No. 25, Accounting for Stock Issued to Employees, in accounting
for stock-based compensation issued to employees. The Statement allows for a
fair value based method of accounting for employee stock options and similar
equity instruments. However, for companies that continue to account for
stock-based compensation arrangements under Opinion No. 25, Statement No. 123
requires disclosure of the pro forma effect on net income and earnings per share
of its fair value based accounting for those arrangements. These disclosure
requirements are effective for fiscal years beginning after December 15, 1995,
or upon initial adoption of the statement, if earlier. The Company adopted
Statement No. 123 in the first quarter of 1996 and elected to continue to
account for stock-based compensation arrangements under APB Opinion No. 25.
IMPACT OF INFLATION
Resident fees from Company-owned assisted living facilities and management
services income from facilities operated by the Company for third parties are
the primary sources of revenue for the Company. These revenues are affected by
daily resident fee rates and facility occupancy rates. The rates charged for the
delivery of assisted living services are highly dependent upon local market
conditions and the competitive environment in which the facilities operate. In
addition, employee compensation expense is the principal cost element of
property operations. Employee compensation, including salary increases and the
hiring of additional staff to support the Company's growth plans, has recently
had a negative impact on operating margins and may continue to do so in the
foreseeable future.
Substantially all of the Company's resident agreements are for terms of one
year and allow, at the time of renewal, for adjustments in the daily fees
payable thereunder, and thus may enable the Company to seek increases in daily
fees due to inflation or other factors. Any such increase would be subject to
market and competitive conditions and could result in a decrease in occupancy of
the Company's facilities. The Company believes, however, that the short-term
nature of its resident agreements generally serves to reduce the risk to the
Company of the adverse effect of inflation. There can be no assurance that
resident fees will increase or that costs will not continue to increase due to
inflation or other causes.
27
<PAGE> 32
BUSINESS
OVERVIEW
Sunrise is a leading provider of assisted living services to the elderly.
The Company currently operates 30 assisted living facilities in nine states with
a capacity of approximately 2,500 residents, including 23 facilities owned by
the Company or in which it has ownership interests and seven facilities managed
for third parties. The Company had revenues of $37.3 million in 1995 and $9.7
million for the three months ended March 31, 1996, and incurred net losses of
$10.1 million and $1.7 million, respectively, for these periods. Approximately
98% of these revenues were derived from private pay sources. The Company's
three-year growth objective is to develop at least 40 new Sunrise assisted
living facilities with a capacity of approximately 3,600 residents. To date, the
Company has obtained zoning approval for 17 new facilities with a resident
capacity of 1,560, including five facilities currently under construction. The
Company has also entered into contracts to purchase 13 additional sites and is
negotiating purchase terms for the remaining identified sites. Since the first
Sunrise facility opened in 1981, the Company has developed 24 facilities, 16 of
which it currently owns, and has completed all facilities for which it obtained
zoning approval. In addition to its construction and development plans, the
Company plans to acquire up to 15 additional facilities over the next three
years.
The Company's objective is to capitalize on its 15-year history as a
pioneer and leading provider in the assisted living industry and on the growing
demand for assisted living as the preferred setting for elderly care. The
Company's strategy is to (i) provide high-quality personalized resident care and
services, (ii) provide a full range of assisted living services, (iii) rapidly
develop the Sunrise model in targeted markets, (iv) maintain the depth and
quality of its management team, (v) pursue acquisitions and contract management
opportunities, and (vi) achieve the benefits of regional density by clustering
facilities.
THE ASSISTED LIVING INDUSTRY
The Company believes that the assisted living industry is emerging as a
preferred alternative to meet the growing demand for a cost-effective setting in
which to care for the elderly who do not require the more intensive medical
attention provided by a skilled nursing facility but cannot live independently
due to physical or cognitive frailties. In general, assisted living represents a
combination of housing and 24-hour a day personal support services designed to
aid elderly residents with activities of daily living ("ADLs"), such as bathing,
eating, personal hygiene, grooming and dressing. Certain assisted living
facilities may also provide assistance to residents with low acuity medical
needs, or may offer higher levels of personal assistance for incontinent
residents or residents with Alzheimer's disease or other forms of dementia.
Annual expenditures in the assisted living industry have been estimated to be
approximately $12 billion, including facilities ranging from "board and care" to
full-service assisted living facilities such as those operated by the Company.
The Company believes that consumer preference and demographic trends will allow
assisted living to remain one of the fastest growing segments of elder care.
The assisted living industry is highly fragmented and characterized by
numerous small operators. The scope of assisted living services varies
substantially from one operator to another. Many smaller assisted living
providers do not operate in purpose-built facilities, do not have professionally
trained staff, and may provide only limited assistance with low-level care
activities. The Company believes that few assisted living operators provide a
comprehensive range of assisted living services, such as Alzheimer's care and
other services designed to permit residents to "age in place" within the
facility as they develop further physical or cognitive frailties.
The Company believes that assisted living is one of the fastest growing
segments of elder care and will continue to experience significant growth due to
the following:
CONSUMER PREFERENCE. The Company believes that assisted living is
increasingly becoming the setting preferred by prospective residents and their
families in which to care for the frail elderly. Assisted living offers
residents greater independence and allows them to age in place in a residential
setting, which the Company believes results in a higher quality of life than
that experienced in more institutional or clinical settings, such as skilled
nursing facilities.
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<PAGE> 33
FAVORABLE DEMOGRAPHIC TRENDS. As illustrated below, the number of seniors
85 years and older is estimated to increase by approximately 42% during the
1990s from 3.1 million seniors in 1990 to approximately 4.3 million seniors in
2000. It is estimated that total U.S. population will increase by approximately
11% during the same period. It is further estimated that approximately 57% of
the population of seniors over age 85 need assistance with ADLs and more than
one-half of such seniors develop Alzheimer's disease or other forms of dementia.
In addition, the growing affluence of the elderly has made assisted living more
affordable.
<TABLE>
<CAPTION>
85 YEARS AND OVER
FASTEST GROWING POPULATION IN U.S.
1990 2000
---- ----
<S> <C> <C>
85 YEARS AND OVER 0% 42%
TOTAL POPULATION 0% 11%
</TABLE>
Source: U.S. Bureau of Census
SUPPLY/DEMAND IMBALANCE. As illustrated below, the supply of skilled
nursing home beds per 1,000 persons 85 years of age and older is declining. This
decline may be attributed to several factors, including the aging of the
population and the implementation of moratoriums on the granting of certificates
of need for new skilled nursing facilities. In addition, many skilled nursing
facilities are focusing on higher acuity patients with higher reimbursement
profiles. As a result, fewer skilled nursing beds are available for the
increasing number of elderly who need assistance with ADLs but do not require
significant medical attention. The Company believes that the supply of assisted
living beds has increased substantially since 1980 to satisfy a portion of this
demand.
DECLINE IN NURSING BEDS PER THOUSAND
FOR INDIVIDUALS 85 YEARS OR OLDER
<TABLE>
<CAPTION>
1967 1976 1980 1986 1990 2000E
---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
BEDS PER THOUSAND 540 690 650 540 500 350
</TABLE>
Source: U.S. Bureau of Census
COST ADVANTAGES. Studies show that the annual cost per patient for skilled
nursing care averaged approximately $35,000 in 1993. This average includes both
government and private payors. In contrast, the annual per patient cost for
assisted living care averaged approximately $24,000 in 1993. Because rates paid
by
29
<PAGE> 34
private pay patients in skilled nursing facilities are much higher than
government reimbursement rates, the comparable cost advantage of assisted living
over a private pay skilled nursing facility rate is even greater. The Company
also believes that the cost of assisted living compares favorably with home
health care, particularly when the costs associated with housing and meal
preparation are added to the costs of home health care.
CHANGING FAMILY DYNAMICS. As a result of the growing number of two-income
families, many children are not able to care for elderly parents in their own
homes. Two-income families are, however, better able to provide financial
support for elderly parents. In addition, other factors, such as the growth in
the divorce rate and single-parent households, as well as the increasing
geographic dispersion of families, have contributed to the growing inability of
children to care for aging parents in the home.
THE SUNRISE OPERATING PHILOSOPHY
The Sunrise approach to assisted living is a unique combination of
operating philosophy and a signature facility design. Since the first Sunrise
facility opened in 1981, the Company's operating philosophy has been to provide
care and services to its residents in a residential environment in a manner
that: "nurtures the spirit, protects privacy, fosters individuality,
personalizes services, enables freedom of choice, encourages independence,
preserves dignity and involves family and friends." The Company believes that
its operating philosophy is one of its strengths. Furthermore, in implementing
its philosophy, the Company continuously seeks to refine and improve the care
and services it offers. The elements of the operating philosophy focus on: the
involvement of the resident and the resident's family in important care giving
decisions; the Company's proprietary training programs for its management,
Administrators and Care Managers; the Company's quality assurance programs; the
full range of assisted living services offered by the Company; and the
architecture and purpose-built design of Sunrise's "Victorian" model facilities.
THE SUNRISE STRATEGY
The principal elements of the Company's strategy are as follows:
PROVIDE HIGH-QUALITY PERSONALIZED RESIDENT CARE AND SERVICES. The Company
strives to provide its residents with the highest quality personalized care and
services. During the admission process, the Company develops a care plan for
each resident based on a professional assessment and family consultation. The
care plan is updated periodically by the Company, the resident and family
members based upon the individual needs of the resident. The Company also has an
extensive quality assurance program directed by regional- and facility-based
nurses and other staff who periodically review performance of Care Managers, as
well as other staff, and conduct monthly facility inspections.
PROVIDE A FULL RANGE OF ASSISTED LIVING SERVICES. The Company provides a
full range of assisted living services, which enables its residents to age in
place. The Company also offers special care programs for those residents who
suffer from Alzheimer's disease or other forms of dementia. As a result,
residents are able to continue living in a Sunrise facility unless they develop
medical conditions requiring institutional care available only in a skilled
nursing facility or acute care hospital.
RAPIDLY DEVELOP THE SUNRISE MODEL IN TARGETED MARKETS. During the next
three years, the Company plans to develop at least 40 of its "Victorian" model
facilities in major metropolitan areas and surrounding suburban markets
throughout the United States. To date, the Company has obtained zoning approval
for 17 new facilities, including five facilities currently under construction,
and has entered into contracts to purchase 13 additional sites and is
negotiating purchase terms for the remaining identified sites. Since the first
Sunrise facility opened in 1981, the Company has developed 24 facilities, 16 of
which it currently owns, and completed all facilities for which it obtained
zoning approval. The Company believes it is well-positioned to achieve its
growth plans based on its reputation as a high-quality provider of assisted
living services, as well as its proven model facility and its experienced
development team.
MAINTAIN DEPTH AND QUALITY OF MANAGEMENT TEAM. In anticipation of its
rapid development plans, the Company has made a significant investment in
actively recruiting and developing a management team with extensive experience
in the long-term care and assisted living industries. The Company believes that
the depth
30
<PAGE> 35
and experience of its over 90-person headquarters and regional management team
is unmatched in the assisted living industry and positions the Company to
effectively manage its growth plans. The Company's 12 most senior operations
managers have an average of 12 years experience in the assisted living industry.
The Company has also created formal training programs for its management
personnel, Administrators and Care Managers. In addition, the Company has an
advisory board consisting of medical, geriatric care and interior and
architectural design professionals who periodically advise the Company regarding
trends in elderly care and the design of the Company's model facility.
PURSUE ACQUISITIONS AND MANAGEMENT CONTRACT OPPORTUNITIES. During the next
three years, the Company plans to acquire up to 15 additional assisted living
facilities or other properties that can be repositioned as Sunrise assisted
living facilities. The Company anticipates that the majority of these
acquisitions will be targeted at new markets as a method of entering the market
more quickly than the development process would otherwise permit. In other
cases, the Company may enter into facility management contracts to establish or
expand its market presence. The Company is actively pursuing acquisition
opportunities and has had discussions with a number of potential sellers
regarding potential acquisition transactions. Possible acquisition transactions
are in the early stage of review by the Company. The Company has not entered
into any agreements with respect to any material acquisitions.
ACHIEVE THE BENEFITS OF REGIONAL DENSITY BY CLUSTERING FACILITIES. The
Company's development and acquisition strategies focus on clustering facilities
to achieve maximum regional density. This allows the Company to achieve
operational and management efficiencies while delivering high-quality care and
services within its target markets. Regional density also allows the Company to
benefit from community familiarity with assisted living generally and the
Sunrise model in particular.
SERVICES
The Company offers a full range of assisted living services based upon
individual resident needs. Upon admission, the Company, the resident and the
resident's family assess the level of care required and jointly develop a
specific care plan. This care plan includes selection of resident accommodations
and determination of the appropriate level of care. The care plan is
periodically reviewed and updated by the Company, the resident and the
resident's family. By offering a full range of services, including Basic Care,
Extended Care, Medication Management and Alzheimer's Care, the Company can
accommodate residents with a broad range of service needs and enable residents
to age in place. In addition, upon admission the Company generally charges each
new resident a one-time community fee typically equal to two months of daily
resident fees, which is refundable on a prorated basis if the resident leaves
the facility during the first 90 days. Daily resident fees are periodically
revised based on modifications to a resident's care plan.
The average daily resident fee for Same Facilities was approximately $83
for the three months ended March 31, 1996, $80 for 1995 and $75 for each of 1994
and 1993. The average daily Basic Care rate for Same Facilities was
approximately $73 for the three months ended March 31, 1996, $71 for 1995 and
$68 for each of 1994 and 1993.
BASIC CARE
The Company's Basic Care program is provided to all residents and includes:
assistance with ADLs, such as eating, bathing, dressing, personal hygiene, and
grooming; three meals per day served in a common dining room (including two
seating times per meal); coordination of special diets; 24-hour security;
emergency call systems in each unit; transportation to physician offices, stores
and community services; assistance with coordination of physician care, physical
therapy and other medical services; health promotion and related programs;
personal laundry services; housekeeping services; and social and recreational
activities.
EXTENDED CARE
Through the Company's Extended Care program, residents who require more
frequent or intensive assistance or increased care or supervision due to
incontinence or wandering are provided extra care and supervision. The Company
charges an additional daily fee based on additional staff hours of care and
services
31
<PAGE> 36
provided. The Extended Care program allows the Company, through consultation
with the resident, the resident's family and the resident's personal physician,
to create an individualized care and supervision program for residents who might
otherwise have to move to a more medically intensive facility. At March 31,
1996, approximately 43% of the Company's residents participated in the Company's
Extended Care program.
MEDICATION MANAGEMENT
Many of the Company's residents also require assistance with medications.
To the extent permitted by state law, the Company's Medication Management
program includes the storage of medications, the distribution of medications as
directed by the resident's physician and compliance monitoring. The Company
charges an additional fixed daily fee for this service. At March 31, 1996,
approximately 49% of the Company's assisted living residents participated in the
Company's Medication Management program.
ALZHEIMER'S CARE
The Company believes its Alzheimer's Care program distinguishes it from
many other assisted living providers who do not provide such specialized care.
The Alzheimer's Care program provides the attention, care programs and services
needed to help cognitively impaired residents maintain a higher quality of life.
Specially trained staff provide Basic Care and other specifically designed care
and services to cognitively impaired residents in separate areas of facilities.
The Company charges each cognitively impaired resident a daily fee that includes
one hour of additional staff time per day. Cognitively impaired residents who
require additional care and services pay a higher daily rate based on additional
staff hours of care and services provided. At March 31, 1996, approximately 26%
of the Company's residents participated in the Alzheimer's Care program.
THE SUNRISE "VICTORIAN" MODEL FACILITY
The Company's signature Victorian model facility, first designed in 1985,
is a freestanding, residential-style facility with a capacity of 80 to 120
residents. The building ranges in size from approximately 40,000 to 60,000
square feet and is built generally on sites ranging from two to five acres.
Approximately 40% of the building is devoted to common areas and amenities,
including reading rooms, family or living rooms and other areas (such as bistros
and ice cream parlors) designed to promote interaction among residents. The
Company has four basic building plan designs, which provide it with flexibility
in adapting the model to a particular site. The building is usually two or three
stories and of steel frame construction built to institutional health care
standards but strongly residential in appearance. The interior layout is
designed to promote a home-like environment, efficient delivery of resident care
and resident independence.
Resident units are functionally arranged to provide a
"community-within-a-community" atmosphere. The model facility may be configured
with as many as eight different types of resident units, including double
occupancy units, single units and two- and three-room suites. Sitting areas on
each floor serve as a family or living room. The ground level typically contains
a kitchen and common dining area, administrative offices, a laundry room, a
private dining room, library or living room, and bistro or ice cream parlor.
Typically, one floor or one or two wings of a facility contain resident units
and common areas, including separate dining facilities, specifically designed to
serve residents with Alzheimer's disease or other special needs.
The architectural and interior design concepts incorporate the Sunrise
operating philosophy of protecting resident privacy, enabling freedom of choice,
encouraging independence and fostering individuality in a home-like setting. The
Company believes its model facility meets the desire of many individuals to move
to a new residence at least as comfortable as their former home. The Company
believes that its residential environments also accomplish several other
objectives, including: (i) lessening the trauma of change for elderly residents
and their families; (ii) achieving operational efficiencies through proven
designs; (iii) facilitating resident mobility and ease of access by care givers;
and (iv) differentiating the Company from other assisted living and long-term
care operators.
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<PAGE> 37
OWNED FACILITIES
The table below sets forth certain information regarding owned facilities
or facilities in which Sunrise has an ownership interest:
<TABLE>
<CAPTION>
YEAR DEVELOPED SUNRISE
OPENED BY OR MODEL RESIDENT OWNERSHIP
FACILITY LOCATION SUNRISE ACQUIRED FACILITY CAPACITY PERCENTAGE(1)
<S> <C> <C> <C> <C> <C> <C>
Sunrise of Oakton Oakton, VA 1981 Acquired(2) 51 100.0%
Sunrise of Leesburg Leesburg, VA 1984 Acquired(2) 35 100.0
Sunrise of Warrenton Warrenton, VA 1986 Acquired(2) 37 100.0
Sunrise of Arlington Arlington, VA 1988 Developed 'X' 58 100.0
Sunrise of Bluemont Park Arlington, VA 1990 100.0
Potomac Developed 'X' 59
Shenandoah Developed 'X' 77
James Developed 'X' 59
--------
195
Sunrise of Mercer Island Seattle, WA 1990 Developed 'X' 59 100.0
Sunrise of Fairfax Fairfax, VA 1990 Developed 'X' 59 100.0(3)
Sunrise of Queen Anne Seattle, WA 1991 Acquired 136 33.3(4)
Sunrise of Frederick Frederick, MD 1992 Developed 'X' 86 100.0
Sunrise of Countryside Sterling, VA 1992 100.0
East Building Developed(5) 'X' 66
West Building Developed(5) 'X' 64
--------
130
Sunrise of Gunston Lorton, VA 1992 Developed(5) 'X' 67 100.0
Sunrise of Atrium Boca Raton, FL 1992 Acquired 210 100.0
Sunrise of Falls Church Falls Church, VA 1993 Developed 'X' 66 100.0
Sunrise of Village House Gaithersburg, MD 1993 Acquired 155(6) 50.0(7)
Sunrise of Towson Towson, MD 1994 Developed 'X' 66 13.9(8)
Sunrise of Gardner Park Peabody, MA 1994 Developed 'X' 59 50.0(8)(9)
Sunrise of Annapolis Annapolis, MD 1995 Developed 'X' 88 51.0(8)(10)
Chanate Lodge Santa Rosa, CA 1996 Acquired 120 100.0
Sunrise of Raleigh Raleigh, NC 1996 Developed 'X' 93 50.0(8)(11)
Sunrise of Pikesville Pikesville, MD 1996 Developed 'X' 103 51.0(8)(10)
--------
Total 1,873
========
</TABLE>
- ---------------
(1) Fifteen of the wholly owned facilities (Oakton, Leesburg, Warrenton,
Arlington, Bluemont Park (three facilities), Mercer Island, Fairfax,
Frederick, Countryside (two facilities), Gunston, Atrium and Falls Church)
serve as collateral for the GECC Mortgage. The other eight owned facilities
are subject to one or more mortgages or deeds of trust that mature between
1998 and 2033 and bear interest at market rates, ranging from 6.875% to
10.75% annually as of March 31, 1996. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and Note 8 of Notes to Consolidated and Combined
Financial Statements. All facilities that are wholly owned by the Company
are consolidated in the Consolidated and Combined Financial Statements. The
Village House, Gardner Park and Raleigh facilities are held by limited
liability companies or limited partnerships in which the Company holds the
ownership interests indicated in the table. The Company is the general
partner or managing member of such entities and through the partnership or
operating agreements and the management agreements for the facilities the
Company controls their ordinary course business operations. Therefore, the
Village House, Gardner Park and Raleigh facilities are also consolidated in
the Consolidated and Combined Financial Statements. The ordinary course
business operations of the Queen Anne, Towson, Annapolis and Pikesville
facilities are not currently controlled by the Company and, therefore, are
accounted for under the equity method of accounting.
(2) Each of these facilities has been redeveloped in a manner consistent with
the Sunrise model.
(3) Subject to long-term ground lease. See "Certain Transactions."
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<PAGE> 38
(4) This property is held as a tenancy-in-common. The remaining ownership
interests are owned by unaffiliated third parties. The Company manages this
facility pursuant to a management contract that is subject to annual
renewal at the option of the owners.
(5) These facilities were initially developed by the Company for third parties
and were subsequently acquired by the Company in 1992.
(6) This facility is licensed for 40 assisted living residents. The remainder
of the resident capacity is for independent living residents.
(7) Sunrise manages this facility. Thomas J. Donohue, a director of the
Company, owns a 30% ownership interest in this facility jointly with his
wife. The Company has an option to acquire, and the Donohues have the right
to require the Company to purchase, their interest in this facility. Upon
completion of the Offering, the Company intends to purchase the Donohues'
interest in this facility in exchange for 52,500 shares of Common Stock.
Following such purchase, the Company will have an 80% ownership interest in
this facility. See "Certain Transactions."
(8) The remaining ownership interests are owned by third parties. Sunrise
manages each of these facilities.
(9) A current officer and a former employee of the Company each have a 25%
ownership interest in this facility. Sunrise has the right to acquire these
minority ownership interests for fair market value, as determined by an
appraiser mutually agreeable to the parties.
(10) Commencing on June 1, 1998, the third-party owner of the remaining
interests in the limited partnership that owns this facility ("the
Partnership") has the right to require the Company to buy the facility from
the Partnership for 112 1/2% of its "appraised fair market value" as
mutually agreed upon by the parties or, if they cannot agree, as determined
by an appraiser mutually selected by the parties. Commencing three years
after the date that the certificate of occupancy is received for the
facility (November 1998 for Annapolis and April 1999 for Pikesville) and
continuing for two years thereafter, the Company has the right to give
written notice to such third-party owner that it desires to buy the
facility from the Partnership for 110% of its appraised fair market value.
If the Company has not given such notice during such two-year period, then
the Company will be deemed to have given such notice. Such third-party
owner will then give notice either that it consents to such a sale of the
facility or that it does not consent. If the third-party does not consent
to such sale, the management agreement for the facility with the Company
would be extended for an additional seven-year period. After the expiration
of such seven-year period, the third-party would have the right to require
the Company to purchase, and the Company would have the right to purchase,
the facility from the Partnership at 115% of appraised fair market value.
If any person or entity acquires ownership of more than 51% of the
outstanding voting stock of the Company (other than the Company, any
subsidiary of the Company, the Founders or any affiliate, associate or the
estate of either Founder), then the put rights held by the third party
owner become immediately exercisable. The third-party owner currently holds
a 50% limited partnership interest in these facilities. The Company has
agreed to purchase from the third-party a 1% partnership interest in each
of the facilities upon completion of the Offering. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Anticipated Charge to Earnings."
(11) The Company has the option to purchase all or any part of the third-party
interests in the limited liability company that owns this facility prior to
April 28, 1999 at the greater of (i) $695,064, if purchased before April
28, 1997, $1,141,410, if purchased between April 28, 1997 and April 28,
1998, and $1,424,859, if purchased between April 28, 1998 and April 27,
1999; or (ii) the third party's 50% interest multiplied by the net value of
the limited liability company's business as determined by applying a 12.5%
capitalization rate to the net operating income of the limited liability
company, and subtracting limited liability company liabilities, all as
determined by the accountant regularly employed by the limited liability
company. If Sunrise elects to exercise its option on or after April 28,
1999, the purchase price of the third-party interest shall be determined by
an appraiser mutually agreeable to the parties.
34
<PAGE> 39
MANAGED FACILITIES
The Company also manages facilities for third-party owners. The following
table sets forth certain information regarding facilities currently being
managed by the Company or for which the Company has entered into development
contracts which provide that the Company will manage the facility following
completion of construction:
<TABLE>
<CAPTION>
SUNRISE CONTRACT
MODEL RESIDENT INITIAL EXPIRATION
FACILITY LOCATION FACILITY CAPACITY CONTRACT DATE DATE
<S> <C> <C> <C> <C> <C>
Woodbury Lake Deptford, NJ 'X' 87 March 1993 June 1996(1)
Kensington Kensington, MD July 1993 Sept. 1996(2)
Groves 'X' 70
Highlands 'X' 67
Woodlands 'X' 70
---
207
Mill Run (3) Bristol, PA 186 April 1992 April 1997
Lincolnia(4) Fairfax, VA 84 June 1989 June 1996
John Bertram House Salem, MA 32 June 1994 Oct. 1998
Mount Laurel Mount Laurel, NJ 'X' 90 May 1994(5) July 2021
Boston Boston, MA 139 July 1995(5) Jan. 2002
---
Total 825
======
</TABLE>
- ---------------
(1) This contract is subject to two five-year renewals. Pursuant to the
management agreement, the Company has a right of first refusal to purchase
this facility if the owner receives a bona fide offer to purchase the
facility during the term of the management agreement.
(2) Upon expiration of the contract, the Company intends to submit a bid to
continue managing the facility. See "Risk Factors -- Government Regulation."
(3) The Company owns $5.4 million carrying value of tax exempt mortgage bonds on
this facility. See Note 5 of Notes to Consolidated and Combined Financial
Statements.
(4) The Company does not provide financial or accounting services for this
facility.
(5) The Company anticipates construction of this facility will begin before July
1996. As of the dates shown, the Company has entered into development
contracts for these facilities which provide that the Company will begin
managing Mt. Laurel for a 25-year period and the Boston facility for a
three-year period, following completion of construction.
35
<PAGE> 40
The Company also manages two skilled nursing facilities, Pembrook and
Prospect Park, located in West Chester and Prospect Park, Pennsylvania. The
Pembrook facility has 240 beds and the Prospect Park facility has 180 beds. Both
of these facilities are owned by a single unaffiliated nonprofit corporation.
The management contracts for these facilities were initially entered into in May
1994 and expire in April 1999. The owner of these facilities has the option to
terminate the management agreements in May 1997. The Company does not provide
financial or accounting services for these facilities.
FACILITY DEVELOPMENT
The Company targets sites for development located in major metropolitan
areas and their surrounding suburban communities. In evaluating a prospective
market, the Company considers a number of factors, including population, income
and age demographics, target site visibility, probability of obtaining zoning
approvals, estimated level of market demand and the ability to maximize
management resources in a specific market by clustering its development and
operating activities.
The Company has developed 24 of its Victorian model facilities, 16 of which
it currently owns. During the next three years, the Company plans to develop at
least 40 additional Victorian model facilities with an aggregate capacity of
over 3,600 residents. To date, the Company has obtained zoning approval for 17
new facilities, including five facilities currently under construction, and has
contracts to purchase 13 additional sites and is currently negotiating purchase
terms for the remaining identified sites. Historically, the Company has
completed all facilities for which it has obtained zoning approval. The Company
bases its development upon its "Victorian" model facility that it has developed
and refined since the first model facility was designed in 1985. Use of a
standard model allows the Company to control development costs, maintain
facility consistency and improve operational efficiency. Use of the Sunrise
model also creates "brand" awareness in the Company's markets. See "Risk
Factors -- Development and Construction Risks" and "-- Need for Additional
Financing."
The primary milestones in the development process are (i) site selection
and contract signing, (ii) zoning and site plan approval and (iii) completion of
construction. Once a market has been identified, site selection and contract
signing typically take approximately one to three months. Zoning and site plan
approval generally take 10 to 12 months and are typically the most difficult
steps in the development process due to the Company's selection of sites in
established communities which usually require site rezoning. Facility
construction normally takes 12 months. The Company believes its extensive
development experience gives it an advantage relative to certain of its
competitors in obtaining necessary governmental approvals and completing
construction in a timely manner. After a facility receives a certificate of
occupancy, residents usually begin to move in immediately. Since 1993, the total
capitalized cost to develop, construct and open a Sunrise model facility,
including land acquisition and construction costs, has ranged from approximately
$5.5 million to $9.2 million. The cost of any particular facility may vary
considerably based on a variety of site-specific factors.
The Company's development activities are coordinated by its experienced
18-person development staff, which has extensive real estate acquisition,
engineering, general construction and project management experience.
Architectural design and hands-on construction functions are usually contracted
to experienced outside architects and contractors.
36
<PAGE> 41
The following table sets forth certain information regarding Sunrise model
facilities that either are owned and under construction or are subject to
purchase contracts and zoned:
<TABLE>
<CAPTION>
ESTIMATED
DEVELOPMENT COMPLETION RESIDENT OWNERSHIP
FACILITY LOCATION PHASE(1) DATE (2) CAPACITY PERCENTAGE
<S> <C> <C> <C> <C> <C>
Sunrise of Blue Bell Philadelphia, PA Construction 4th Q 1996 97 100.0
metro region
Sunrise of Columbia Columbia, MD Construction 1st Q 1997 96 100.0
Sunrise of Hunter Mill Hunter Mill, VA Construction 1st Q 1997 96 100.0
Sunrise of Abington Philadelphia, PA Construction 2nd Q 1997 97 100.0
Building I metro region
Sunrise of Abington Philadelphia, PA Construction 2nd Q 1997 71 100.0
Building II metro region
Sunrise of Granite Run Granite Run, PA Zoned 1st half 1997 95 100.0
Sunrise of Petaluma Petaluma, CA Zoned 1st half 1997 84 100.0(3)(5)
Sunrise of Severna Park Severna Park, MD Zoned 1st half 1997 99 50.0(4)(5)
Building I
Sunrise of Severna Park Severna Park, MD Zoned 1st half 1997 74 50.0(4)(5)
Building II
Sunrise of Springfield Springfield, MA Zoned 1st half 1997 97 100.0
Sunrise of Franconia Franconia, VA Zoned 1st half 1997 98 100.0
Sunrise of Rockville Rockville, MD Zoned 1st half 1997 86 100.0
Sunrise of Alexandria Alexandria, VA Zoned 1st half 1997 92 100.0(6)
Sunrise of Old Tappan Old Tappan, NJ Zoned 2nd half 1997 95 100.0
Sunrise of Morris Plains Morris Plains, NJ Zoned 2nd half 1997 95 100.0
Sunrise of Wayne Wayne, NJ Zoned 2nd half 1997 90 100.0
Sunrise of Westfield Westfield, NJ Zoned 2nd half 1997 95 100.0
------
Total 1,557
=======
</TABLE>
- ---------------
(1) The Columbia, Blue Bell and Hunter Mill facilities under construction are
subject to one or more mortgages or deeds of trust that mature between
December 2002 and April 2003 and bear interest at market rates currently
averaging approximately 7.5%.
(2) There can be no assurance that construction delays will not be experienced.
See "Risk Factors -- Development and Construction Risks."
(3) Not a Sunrise model facility. Sunrise has entered into an operating lease
with a third-party owner/developer who will complete the facility under a
design reviewed and approved by Sunrise.
(4) The remaining ownership interests are owned by unaffiliated third parties.
Sunrise is the general partner or managing member of the limited partnership
or limited liability company, respectively, that will lease the facility.
(5) Will be operated under a 15-year operating lease, with two 10-year extension
options.
(6) Subject to a long-term ground lease.
The Company has entered into purchase contracts for 13 additional sites in
Maryland, Pennsylvania, New Jersey, Connecticut, New York, Georgia and
Washington. The Company has completed preliminary feasibility studies and
submitted rezoning requests on eight of such sites and is conducting preliminary
feasibility studies on the remaining sites. The Company's development team is
negotiating purchase terms on additional sites identified for development.
FACILITY ACQUISITIONS
The Company and its predecessors have completed seven acquisitions,
including five acquisitions of long-term care facilities which have been
repositioned to provide Sunrise assisted living services and two acquisitions of
Sunrise model facilities initially developed for third parties. During the next
three years, the Company plans to acquire up to 15 additional assisted living
facilities or other properties that can be
37
<PAGE> 42
repositioned as Sunrise assisted living facilities. In evaluating possible
acquisitions, the Company considers, among other factors, (i) location,
construction quality, condition and design of the facility, (ii) current and
projected facility cash flow, (iii) the ability to increase revenue, occupancy
and cash flow by providing a full range of assisted living services, (iv) costs
of facility repositioning (including renovations, if any) and (v) the extent to
which the acquisition will complement the Company's development plans.
COMPANY OPERATIONS
OPERATING STRUCTURE
The Company has centralized accounting, finance and other operational
functions at the corporate headquarters and regional office levels in order to
allow facility-based personnel to focus on resident care, consistent with the
Company's operating philosophy. Headquarters staff members in Fairfax, Virginia
are responsible for: the establishment of Company-wide policies and procedures
relating to, among other things, resident care, facility design and facility
operations; billing and collection; accounts payable; finance and accounting;
management of the Company's development and acquisition activities; development
of employee training materials and programs; and providing overall strategic
direction to the Company. Regional staff are responsible for: overseeing all
aspects of facility-based operations, including marketing activities; resident
care; the hiring of Administrators, Care Managers and other facility-based
personnel; compliance with applicable local and state regulatory requirements;
and implementation of the Company's development and acquisition plans within a
given geographic region.
The Company is currently organized into four regions (Mid-Atlantic,
Pennsylvania/New Jersey, New England and Western). Each of the regions is headed
by a Regional Senior Vice President with extensive experience in the long-term
care and assisted living industries. The regional staff typically consists of a
Marketing Specialist, a Resident Care Specialist and a Human Resources
Specialist. The Company's two largest regions also have separate Marketing
Specialists for existing facilities and those in development, an Activities
Specialist, a Regulatory Specialist, a Dietary Specialist and a Maintenance
Specialist. The Company expects that all regions will create similar staff
positions as the number of facilities in those regions increases.
FACILITY STAFFING
Each of the Company's assisted living facilities has an Administrator
responsible for the day-to-day operations of the facility, including quality of
care, social services and financial performance. Each Administrator receives
specialized training from the Company. The Company believes that the quality and
size of its facilities, coupled with its competitive compensation philosophy,
have enabled it to attract high-quality, professional Administrators. The
Administrator is supported by the Director of Resident Care, a nurse who
oversees the Care Managers and is directly responsible for day-to-day care of
the residents, and by the Director of Community Relations, who oversees
marketing and outreach programs. Other key positions include the Director of
Dining Services, the Activities Director, and in certain homes, the Director of
Alzheimer's Care.
Care Managers, who work on full-time, part-time and flex-time schedules,
provide most of the hands-on resident care, such as bathing, dressing and other
personalized care services (including housekeeping, meal service and resident
activities). To the extent permitted by state law, nurses, or Care Managers who
complete a special training program, supervise the storage and distribution of
medications. The use of Care Managers to provide substantially all services to
residents has the benefits of consistency and continuity in resident care. In
most cases, the same Care Manager assists the resident in dressing, dining and
coordinating daily activities. The number of Care Managers working in a facility
varies according to the level of care required by the residents of the facility
and the numbers of residents receiving Alzheimer's Care and Extended Care
services. The number of Care Managers ranges from three (Leesburg facility) to
20 (Atrium facility) on the day shifts and from two Care Managers (Leesburg) to
seven Care Managers (Atrium) on the night shift.
The Company believes that its assisted living facilities can be most
efficiently managed by maximizing direct resident and staff contact. Employees
involved in resident care, including the administrative staff, are
38
<PAGE> 43
trained in the Care Manager duties and participate in supporting the care needs
of the residents. Accounting functions are centralized so that administrative
staff may devote substantially all of their time to care giving.
STAFF EDUCATION AND TRAINING
The Company has attracted, and continues to seek, highly dedicated,
experienced personnel. The Company has adopted formal training procedures and
review and evaluation procedures to help ensure quality care for its residents.
The Company believes that education, training and development enhance the
effectiveness of its employees. All employees are required to complete the
Company's training program, which centers around its proprietary "Five-Star
Educational Program." This program includes a core curriculum consisting of care
basics, Alzheimer's care, resident care procedures and communication skills. For
Care Managers who desire to advance into facility management, the Five-Star
Education Program provides additional training in medical awareness and
management skills. There are also leadership certifications in areas such as
community relations, facility management, recruiting, staffing, human resources
and regulations. Sunrise also has developed an "Administrator-in-Training
("AIT") Program" that places an Administrator trainee in an existing facility to
learn the position based on hands-on experience and direct supervision from a
current Administrator. This program has trained over 30 Administrators since
1985. The AIT Program is intended to ensure that enough Sunrise-trained
professionals will be available to manage acquired and newly developed
facilities.
QUALITY ASSURANCE
The Company coordinates quality assurance programs at each of its assisted
living facilities through its corporate headquarters staff and through its
regional offices. The Company's commitment to quality assurance is designed to
achieve a high degree of resident and family member satisfaction with the care
and services provided by the Company. In addition to ongoing training and
performance reviews of Care Managers and other employees, the Company's quality
control measures include:
Family and Resident Feedback. The Company surveys residents and family
members on a regular basis to monitor the quality of services provided to
residents. Approximately 30 days after moving into a facility, a resident or
family member is surveyed by a Sunrise representative to inquire about their
initial level of satisfaction. Thereafter, annual written surveys are used to
appraise and monitor the level of satisfaction of residents and their families.
A toll-free telephone line also is maintained which may be used at any time by a
resident's family members to convey comments.
Regular Facility Inspections. Facility inspections are conducted by
regional vice presidents and other regional staff on at least a monthly basis.
These inspections cover: the appearance of the exterior and grounds; the
appearance and cleanliness of the interior; the professionalism and friendliness
of staff; resident care plans; the quality of activities and the dining program;
observance of residents in their daily living activities; and compliance with
government regulations.
Third-Party Reviews. To further evaluate customer service, the Company
engages an independent service evaluation company to "mystery shop" the
Company's facilities. These professionals assess the Company's performance from
the perspective of a customer, without the inherent biases of a Company
employee. Each assisted living facility is "shopped" at least three times per
year in person, as well as one or more times per month by telephone. To evaluate
medication management, third-party pharmacists conduct periodic reviews of
on-site handling and storage of medications, record-keeping and coordination of
medications.
MARKETING AND SALES
The Company's marketing strategy is intended to create awareness of the
Company and its services among potential residents and their family members and
referral sources, such as hospital discharge planners, physicians, clergy, area
agencies for the elderly, skilled nursing facilities, home health agencies and
social workers. A central marketing staff develops overall strategies for
promoting the Company throughout its markets and monitors the success of the
Company's marketing efforts. Each regional office generally has at
39
<PAGE> 44
least one Marketing Specialist and each facility typically has a Director of
Community Relations who oversees marketing and outreach programs. In addition to
direct contacts with prospective referral sources, the Company also relies on
print advertising, yellow pages advertising, direct mail, signage and special
events, such as grand openings for new facilities, health fairs and community
receptions.
Approximately six months prior to opening a facility, the Company opens its
pre-leasing center and begins marketing to referral sources. At that time, the
Company's staff also begins to accept deposits from prospective residents. Since
1993, the Company's new development facilities have been at least 45% pre-leased
when opened, and such facilities have achieved, on average, 90% occupancy within
10 months or less after opening.
THIRD-PARTY RESIDENT SERVICES
While the Company serves the vast majority of a resident's needs with its
own staff, certain services, such as physician care, infusion therapy, physical
and speech therapy and other home health care services, may be provided to
residents at Sunrise facilities by third parties. Company staff assist residents
in locating qualified providers for such health care services.
COMPETITION
Providers of assisted living services compete for residents primarily on
the basis of quality of care, price, reputation, physical appearance of the
facilities, services offered, family and physician preferences and location. As
assisted living receives increased attention, the Company believes that
competition will grow from new local and regional companies that operate, manage
and develop assisted living facilities within the same geographic areas as the
Company. Some of the Company's existing and potential competitors have
significantly greater resources than does the Company. See "Risk
Factors -- Competition."
GOVERNMENT REGULATION
The Company's assisted living facilities are subject to regulation and
licensing by state and local health and social service agencies and other
regulatory authorities, although requirements vary from state to state. In
general, these requirements address, among other things: personnel education,
training, and records; facility services, including administration of
medication, assistance with self-administration of medication, and limited
nursing services; monitoring of resident wellness; physical plant
specifications; furnishing of resident units; food and housekeeping services;
emergency evacuation plans; and resident rights and responsibilities, including
in some states the right to receive certain health care services from providers
of a resident's choice. In several states in which the Company operates or
intends to operate, assisted living facilities also require a certificate of
need before the facility can be opened. In most states, assisted living
facilities also are subject to state or local building code, fire code and food
service licensure or certification requirements. Like other health care
facilities, assisted living facilities are subject to periodic survey or
inspection by governmental authorities. From time to time in the ordinary course
of business, the Company receives deficiency reports. The Company reviews such
reports and seeks to take appropriate corrective action. Although most
inspection deficiencies are resolved through a plan of correction, the reviewing
agency typically is authorized to take action against a licensed facility where
deficiencies are noted in the inspection process. Such action may include
imposition of fines, imposition of a provisional or conditional license or
suspension or revocation of a license or other sanctions. In March 1996,
Maryland state officials imposed a $3,000 civil fine against the Company for
survey deficiencies at the Kensington facilities managed by the Company. The
Company is appealing such fine, which is the first fine assessed against the
Company in its 15-year history. On May 23, 1996, one of the Pennsylvania nursing
home facilities managed by the Company received notice from the Pennsylvania
Department of Health of a survey report stating that the facility was not in
compliance with the requirements of participation for the Medicare and Medicaid
programs. Therefore, the Pennsylvania survey agency report stated that a civil
monetary penalty of $50 to $3,000 per day will be imposed for the period
beginning March 12, 1996, the date the facility was first alleged to be out of
compliance, until the date the alleged deficiencies are corrected. The report
also stated that the agency will recommend a ban on payment for new
Medicare/Medicaid admissions if substantial compliance is not achieved within
three months after the last
40
<PAGE> 45
day of the survey identifying the alleged non-compliance. The facility has not
received confirmation or verification from the Health Care Financing
Administration of whether such remedies will be imposed, or what the amount of
any such penalty would be. The Company has engaged counsel and intends to
vigorously contest the survey report and the imposition of a civil monetary
penalty. Any failure by the Company to comply with applicable requirements could
have a material and adverse effect on the Company's business, financial
condition and results of operations.
Virginia state and local authorities initiated actions in 1995, alleging
that the Company permitted non-ambulatory residents to reside at the Company's
Gunston and Countryside facilities in violation of state licensure requirements
and the state building code. The Company entered into consent decrees, pursuant
to which it agreed to permit only ambulatory residents to reside at the facility
until the building had been upgraded to meet the more stringent fire code
requirements applicable to facilities that house non-ambulatory residents.
During 1995, the Company made capital improvements to these two facilities at an
aggregate cost of $1.1 million. The Company is awaiting the issuance of new
licenses that would enable non-ambulatory residents to reside at these
facilities. During 1995, the Company relocated non-ambulatory residents from
another Company-owned facility in Virginia whose license prohibits
non-ambulatory residents. During 1995, as a result of survey deficiencies,
Pennsylvania officials rescinded the regular licenses for the two Company-
managed skilled nursing facilities located in Pennsylvania and issued six-month
provisional licenses. The regular facility licenses have since been reinstated.
Also in 1995, a local Maryland housing agency, citing a number of factors,
including a desire to seek competitive pricing bids, consideration of other uses
for the property and past survey results, advised the Company that it will put
the management contract for the Kensington facility out for bid when the
existing management contract with the Company expires in September 1996.
Federal and state anti-remuneration laws, such as the Medicare/Medicaid
anti-kickback law, govern certain financial arrangements among health care
providers and others who may be in a position to refer or recommend patients to
such providers. These laws prohibit, among other things, certain direct and
indirect payments that are intended to induce the referral of patients to, the
arranging for services by, or the recommending of, a particular provider of
health care items or services. The Medicare/Medicaid anti-kickback law has been
broadly interpreted to apply to certain contractual relationships between health
care providers and sources of patient referral. Similar state laws vary from
state to state, are sometimes vague and seldom have been interpreted by courts
or regulatory agencies. Violation of these laws can result in loss of licensure,
civil and criminal penalties, and exclusion of health care providers or
suppliers from participation in (i.e., furnishing covered items or services to
beneficiaries of) the Medicare and Medicaid programs. Although the Company is
not a Medicare or Medicaid provider or supplier, it is subject to these laws
because (i) the state laws typically apply regardless of whether Medicare or
Medicaid payments are at issue, (ii) the Company manages two nursing homes in
Pennsylvania which are certified to participate in Medicare and Medicaid, and
(iii) as required under some state licensure laws, and for the convenience of
its residents, some of the Company's assisted living facilities maintain
contracts with certain health care providers and practitioners, including
pharmacies, visiting nurse organizations and hospices, through which the health
care providers make their health care items or services (some of which may be
covered by Medicare or Medicaid) available to facility residents. There can be
no assurance that such laws will be interpreted in a manner consistent with the
practices of the Company. See "Risk Factors -- Government Regulation."
Management is not aware of any non-compliance by the Company with
applicable regulatory requirements that would have a material adverse effect on
the Company's financial condition or results of operations.
EMPLOYEES
At March 31, 1996, the Company had 1,768 employees, including 1,168
full-time employees, of which 83 were employed at the Company's headquarters.
The Company believes employee relations are very good.
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<PAGE> 46
LEGAL PROCEEDINGS
The Company is involved in various lawsuits and claims arising in the
normal course of business. In the opinion of management of the Company, although
the outcomes of these suits and claims are uncertain, in the aggregate they
should not have a material adverse effect on the Company's business, financial
condition and results of operations.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning each of the
Company's directors and executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH THE COMPANY
<S> <C> <C>
Paul J. Klaassen(1)(2)............... 38 Chairman of the Board of Directors, President
and Chief Executive Officer
Teresa M. Klaassen(1)(2)............. 40 Executive Vice President, Secretary and
Director
David W. Faeder(1)................... 39 Executive Vice President, Chief Financial
Officer and Director
Timothy S. Smick..................... 44 Executive Vice President and Chief Operating
Officer
Thomas B. Newell..................... 39 Executive Vice President and General Counsel
of the Company and President of Sunrise
Development, Inc.
Brian C. Swinton..................... 51 Executive Vice President, Sales and Marketing
Ronald V. Aprahamian(3)(4)........... 49 Director
Thomas J. Donohue(3)(4).............. 57 Director
Richard A. Doppelt(4)................ 40 Director
Scott F. Meadow(2)(3)................ 42 Director
Darcy J. Moore....................... 39 Director
</TABLE>
- ---------------
(1) Member of the Executive Committee.
(2) Member of the Stock Option Committee.
(3) Member of the Compensation Committee.
(4) Member of the Audit Committee.
Messrs. Doppelt and Meadow and Ms. Moore have been designated as Series A
directors, Messrs. Aprahamian and Donohue have been designated as non-management
directors and Messrs. Klaassen and Faeder and Ms. Klaassen have been designated
as management directors, pursuant to the Stockholders' Agreement dated as of
January 4, 1995 among the Company, Paul J. Klaassen, Teresa M. Klaassen and the
Series A Investors (the "Stockholders' Agreement"). The Stockholders' Agreement
terminates upon completion of the Offering.
Paul J. Klaassen, a co-founder of the Company, has served as Chairman of
the Board, President and Chief Executive Officer since 1981. Mr. Klaassen is the
founding Chairman of the Assisted Living Facilities Association of America
("ALFAA"), the largest assisted living industry trade association. Mr. Klaassen
also serves on the editorial advisory boards of Contemporary Long Term Care,
Retirement Housing Report, Assisted Living Today and Assisted Living Briefing
magazines.
Teresa M. Klaassen, a co-founder of the Company, has served as a director
and Executive Vice President and Secretary since 1981. Ms. Klaassen is a
founding member of ALFAA and currently serves on the boards of directors of
several long-term care organizations.
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<PAGE> 47
David W. Faeder has served as a director, Executive Vice President and
Chief Financial Officer since 1993. From 1991 to 1993, Mr. Faeder was a Vice
President of CS First Boston Corporation, serving in both the investment banking
and fixed income departments. From 1984 to 1991, Mr. Faeder served as a Vice
President of Morgan Stanley, where he worked in the Real Estate Capital Markets
Group.
Timothy S. Smick has served as Executive Vice President and Chief Operating
Officer of the Company since February 1996. From 1994 to 1996, Mr. Smick was a
senior housing consultant to LaSalle Advisory, Ltd., a pension fund advisory
company. From 1984 to 1994, Mr. Smick was the Chairman and Chief Executive
Officer of PersonaCare, Inc., a company which he co-founded and which provided
subacute, skilled nursing and assisted living care. From 1979 to 1981, Mr. Smick
was the Regional Operations Director for Manor Healthcare, a division of
ManorCare, Inc., a long-term care company.
Thomas B. Newell has served as Executive Vice President and General Counsel
of the Company and President of Sunrise Development, Inc. since January 1996.
From 1989 to January 1996, Mr. Newell was a partner with the law firm of Watt
Tieder & Hoffar, where his practice concentrated on all aspects of commercial
and real estate development transactions and where he represented the Company
for more than five years.
Brian C. Swinton will join the Company as Executive Vice President, Sales
and Marketing, on May 31, 1996. From January 1994 to April 1996, Mr. Swinton was
a Senior Vice President of Forum Group, Inc., a developer and operator of
retirement communities and assisted living facilities, where his
responsibilities included marketing, sales and product development. From 1986 to
1994, Mr. Swinton served as Vice President, Sales, Marketing and Product
Development at Marriott International, where he was responsible for designing,
developing, marketing and the initial operations of the Brighton Gardens
assisted living concept.
Ronald V. Aprahamian has been a director of the Company since February
1995. Mr. Aprahamian has been Chairman of the Board and Chief Executive Officer
of The Compucare Company, a health care information technology company, since
1988. Mr. Aprahamian also is a director of Metrocall, Inc., a paging company.
Thomas J. Donohue has been a director of the Company since February 1995.
Mr. Donohue has been the President and Chief Executive Officer of the American
Trucking Association, the national trade organization of the trucking industry
since 1984. Mr. Donohue is a director of: the National Football League Alumni
Association; IPAC, an international consulting firm; Newmyer Associates, a
Washington, D.C. firm that tracks and analyzes public policy; and the Hudson
Institute. In addition, Mr. Donohue served on the President's Commission on
Intermodal Transportation.
Richard A. Doppelt has been a director of the Company since January 1995.
Mr. Doppelt is Venture Group Manager of Allstate Venture Capital, a division of
Allstate Insurance Company. He has been a member of Allstate Venture Capital
since 1987. Prior to joining Allstate, he practiced as a corporate attorney with
the law firm of Morrison & Foerster. Mr. Doppelt is a director of several
privately held companies.
Scott F. Meadow has been a director of the Company since February 1996. Mr.
Meadow also served as a director of the Company from December 1994 to August
1995. Mr. Meadow has been a Vice President of The Sprout Group, the venture
capital division of DLJ Capital Corporation, since February 1996. From 1992 to
1995, Mr. Meadow was a General Partner of Frontenac Company, a venture capital
firm. From 1982 to 1992, he was a general partner of William Blair Venture
Partners, a venture capital firm. Mr. Meadow is a director of
Medpartners/Mullikin Inc., a physician practice management company, as well as
several privately held companies.
Darcy J. Moore has been a director of the Company since February 1996. Ms.
Moore has been a General Partner of Frontenac Company, a venture capital firm,
since 1992. From 1990 to 1992, Ms. Moore served as an Associate of the venture
capital firm of William Blair Venture Partners. Ms. Moore is a director of:
Healthcare Resource Management, Inc., a radiology services company; Nurse on
Call, Inc., a demand management company; and ElderHealth, Inc., an elder care
company.
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<PAGE> 48
The Board of Directors is divided into three classes, each consisting of
approximately one-third of the total number of directors. There are currently
eight directors. Class I directors, consisting of Messrs. Klaassen and Doppelt,
will hold office until the 1998 annual meeting of stockholders; Class II
directors, consisting of Ms. Klaassen, Ms. Moore and Mr. Aprahamian, will hold
office until the 1999 annual meeting of stockholders; and Class III directors,
consisting of Messrs. Faeder, Meadow and Donohue, will hold office until the
1997 annual meeting of stockholders. Paul J. Klaassen and Teresa M. Klaassen are
husband and wife. No other family relationship exists among the Company's
directors and officers.
COMMITTEES OF THE BOARD OF DIRECTORS
Executive Committee. The members of the Executive Committee are Messrs.
Klaassen and Faeder and Ms. Klaassen. The Executive Committee has been delegated
all of the powers of the Board of Directors to the extent permitted under the
Delaware General Corporation Law.
Audit Committee. The members of the Audit Committee are Messrs.
Aprahamian, Donohue and Doppelt, all of whom are non-employee directors. The
Audit Committee, among other things, makes recommendations concerning the
engagement of independent auditors, reviews the results and scope of the annual
audit and other services provided by the Company's independent auditors and
reviews the adequacy of the Company's internal accounting controls.
Compensation Committee. The members of the Compensation Committee are
Messrs. Donohue, Aprahamian and Meadow, all of whom are non-employee directors.
The Compensation Committee makes recommendations to the full Board of Directors
concerning salary and bonus compensation and benefits for executive officers of
the Company.
Stock Option Committee. The members of the Stock Option Committee are
Messrs. Klaassen and Meadow and Ms. Klaassen. The Stock Option Committee has the
power and authority to take all actions and make all determinations under the
Company's 1995 Stock Option Plan, including the grant of options thereunder.
COMPENSATION OF DIRECTORS
Non-employee directors are reimbursed for expenses actually incurred in
connection with attending meetings of the Board of Directors. In 1995, Messrs.
Aprahamian and Donohue each received a grant of a ten-year non-incentive stock
option for 6,666 shares of Common Stock at an exercise price of $3.00 per share
and in 1996, they each received grants of ten-year non-incentive stock options
for 3,334 shares of Common Stock at an exercise price of $10.50 per share and
15,000 shares of Common Stock at an exercise price equal to the initial public
offering price. Options for 10,000 shares vest upon filing of a Form S-8
Registration Statement. Following completion of the Offering, options for the
remaining 15,000 shares vest one-third on each anniversary date thereafter.
1996 DIRECTORS' STOCK OPTION PLAN
Any director who is a member of the Board of Directors who is not an
officer or employee of the Company or any of its subsidiaries (other than a
Series A director) is eligible to receive options under the Company's 1996
Directors' Stock Option Plan (the "Director Plan"). An aggregate of 50,000
shares of Common Stock are reserved for issuance to participants under the
Director Plan. Each non-employee director whose commencement of service is after
April 25, 1996, the effective date of the Director Plan, and before termination
of the Plan shall be granted an initial option, as of the date of the director's
commencement of service, to purchase 10,000 shares of Common Stock. An
additional option to purchase 5,000 shares of Common Stock will be granted
immediately after each subsequent annual meeting of the Company's stockholders
(commencing with the 1997 annual meeting) occurring before the Director Plan
terminates to each non-employee director who is then serving on the Board. In
the event of any changes in the Common Stock by reason of stock dividends,
split-ups, recapitalizations, mergers, consolidations, combinations or other
exchanges of shares and the like, appropriate adjustments will be made by the
Board of Directors to the
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<PAGE> 49
number of shares of Common Stock available for issuance under the Director Plan,
the number of shares subject to outstanding options and/or the exercise price
per share of outstanding options.
Options granted under the Director Plan give the option holder the right to
purchase Common Stock at a price fixed in the stock option agreement executed by
the option holder and the Company at the time of grant. The option exercise
price will not be less than the fair market value of a share of Common Stock on
the date the option is granted. "Fair market value" for purposes of the Director
Plan generally will be equal to the closing price for the Common Stock on the
day prior to the date of grant. The period for exercising an option begins six
months after the option is granted and generally ends ten years from the date
the option is granted. Options granted under the Director Plan vest immediately.
All options to be granted under the Director Plan will be non-incentive stock
options.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1995, Messrs. Aprahamian, Donohue and Meadow served on the
Compensation Committee. In 1993, Mr. Donohue, jointly with his wife, made a
capital contribution of $500,000 in exchange for a 30% membership interest in
Sunrise Village House LLC, a limited liability company (the "LLC") that owns the
Village House facility. The Company owns a 50% membership interest in, and is
the managing member of, the LLC, and manages the facility pursuant to a
management contract that expires in 2003. The Company has an option exercisable
on or after April 1, 2000 to purchase the Donohues' interest at fair market
value and, after such date, the Donohues have the option to require the Company
to purchase their interest in the LLC at fair market value. Distributions made
by the LLC to the Donohues in 1993, 1994 and 1995 aggregated $18,700, $35,616
and $40,295, respectively. Upon completion of the Offering, the Company intends
to purchase the Donohues' 30% interest in the LLC in exchange for 52,500 shares
of Common Stock (equivalent to $945,000, assuming an initial public offering
price of $18.00 per share). The purchase price was determined based on a
valuation of the facility prepared by the Company based primarily upon a
capitalization of net operating income from the facility. The Donohues will have
incidental registration rights with respect to their shares. On January 4, 1995
and on January 14, 1996, DLJ Capital Corporation and Sprout Growth II, L.P.
(entities affiliated with Mr. Meadow) purchased an aggregate of 733,333 shares
of Series A Preferred Stock at $9.00 per share and an aggregate of 300,000
shares of Series B Preferred Stock at $10.00 per share, respectively. The Series
A Preferred Stock will convert into an equal number of shares of Common Stock
upon completion of the Offering and the Series B Preferred Stock will be
redeemed by the Company for $10.00 per share (plus any accrued but unpaid
dividends) with a portion of the net proceeds of the Offering.
The Company has entered into a Registration Agreement with the Series A
Investors. For a description of the terms of the Registration Agreement, see
"Description of Capital Stock -- Registration Rights."
Scott F. Meadow, a director of the Company, is an executive officer of The
Sprout Group, the venture capital division of DLJ Capital Corporation. DLJ
Capital Corporation is an affiliate of DLJ, the lead managing underwriter of the
Offering. See "Underwriting."
ADVISORY BOARD
The Company has an advisory board consisting of professionals who meet
periodically to advise the Board of Directors and management regarding resident
care, design improvements to the Sunrise model facility, and other matters
relating to the Company's facilities and services. The current members of the
Advisory Board include:
Nathan Billig, M.D. is a professor in the Department of Psychiatry at
Georgetown University Medical Center, and is Director of the Geriatric
Psychiatry Program. He is the author of Growing Older and Wiser, and
professional publications related to geriatric psychiatry and coincidence of
medical and psychiatric disorders.
Victor Regnier, AIA is a professor and the former Dean, School of
Architecture, University of Southern California. He is the author of (i) Housing
the Aged: Design Directives and Policy Considerations, (ii) Assisted Living
Housing for the Elderly: Design Innovations from the United States and Europe,
and
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<PAGE> 50
(iii) Assisted Living for the Frail and Aged: Innovations in Design, Management
and Financing. Mr. Regnier is a fellow in both the American Institute of
Architects and the Gerontological Society of America.
Dean J. Storer, M.D. is an Associate Clinical Professor, Department of
Psychiatry, George Washington University Medical Center. He is the Medical
Director of a large geriatric psychiatry group practice whose primary focus is
on the diagnosis of dementia and treatment of its associated problems.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain summary information concerning the
compensation paid to the Company's Chief Executive Officer and each of the other
two most highly compensated executive officers whose salary exceeded $100,000 in
1995 for services rendered in all capacities to the Company for fiscal 1995. The
table also sets forth certain summary information concerning the compensation
rate for two other individuals who became executive officers subsequent to
fiscal 1995. All of the executive officers named below are referred to herein as
the "named executive officers."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION/
AWARD
------------
SHARES OF
ANNUAL COMPENSATION COMMON STOCK
------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION(S) SALARY OPTIONS(1) COMPENSATION(2)
<S> <C> <C> <C>
Paul J. Klaassen............................ $ 200,000 -- $ 2,310
Chairman of the Board, President and
Chief Executive Officer
Teresa M. Klaassen.......................... 100,000 -- 1,818
Executive Vice President and Secretary
David W. Faeder............................. 175,000 466,666 2,310
Executive Vice President and Chief
Financial Officer
Timothy S. Smick(3)......................... 175,000 141,666 --
Executive Vice President and Chief
Operating Officer
Thomas B. Newell(4)......................... 175,000 129,999 --
Executive Vice President and General
Counsel of the Company and President of
Sunrise
Development, Inc.
</TABLE>
- ---------------
(1) Includes options granted through February 1996.
(2) Represents matching contributions made by the Company under its 401(k) plan.
(3) Mr. Smick joined the Company in February 1996. Salary information shown for
Mr. Smick is for 1996.
(4) Mr. Newell joined the Company in January 1996. Salary information shown for
Mr. Newell is for 1996.
Brian C. Swinton is expected to join the Company as Executive Vice
President, Sales and Marketing on May 31, 1996. Mr. Swinton's initial annual
salary will be $165,000 and he will receive options to purchase 120,000 shares
of Common Stock upon commencement of his employment. The option exercise price
will equal the initial public offering price.
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<PAGE> 51
OPTION GRANTS
The following table sets forth certain information concerning the grant of
options to purchase Common Stock to each of the named executive officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF POTENTIAL REALIZABLE
SHARES OF TOTAL VALUE AT ASSUMED
COMMON OPTIONS ANNUAL RATES OF STOCK
STOCK GRANTED TO EXERCISE PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES OR BASE OPTION TERM
OPTIONS IN FISCAL PRICE EXPIRATION ------------------------
NAME AND PRINCIPAL POSITION(S) GRANTED(1) YEAR ($/SH) DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
David W. Faeder................ 450,000(2) 31.0% $ 8.00 01/04/05 $2,264,021 $5,737,473
Executive Vice President and 16,666(3) 1.2 10.50 02/15/06 110,052 278,898
Chief Financial Officer
Timothy S. Smick............... 141,666(3) 11.0 10.50 02/15/06 935,476 2,370,681
Executive Vice President and
Chief Operating Officer
Thomas B. Newell............... 3,333 0.2 3.00 05/15/05 6,288 15,936
Executive Vice President and 63,333 4.4 7.50 11/19/05 298,723 757,024
General Counsel of the 63,333(3) 4.4 10.50 02/15/06 418,212 1,059,833
Company and President of
Sunrise Development, Inc.
</TABLE>
- ---------------
(1) All options included in this table vest 25% upon effectiveness of a
registration statement on Form S-8 to be filed promptly following completion
of the Offering and 25% on each of the next three anniversary dates thereof,
except as otherwise indicated. The vesting of Mr. Newell's options
accelerate in the event of involuntary termination of employment (other than
for cause).
(2) See "-- Non-Plan Stock Option Grant" for the terms of 450,000 of Mr.
Faeder's options.
(3) Granted in February 1996.
Mr. Swinton will be granted stock options for 120,000 shares at an exercise
price equal to the initial public offering price upon commencement of his
employment on May 31, 1996. Prior to completion of the Offering, the Company
anticipates granting additional options to purchase up to 250,000 shares of
Common Stock at an exercise price per share equal to the initial public offering
price to executive officers and other employees of the Company.
FISCAL YEAR-END VALUES OF STOCK OPTIONS
The following table sets forth certain information concerning the fiscal
year-end value of unexercised stock options held by the named executive
officers. None of the named executive officers exercised any options during
fiscal 1995.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS(1) IN-THE-MONEY OPTIONS(2)
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
David W. Faeder............................ -- 466,666 -- --
Timothy S. Smick........................... -- 141,666 -- --
Thomas B. Newell........................... -- 129,999 -- $14,999
</TABLE>
- ---------------
(1) Includes options granted in February 1996.
(2) There was no public trading market for the Common Stock at December 31,
1995. These values have been calculated on the basis of a per share price of
$7.50, the fair market value of the Common Stock as determined by the Board
of Directors on December 15, 1995, less the applicable exercise price,
multiplied by the number of shares underlying such options.
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<PAGE> 52
FEBRUARY 1996 OPTION GRANTS
On February 15, 1996 and February 29, 1996, the Company granted a total of
327,000 stock options at an exercise price of $10.50 per share. The Company
believes that these options were granted at no less than fair market value.
Accordingly, no compensation expense was recorded for these options. Subsequent
to the date of the grants, the Company negotiated a loan modification with GECC,
pursuant to which GECC agreed to accept a prepayment, payable upon consummation
of the Offering, of $8.6 million for its 25% participation interest in the cash
flow and increase in value of the SALLP Properties. GECC also agreed to a
reduction in the interest rate on the floating rate portion of the GECC Mortgage
from LIBOR plus 5.75% to LIBOR plus 3.75%, in exchange for an $8.0 million
prepayment of the variable rate portion of the GECC Mortgage payable upon
consummation of the Offering. Had the Company entered into the GECC loan
modification effective January 1, 1995, GECC mortgage interest expense for 1995
would have been approximately $7.8 million compared to $15.6 million. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The Company believes that the fair market value of its Common Stock
significantly increased as a result of the loan modification completed on May 1,
1996 because it eliminated the uncertainty and the financial impact of GECC's
25% participation interest in cash flow and property appreciation. In addition,
the market price for publicly traded assisted living companies increased
significantly following the February 1996 grant dates. Due to these factors, if
the February 1996 options had been granted at an exercise price of $10.50 per
share subsequent to the GECC loan modification and the increase in the market
prices of comparable publicly traded companies, they would have been deemed
compensatory in an amount reflecting the difference between the mid-point of the
initial public offering price range, discounted by approximately 25%, and the
exercise price of the options. The Company believes that approximately a 25%
discount to the mid-point of the range would be appropriate given the Company's
status as a private company until completion of the Offering and, among other
factors: (i) the Founders' continued ownership of 100% of the Common Stock; (ii)
the mandatory redemption features, dividend preferences and other rights of the
Series A Investors which continue until completion of the Offering; (iii)
illiquidity of the Common Stock subject to the options; (iv) option vesting and
exercise conditions; (v) risk associated with completion of the Offering; and
(vi) market pricing uncertainties.
1995 STOCK OPTION PLAN
The Sunrise Assisted Living, Inc. 1995 Stock Option Plan, as amended (the
"Stock Option Plan"), provides for the granting of options to acquire Common
Stock ("Options"), which may be either incentive stock options (an "ISO") or
nonqualified stock options (an "NSO"). The Stock Option Plan is administered by
the Stock Option Committee of the Board of Directors, and all full-time
employees or any other individual (including non-employee directors of, or
consultants or advisors providing bona fide services to, the Company) whose
participation in the Stock Option Plan is determined by the Stock Option
Committee to be in the best interests of the Company are eligible to receive
Option grants thereunder. The Stock Option Plan does not have a termination
date, but a grant of an ISO may not occur 10 years after the effective date of
the Stock Option Plan. Receipt of Option grants under the Stock Option Plan is
contingent upon the execution by each prospective Option holder of an agreement
in such form as the Stock Option Committee will from time to time determine.
The Stock Option Plan provides for the grant of Options to purchase up to
1,298,065 shares of Common Stock. The purchase price per share of Common Stock
subject to an Option is fixed by the Stock Option Committee when the Option is
granted. Options to purchase no more than 250,000 shares of Common Stock may be
granted to any one eligible individual during the first 10 years after the
effective date of the Stock Option Plan and 50,000 shares per year thereafter.
The terms of Options granted under the Stock Option Plan, including the vesting
provisions of such Options, are established at the time of grant. No person may
receive any ISO if, at the time of grant, such person owns directly or
indirectly more than 10% of the total combined voting power of the Company
unless the Option price is at least 110% of the fair market value of the Common
Stock and the exercise period of such ISO is by its terms limited to five years.
There is also a $100,000 limit on the value of Common Stock (determined at the
time of grant) covered by ISOs that first become exercisable by an optionee in
any calendar year. No option granted to a reporting person under Section 16 of
the Securities
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<PAGE> 53
Exchange Act of 1934 (the "Exchange Act") may be exercisable during the first
six months after the date of grant.
Payment for shares purchased under the Stock Option Plan may be made: (i)
in cash or in cash equivalents; (ii) if permitted by the Option agreement, by
exchanging shares of Common Stock with a fair market value equal to or less than
the total Option price plus cash for any difference; (iii) if permitted by the
Option agreement, by delivery of a promissory note of the person exercising the
Option; (iv) if permitted by the Option agreement, by causing the Company to
withhold shares of Common Stock otherwise issuable pursuant to the exercise of
an Option equal in value to the exercise price; or (v) by a combination of the
foregoing. Payment in full of the option price need not accompany the written
notice of exercise provided the notice directs that the stock certificate for
the shares for which the option is exercised be delivered to a licensed broker
acceptable to the Company as the agent for the individual exercising the option
and, at the time such stock certificate is delivered, the broker tenders to the
Company cash (or cash equivalents acceptable to the Company) equal to the option
price.
In the event of stock splits, stock dividends, recapitalizations,
combinations of shares or certain other events, the Stock Option Plan provides
for adjustment of: (i) the number of shares available for Option grants,
including the maximum number of shares that may be granted to any one
individual, and (ii) the number of shares and the per share exercise price for
shares subject to unexercised Options. Upon any dissolution or liquidation of
the Company, the sale of substantially all of the Company's assets, a merger,
reorganization or consolidation in which the Company is not the surviving
corporation or any other transaction (including, without limitation, a merger or
reorganization in which the Company is the surviving corporation) approved by
the Board which results in any person or entity owning 80% or more of the total
combined voting power of all classes of stock of the Company, the Stock Option
Plan and the Options issued thereunder will terminate, unless provision is made
in connection with such transaction for the continuation of the plans and/or the
assumption of the Options or for the substitution for such Options of new
options covering the stock of a successor corporation or a parent or subsidiary
thereof, with appropriate adjustment as to the number and kinds of shares and
the per share exercise price.
Options granted under the Stock Option Plan are non-transferable except by
will or by the laws of descent and distribution upon the death of the Option
holder, with the exception (other than, unless permissible under Rule 16b-3, an
optionee who is, or during the preceding six months has been, a reporting person
under Section 16 of the Exchange Act) of certain allowable transfers to such
holder's family members or to a trust established and maintained for the benefit
of such holder or such holder's family members.
Options granted to date under the Stock Option Plan generally terminate:
(i) upon termination of employment for any reason (to the extent the Option has
not vested); (ii) upon termination of employment for cause (whether or not the
Option has vested); (iii) one year after termination of employment due to death
or disability (to the extent the Option has vested); and (iv) three months after
the optionee's termination of employment other than for cause, death or
disability (to the extent the Option has vested). The Board of Directors may
terminate or amend the Stock Option Plan at any time; provided, however, that
any amendment by the Board which, if not approved by the Company's stockholders
in accordance with applicable requirements of Rule 16b-3, would cause the Plan
to not comply with Rule 16b-3 (or any successor rule or other regulatory
requirements) or the Internal Revenue Code of 1986, as amended, shall not be
effective unless approved by the affirmative vote of stockholders who hold more
than 50% of the combined voting power of the outstanding shares of voting stock
of the Company present or represented, and entitled to vote thereon at a duly
constituted stockholders' meeting.
NON-PLAN STOCK OPTION GRANT
The Company has granted 450,000 non-qualified stock options outside of the
Stock Option Plan to David W. Faeder pursuant to a Stock Option Agreement, as
amended, effective as of January 4, 1995 (the "Faeder Option Agreement"). The
exercise price of such non-plan options is $8.00 per share. The fair market
value of the Common Stock on January 4, 1995 was estimated to be $3.00 per
share. Such non-plan options vest as follows: 300,000 shares become exercisable
when the Common Stock price reaches $15.75 per share; 75,000
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<PAGE> 54
shares become exercisable when the Common Stock price reaches $25.00 per share
or if there is a merger, consolidation or any sale of all or substantially all
of the assets of the Company that requires the consent or vote of the holders of
Common Stock (a "Fundamental Change") or upon any liquidation, dissolution or
winding up of the Company (a "Liquidation"); and options for 75,000 shares
become exercisable when the Common Stock price reaches $30.00 per share or there
is a Fundamental Change or Liquidation. All of such options vest in accordance
with the foregoing whether or not Mr. Faeder is employed by the Company at the
time of vesting, subject to forfeiture as described in the following paragraph;
provided, however, with respect to a Fundamental Change or Liquidation, Mr.
Faeder must be employed by the Company on the date of such Fundamental Change or
Liquidation in order for vesting to occur. In any case, all options become
exercisable in approximately six years, when Mr. Faeder reaches age 45, if he
has been continuously providing services to the Company since the date of the
Faeder Option Agreement.
In general, Mr. Faeder's non-plan options expire 10 years after the date of
grant and are non-transferable except in the event of death or disability. If
Mr. Faeder's employment with the Company terminates by reason of death or
permanent and total disability, his non-plan options, whether or not then
exercisable, may be exercised within five years after such death or disability.
If Mr. Faeder's employment is terminated for "cause" (as defined in the Faeder
Option Agreement) by the Company or voluntarily by Mr. Faeder without "good
reason" (as defined in the Faeder Option Agreement), the non-plan options are
forfeited. Termination of Mr. Faeder's employment by the Company without cause
or voluntarily by Mr. Faeder for good reason does not result in forfeiture of
his non-plan options.
Mr. Faeder's non-plan options contain provisions providing for adjustment
of the number of shares and the per share exercise price for shares subject to
unexercised options in connection with certain changes in the outstanding
shares, such as a recapitalization.
401(K) PLAN
The Company has adopted a contributory retirement plan (the "401(k) Plan")
for its employees age 21 and over with at least one year of service to the
Company. The 401(k) Plan is designed to provide tax-deferred income to the
Company's employees in accordance with the provisions of Section 401(k) of the
Internal Revenue Code of 1986, as amended (the "Code"). The 401(k) Plan provides
that each participant may contribute up to 16% of his or her salary (not to
exceed the annual statutory limit). The Company makes a matching contribution to
each participant's account equal to 25% of such participant's contribution up to
7% of such participant's annual compensation. Matching contributions made by the
Company in 1995 totaled $80,198. Upon death, disability, retirement or other
termination of employment, participants may elect to receive periodic or lump
sum distributions from the 401(k) Plan. Participants also may make withdrawals
from the 401(k) Plan in cases of demonstrated hardship.
CERTAIN TRANSACTIONS
The Company leases certain real property on which the Fairfax facility is
located from Teresa M. Klaassen and her sister pursuant to a 99-year ground
lease dated June 5, 1986 (the "Ground Lease"). The Ground Lease provides for
monthly rent of $21,272, as adjusted annually based on the Consumer Price Index.
Annual rent expense under the ground lease for 1993, 1994 and 1995 was $241,896,
$248,496 and $255,258, respectively. The Company has subleased approximately 50%
of the property subject to the Ground Lease to Sunrise Foundation, Inc., a
not-for-profit organization operated by the Founders ("Sunrise Foundation"),
which operates a school and day care center on the property. The sublease
terminates upon expiration of the Ground Lease and provides for monthly rent
equal to 50% of all of the rent payable under the Ground Lease. Sunrise
Foundation also reimburses the Company for use of office facilities and support
services. Reimbursements for the years ended December 31, 1993, 1994 and 1995
were $60,000 for each year. The Company believes that, at the time entered into,
the terms of the lease and sublease were no less favorable to the Company than
those which it could have obtained from an unaffiliated third party.
The Founders lease certain real property located in Fairfax County,
Virginia for use as a residence pursuant to a 99-year ground lease with the
Company entered into in June 1994. The rent is $1.00 per month.
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<PAGE> 55
This property is part of a parcel, which includes the Oakton facility, that was
transferred by the Founders to the Company in connection with obtaining the GECC
Mortgage. Rather than attempting to subdivide the parcel, which would have
caused a significant delay in consummation of that transaction, the Company
agreed to lease the Founders' residence back to them as a condition to the
transfer of the property.
In connection with the Contribution Transaction, in 1995 the Sunrise
Entities made distributions aggregating $9.6 million to, and the Company assumed
$1.4 million of indebtedness (representing the discounted value of $2.1 million
of interest-free indebtedness) of, the Founders. A portion of the cash
distributions is expected to be used to pay tax liabilities incurred by the
Founders in the Contribution Transaction. See Note 1 of Notes to Consolidated
and Combined Financial Statements. In 1996, one of the Sunrise Entities made an
additional $390,000 distribution to the Founders relating to prior period net
income. Immediately prior to the Contribution Transaction in 1994, Sunrise
Entities made distributions totaling $5.9 million to the Founders. See "The
Company and its Predecessors."
Sunrise Terrace, Inc., a wholly owned subsidiary of the Company, made
various advances to the Founders in 1993 and 1994. The largest amount
outstanding in 1993 was $954,000 and in 1994 was $1.2 million. The Founders
repaid such advances in full in 1994.
Prior to June 1994, 15 assisted living facilities now owned by the Company
were held in separate limited partnerships and other entities partially owned by
other parties. In June 1994, proceeds from the GECC Mortgage were used to
refinance $71.5 million of existing mortgages and $5.5 million to finance the
acquisition of all minority ownership interests in these 15 facilities. The
minority ownership interests in such facilities were acquired by the Founders
and those facilities were transferred to a newly formed limited partnership,
SALLP, in exchange for limited partnership interests in that entity. The
Founders' interests in SALLP were contributed to the Company in the Contribution
Transaction.
In 1993, Thomas J. Donohue, a director of the Company, jointly with his
wife, made a capital contribution of $500,000 in exchange for a 30% membership
interest in Sunrise Village House LLC, a limited liability company (the "LLC")
that owns the Village House facility. The Company owns a 50% membership interest
in, and is the managing member of, the LLC, and manages the facility pursuant to
a management contract that expires in 2003. The Company has an option
exercisable at any time on or after April 1, 2000 to purchase the Donohues'
interest at the greater of (i) 30% of the gross assets of the LLC less 30% of
the liabilities of the LLC as of the date notice of exercise of the option is
given; or (ii) the sum of the Donohues' capital contributions to the LLC and an
amount equal to 8% cumulative interest on their outstanding net capital
contribution to the LLC during the period between commencement of the LLC and
date of settlement, less any distributions to the Donohues under the LLC
agreement. After such date, the Donohues have the option (exercisable annually
on April 1) to require the Company to purchase their interest in the LLC at such
price. Distributions made by the LLC to the Donohues in 1993, 1994 and 1995
aggregated $18,700, $35,616 and $40,295, respectively. Upon completion of the
Offering, the Company intends to purchase the Donohues' 30% interest in the LLC
in exchange for 52,500 shares of Common Stock (equivalent to $945,000, assuming
an initial public offering price of $18.00 per share). The purchase price was
determined based on a valuation of the facility prepared by the Company based
primarily upon a capitalization of net operating income from the facility. The
Donohues will have incidental registration rights with respect to their shares.
The table below sets forth (i) the number of shares of Series A Preferred
Stock issued by the Company for $9.00 per share on January 4, 1995 and (ii) the
number of shares of Series B Preferred Stock issued by the Company for $10.00
per share on January 19, 1996, to certain entities affiliated with directors of
the Company. The Series A Preferred Stock will convert into an equal number of
shares of Common Stock upon completion
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<PAGE> 56
of the Offering, and the Series B Preferred Stock will be redeemed by the
Company for $10.00 per share (plus any accrued but unpaid dividends) with a
portion of the net proceeds of the Offering.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SHARES OF SHARES OF
SERIES A SERIES B
PREFERRED PREFERRED
ENTITY/DIRECTOR STOCK (1) STOCK
<S> <C> <C>
Allstate Insurance Company and affiliated entities/
Richard A. Doppelt............................................... 977,778 400,000
DLJ Capital Corporation and Sprout Growth II, L.P./
Scott F. Meadow.................................................. 733,333 300,000
Frontenac VI Limited Partnership/
Darcy J. Moore................................................... 733,333 300,000
</TABLE>
- ---------------
(1) See "Principal and Selling Stockholders" for a description of the beneficial
ownership of these shares.
The Company has entered into a Registration Agreement with the Series A
Investors. For a description of the terms of the Registration Agreement, see
"Description of Capital Stock -- Registration Rights."
Scott F. Meadow, a director of the Company, is an executive officer of The
Sprout Group, a venture capital division of DLJ Capital Corporation. DLJ Capital
Corporation is an affiliate of DLJ, the lead managing underwriter of the
Offering. See "Underwriting."
The Company has adopted a policy that all future transactions between the
Company and its executive officers, directors and other affiliates must be (i)
approved by a majority of the members of the Board of Directors and by a
majority of the disinterested members of the Board of Directors and (ii) on
terms no less favorable to the Company than could be obtained from unaffiliated
third parties.
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<PAGE> 57
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Common Stock as of April 30, 1996 and as adjusted to
reflect the sale of the shares offered hereby, by (i) each person known by the
Company to be the beneficial owner of more than five percent of the Common
Stock; (ii) each director of the Company; (iii) each named executive officer of
the Company; and (iv) all executive officers and directors of the Company as a
group. Footnote (3) to the table also sets forth certain information with
respect to the beneficial ownership of the Selling Stockholders, assuming the
Underwriters exercise their over-allotment option in full.
<TABLE>
<CAPTION>
PERCENT OF OWNERSHIP
-------------------------
NUMBER OF SHARES BEFORE AFTER
NAME BENEFICIALLY OWNED (1) OFFERING OFFERING
<S> <C> <C> <C>
Paul J. Klaassen (2)(3)........................... 6,019,475 70.7% 44.5%
Teresa M. Klaassen (2)(3)......................... 6,019,475 70.7 44.5
David W. Faeder (2)(4)............................ 304,167 3.6 2.2
Timothy S. Smick (2)(5)........................... 35,417 * *
Thomas B. Newell (2)(6)........................... 32,500 * *
Ronald V. Aprahamian (7).......................... 10,000 * *
Thomas J. Donohue (8)............................. 10,000 * *
Richard A. Doppelt(9)............................. 977,778 16.2 7.2
Scott F. Meadow (10).............................. 733,333 10.9 5.4
Darcy J. Moore (11)............................... 733,333 10.9 5.4
Allstate Insurance Company (12)................... 977,778 16.2 7.2
DLJ Capital Corporation (13)...................... 733,333 10.9 5.4
Frontenac VI Limited Partnership (14)............. 733,333 10.9 5.4
Sprout Growth II, L.P.(15)........................ 667,161 10.0 4.9
Executive officers and directors
as a group (11 persons) (16).................... 8,886,003 100.0% 63.9%
</TABLE>
- ---------------
* Less than one percent.
(1) Pursuant to Rule 13d-3 under the Exchange Act, a person has beneficial
ownership of any securities as to which such person, directly or
indirectly, through any contract, arrangement, undertaking, relationship or
otherwise has or shares voting power and/or investment power and as to
which such person has the right to acquire such voting and/or investment
power within 60 days. Percentage of beneficial ownership as to any person
as of a particular date is calculated by dividing the number of shares
beneficially owned by such person by the sum of the number of shares
outstanding as of such date and the number of shares as to which such
person has the right to acquire voting and/or investment power within 60
days.
(2) The business address of the named person is c/o the Company, 9401 Lee
Highway, Suite 300, Fairfax, VA 22031.
(3) The Founders hold these shares jointly. If the Underwriters exercise their
over-allotment option in full, the Founders would sell 750,000 shares of
Common Stock and would beneficially own 5,269,475 shares (39.0%) of the
Common Stock outstanding after the Offering.
(4) Represents 300,000 shares issuable upon the exercise of stock options that
are exercisable within 60 days and 4,167 shares issuable upon the exercise
of stock options that are exercisable upon effectiveness of a registration
statement on Form S-8 to be filed promptly following completion of the
Offering.
(5) Represents 35,417 shares issuable upon the exercise of stock options that
are exercisable upon effectiveness of a registration statement of Form S-8
to be filed promptly following completion of the Offering.
(6) Represents 32,500 shares issuable upon the exercise of stock options that
are exercisable upon effectiveness of a registration statement on Form S-8
to be filed promptly following completion of the Offering.
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<PAGE> 58
(7) The business address of the named person is c/o The Compucare Company,
12110 Sunset Hills Drive, Reston, VA 22090. Represents 10,000 shares
issuable upon the exercise of stock options that are exercisable upon
effectiveness of a registration statement on Form S-8 to be filed promptly
following completion of the Offering.
(8) The business address of the named person is c/o American Trucking
Association, 2200 Mill Road, Alexandria, VA 22314. Represents 10,000 shares
issuable upon the exercise of stock options that are exercisable within 60
days. Does not include 52,500 shares of Common Stock expected to be issued
upon completion of the Offering in exchange for an ownership interest in
one of the Company's facilities. See "Certain Transactions."
(9) The business address of the named person is c/o Allstate Insurance Company,
Northbrook, IL 60062. Represents 547,555 shares beneficially owned by
Allstate Insurance Company and 342,222 shares beneficially owned by
Allstate Life Insurance. Also includes shares held in trust for the benefit
of Allstate Retirement Plan (48,889 shares) and Agents Pension Plan (39,112
shares) by Continental Trust Company, as trustee. Mr. Doppelt is Venture
Group Manager of Allstate Venture Capital, an affiliate of these companies,
and in such capacity may be deemed to share beneficial ownership with
respect to such shares; however, he disclaims any beneficial ownership
except to the extent of his pecuniary interest therein.
(10) The business address of the named person is c/o The Sprout Group, 277 Park
Avenue, New York, NY 10172. Represents 667,161 shares beneficially owned by
Sprout Growth II, L.P. ("Sprout") and 66,172 shares beneficially owned by
DLJ Capital Corporation ("DLJ Capital"). Mr. Meadow is a general partner of
DLJ Growth Associates II, L.P., which is a general partner of Sprout, and a
Vice President of The Sprout Group, a division of DLJ Capital. Mr. Meadow
may be deemed to share beneficial ownership with respect to such shares;
however, he disclaims any beneficial ownership, except to the extent of his
pecuniary interest therein.
(11) The business address of the named person is c/o Frontenac Company, 135 S.
LaSalle Street, 38th Floor, Chicago, IL 60603. Represents 733,333 shares
beneficially owned by Frontenac VI Limited Partnership ("Frontenac VI").
Frontenac Company is the general partner of Frontenac VI. Ms. Moore is a
general partner of Frontenac Company. In such capacity, Ms. Moore may be
deemed to share beneficial ownership with respect to such shares; however,
she disclaims beneficial ownership thereof except to the extent of her
pecuniary interest therein.
(12) The business address of Allstate Insurance Company is Northbrook, IL 60062.
Includes shares owned by Allstate Insurance Company (547,555 shares) and
Allstate Life Insurance Company (342,222 shares). These Allstate entities
are affiliates through interrelated ownership and/or control. Also includes
shares held in trust for the benefit of Allstate Retirement Plan (48,889
shares) and Agents Pension Plan (39,112 shares) by Continental Trust
Company, as trustee, as to which Allstate Insurance Company disclaims
beneficial ownership except to the extent of its pecuniary interest
therein.
(13) The business address of DLJ Capital is 277 Park Avenue, New York, NY 10172.
Includes 667,161 shares beneficially owned by Sprout of which DLJ Capital
is the managing general partner. In such capacity, DLJ Capital may be
deemed to share beneficial ownership with respect to such shares. Sprout is
one of a number of funds associated with The Sprout Group, a division of
DLJ Capital. DLJ Capital is a wholly owned subsidiary of Donaldson, Lufkin
& Jenrette, Inc. ("DLJ, Inc."), a publicly held holding company which is
traded on the New York Stock Exchange. DLJ, the lead managing underwriter,
is also a wholly owned subsidiary of DLJ, Inc.
(14) The business address of Frontenac VI is 135 S. LaSalle Street, 38th Floor,
Chicago, IL 60603.
(15) The business address of Sprout is 277 Park Avenue, New York, NY 10172. For
a description of the affiliation between Sprout and DLJ, see note (13)
above.
(16) See notes (3), (4), (5), (6), (7), (8), (9), (10) and (11) above. Includes
an additional 30,000 shares issuable upon the exercise of stock options
that are exercisable upon effectiveness of a registration statement on Form
S-8 to be filed promptly following completion of the Offering.
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<PAGE> 59
DESCRIPTION OF CAPITAL STOCK
Upon completion of the Offering, the Company's authorized capital stock
will consist of 60,000,000 shares of Common Stock, par value $.01 per share (the
"Common Stock"), and 10,000,000 shares of Preferred Stock, par value $.01 per
share (the "Preferred Stock"). At December 31, 1995, there were outstanding
6,019,475 shares of Common Stock and 2,444,444 shares of Series A Preferred
Stock. On January 19, 1996, the Company issued and sold 1,000,000 shares of
Series B Preferred Stock. Upon completion of the Offering, all of the
outstanding shares of Series A Preferred Stock will be converted into an equal
number of shares of Common Stock and all of the outstanding shares of Series B
Preferred Stock will be redeemed by the Company. All of the currently
outstanding shares of Common Stock and Preferred Stock are validly issued, fully
paid and nonassessable under the Delaware General Corporation Law (the "DGCL").
The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and qualified
in its entirety by, the provisions of the Company's Restated Certificate of
Incorporation (the "Certificate") which will be filed with the Delaware
Secretary of State and become effective promptly following completion of the
Offering, and by the provisions of applicable law. A copy of the form of
Certificate is included as an exhibit to the Registration Statement of which
this Prospectus is a part.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share on all
matters submitted to a vote of stockholders. The Certificate does not provide
for cumulative voting, and accordingly, the holders of a majority of the shares
of Common Stock entitled to vote in any election of directors may elect all of
the directors standing for election. The Certificate provides that whenever
there is paid, or declared and set aside for payment, to the holders of the
outstanding shares of any class of stock having preference over the Common Stock
as to the payment of dividends, the full amount of dividends and of sinking fund
or retirement fund or other retirement payments, if any, to which such holders
are entitled, then dividends may be paid on the Common Stock out of any assets
legally available therefor, but only when and as declared by the Board of
Directors. The Certificate also provides that in the event of any liquidation,
dissolution or winding up of the Company, after there is paid to or set aside
for the holders of any class of stock having preference over the Common Stock
the full amount to which such holders are entitled, then the holders of the
Common Stock, shall be entitled, after payment or provision for payment of all
debts and liabilities of the Company, to receive the remaining assets of the
Company available for distribution, in cash or in kind. The holders of Common
Stock have no preemptive, subscription, redemption or conversion rights. The
rights, preferences and privileges of holders of Common Stock will be subject to
the rights of the holders of any shares of any series of Preferred Stock that
the Company may issue in the future.
PREFERRED STOCK
The Certificate provides that the Board of Directors of the Company is
authorized to issue Preferred Stock in series and to fix and state the voting
powers, full or limited, or no voting powers, and such designations, preferences
and relative participating, optional or other special rights of the shares of
each such series and the qualifications, limitations and restrictions thereof.
Such action may be taken by the Board without stockholder approval. Under the
Certificate, each share of each series of Preferred Stock is to have the same
relative rights as, and be identical in all respects with, all other shares of
the same series. While providing flexibility in connection with possible
financings, acquisitions and other corporate purposes, the issuance of Preferred
Stock, among other things, could adversely affect the voting power of the
holders of Common Stock and, under certain circumstances, be used as a means of
discouraging, delaying or preventing a change in control of the Company. There
will be no shares of Preferred Stock outstanding upon completion of the Offering
and the Company has no present plan to issue shares of its Preferred Stock.
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<PAGE> 60
WARRANTS
In March 1996, the Company obtained a $13.0 million unsecured line of
credit. As part of such transaction, the Company issued to the lender warrants
to purchase a total of 50,000 shares of Common Stock. The per share exercise
price of the warrants is equal to 85% of the initial public offering price,
subject to various anti-dilution adjustments. The warrants may be exercised at
any time through March 19, 2006. The Company has also granted to the lender
incidental registration rights with respect to the shares of Common Stock
underlying the warrants. The Company is required to bear the expenses of any
such registrations.
REGISTRATION RIGHTS
The Founders, as holders of 6,019,475 shares of outstanding Common Stock
(the "Founders' Shares"), the holders of 2,444,444 shares of Common Stock
issuable upon conversion of the Series A Preferred Stock or their respective
transferees and any employee, officer, agent, consultant or director of the
Company or any subsidiary who hereafter owns, directly or indirectly, 1% more of
the outstanding Common Stock (on a fully diluted basis) whom the Company permits
to become a party to the Registration Agreement (defined below) are entitled to
certain rights with respect to the registration of such shares (the "Registrable
Securities") under the Securities Act. These rights are provided under the terms
of the Registration Agreement, dated January 4, 1995, between the Company and
the holders of the Registrable Securities (the "Registration Agreement"). The
following summary of certain provisions of the Registration Agreement does not
purport to be complete and is subject to, and qualified in its entirety by, the
Registration Agreement.
Demand Registration. Pursuant to the terms of the Registration Agreement,
upon the earlier of (i) an Initial Public Offering or (ii) January 4, 1998,
holders of Registrable Securities may request that the Company offer some or all
of such Registrable Securities to the public pursuant to an effective
registration statement under the Securities Act. Registration on Form S-1 may be
demanded by either of the Founders or by the holders of not less than a majority
of the Investors' Shares (defined below), provided that the holders requesting
registration on Form S-1 must be requesting registration of not less than 25% of
the Registrable Securities held by such holders. Registration on Form S-3 may be
demanded by either 25% of the holders of Investors' Shares or by holders of 25%
of the then outstanding Founders' Shares, provided that the aggregate offering
value of the Registrable Securities requested to be included in such
registration must be reasonably expected to equal at least $1 million. The
holders have the right to require the Company to file a registration statement
on Form S-1 two times and on Form S-3 an unlimited number of times. However, the
Company is obligated to pay registration expenses only for the first two
registrations on Form S-3. The Company is also required to give notice of such
requested registration to all holders of all Registrable Securities of the
Company. If a demand registration is an underwritten public offering and the
managing underwriter advises the Company that the number of Registrable
Securities and other securities being registered exceeds the number of
securities which can be sold in such offering without having a material adverse
effect on the offering, the Company may cut back pro rata the number of
Registrable Securities and other securities being registered. "Investors'
Shares" means any shares of Common Stock held of record by stockholders other
than the Founders, including shares issued or issuable upon the conversion of
the Series A Preferred Stock.
Incidental Registration. In addition, the Registration Agreement provides
that if the Company at any time proposes to register any of its securities under
the Securities Act, on a form other than Form S-4 or S-8, the holders of
Registrable Securities are entitled to have their shares included in such
registration statement on a pro rata basis, subject to certain other terms and
conditions.
The Company has agreed under the Registration Agreement to indemnify the
selling holders of the Registrable Securities against certain liabilities under
the Securities Act.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Limitations of Director Liability. Section 102(b)(7) of the DGCL
authorizes corporations to limit or eliminate the personal liability of
directors to corporations and their stockholders for monetary damages for breach
of directors' fiduciary duty of care. Although Section 102(b)(7) does not change
directors' duty of care, it enables corporations to limit available relief to
equitable remedies such as injunction or rescission. The
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Certificate limits the liability of directors to the Company or its stockholders
to the full extent permitted by Section 102(b)(7). Specifically, directors of
the Company are not personally liable for monetary damages to the Company or its
stockholders for breach of the director's fiduciary duty as a director, except
for liability: (i) for any breach of the director's duty of loyalty to the
Company or its stockholders; (ii) for acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law; (iii) for
unlawful payments of dividends or unlawful stock repurchases or redemptions as
provided in Section 174 of the DGCL; or (iv) for any transaction from which the
director derived an improper personal benefit.
Indemnification. To the maximum extent permitted by law, the Bylaws
provide for mandatory indemnification of directors and officers of the Company
against an expense, liability and loss to which they may become subject, or
which they may incur as a result of being or having been a director or officer
of the Company. In addition, the Company must advance or reimburse directors and
officers for expenses incurred by them in connection with indemnifiable claims.
Prior to completion of the Offering, the Company intends to enter into
separate indemnification agreements with its directors and officers. Each
indemnification agreement provides for, among other things: (i) indemnification
against any and all expenses, liabilities and losses (including attorneys' fees,
judgments, fines, taxes, penalties and amounts paid in settlement) of any claim
against an indemnified party unless it is determined, as provided in the
indemnification agreement, that indemnification is not permitted under
applicable law and (ii) prompt advancement of expenses to any indemnified party
in connection with his or her defense against any claim.
The Company also maintains directors' and officers' liability insurance.
CERTAIN ANTI-TAKEOVER PROVISIONS
Upon completion of the Offering, the Certificate and the Bylaws will
contain, among other things, certain provisions described below that may reduce
the likelihood of a change in the Board of Directors or voting control of the
Company without the consent of the Board of Directors. These provisions could
have the effect of discouraging, delaying, or preventing tender offers or
takeover attempts that some or a majority of the stockholders might consider to
be in the stockholders' best interest, including offers or attempts that might
result in a premium over the market price for the Common Stock.
Classified Board. The number of directors of the Company shall be such
number as from time to time is fixed by, or in the manner provided in, the
Bylaws within the range of a minimum of two and a maximum of eleven directors
specified in the Certificate. Pursuant to the Bylaws, the number of directors
within the range set forth in the Certificate shall be determined by resolution
of the Board passed by at least two-thirds of the directors then in office.
Directors are divided into three classes, each consisting of approximately
one-third of the total number of directors. The term of office of each class is
three years and expires in successive years at the time of the annual meeting of
stockholders.
Filling of Board Vacancies; Removal. Any vacancy occurring in the Board of
Directors, including any vacancy created by an increase in the number of
directors, shall be filled for the unexpired term by the concurring vote of a
majority of the directors then in office, whether or not a quorum, and any
director so chosen shall hold office for the remainder of the full term of the
class in which the new directorship was created or the vacancy occurred and
until such director's successor shall have been elected and qualified. Directors
may only be removed with cause by the affirmative vote of the holders of at
least a majority of the outstanding shares of capital stock then entitled to
vote at an election of directors.
Other Constituencies. The Board of Directors, when evaluating any offer,
bid, proposal or similar communication of another party to (i) make a tender or
exchange offer for any equity security of the Company, (ii) merge or consolidate
the Company with or into another corporation or corporations, or (iii) purchase
or otherwise acquire all or substantially all of the properties and assets of
the Company, shall, in connection with the exercise of its judgment in
determining what is in the best interests of the Company and its stockholders,
give due consideration to all relevant factors, including, without limitation,
the social, economic and regulatory effects on the Company, on employees,
providers and payors of the Company and its
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subsidiaries, on residents and families served by the Company and its
subsidiaries, on operations of the Company's subsidiaries and on the communities
in which the Company and its subsidiaries operate or are located.
Stockholder Action by Unanimous Written Consent. Any action required or
permitted to be taken by the stockholders must be effected at a duly called
annual or special meeting of such holders and may not be effected by any consent
in writing by such holders, unless such consent is unanimous.
Call of Special Meetings. Special meetings of stockholders may be called
at any time but only by the Chairman of the Board, the President, by a majority
of the directors then in office or by stockholders possessing at least 25% of
the voting power of the issued and outstanding voting stock entitled to vote
generally in the election of directors.
Bylaw Amendments. The stockholders may amend the Bylaws by the affirmative
vote of the holders of at least two-thirds of the outstanding shares of stock of
the Company entitled to vote thereon. Directors may also amend the Bylaws by a
two-thirds vote of the directors then in office.
Certificate Amendments. Except as set forth in the Certificate or as
otherwise specifically required by law, no amendment of any provision of the
Certificate shall be made unless such amendment has been first proposed by the
Board of Directors upon the affirmative vote of at least two-thirds of the
directors then in office and thereafter approved by the affirmative vote of the
holders of at least a majority of the outstanding shares of stock of the Company
entitled to vote thereon; provided however, if such amendment is to the
provisions described above or the provisions in the Certificate relating to the
authorized number of shares of Preferred Stock, Board authority to issue
Preferred Stock or the limitation on directors liability, such amendment must be
approved by the affirmative vote of the holders of at least two-thirds of the
outstanding shares of stock entitled to vote thereon.
Stockholder Nominations and Proposals. With certain exceptions, the
Company's Bylaws require that stockholders intending to present nominations for
directors or other business for consideration at a meeting of stockholders
notify the Company's Secretary by the later of 60 days before the date of the
meeting and 15 days after the date notice of the meeting is mailed or public
notice of the meeting is given.
Certain Statutory Provisions. Section 203 of the DGCL provides, in
general, that a stockholder acquiring more than 15% of the outstanding voting
shares of a corporation subject to the statute (an "Interested Stockholder"),
but less than 85% of such shares, may not engage in certain "Business
Combinations" with the corporation for a period of three years subsequent to the
date on which the stockholder became an Interested Stockholder unless (i) prior
to such date the corporation's board of directors approved either the Business
Combination or the transaction in which the stockholder became in Interested
Stockholder or (ii) the Business Combination is approved by the corporation's
board of directors and authorized by a vote of at least two-thirds of the
outstanding voting stock of the corporation not owned by the Interested
Stockholder.
Section 203 defines the term "Business Combination" to encompass a wide
variety of transactions with or caused by an Interested Stockholder in which the
Interested Stockholder receives or could receive a benefit on other than a pro
rata basis with other stockholders, including mergers, certain asset sales,
certain issuances of additional shares to the Interested Stockholder,
transactions with the corporation which increase the proportionate interest of
the Interested Stockholder or a transaction in which the Interested Stockholder
receives certain other benefits.
Pursuant to a Board resolution adopted at the time of formation of the
Company, the Section 203 limits do not apply to any "Business Combination"
between the Company and the Founders, their respective "affiliates" or their
respective estates.
STOCKHOLDER RIGHTS AGREEMENT
The Board of Directors has adopted a Stockholder Rights Agreement ("Rights
Agreement") and declared a dividend of one preferred share purchase right (a
"Right") for each outstanding share of Common
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Stock. All shares of Common Stock issued by the Company between the date of
adoption of the Rights Agreement and the Distribution Date (as defined below),
or the date, if any, on which the Rights are redeemed will have Rights attached
to them. The Rights will expire ten years after adoption of the Rights
Agreement, unless earlier redeemed or exchanged. Each Right, when exercisable,
entitles the holder to purchase one one-thousandth of a share of Series C Junior
Participating Preferred Stock ("Preferred Stock") at a price of $85.00 (the
"Purchase Price"). Until a Right is exercised, the holder thereof, as such, will
have no rights as a stockholder of the Company, including, without limitation,
the right to vote or to receive dividends.
The Rights Agreement will provide that the Rights initially attach to all
certificates representing shares of Common Stock then outstanding. The Rights
will separate from the Common Stock and a distribution of Rights certificates
will occur (a "Distribution Date") upon the earlier to occur of (i) 10 days
following a public announcement that a person or group of affiliated or
associated persons (an "Acquiring Person") has acquired, or obtained the right
to acquire, beneficial ownership of 20% or more of the outstanding shares of
Common Stock (the "Stock Acquisition Date") or (ii) 10 business days (or such
later date as the Board of Directors may determine) following the commencement
of a tender offer or exchange offer, the consummation of which would result in
the beneficial ownership by a person of 20% or more of the outstanding shares of
Common Stock. Notwithstanding the foregoing, neither of the Founders (nor their
affiliates, associates and estates) each of whom, as of the date of adoption of
the Rights Agreement, beneficially owned in excess of 20% of the outstanding
shares of Common Stock will be deemed an "Acquiring Person." Until the
Distribution Date, the Rights will be evidenced by the Common Stock
certificates, and will be transferred with, and only with, the Common Stock
certificates.
If a Person becomes the beneficial owner of 20% or more of the then
outstanding shares of Common Stock (except pursuant to an offer for all
outstanding shares of Common Stock which the Outside Directors determine to be
fair to and otherwise in the best interests of the Company and its
stockholders), each holder of a Right will, after the end of a redemption
period, have the right to exercise the Right by purchasing Common Stock (or, in
certain circumstances, cash, property or other securities of the Company) having
a value equal to two times such amount.
If at any time following the Stock Acquisition Date, (i) the Company is
acquired in a merger or other business combination transaction in which it is
not the surviving corporation (other than a merger which follows an offer
described in the preceding paragraph), or (ii) 50% or more of the Company's
assets or earning power is sold or transferred, each holder of a Right shall
have the right to receive, upon exercise, common stock of the acquiring company
having a value equal to two times the purchase price of the Right.
In general, the Board of Directors of the Company may redeem the Rights at
a price of $.005 per Right at any time until ten days after an Acquiring Person
has been identified as such. Under certain circumstances, the decision to redeem
the Rights will require the concurrence of a majority of the Continuing
Directors, defined as any member of the Board of Directors who was a member of
the Board of Directors prior to the date of the Rights Agreement, and any person
who is subsequently elected to the Board if such person is recommended or
approved by a majority of the Continuing Directors. The term "Outside Directors"
means "Continuing Directors" who are not officers of the Company.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company.
The Rights, however, will not interfere with any merger or other business
combination approved by the Board of Directors since the Board may, at its
option, at any time prior to any person becoming an Acquiring Person, redeem all
rights or amend the Rights Agreement to exempt the person from the Rights
Agreement.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is First Union
National Bank of North Carolina.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
13,516,419 shares of Common Stock. The 5,000,000 shares sold in the Offering (or
a maximum of 5,750,000 shares if the Underwriters' over-allotment option is
exercised in full) will be freely tradable without restriction or further
registration under the Securities Act, unless held by "affiliates" of the
Company as that term is defined in Rule 144 under the Securities Act. The
remaining 8,516,419 shares outstanding are "restricted securities" as that term
is defined under Rule 144 and were issued by the Company in private transactions
in reliance upon one or more exemptions under the Securities Act. Such
restricted securities may be resold in a public distribution only if registered
under the Securities Act (which registration is contemplated with respect to all
of such restricted securities as described below) or pursuant to an exemption
therefrom, including Rule 144. Certain of the existing stockholders and
executive officers and directors of the Company have agreed, subject to certain
exceptions, that they will not sell any shares of Common Stock prior to the
expiration of 180 days from the date of this Prospectus without the prior
written consent of DLJ, except as to shares held by affiliates of DLJ which
require the consent of representatives of the Underwriters other than DLJ,
subject to certain exceptions.
In addition to the outstanding shares of Common Stock, the Company has
reserved for issuance 1,748,065 shares of Common Stock pursuant to the Company's
stock option programs, under which options to purchase 1,435,266 shares will be
outstanding upon completion of the Offering, of which options for 300,000 shares
are exercisable within 60 days of the date of this Prospectus and 246,316 of
which are exercisable upon the effectiveness of a registration statement on Form
S-8 to be filed promptly following completion of the Offering. In addition,
warrants to purchase 50,000 shares of Common Stock are outstanding.
In general, under Rule 144 a person (or persons whose shares are
aggregated), including an affiliate of the Company, who has beneficially owned
restricted securities for at least two years is entitled to sell within any
three-month period a number of shares that does not exceed the greater of the
average weekly trading volume during the four calendar weeks preceding such sale
or 1% of the then outstanding shares of Common Stock, provided certain manner of
sale and notice requirements and requirements as to the availability of current
public information about the Company are satisfied. In addition, affiliates of
the Company must comply with the restrictions and requirements of Rule 144,
other than the two-year holding period, to sell shares of Common Stock. A person
who is deemed not to have been an "affiliate" of the Company at any time during
the 90 days preceding a sale by such person, and who has beneficially owned such
shares for at least three years, would be entitled to sell such shares without
regard to the volume limitations described above.
The Commission has proposed to amend the holding period required by Rule
144 to permit sales of "restricted securities" after one year rather than two
years (and two years rather than three years for "non-affiliates" under Rule
144(k)). If such proposed amendment is adopted, restricted securities would
become freely tradable (subject to any applicable contractual restrictions) at
correspondingly earlier dates.
Subject to certain exceptions, the Company and all holders of outstanding
shares of Common Stock and optionees holding options to purchase a total of
908,331 shares of Common Stock have agreed, subject to certain exceptions, with
the Underwriters not to sell or otherwise dispose of any shares of Common Stock,
any options to purchase Common Stock or any securities convertible into or
exchangeable for shares of Common Stock for a period of 180 days after the date
of this Prospectus without the prior written consent of DLJ, except as to shares
held by affiliates of DLJ which require the prior written consent of the
representatives of the Underwriters, other than DLJ.
Upon the completion of the Offering, options and warrants which could be
exercised for the purchase of 576,935 shares of Common Stock (after the passage
of applicable time vesting periods) will not be subject to the lock-up
restrictions discussed above. Of such 576,935 shares of Common Stock issuable
upon the exercise of such options and warrants, 181,734 options and warrants
will become exercisable within 60 days after completion of the Offering.
After the Offering, the holders of 8,516,419 shares of Common Stock or
their transferees will be entitled to certain rights with respect to the
registration of such shares for sale under the Securities Act. See "Description
of Capital Stock -- Registration Rights."
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UNDERWRITING
Subject to the terms and certain conditions contained in the Underwriting
Agreement, the underwriters named below (the "Underwriters"), for whom
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), Alex. Brown & Sons
Incorporated and NatWest Securities Limited are acting as representatives
(collectively, the "Representatives"), have severally agreed to purchase from
the Company an aggregate of 5,000,000 shares of Common Stock. The number of
shares of Common Stock that each Underwriter has agreed to purchase is set forth
opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation...............
Alex. Brown & Sons Incorporated...................................
NatWest Securities Limited........................................
---------
Total................................................... 5,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to approval of certain legal matters by counsel and
to certain other conditions. The Underwriters are obligated to take and pay for
all the shares of Common Stock offered hereby (other than the shares of the
Common Stock covered by the over-allotment option described below) if any are
taken.
Prior to the Offering, there has been no established trading market for the
shares of Common Stock. The initial price to the public for the shares of Common
Stock offered hereby has been determined by negotiation between the Company and
the Representatives. The factors considered in determining the initial price to
the public include the history of and the prospects for the industry in which
the Company competes, the past and present operations of the Company, the
historical results of operations of the Company, the prospects for future
earnings of the Company, the recent market prices of securities of generally
comparable companies, and the general condition of the securities markets at the
time of the Offering.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Stockholders against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
The Underwriters have advised the Company that they propose to offer the
shares of Common Stock to the public initially at the price to the public set
forth on the cover page of this Prospectus and to certain dealers (who may
include the Underwriters) at such price less a concession not to exceed $
per share. The Underwriters may allow, and such dealers may reallow, discounts
not in excess of $ per share to any other Underwriter and certain other
dealers.
The Founders have granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an aggregate of 750,000
additional shares of Common Stock at the initial public offering price less
underwriting discounts and commissions, solely to cover over-allotments. To the
extent that the Underwriters exercise such option, each of the Underwriters will
be committed, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number of shares set forth opposite
such Underwriter's name in the preceding table bears to the total number of
shares offered.
NatWest Securities Limited, a United Kingdom broker-dealer and a member of
the Securities and Futures Authority Limited, has agreed that, as part of the
distribution of the Common Stock offered hereby and subject to certain
exceptions, it will not offer any Common Stock within the United States, its
territories or possessions, or to persons who are citizens thereof or residents
therein. The Underwriting Agreement does not limit sale of the Common Stock
offered hereby outside of the United States.
NatWest Securities Limited has further represented and agreed that (a) it
has not offered or sold and will not offer or sell any shares of Common Stock to
persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments
(whether as principal or agent) for the purposes of their businesses or
otherwise in circumstances that have not resulted
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and will not result in an offer to the public in the United Kingdom within the
meaning of the Public Offers of Securities Regulations 1995 or the Financial
Services Act 1986 (the "Act"); (b) it has complied and will comply with all
applicable provisions of the Act with respect to anything done by it in relation
to the shares of Common Stock in, from, or otherwise involving the United
Kingdom; and (c) it has only issued or passed on and will only issue or pass on,
in the United Kingdom, any document that consists of or any part of listing
particulars, supplementary listing particulars, or any other document required
or permitted to be published by listing rules under Part IV of the Act, to a
person who is of a kind described in Article 11(3) of the Financial Services Act
1986 (Investment Advertisements) (Exemptions) Order 1995 or is a person to whom
the document may otherwise lawfully be issued or passed on.
Certain affiliates of DLJ beneficially own an aggregate of 733,333 shares
of Series A Preferred Stock which, upon consummation of the Offering, will
automatically convert to 733,333 shares of Common Stock and will represent 5.4%
of the outstanding Common Stock. Such entities also own 300,000 shares of Series
B Preferred Stock which will be redeemed using a portion of the net proceeds
from the Offering. Because affiliates of DLJ beneficially own more than ten
percent of the preferred equity of the Company (prior to giving effect to the
conversion thereof upon consummation of the Offering), the Offering is being
conducted in accordance with the applicable provisions of Schedule E to the
By-Laws of the National Association of Securities Dealers, Inc. In accordance
with these requirements, Alex. Brown & Sons Incorporated (the "Independent
Underwriter") is assuming the responsibilities of acting as "qualified
independent underwriter" and will recommend the maximum public offering price
for the shares of Common Stock in compliance with the requirements of Schedule
E. In connection with the Offering, the Independent Underwriter is performing
due diligence investigations and is reviewing and participating in the
preparation of this Prospectus and the Registration Statement of which this
Prospectus forms a part. The initial public offering price of the Common Stock
will be no higher than the price recommended by the Independent Underwriter.
Pursuant to the Stockholders' Agreement entered into in connection with the
issuance of the Series A Preferred Stock, Sprout and DLJ Capital, both
affiliates of DLJ, have the right to designate one member of the Board of
Directors. Their current designee is Scott F. Meadow. Mr. Meadow is a general
partner of DLJ Growth Associates II, L.P., which is a general partner of Sprout,
and a Senior Vice President of The Sprout Group, a division of DLJ Capital. DLJ
Capital is a wholly owned subsidiary of DLJ, Inc. DLJ, the lead managing
underwriter, is also a wholly owned subsidiary of DLJ, Inc. The Stockholders'
Agreement will terminate upon completion of the Offering.
The Underwriters do not intend to confirm sales of shares of Common Stock
to any accounts over which they exercise discretionary authority.
Subject to certain exceptions, the Company and certain of its existing
stockholders and directors and executive officers have agreed not to offer,
sell, contract to sell, or otherwise dispose of any shares of Common Stock or
any securities convertible or exchangeable into any shares of Common Stock prior
to the expiration of 180 days from the date of this Prospectus, without the
prior written consent of DLJ, except as to shares held by affiliates of DLJ
which require the prior written consent of the Representatives other than DLJ.
See "Shares Eligible for Future Sale."
At the request of the Company, up to 500,000 shares of Common Stock offered
hereby have been reserved for sale to certain individuals, including directors
and employees of the Company and other entities with whom directors of the
Company are affiliated, and members of their families. The price of such shares
to such persons will be the initial public offering price set forth on the cover
of this Prospectus. The number of shares available to the general public will be
reduced to the extent those persons purchase reserved shares. Any shares not so
purchased will be offered hereby at the public offering price set forth on the
cover of this Prospectus.
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LEGAL MATTERS
The validity of the shares offered hereby will be passed upon for the
Company by Hogan & Hartson L.L.P., Washington, D.C. Alston & Bird, Atlanta,
Georgia, is acting as counsel for the Underwriters in connection with certain
legal matters relating to the sale of Common Stock offered hereby.
EXPERTS
The consolidated financial statements of Sunrise Assisted Living, Inc. as
of December 31, 1995, and for the year then ended, and the combined financial
statements of Sunrise Entities as of December 31, 1994 and for the year then
ended, appearing in this Prospectus and Registration Statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of the firm as experts in accounting and auditing. The
combined financial statements of Sunrise Entities for the year ended December
31, 1993 and the combined financial statements of Acquired Entities of Sunrise
as of December 31, 1993 and for the year then ended, have been audited by
Hoffman, Morrison & Fitzgerald P.C., independent auditors, as set forth in their
reports thereon appearing elsewhere herein, and are included in reliance upon
such reports given upon the authority of the firm as experts in accounting and
auditing.
CHANGE IN INDEPENDENT ACCOUNTANTS
In November 1994, the Company's Board of Director's decided to retain Ernst
& Young LLP as the independent accountants for the Company and replaced the
Company's former accountants. There were no disagreements with the former
accountants regarding accounting principles or practices, financial statement
disclosure, or auditing scope or procedures. The former accountants' report on
Sunrise Entities, for the year ended December 31, 1993, included herein, did not
contain an adverse opinion or a disclaimer of an opinion or qualifications as to
uncertainty, audit scope or accounting principles. Prior to retaining Ernst &
Young LLP, the Company had not consulted with Ernst & Young LLP regarding
accounting principles.
63
<PAGE> 68
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") in Washington, D.C. a Registration Statement on Form S-1 (the
"Registration Statement") under the Securities Act with respect to the Common
Stock offered hereby. As used herein, the term "Registration Statement" means
the initial Registration Statement and any and all amendments thereto. This
Prospectus omits certain information contained in the Registration Statement as
permitted by the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement, including the exhibits thereto.
Statements herein concerning the contents of any contract or other document are
not necessarily complete and in each instance reference is made to such contract
or other document filed with the Commission as an exhibit to the Registration
Statement, each such statement being qualified by and subject to such reference
in all respects.
As a result of the Offering, the Company will become subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and in accordance therewith will file reports and other information with the
Commission. Reports, registration statements, proxy statements, and other
information filed by the Company with the Commission can be inspected and copied
at the public reference facilities maintained by the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the
Commission's Regional Offices: 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, New York, New York 10048. Copies of
such materials can be obtained at prescribed rates from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549.
The Company intends to furnish holders of the Common Stock with annual
reports containing among other information, audited financial statements
certified by an independent public accounting firm and quarterly reports
containing unaudited condensed financial information for the first three
quarters of each fiscal year. The Company also intends to furnish such other
reports as it may determine or as may be required by law.
64
<PAGE> 69
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUNRISE ASSISTED LIVING, INC. AND SUNRISE ENTITIES
Report of Independent Auditors........................................................ F-2
Report of Independent Auditors........................................................ F-3
Consolidated Balance Sheets as of March 31, 1996 (unaudited) and as of December 31,
1995 of the Company and Combined Balance Sheets as of December 31, 1994 of the
Sunrise Entities.................................................................... F-4
Consolidated Statements of Operations of the Company for the three months ended March
31, 1996 and 1995 (unaudited) and for the year ended December 31, 1995 and Combined
Statements of Operations of the Sunrise Entities for each of the two years ended
December 31, 1994................................................................... F-5
Consolidated Statement of Changes in Stockholders' Deficit of the Company and Combined
Statement of Owners' Deficit of the Sunrise Entities................................ F-6
Consolidated Statements of Cash Flows of the Company for the three months ended March
31, 1996 and 1995 (unaudited) and for the year ended December 31, 1995 and Combined
Statements of Cash Flows of the Sunrise Entities for each of the two years ended
December 31, 1994................................................................... F-7
Notes to Consolidated and Combined Financial Statements............................... F-8
</TABLE>
<TABLE>
<S> <C>
ACQUIRED ENTITIES OF SUNRISE
Independent Auditors' Report.......................................................... F-25
Combined Balance Sheet as of December 31, 1993........................................ F-26
Combined Statement of Operations and Partners' Deficit for the year ended December 31,
1993................................................................................ F-27
Combined Statement of Cash Flows for the year ended December 31, 1993................. F-28
Notes to Combined Financial Statements................................................ F-29
</TABLE>
F-1
<PAGE> 70
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
Sunrise Assisted Living, Inc.
We have audited the accompanying consolidated balance sheet of Sunrise
Assisted Living, Inc. (the "Company") as of December 31, 1995, and the related
consolidated statements of operations, stockholders' deficit, and cash flows for
the year then ended. We also have audited the combined balance sheet of Sunrise
Entities (the predecessor to the Company, see Note 1) as of December 31, 1994,
and the related combined statements of operations, owners' deficit, and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Sunrise
Assisted Living, Inc. as of December 31, 1995, and the consolidated results of
its operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles. Further, in our opinion, the financial
statements referred to above present fairly, in all material respects, the
combined financial position of Sunrise Entities as of December 31, 1994, and the
combined results of their operations and their cash flows for the year then
ended, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Washington, D.C.
February 15, 1996
except for Notes 10 and
Note 16, as to which the date is May 1, 1996
F-2
<PAGE> 71
INDEPENDENT AUDITORS' REPORT
To the Partners and Stockholders
Sunrise Entities
We have audited the accompanying combined statements of operations and
partners'/stockholders' deficits and cash flows of Sunrise Entities
(collectively, the "Company") for the year ended December 31, 1993. These
combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the combined financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the combined financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Sunrise Entities for the year ended December 31, 1993, in conformity with
generally accepted accounting principles.
Hoffman, Morrison & Fitzgerald P.C.
Vienna, Virginia
March 13, 1996
F-3
<PAGE> 72
CONSOLIDATED BALANCE SHEET OF SUNRISE ASSISTED LIVING, INC.
AS OF MARCH 31, 1996 (UNAUDITED) AND DECEMBER 31, 1995
AND THE COMBINED BALANCE SHEET OF SUNRISE ENTITIES
AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, MARCH 31, MARCH 31,
--------------------------- ------------ ------------------
1994 1995 1996 1996
(UNAUDITED) (UNAUDITED-NOTE 2)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $ 8,088,655 $ 6,252,449 $ 6,045,890 $ 6,045,890
Accounts receivable, less allowance of
$50,000 and $235,000..................... 1,097,886 1,319,429 1,409,564 1,409,564
Prepaid and other current assets........... 2,090,644 2,328,571 3,851,122 3,851,122
------------ ------------ ------------ ---------------
Total current assets................ 11,277,185 9,900,449 11,306,576 11,306,576
Property and equipment, net.................. 94,296,103 104,317,117 118,118,449 118,118,449
Investment................................... -- 5,375,404 5,568,343 5,568,343
Restricted cash and cash equivalents......... 1,175,410 1,260,470 1,739,277 1,739,277
Other assets................................. 2,254,629 2,467,421 3,060,555 3,060,555
------------ ------------ ------------ ---------------
Total assets........................ $109,003,327 $123,320,861 $139,793,200 $139,793,200
============= ============= ============= ===============
LIABILITIES AND OWNERS'/STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses...... $ 3,008,239 $ 6,547,122 $ 7,039,528 $ 7,039,528
Distribution payable....................... 9,646,167 -- 182,500 182,500
Deferred revenue........................... 950,789 903,711 1,133,005 1,133,005
Other current liabilities.................. 760,740 130,669 115,043 115,043
Current portion of long-term debt.......... 4,216,667 268,576 377,691 377,691
------------ ------------ ------------ ---------------
Total current liabilities........... 18,582,602 7,850,078 8,847,767 8,847,767
Notes payable to affiliated entities......... 1,610,231 1,735,138 1,716,338 1,716,338
Interests in unconsolidated partnerships..... 322,221 620,014 571,303 571,103
Long-term debt, less current maturities...... 104,202,457 120,285,996 128,035,286 128,035,286
------------ ------------ ------------ ---------------
Total liabilities................... 124,717,511 130,491,226 139,170,694 139,170,494
Minority interests........................... 676,944 639,895 578,309 578,309
Preferred stock, $0.01 par value, 10,000,000
shares
authorized:
Series A convertible preferred stock,
convertible and redeemable; $9 stated
value and
liquidation value of $9; plus 9%
preferred return;
2,444,444 shares issued and
outstanding............................ -- 23,963,496 24,463,995 --
Series B exchangeable preferred stock,
exchangeable and redeemable; cumulative
dividend at 9%; $10 stated value and
liquidation
value of $10 plus any accrued and
unpaid
dividends; none issued and
outstanding............................ 10,000,000 10,000,000
Owners'/Stockholders' deficit:
Common stock of predecessor................ 10,501 -- -- --
Additional paid-in capital of
predecessor.............................. 852,020 -- -- --
Accumulated deficit of predecessor......... (17,253,649) -- -- --
Common stock, $0.01 par value, 60,000,000
shares authorized, 6,019,475 shares
issued and outstanding (8,463,919 pro
forma 1995 issued and outstanding)....... -- 60,195 60,195 84,639
Contributed capital (deficiency)........... -- (19,733,287) (19,598,287) 4,841,264
Accumulated deficit........................ -- (12,100,664) (14,881,706) (14,881,706)
------------ ------------ ------------ ---------------
Total owners'/stockholders'
deficit........................... (16,391,128) (31,773,756) (34,419,798) (9,955,803)
------------ ------------ ------------ ---------------
Total liabilities and
owners'/stockholders' deficit..... $109,003,327 $123,320,861 $139,793,200 $139,793,200
============= ============= ============= ===============
</TABLE>
See accompanying notes.
F-4
<PAGE> 73
CONSOLIDATED STATEMENT OF OPERATIONS OF SUNRISE ASSISTED LIVING, INC.
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
AND FOR THE YEAR ENDED DECEMBER 31, 1995
AND THE COMBINED STATEMENT OF OPERATIONS OF SUNRISE ENTITIES
FOR EACH OF THE TWO YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
DECEMBER 31, THREE MONTHS ENDED
------------------------------------------ MARCH 31,
1993 1994 1995 --------------------------
1995 1996
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating revenue:
Resident fees.............. $23,993,737 $32,138,979 $ 34,752,023 $ 8,396,309 $ 9,096,093
Management services
income.................. 1,604,367 1,829,707 2,505,903 497,572 641,902
----------- ----------- ------------ ----------- -----------
25,598,104 33,968,686 37,257,926 8,893,881 9,737,995
Operating expenses:
Facility operating
expenses................ 17,760,450 17,983,070 21,010,486 5,346,125 6,064,400
Facility development and
pre-opening expenses.... 474,206 262,825 1,171,843 203,620 183,900
General and
administrative.......... 2,034,340 4,182,777 6,875,006 1,321,639 2,120,764
Depreciation and
amortization............ 2,798,581 3,159,764 3,008,639 760,289 810,682
----------- ----------- ------------ ----------- -----------
23,067,577 25,588,436 32,065,974 7,631,673 9,179,746
Income from operations..... 2,530,527 8,380,250 5,191,952 1,262,208 558,249
Other income (expense):
Interest income......... 317,144 565,449 1,228,789 330,321 277,234
Interest expense:
GECC mortgage
interest........... -- (5,528,789) (15,295,287) (2,465,046) (2,339,389)
Other debt............ (3,808,093) (3,059,777) (1,260,292) (268,497) (285,385)
----------- ----------- ------------ ----------- -----------
Total interest expense..... (3,808,093) (8,588,566) (16,555,579) (2,733,543) (2,624,774)
Equity in (losses) earnings
on investments in
unconsolidated/non-combined
partnerships............... (104,382) 33,024 (9,081) 26,486 29,379
Minority interest............ 427,798 171,870 6,755 6,032 51,586
----------- ----------- ------------ ----------- -----------
(Loss) income before
extraordinary item......... (637,006) 562,027 (10,137,164) (1,108,496) (1,708,326)
Extraordinary item........... -- 850,000 -- -- --
----------- ----------- ------------ ----------- -----------
Net (loss) income............ $ (637,006) $ 1,412,027 $(10,137,164) $(1,108,496) $(1,708,326)
=========== =========== ============ =========== ===========
Pro forma net loss per share
data
(Unaudited -- Note 3):
Net loss per common and
common equivalent
shares.................. $ (1.15) $ (0.21)
Weighted average number of
common and common
equivalent shares
outstanding............. 8,826,127 9,022,321
</TABLE>
See accompanying notes.
F-5
<PAGE> 74
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT OF THE COMPANY AND
COMBINED STATEMENT OF OWNERS' DEFICIT OF THE SUNRISE ENTITIES
<TABLE>
<CAPTION>
ADDITIONAL ACCUMULATED
COMMON PAID-IN- OWNERS' DEFICIT
STOCK OF CAPITAL OF OF SHARES OF COMMON CONTRIBUTED
SUNRISE SUNRISE SUNRISE COMMON STOCK CAPITAL ACCUMULATED
ENTITIES ENTITIES ENTITIES STOCK AMOUNT (DEFICIENCY) DEFICIT TOTAL
----------- ----------- --------------- --------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December
31, 1992........... $ 10,500 $ 822,568 $ (4,370,189) $ 1,600,729 $ (1,936,392)
Contribution of
partnership
capital............ 33,022 33,022
Distributions........ (457,814) (29,354) (487,168)
Net loss............. (1,707,434) 1,070,428 (637,006)
----------- ----------- --------------- --------- ------- ------------ ------------ ------------
Balance at December
31, 1993........... 10,500 822,568 (6,502,415) 2,641,803 (3,027,544)
Acquisition of
interests not
previously owned by
principal
shareholders....... 3,846,815 3,846,815
Contribution of
partnership
capital............ 3,550,336 3,550,336
Other capital
contributions...... 29,353 29,353
Dividends............ (3,750,000) (3,750,000)
Cash distributions... (16,432,652) (16,432,652)
Other
distributions...... (2,019,563) (2,019,563)
Net income........... 494,801 917,226 1,412,027
Initial
capitalization of
Sunrise Assisted
Living, Inc........ 100 $ 1 $ 99 100
----------- ----------- --------------- --------- ------- ------------ ------------ ------------
Combined balance at
December 31, 1994.. 10,500 851,921 (17,062,678) 100 1 99 (190,971) (16,391,128)
Issuance of common
stock for net
assets of Sunrise
Entities........... (10,500) (851,921) 17,062,678 6,019,375 60,194 (16,451,422) 190,971 --
Liability of
Stockholder assumed
at formation....... (1,447,561) (1,447,561)
Cost of issuance of
Series A
convertible
preferred stock.... (1,834,403) (1,834,403)
Net loss............. (10,137,164) (10,137,164)
Preferred return on
Series A
convertible
preferred stock.... (1,963,500) (1,963,500)
----------- ----------- --------------- --------- ------- ------------ ------------ ------------
Balance at December
31, 1995........... $ -- $ -- $ -- 6,019,475 $60,195 $(19,733,287) $(12,100,664) $(31,773,756)
Issuance of common
stock warrants..... 135,000 135,000
Preferred return on
Series A
convertible
preferred stock.... (500,500) (500,500)
Dividends payable on
Series B
exchangeable
preferred stock.... (182,500) (182,500)
Distributions to
stockholders....... (389,716) (389,716)
Net loss............. (1,708,326) (1,708,326)
----------- ----------- --------------- --------- ------- ------------ ------------ ------------
Balance March 31,
1996 (Unaudited)... $ -- $ -- $ -- 6,019,475 $60,195 $(19,598,287) $(14,881,706) $(34,419,798)
========== ========== ============= ========= ======= ============ ============ ============
</TABLE>
See accompanying notes.
F-6
<PAGE> 75
CONSOLIDATED STATEMENT OF CASH FLOWS OF SUNRISE ASSISTED LIVING, INC.
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED) AND
YEAR ENDED DECEMBER 31, 1995 AND THE
COMBINED STATEMENT OF CASH FLOWS OF SUNRISE ENTITIES
FOR EACH OF THE TWO YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
DECEMBER 31, 31,
------------------------------------------- ---------------------------
1993 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income.................................. $ (637,006) $ 1,412,027 $(10,137,164) $(1,108,496) $ (1,708,326)
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Equity in losses (earnings) on investment in
unconsolidated/non-combined partnerships..... 104,382 (33,024) 9,081 (26,486) (29,379)
Minority interest.............................. (427,798) (171,870) (6,755) (6,032) (51,586)
Provision for bad debts........................ -- 123,368 185,257 34,004 141,995
Provision for loss accrual..................... -- 350,000 -- -- --
--
Extraordinary gain on extinguishment of debt... -- (850,000) -- -- --
Depreciation and amortization.................. 2,798,581 3,159,764 3,008,639 760,289 810,682
Amortization of discount on long-term debt..... -- 267,000 457,000 114,250 114,300
Accrual of participation mortgage interest..... -- -- 5,400,000 -- --
Interest included in convertible obligations... 105,658 -- -- -- --
Conversion of accrued interest into note
payable...................................... 222,098 -- -- -- --
Changes in assets and liabilities:
(Increase) decrease:
Accounts receivable........................ (256,350) (299,820) (406,799) 33,606 (232,130)
Prepaid and other current assets........... (89,766) (595,799) (237,927) (187,992) (1,522,553)
Other assets............................... -- 36,309 (854,429) 502,608 (103,350)
Increase (decrease):
Accounts payable and accrued expenses...... 1,341,388 (362,950) 3,538,883 748,009 492,405
Deferred revenue........................... 6,242 (298,909) (47,078) (298,096) 229,294
Other liabilities.......................... (97,069) -- 35,726 (4,608) (15,626)
----------- ------------ ------------ ----------- ------------
Net cash provided by (used in) operating
activities....................................... 3,070,360 2,736,096 944,434 561,056 (1,874,274)
INVESTING ACTIVITIES
Increase in restricted cash and cash equivalents... 118,700 (552,631) (85,060) (320,673) (478,807)
Acquisition of interests in facilities............. (1,055,412) (5,458,707) 195,936 29,594 (192,936)
Purchases of property and equipment................ (3,218,190) (10,652,172) (12,765,570) (1,320,533) (14,530,942)
Disposition of property and equipment.............. -- -- 24,586 22,889 --
Purchase of investment............................. -- -- (5,375,404) (5,000,000) --
Distribution from investment in unconsolidated
partnership...................................... -- (374,419) 97,876 31,586 (19,332)
----------- ------------ ------------ ----------- ------------
Net cash used in investing activities.............. (4,154,902) (17,037,929) (17,907,636) (6,557,137) (15,222,017)
FINANCING ACTIVITIES
Organization costs paid............................ -- (61,475) (264) (380) (101,156)
Net proceeds from sale of common stock and Series A
convertible preferred stock...................... -- 100 20,165,593 20,165,593 --
Net proceeds from sale of Series B exchangeable
stock............................................ -- -- -- -- 10,000,000
Contributions from partners........................ 28,022 3,550,336 -- -- --
Distributions to partners.......................... (2,397) (6,786,485) (9,646,167) (9,630,161) (389,717)
Distribution to stockholders of the Predecessor.... -- -- -- -- --
Additional net investment of minority interests.... 2,581,497 1,024,090 (35,394) (15,394) (10,000)
Additional borrowings under long-term debt......... 923,538 101,976,095 9,326,357 551,975 7,840,485
Additional borrowings from related parties......... -- 10,100 -- --
Financing costs paid............................... (54,674) -- (312,564) (169,873) (334,699)
Repayment of long-term debt........................ (1,622,028) (76,840,388) (4,295,472) (53,586) (96,381)
Dividends.......................................... -- (3,750,000) -- -- --
Repayment of related party note payable............ -- -- (75,093) (18,774) (18,800)
----------- ------------ ------------ ----------- ------------
Net cash provided by financing activities.......... 1,853,958 19,122,373 15,126,996 10,829,400 16,889,732
----------- ------------ ------------ ----------- ------------
Net increase (decrease) in cash and cash
equivalents...................................... 769,416 4,820,540 (1,836,206) 4,833,319 (206,559)
Cash and cash equivalents at beginning of year..... 2,498,699 3,268,115 8,088,655 8,088,655 6,252,449
----------- ------------ ------------ ----------- ------------
Cash and cash equivalents at end of year........... $ 3,268,115 $ 8,088,655 $ 6,252,449 $12,921,974 $ 6,045,890
=========== ============ ============ =========== ============
</TABLE>
See accompanying notes.
F-7
<PAGE> 76
SUNRISE ASSISTED LIVING, INC. AS OF AND FOR THE THREE MONTH PERIOD ENDED
MARCH 31, 1995 AND 1996 (UNAUDITED) AND AS OF AND FOR
THE YEAR ENDED DECEMBER 31, 1995 AND SUNRISE ENTITIES AS OF AND FOR
EACH OF THE TWO YEARS ENDED DECEMBER 31, 1994 AND 1993
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND PRESENTATION
Sunrise Assisted Living, Inc. (the "Company") does business in the assisted
living segment of providing elder care services. The Company operates, manages
and develops assisted living facilities. The facilities provide a residence,
meals and non-medical assistance to elderly residents for a monthly fee.
Agreements with residents are for a term of one year and are cancelable by
residents with thirty days notice. The Company's services are generally not
covered by health insurance and so the monthly fees are generally payable by the
residents, their family, or another responsible party.
The consolidated financial statements include the Company's wholly owned
subsidiaries that manage (Sunrise Terrace, Inc.), own (Sunrise Assisted Living
Limited Partnership), and develop (Sunrise Development, Inc.) assisted living
facilities, and also include one limited partnership which owns a facility
(Gardner Park) in which the Company owns a 50% partnership interest and controls
the limited partnership through its status as the manager of the facility and as
the sole general partner with the unilateral ability under the partnership
agreement to conduct the ordinary course of business of the partnership, and two
limited liability companies which own facilities (Village House and Raleigh).
For the limited liability company which owns the Village House facility, the
Company owns a 50% membership interest and has entered into an agreement to
acquire an additional 30% membership interest, acts as the sole manager of the
limited liability company and the manager of the facility, and has the ability
under the operating agreement to unilaterally conduct the ordinary course of
business of the limited liability company. For the limited liability company
which owns the Raleigh facility, the Company owns a 50% membership interest, has
the right on 45 days notice to acquire the remaining interests for a price
specified in the operating agreement, acts as the sole manager of the limited
liability company and the manager of the facility, and under the terms of the
operating agreement has the unilateral right to conduct the ordinary course of
business of the limited liability company. All significant intercompany
transactions and accounts have been eliminated. The Company accounts for other
significant partnership investments in which it is the general partner and/or
manager on the equity method, including Sunrise Homes of Towson, L.P. (13.9%
ownership interest) and Sunrise of Queen Anne (33% tenancy-in-common ownership
interest) because the Company is able to significantly influence both the
operating and financial decisions of these facilities. The Company also has
accounted under the equity method for its partnership investment in the limited
partnerships which own the Annapolis and Pikesville facilities. In those
partnerships, the Company is the sole general partner, has a 50% ownership
interest and has entered into an agreement to acquire an additional 1% ownership
interest. The Company's ability to conduct the ordinary course of business of
the partnership is currently limited by certain limited partner approval
requirements.
The Company was incorporated in Delaware on December 14, 1994. On January
4, 1995, the Company issued 6,019,375 shares of Common Stock to the majority
stockholders in exchange for all of the equity interests in Sunrise Entities.
The equity interests were recorded at the historical cost of the majority
stockholders (i.e., a reorganization of entities under common control).
Simultaneously, the Company sold 2,444,444 shares of Series A Convertible
Preferred Stock at $9.00 per share net of issuance costs of $1,834,403 to seven
institutional investors. In addition, the Company assumed notes payable of
$2,090,000 at January 4, 1995 (see Note 8). Concurrent with the January 4, 1995
transaction, Sunrise Entities distributed an aggregate $9,606,000 in cash to the
majority stockholders, which was recognized as a distribution payable in Sunrise
Entities' December 31, 1994 combined financial statements.
The historical financial statements for the years ended December 31, 1994
and 1993 represent the combined historical results of operations and financial
condition of Sunrise Entities. Sunrise Entities recorded their interests in the
Acquired Entities of Sunrise under the equity method prior to June 8, 1994.
Sunrise Entities, which prior to January 4, 1995 developed, managed and owned
assisted living facilities, consist of a
F-8
<PAGE> 77
SUNRISE ASSISTED LIVING, INC. AS OF AND FOR THE THREE MONTH PERIOD ENDED
MARCH 31, 1995 AND 1996 (UNAUDITED) AND AS OF AND FOR
THE YEAR ENDED DECEMBER 31, 1995 AND SUNRISE ENTITIES AS OF AND FOR
EACH OF THE TWO YEARS ENDED DECEMBER 31, 1994 AND 1993
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND PRESENTATION (CONTINUED)
management company, a development company, interests in limited partnerships and
limited liability companies that owned assisted living facilities and other
limited partnerships used to hold equity in operating assisted living facilities
or development projects. All of the operations and equity interests of Sunrise
Entities were held by the majority stockholder of the Company and were
transferred to the Company on January 4, 1995, in exchange for Common Stock of
the Company. All significant intercompany transactions and accounts have been
eliminated in the combined financial statements.
Prior to June 8, 1994, 15 of the assisted living facilities now owned by
the Company were held in separate limited partnerships partially owned by other
parties. Four of the facilities were not previously controlled by the Sunrise
Entities. The Sunrise Entities owned 47%, 48%, 29% and 25%, respectively of
these facilities. The combined net assets of the 15 facilities consisted of
$75,492,931 of total assets, including $263,008 of cash and $77,645,513 of
liabilities. On June 8, 1994, a new debt facility (see Note 8) was used to
finance the acquisition of all outside interests and refinance approximately
$71,500,000 of existing long-term debt of the facilities. The aggregate purchase
price of the outside interests was $48,319,245. At the acquisition date the
carrying value of the net operating assets of the facilities was stepped up by
$12,094,910 to reflect the excess of the purchase price over the book basis of
the interests acquired (i.e., the acquisition of an interest not previously
earned) that was not previously owned by the Company's principal stockholders.
Disclosures made herein with respect to the years ended December 31, 1993
and 1994 are to be read as disclosures of Sunrise Entities. All disclosures made
in reference to periods subsequent to December 31, 1994, except those
specifically identified as relating to transactions prior to the formation of
the Company, are disclosures of the Company.
2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
REVENUE RECOGNITION
Resident fee revenue is recognized when services are rendered and consists
of daily resident fees, resident community fees and other ancillary services.
Generally, resident community fees approximating sixty times the daily residence
fee are received from potential residents upon occupancy. Resident community
fees are ratably refundable if the prospective resident does not move into the
facility or moves out of the facility within ninety days. Community fees
received are recognized as income over the first ninety days of the resident's
stay. Revenue from management contracts is recognized in the month in which it
is earned in accordance with the terms of the management contract.
F-9
<PAGE> 78
SUNRISE ASSISTED LIVING, INC. AS OF AND FOR THE THREE MONTH PERIOD ENDED
MARCH 31, 1995 AND 1996 (UNAUDITED) AND AS OF AND FOR
THE YEAR ENDED DECEMBER 31, 1995 AND SUNRISE ENTITIES AS OF AND FOR
EACH OF THE TWO YEARS ENDED DECEMBER 31, 1994 AND 1993
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ALLOWANCES FOR DOUBTFUL ACCOUNTS
Details of the allowance for doubtful accounts receivable are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
<S> <C> <C> <C>
Beginning balance..................................... $ -- $ -- $ 50,000
Bad debt expense...................................... -- 123,000 185,000
Accounts written off.................................. -- (73,000) --
--------- --------- --------
Ending balance........................................ $ -- $ 50,000 $235,000
========= ========= ========
</TABLE>
PROVISION FOR LOSS ACCRUALS
During 1994, the Company recorded a loss accrual amounting to $250,000 to
recognize anticipated losses on one of its management contracts. Also in 1994,
the Company accrued $100,000 in anticipation of actions taken by Virginia state
and local authorities regarding licensure and state building code violations. No
loss accruals were recorded in 1995.
PRE-RENTAL COSTS
Costs incurred to initially rent facilities are capitalized and amortized
over 12 months. All other pre-rental costs are expensed as incurred.
Pre-rental costs and accumulated amortization are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
<S> <C> <C>
Pre-rental costs................................................. $42,725 $253,557
Accumulated amortization......................................... (1,965) (11,393)
------- --------
$40,760 $242,164
======= ========
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment are recorded at the lower of cost or net realizable
value and include interest and property taxes capitalized on long-term
construction projects during the construction period as well as other costs
directly related to the development and construction of facilities. Maintenance
and repairs are charged to expense as incurred. Depreciation is computed using
the straight-line method at rates intended to amortize the cost of the related
assets over their estimated useful lives.
During 1994, Sunrise Entities changed the estimated useful life of
furniture and equipment from seven to ten years and of buildings from 31.5 to 40
years. The changes had the effect of reducing depreciation expense by $402,069
in 1994.
DEFERRED FINANCING COSTS
Costs incurred in connection with obtaining permanent financing for
Company-owned facilities have been deferred and are amortized over the term of
the financing using the effective interest method.
F-10
<PAGE> 79
SUNRISE ASSISTED LIVING, INC. AS OF AND FOR THE THREE MONTH PERIOD ENDED
MARCH 31, 1995 AND 1996 (UNAUDITED) AND AS OF AND FOR
THE YEAR ENDED DECEMBER 31, 1995 AND SUNRISE ENTITIES AS OF AND FOR
EACH OF THE TWO YEARS ENDED DECEMBER 31, 1994 AND 1993
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Deferred financing fees and accumulated amortization are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1995
<S> <C> <C>
Deferred financing........................................... $2,233,750 $2,546,319
Accumulated amortization..................................... (162,393) (438,385)
---------- ----------
$2,071,357 $2,107,934
========== ==========
</TABLE>
ORGANIZATION COSTS
Costs incurred in connection with the organization of the Company have been
capitalized and are being amortized ratably over five years.
INCOME TAXES
Income taxes are provided using the liability method in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Under the liability method of SFAS No. 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax basis (temporary differences).
All of Sunrise Entities were partnerships, limited liability corporations
or were corporations that elected to be treated as an S Corporation under
Section 1362 of the Internal Revenue Code. Therefore, no provision or benefit
for income taxes was included in the Predecessor's financial statements because
taxable income or loss passed through pro rata to the owners of the Predecessor.
PRO FORMA NET LOSS PER SHARE
The Company's net loss per share calculations are based upon the weighted
average number of shares of Common Stock outstanding. Pursuant to the
requirements of the Securities and Exchange Commission (SEC) staff accounting
bulletin No. 83, options to purchase Common Stock issued at prices below the
initial public offering price during the twelve months immediately preceding the
contemplated initial filing of the registration statement relating to the
initial public offering ("IPO"), have been included in the computation of net
loss per share as if they were outstanding for all periods presented (using the
treasury method assuming repurchase of common stock at the estimated IPO price).
Other shares issuable upon the exercise of stock options or conversion of
redeemable convertible preferred stock have been excluded from the computation
because the effect of their inclusion would be anti-dilutive. Subsequent to the
Company's IPO, options under the treasury stock method will be included to the
extent they are dilutive. Weighted average shares used to calculate the pro
forma net loss per share for the year ended December 31, 1995 differs from the
weighted average on a historical basis due to the inclusion of the shares of
Common Stock resulting from the assumed conversion at the beginning of the
applicable period of the Series A Preferred Stock as contemplated by the IPO.
F-11
<PAGE> 80
SUNRISE ASSISTED LIVING, INC. AS OF AND FOR THE THREE MONTH PERIOD ENDED
MARCH 31, 1995 AND 1996 (UNAUDITED) AND AS OF AND FOR
THE YEAR ENDED DECEMBER 31, 1995 AND SUNRISE ENTITIES AS OF AND FOR
EACH OF THE TWO YEARS ENDED DECEMBER 31, 1994 AND 1993
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRO FORMA 1996 BALANCE SHEET (UNAUDITED)
As more fully described elsewhere in the accompanying footnotes, the Series
A Preferred Stock will automatically convert to 2,444,444 shares of Common Stock
upon the closing of an initial public offering that meets certain conditions. As
the Company is currently in registration for an initial public offering that
meets the conversion criteria, the accompanying 1996 pro forma balance sheet
assumes that these securities were converted as of March 31, 1996. The pro forma
loss per share assumes the conversion of the Series A Preferred Stock as of the
beginning of the period.
CASH AND CASH EQUIVALENTS
The Company considers cash and cash equivalents to include currency on
hand, demand deposits, and all highly liquid investments with a maturity of
three months or less at the date of purchase.
NON-CASH TRANSACTION
In 1993 the Company assumed a note payable of $8,550,000 as the primary
consideration for the acquisition of the Village House facility.
STOCK-BASED COMPENSATION
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company accounts for stock option grants in accordance with APB
Opinion No. 25, Accounting for Stock Issued to Employees and accordingly
recognizes no compensation expense for the stock option grants.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company adopted Statement 121 in
the first quarter of 1996 and the effect is not material to the Company's
operations or financial position taken as a whole. Under SFAS No. 121, property
and equipment of the Company are reviewed for impairment whenever events or
circumstances indicate that the asset's undiscounted expected cash flows are not
sufficient to recover its carrying amount. The Company measures an impairment
loss by comparing the fair value of the asset to its carrying amount. Fair value
of an asset is calculated as the present value of expected future cash flows.
In October 1995, the FASB issued Statement No. 123, Accounting for
Stock-Based Compensation, which provides an alternative to APB Opinion No. 25,
Accounting for Stock Issued to Employees, in accounting for stock-based
compensation issued to employees. The Statement allows for a fair value-based
method of accounting for employee stock options and similar equity instruments.
However, for companies that continue to account for stock-based compensation
arrangements under Opinion No. 25, Statement No. 123 requires disclosure of the
pro forma effect on net income and earnings per share of its fair value-based
accounting for those arrangements. These disclosure requirements are effective
for fiscal years beginning after
F-12
<PAGE> 81
SUNRISE ASSISTED LIVING, INC. AS OF AND FOR THE THREE MONTH PERIOD ENDED
MARCH 31, 1995 AND 1996 (UNAUDITED) AND AS OF AND FOR
THE YEAR ENDED DECEMBER 31, 1995 AND SUNRISE ENTITIES AS OF AND FOR
EACH OF THE TWO YEARS ENDED DECEMBER 31, 1994 AND 1993
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
December 15, 1995, or upon initial adoption of the statement, if earlier. The
Company adopted Statement No. 123 in the first quarter of 1996 and has elected
to continue to account for stock-based compensation arrangements under APB
Opinion No. 25.
INTERIM FINANCIAL STATEMENTS
The accompanying unaudited interim financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the three month period ended March 31,
1996 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1996.
OTHER
The Company's interest in accumulated losses of unconsolidated
partnership's distributions are recorded below the Company's cost basis, which
reflects the Company's obligations as the general partner. The Company has no
liability for any other material commitments or contingencies of partnerships in
which it is a general partner.
RECLASSIFICATIONS
Certain 1993 and 1994 balances have been reclassified to conform with the
1995 presentation.
3. PRO FORMA NET LOSS PER COMMON SHARE
The following table summarizes the computations of share amounts used and
the computation of pro forma net loss per common share presented in the
accompanying statements of operations:
<TABLE>
<CAPTION>
PRO FORMA
1995
(UNAUDITED-NOTE 2)
<S> <C>
Common and common equivalent shares:
Weighted average number of shares of common stock outstanding
during the period............................................. 8,463,919
Options to purchase common stock issued within one year of
registration statement using the treasury stock method........ 362,208
---------
Total common and common equivalent shares of stock considered
outstanding during the year................................... 8,826,127
=========
Net loss........................................................ $ 10,137,164
=========
Net loss per common and common equivalent shares................ $ (1.15)
</TABLE>
F-13
<PAGE> 82
SUNRISE ASSISTED LIVING, INC. AS OF AND FOR THE THREE MONTH PERIOD ENDED
MARCH 31, 1995 AND 1996 (UNAUDITED) AND AS OF AND FOR
THE YEAR ENDED DECEMBER 31, 1995 AND SUNRISE ENTITIES AS OF AND FOR
EACH OF THE TWO YEARS ENDED DECEMBER 31, 1994 AND 1993
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
ASSET LIVES 1994 1995
<S> <C> <C> <C>
Land and land improvements.................... 10 yrs. $ 11,638,789 $ 13,071,971
Building and building improvements............ 40 yrs. 82,033,939 83,012,889
Furniture and equipment....................... 10 yrs. 8,960,081 10,403,810
---------- ----------
102,632,809 106,488,670
Less accumulated depreciation and
amortization................................ (12,539,785) (15,184,945)
---------- ----------
90,093,024 91,303,725
Construction in progress...................... 4,203,079 13,013,392
---------- ----------
$ 94,296,103 $104,317,117
========== ==========
</TABLE>
Interest capitalized during 1994 and 1995 was $137,896 and $166,960,
respectively.
Construction in progress includes pre-acquisition costs and other direct
costs related to acquisition, development and construction of facilities
including certain direct costs of the Company's development subsidiary, Sunrise
Development, Inc. If a project is abandoned, any costs previously capitalized
are expensed.
5. INVESTMENT
On March 1, 1995, the Company purchased all of the outstanding mortgage
revenue bonds used to finance a facility managed by the Company. The 10% Bucks
County Industrial Development Authority, First Mortgage Revenue Bonds, July 1,
2019, having a face value of $12.5 million, were purchased for $5,000,000. The
bonds were in financial default when purchased.
On June 30, 1995, the bonds were restructured, at no gain or loss to the
Company, to reduce their face amount to $5,750,000 (Series A and C) and provide
the facility managed by the Company additional funding for renovations (Series
B). The renovation bond allows for draws up to $750,000 as construction
continues at the facility. Interest only is payable until maturity. The balances
outstanding at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
DESCRIPTION FACE AMOUNT INTEREST RATE MATURITY DATE
<S> <C> <C> <C>
Series A......................... $5,000,000 11% July 1, 2025
Series B......................... 375,404 11% July 1, 2015
Series C......................... 750,000 20% subject to available cash July 1, 2010
Bond discount.................... (750,000)
---------
$5,375,404
=========
</TABLE>
Subsequent to June 30, 1995 all interest payments on these bonds are
current. The Company recognized $443,069 in interest income during 1995 on this
investment. The bond discount ($750,000 at December 31, 1995) will be recognized
as income over the life of the loan. These bonds are classified as
available-for-sale in accordance with SFAS 115. Management believes the net
carrying cost of the bonds approximates market value at December 31, 1995.
F-14
<PAGE> 83
SUNRISE ASSISTED LIVING, INC. AS OF AND FOR THE THREE MONTH PERIOD ENDED
MARCH 31, 1995 AND 1996 (UNAUDITED) AND AS OF AND FOR
THE YEAR ENDED DECEMBER 31, 1995 AND SUNRISE ENTITIES AS OF AND FOR
EACH OF THE TWO YEARS ENDED DECEMBER 31, 1994 AND 1993
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
6. RELATED-PARTY TRANSACTIONS
SUNRISE FOUNDATION, INC.
The majority stockholders operate a school and a day care center through a
not-for-profit organization, Sunrise Foundation, Inc. ("SFI"). SFI reimburses
the Company monthly for use of office facilities and support services.
Reimbursements were $60,000 per year in 1993, 1994 and 1995. Such amounts are
included in management services income.
GROUND LEASE
The Company has a ninety-nine year ground lease with a stockholder and the
stockholder's relative. The ground lease expires in May 2085. The basic monthly
rent is adjusted annually based on the CPI. Rent expense under this lease was
$241,896, $248,496 and $255,258 for the years ended December 31, 1993, 1994 and
1995, respectively. The Company subleases one-half of this ground lease to SFI.
The sublease expires in May 2085 and requires payments equal to 50% of all
payments made by the Company under the ground lease. Sublease rental income was
$120,948, $124,248 and $127,629 for the years ended December 31, 1993, 1994 and
1995 respectively. Rent expense, included in facility operating expenses, is
recorded net of the sublease income.
OTHER
The majority stockholders lease certain real property located in Fairfax
County, Virginia for use as a residence pursuant to a ninety-nine year ground
lease with the Company dated June 7, 1994. The rent is $1.00 per month. This
property is part of a parcel, which includes a facility, that was transferred to
the Company on June 8, 1994.
A director of the Company made a capital contribution of $500,000 in
exchange for a 30% membership interest in a limited liability company which
operates one of the Company's facilities. The Company owns a 50% membership
interest, is the managing member and manages the facility pursuant to a
management contract that expires in 2003. Distributions made by the Company to
the director in 1993, 1994 and 1995 aggregated $18,700, $35,616 and $40,295,
respectively. The operating agreement of the facility requires the facility to
repurchase the minority interests at the lessor of (i) the facility's fair
market value or (ii) return of the investor's contributed capital assuming on 8%
return net of distributions. The repurchase right is exercisable beginning in
2000.
7. RECEIVABLES AND PAYABLES FROM AFFILIATES
Included in prepaid and other current assets are net receivables from
unconsolidated partnership investments of $1,073,242 and $1,359,164, as of
December 31, 1994 and 1995, respectively. Included in other assets are notes
receivable from officers of the Company amounting to $43,401 and $109,348 as of
December 31, 1994 and 1995, respectively.
Included in other current liabilities is $714,295 and $102,601 payable to
affiliates as of December 31, 1994 and 1995, respectively. Also included in
other liabilities in 1994 is $671,000 payable to minority owners, which pertains
to advances for construction activities prior to obtaining a construction loan.
F-15
<PAGE> 84
SUNRISE ASSISTED LIVING, INC. AS OF AND FOR THE THREE MONTH PERIOD ENDED
MARCH 31, 1995 AND 1996 (UNAUDITED) AND AS OF AND FOR
THE YEAR ENDED DECEMBER 31, 1995 AND SUNRISE ENTITIES AS OF AND FOR
EACH OF THE TWO YEARS ENDED DECEMBER 31, 1994 AND 1993
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
7. RECEIVABLES AND PAYABLES FROM AFFILIATES (CONTINUED)
Notes payable to affiliated entities consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1995
<S> <C> <C>
Notes to related limited partnerships, principal and interest
due December 31, 1999. Interest accrues at 8% annually...... $1,510,231 $1,435,138
Two notes due to an employee and an entity related to that
employee of $60,000 and $40,000, respectively. Interest
accrues at $1,890 annually, principal due June 5, 1999...... 100,000 100,000
Note payable assumed upon formation of the Company due
December 31, 1999 bearing no interest....................... -- 200,000
---------- ----------
$1,610,231 $1,735,138
========= =========
</TABLE>
8. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1994 1995
<S> <C> <C>
Multi-Property/Participating Blanket First Mortgage (the "GECC
Mortgage")..................................................... $ 95,000,000 $ 95,000,000
Accrued participation interest on the GECC Mortgage.............. 3,200,000 8,600,000
Outstanding draws on construction notes payable.................. 358,874 9,685,336
Mortgage notes payable to Housing Opportunities Commission of
Montgomery County, Maryland (HOC).............................. 8,600,308 8,530,059
Notes payable dated June 6, 1994 to three individual parties..... -- 1,170,544
Other notes and capital leases................................... 92,942 44,633
Line of credit................................................... 4,100,000 --
Discount on the GECC Mortgage long-term debt less amortization of
$724,000....................................................... (2,933,000) (2,476,000)
------------ ------------
108,419,124 120,554,572
Less current portion........................................ (4,216,667) (268,576)
------------ ------------
$104,202,457 $120,285,996
============ ============
</TABLE>
The GECC Mortgage is collateralized by a blanket first mortgage on all
assets of a subsidiary of the Company. Such assets had a book value of
approximately $80 million at December 31, 1995. The GECC Mortgage consists of
two separate debt classes. Class (A) in the amount of $65,000,000 bears a fixed
interest rate of 8.56% and is interest only until the maturity date of May 31,
2001. Class (B) in the amount of $30,000,000 bears a variable interest rate of
one month LIBOR rate plus 5.75% (11.75% at December 31, 1995). Class (B) is
interest only until July 1, 1997 at which time principal and interest payments
are due using a twenty-year amortization schedule. Effective September 30, 1996,
Sunrise Assisted Living Limited Partnership is required to meet a minimum debt
service coverage ratio or principal payments accelerate to the lesser of monthly
net cash flow or amortization of the loan over a twenty-year period. Each month,
the lender can receive additional interest based on 25% of net cash flows as
specified in the loan documents, which amounted to $347,000 in 1995 and $370,000
in 1994 and has a 25% participation interest payable at maturity
F-16
<PAGE> 85
SUNRISE ASSISTED LIVING, INC. AS OF AND FOR THE THREE MONTH PERIOD ENDED
MARCH 31, 1995 AND 1996 (UNAUDITED) AND AS OF AND FOR
THE YEAR ENDED DECEMBER 31, 1995 AND SUNRISE ENTITIES AS OF AND FOR
EACH OF THE TWO YEARS ENDED DECEMBER 31, 1994 AND 1993
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
8. LONG-TERM DEBT (CONTINUED)
computed at either the date of maturity, initial public offering of securities
by Sunrise Assisted Living Limited Partnership or one of its affiliates, or sale
of the operating assets. The terms of the loan contain certain covenants and
prepayment restrictions. Additionally, the current majority stockholders must
maintain a 25% interest in the Company.
The GECC Mortgage requires Sunrise Assisted Living Limited Partnership to
maintain certain restricted cash balances. These restricted cash and cash
equivalent balances consist of escrows for an operating reserve of fifteen days
of total Sunrise Assisted Living Limited Partnership expenses, a capital reserve
of 3% of monthly revenues of Sunrise Assisted Living Limited Partnership and a
real estate tax escrow.
A participation interest of $3,200,000 payable in connection with the GECC
Mortgage was recorded at the loan date. A corresponding amount was recorded as
loan discount that will be amortized over the life of the loan. Amortization of
the discount of $267,000 and $457,000 has been included as interest expense in
1994 and 1995, respectively. During 1995, the Company revised its estimate of
the market value of the properties financed by the GECC Mortgage. Additional
participation interest on the GECC Mortgage of $5.4 million was accrued and
expensed through December 31, 1995 based on the increase in the properties'
estimated market value during 1995.
The construction notes have total available borrowings of $14,934,000. The
notes bear interest based on various published interest rate indices. At
December 31, 1995, interest rates on the notes ranged from 7.8% to 11%,
remaining maturities ranged from four to seven years, and the notes were secured
by four facilities under construction.
The mortgage notes payable to HOC have monthly payments of $56,714,
including interest at 7.25%, due monthly through June 2033. Additional payments
of approximately $21,070 are also made monthly for taxes, insurance and
replacement reserves. The notes are insured by the Maryland Housing Fund for
which the Company pays an annual fee of .5% of the outstanding note balance and
are collateralized by a deed of trust on the applicable facility and an
assignment of rents from that facility. One of the notes, totaling $200,000, is
also guaranteed by certain stockholders. The notes payable to individuals were
part of the $2,090,000 and liabilities assumed upon the formation of the Company
(see Note 1). The Notes are interest free and are recorded net of imputed
interest at 8.56% (fixed rate of the GECC Mortgage). The principal amount is
payable in 132 equal consecutive monthly installments beginning July 1, 1994.
The notes are due in full on June 1, 2005.
The HOC mortgage notes also place certain restrictions on operations
including maintenance of escrow accounts for real estate taxes and property
replacement reserves.
The line of credit was due May 31, 1995. Interest accrued at a rate equal
to two hundred basis points over the thirty-day LIBOR rate. Borrowing on the
line was used to purchase an assisted living facility.
F-17
<PAGE> 86
SUNRISE ASSISTED LIVING, INC. AS OF AND FOR THE THREE MONTH PERIOD ENDED
MARCH 31, 1995 AND 1996 (UNAUDITED) AND AS OF AND FOR
THE YEAR ENDED DECEMBER 31, 1995 AND SUNRISE ENTITIES AS OF AND FOR
EACH OF THE TWO YEARS ENDED DECEMBER 31, 1994 AND 1993
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
8. LONG-TERM DEBT (CONTINUED)
Principal maturities of long-term debt as of December 31, 1995 are as
follows:
<TABLE>
<S> <C>
1996.................................................................. $ 268,576
1997.................................................................. 605,250
1998.................................................................. 4,959,563
1999.................................................................. 5,087,653
2000.................................................................. 912,351
Thereafter............................................................ 108,721,179
------------
$120,554,572
============
</TABLE>
Interest expense paid totaled $3,241,778, $6,220,886 and $10,231,941, in
1993, 1994 and 1995, respectively, of which $0, $17,288 and $18,000 in 1993,
1994 and 1995, respectively, is related to notes payable to related parties.
Substantially all of the Company's property and equipment is subject to
mortgages or other pledges.
Restricted cash and cash equivalents at December 31 consists of the
following:
<TABLE>
<CAPTION>
1994 1995
<S> <C> <C>
Under the GECC Mortgage, real estate tax escrows,
operating and capital reserves................... $ 991,382 $1,104,665
Under HOC mortgage, real estate tax escrows and
resident security deposits....................... 184,028 155,805
---------- ----------
$1,175,410 $1,260,470
========== ==========
</TABLE>
9. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes. Prior to formation of the
Company on January 4, 1995 (see Note 1) Sunrise Entities were held in
partnerships, limited liability companies, and subchapter S corporations, all of
which passed through tax liabilities and benefits to the owners. The transfer of
assets at the formation of the Company was taxable, in part to the owners.
Accordingly, the tax basis of a majority of the property and equipment of the
Company exceeds its respective book basis for financial reporting purposes. The
tax effects of temporary differences that give rise to significant
F-18
<PAGE> 87
SUNRISE ASSISTED LIVING, INC. AS OF AND FOR THE THREE MONTH PERIOD ENDED
MARCH 31, 1995 AND 1996 (UNAUDITED) AND AS OF AND FOR
THE YEAR ENDED DECEMBER 31, 1995 AND SUNRISE ENTITIES AS OF AND FOR
EACH OF THE TWO YEARS ENDED DECEMBER 31, 1994 AND 1993
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES (CONTINUED)
portions of the deferred tax assets and deferred tax liabilities recognized as
of the date of formation of the Company and at December 31, 1995 are presented
below:
<TABLE>
<CAPTION>
JANUARY 4, DECEMBER 31,
1995 1995
<S> <C> <C>
Deferred tax assets:
Property and equipment.................................. $ 6,598,370 $ 6,664,396
Participating interest.................................. -- 2,480,220
Operating loss carryforward............................. -- 1,562,860
Deferred revenue........................................ 349,269 363,442
Bad debt allowance...................................... 20,250 95,175
----------- ------------
Total gross deferred tax assets........................... 6,967,889 11,166,093
Less valuation allowance.................................. (6,967,889) (11,166,093)
Deferred tax liabilities.................................. -- --
----------- ------------
Net deferred tax amount................................... $ -- $ --
=========== ============
</TABLE>
At December 31, 1995, the Company had net operating loss carryforwards for
income tax purposes of approximately $3,860,000 which expire in 2010. A
valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The Company is
in a cumulative pretax loss for the latest three years for financial reporting
purposes. Recognition of deferred tax assets will require generation of future
taxable income. There can be no assurance that the Company will generate any
earnings or any specific level of earnings in future years. Therefore, the
Company established a valuation allowance on deferred tax assets of
approximately $11.2 million as of December 31, 1995.
Significant components of the provision for income taxes are as follows for
the year ended:
<TABLE>
<CAPTION>
DECEMBER
31, 1995
<S> <C>
Current:
Federal........................................................... $ --
State............................................................. --
-----------
Total current........................................................ --
Deferred:
Federal........................................................... (3,524,418)
State............................................................. (673,786)
Increase in valuation allowance................................... 4,198,204
-----------
Total deferred....................................................... $ --
===========
</TABLE>
The effective tax rate on income before income taxes varies from the
statutory federal income tax rate for the year ended December 31, 1995 as
follows:
<TABLE>
<S> <C>
Statutory rate........................................................ (34)%
State taxes, net...................................................... (6)
Valuation allowance................................................... 40
----
-
0%
=====
</TABLE>
F-19
<PAGE> 88
SUNRISE ASSISTED LIVING, INC. AS OF AND FOR THE THREE MONTH PERIOD ENDED
MARCH 31, 1995 AND 1996 (UNAUDITED) AND AS OF AND FOR
THE YEAR ENDED DECEMBER 31, 1995 AND SUNRISE ENTITIES AS OF AND FOR
EACH OF THE TWO YEARS ENDED DECEMBER 31, 1994 AND 1993
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
10. STOCKHOLDERS' DEFICIT AND STOCK OPTION PLAN
The Company effected a three-for-one stock split of the Company's Common
Stock and increased the number of authorized shares of Common Stock from
20,000,000 to 60,000,000, effective July 11, 1995. Pursuant to the authorization
of the Board of Directors and stockholders, the Company has effected on March
20, 1996 a one-for-three stock split. All share amounts reflected herein reflect
the one-for-three stock split. Authorized shares of Common Stock remain
60,000,000. The Company has a stock option plan providing for the grant of
incentive and nonqualified stock options to employees, directors, consultants
and advisors. Pursuant to the Plan, 998,065 shares of Common Stock have been
reserved for issuance. At December 31, 1995 the following options have been
granted:
<TABLE>
<CAPTION>
DATE OF GRANT NO. OF SHARES GRANTED EXERCISE PRICE
<S> <C> <C>
May 16, 1995.................................. 257,100 $ 3.00
November 17 ,1995............................. 63,333 $ 7.50
December 15, 1995............................. 181,167 $ 7.50
December 15, 1995............................. 6,666 $ 3.75
</TABLE>
No shares have been forfeited. Options expire ten years from date of grant
and will vest 25% each year beginning on the earlier of December 31, 1999 or the
effectiveness of a Registration Statement on Form S-8 following the completion
of the proposed initial public offering by the Company.
The Company also has a stock option agreement with one of its senior
executives who currently is not a stockholder of the Company. The agreement, as
amended, is effective as of January 4, 1995 and covers 450,000 shares of Common
Stock that have been reserved for issuance at an exercise price of $8.00. No
compensation has been attributed to the options. These options expire in ten
years and are exercisable in 2001 or when the "trigger price" or per share
market value of outstanding Common Shares reaches a certain value as follows:
<TABLE>
<CAPTION>
SHARES EXERCISABLE TRIGGER PRICE
<S> <C>
300,000......................................................... $ 15.75
75,000......................................................... $ 25.00
75,000......................................................... $ 30.00
</TABLE>
A total of 3,892,509 shares of Common Stock have been reserved for stock
option plans and conversion of preferred stock (see Note 11).
Common Stock at December 31, 1994, was comprised of the following:
<TABLE>
<S> <C>
Sunrise Terrace Inc. Common Stock , $1 par value, 10,000 shares authorized
and outstanding.......................................................... $10,000
Sunrise Development Inc. Common Stock, $10.00 par value, 5,000 shares
authorized, 50 outstanding............................................... 500
Sunrise Assisted Living Inc. Common Stock, $.01 par value 60,000,000 shares
authorized, 100 shares outstanding....................................... 1
-------
$10,501
=======
</TABLE>
F-20
<PAGE> 89
SUNRISE ASSISTED LIVING, INC. AS OF AND FOR THE THREE MONTH PERIOD ENDED
MARCH 31, 1995 AND 1996 (UNAUDITED) AND AS OF AND FOR
THE YEAR ENDED DECEMBER 31, 1995 AND SUNRISE ENTITIES AS OF AND FOR
EACH OF THE TWO YEARS ENDED DECEMBER 31, 1994 AND 1993
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
11. REDEEMABLE PREFERRED STOCK
The Company has authorized 10,000,000 shares of $0.01 par value of
preferred stock, of which 2,444,444 shares have been designated Series A
Convertible Preferred Stock and of which 3,199,995 shares have been designated
Series B Exchangeable Preferred Stock.
The Series A Convertible Preferred Stock (Series A Preferred Stock) has a
9% preferred return, compounded annually, payable, together with the stated
value of $9 per share, upon redemption. The Series A Preferred Stock can be
redeemed at the earlier of 2002, or if a qualified public offering has not
occurred by December 30, 1998, or if a change in ownership of the Company has
occurred by June 15, 1997. The preferred return of $1,963,500 through December
31, 1995 is forfeited upon conversion to shares of Common Stock upon completion
of a qualified public offering. Series A Preferred Stock is currently
convertible to 2,444,444 shares of Common Stock which have been reserved.
The holders of Series A Preferred Stock shares are entitled to vote on all
matters submitted to a vote of the stockholders of the Company and to have the
number of votes equal to the number of whole shares of Common Stock into which
each share of Series A Preferred Stock is then convertible. Each Series A
stockholder is obligated to purchase, upon call by the Company, its pro rata
portion of 1,000,000 shares of Series B exchangeable preferred stock for $10 per
share, or $10,000,000. On January 19, 1996 the Company exercised the call.
The Series B Exchangeable Preferred Stock (Series B Preferred Stock) has a
9% cumulative dividend payable quarterly and has no conversion rights. Each
share of Series B may be redeemed at the option of the holder beginning in 2002
or earlier under specified circumstances. If the gross proceeds provided in an
initial public offering are greater than $35,000,000, all shares of Series B
Preferred Stock are required to be redeemed at a redemption price of $10.00 per
share plus an amount in cash equal to any accrued but unpaid dividends on the
Series B shares.
Shares of Series B are exchangeable, at the option of the Company, for
subordinated debt bearing interest of 9% per annum. In general, Series B
stockholders are not entitled to vote on any matters submitted to a vote of the
stockholders of the Company.
12. EXTRAORDINARY ITEM
In June 1994, $3,350,000 of second-trust mortgages related to two of the
predecessor limited partnerships, were prepaid for $2,500,000. The gain on
prepayment has been reflected as an $850,000 extraordinary gain in the combined
statements of operations.
13. COMMITMENTS
On June 8, 1994 the Company exchanged a minority interest in an operating
facility for all of the operating assets of three related limited partnerships
(the LPs). The Company does not directly own any interest in the LPs. In
addition, the Company has unconditionally guaranteed that it will fund any
shortfall in cash required by the three LPs, to honor the LPs' commitments in
1996 to 1998, to provide a guaranteed 9% return to the limited partners and to
repurchase the limited partnership interests of the limited partners. The
combined cash shortfall if the repurchase had been completed at December 31,
1995, would have been $2,129,124. The guarantees are considered to be contingent
acquisition costs. The actual amount of cash shortfall of the LPs, if any, will
depend on the cash distributions and residual value of the minority interest
F-21
<PAGE> 90
SUNRISE ASSISTED LIVING, INC. AS OF AND FOR THE THREE MONTH PERIOD ENDED
MARCH 31, 1995 AND 1996 (UNAUDITED) AND AS OF AND FOR
THE YEAR ENDED DECEMBER 31, 1995 AND SUNRISE ENTITIES AS OF AND FOR
EACH OF THE TWO YEARS ENDED DECEMBER 31, 1994 AND 1993
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
13. COMMITMENTS (CONTINUED)
transferred to the LPs. If the Company is required to fund any cash shortfall in
accordance with the guarantees, the carrying value of the net assets required in
the exchange would be increased.
The Company does not have any requirement to fund this or any other cash
shortfall as of December 31, 1995.
The Company leases its corporate office space under various leases that
expire on September 30, 1996 and February 1999. The base rent increases by fixed
amounts and is subject to additional annual increases based on the Consumer
Price Index. The Company is also responsible for its proportionate share of
annual increases in operating expense and property taxes.
Future minimum lease payments under office and equipment leases as of
December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996.............................................................. $202,392
1997.............................................................. 62,934
1998.............................................................. 62,934
1999.............................................................. 20,712
--------
348,972
Less sublease rentals............................................. 4,604
--------
$344,368
========
</TABLE>
Included in general and administrative expenses is rent expense amounting
to $215,688, $227,452 and $183,230 for the years ended December 31, 1993, 1994
and 1995, respectively.
The Company's growth strategy is to develop at least 40 new assisted living
facilities over the next three years. In conjunction with the growth strategy,
at December 31, 1995, the Company had four facilities under construction. Total
project costs for these four facilities is expected to be approximately $36.4
million of which $18.6 million has been incurred. In addition, the Company has
entered into contracts to purchase an additional 12 property sites for future
development. Total contracted purchase price of these sites amounts to $14.4
million.
In accordance with the formation agreements of two consolidated
subsidiaries, the Company is required to repurchase the minority interests in
those subsidiaries. These rights can be exercised beginning 2000 and 2001
respectively for each or the two facilities and would be based upon 110% of the
facilities estimated fair market value or 115% if exercised after twelve years.
The aggregate carrying value of the minority interest for the two consolidated
subsidiaries was $1,104,804 at December 31, 1995.
14. PROFIT-SHARING PLAN
The Company has a profit-sharing plan (the "Plan") under Internal Revenue
Code Section 401(k). All employees of the Company are covered by the Plan. The
Plan contains three elements -- employee salary contributions, matching employer
contributions, and special discretionary employer contributions. All full-time
employees who have twelve months of employment are eligible to participate in
the Plan. Deferred salary contributions are made through pre-tax salary
deferrals of between 1% and 16%.
The Plan provides that the employer will contribute $0.25 for every dollar
the employee contributes, up to 7% of the employee's compensation. Matching
contributions made by the Company and the Predecessor
F-22
<PAGE> 91
SUNRISE ASSISTED LIVING, INC. AS OF AND FOR THE THREE MONTH PERIOD ENDED
MARCH 31, 1995 AND 1996 (UNAUDITED) AND AS OF AND FOR
THE YEAR ENDED DECEMBER 31, 1995 AND SUNRISE ENTITIES AS OF AND FOR
EACH OF THE TWO YEARS ENDED DECEMBER 31, 1994 AND 1993
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
14. PROFIT-SHARING PLAN (CONTINUED)
totaled $20,711, $38,594 and $80,198 during 1993, 1994 and 1995, respectively.
No discretionary profit-sharing contributions were made during 1993, 1994 or
1995.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of estimated fair value were determined by
management, using available market information and valuation methodologies.
Considerable judgment is necessary to interpret market data and develop
estimated fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Company could realize on disposition
of the financial instruments. The use of different market assumptions or
estimation methodologies may have an effect on the estimated fair value amounts.
The fair value of the investment is discussed in Note 5.
Cash equivalents, accounts receivable, accounts payable and accrued
expenses, investments and other current assets and liabilities are carried at
amounts which reasonably approximate their fair values.
Fixed rate debt with an aggregate carrying value of $74,745,000 has an
estimated aggregate fair value of $75,000,000 at December 31, 1995. Estimated
fair value of fixed rate debt is based on interest rates currently available to
the Company for issuance of debt with similar terms and remaining maturities.
The estimated fair value of the Company's variable rate debt is estimated to be
approximately equal to its carrying value of $45,810,000 at December 31, 1995.
Disclosure about fair value of financial instruments is based on pertinent
information available to management as of December 31, 1995. Although management
is not aware of any factors that would significantly affect the reasonable fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these financial statements since December 31, 1995 and current estimates of
fair value may differ from the amounts presented herein.
16. SUBSEQUENT EVENTS
INITIAL PUBLIC OFFERING
On March 19, 1996, the board of directors authorized management of the
Company to file a registration statement with the SEC permitting the Company to
sell shares of its Common Stock to the public. If the initial public offering is
closed under the terms presently anticipated, all of the Series A Preferred
Stock outstanding will automatically convert into 2,444,444 shares of Common
Stock. The Company will use a portion of the net proceeds from the offering to
redeem 1,000,000 shares of Series B Preferred Exchangeable Stock issued on
January 19, 1996. The redemption price will be $10.00 per share plus any accrued
but unpaid dividends.
ACQUISITION
The Company acquired a 120-unit assisted living facility in February 1996
which will be accounted for using the purchase method. The acquisition price was
$8,480,000 including the assumption of the existing mortgage amounting to
approximately $5,260,000. The total purchase price will be allocated to the
building and other real property. The acquired facility had approximately $2.4
million of operating revenue in 1995.
F-23
<PAGE> 92
SUNRISE ASSISTED LIVING, INC. AS OF AND FOR THE THREE MONTH PERIOD ENDED
MARCH 31, 1995 AND 1996 (UNAUDITED) AND AS OF AND FOR
THE YEAR ENDED DECEMBER 31, 1995 AND SUNRISE ENTITIES AS OF AND FOR
EACH OF THE TWO YEARS ENDED DECEMBER 31, 1994 AND 1993
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
16. SUBSEQUENT EVENTS (CONTINUED)
CREDIT FACILITIES
In March 1996, the Company obtained a $13.0 million unsecured credit
facility to be used for development and acquisitions and working capital needs.
The credit facility is for a term of five years. Advances under the facility
bear interest at a rate per annum, fluctuating daily, equal to the greater of
(i) the lender's prime lending rate and (ii) the Federal funds rate plus
one-half of one percent.
MODIFICATION OF GECC MORTGAGE
On May 1, 1996, the Company entered into a Loan Modification Agreement
regarding the GECC Mortgage whereby upon consummation of the Company's initial
public offering, the Company will pay the lender $8.6 million as payment in full
of all participation interest due and payable pursuant to the GECC Mortgage. In
addition, the Company will pay the lender $8 million to be applied to repay a
portion of the Class B debt. The lender will then reduce the interest rate
applicable to the outstanding portion of Class B debt from LIBOR plus 5.75% to
LIBOR plus 3.75%. Had the Company modified the loan documents effective January
1, 1995, GECC Mortgage interest for 1995 would have been approximately $7.8
million instead of $15.6 million.
17. 1996 STOCK OPTION GRANTS (UNAUDITED)
On February 15, 1996 and February 29, 1996, the Company granted stock
options for a total of 327,000 shares of Common Stock at an exercise price of
$10.50 per share. The Company believes that these options were granted at no
less than fair market value. Accordingly, no compensation expense was recorded
for these options. The Company believes that events subsequent to February 29,
1996 substantially increased the value of its Common Stock. The market price for
publicly traded assisted living companies increased significantly. In addition,
as discussed in Note 16, subsequent to the date of the grants, the Company
commenced and completed negotiations for a loan modification with GECC. The loan
modification eliminated the uncertainty and financial impact of GECC's 25%
participation in cash flow and property appreciation.
The Company believes if the stock option grants had been made after the
events described above at that same exercise price, these option grants would be
deemed compensatory in an amount reflecting the difference between the mid-point
of the initial public offering filing range, discounted by approximately 25%,
and the exercise price of the options. The Company believes that approximately a
25% discount to the mid-point of the range would be appropriate given the
Company's status as a private company until completion of the Offering and,
among other factors: (i) the Founders' continued ownership of 100% of the Common
Stock; (ii) mandatory redemption features, dividend preferences and other rights
of the Series A Investors which continue until completion of the Offering; (iii)
illiquidity of the Common Stock subject to the options; (iv) option vesting and
exercise conditions; (v) risk associated with completion of the Offering; and
(vi) market pricing uncertainties. Since it is the Company's policy to grant
stock options at fair market value, the exercise price per share would have been
substantially higher if the February 1996 stock option grants had been made
subsequent to the events described above.
F-24
<PAGE> 93
INDEPENDENT AUDITORS' REPORT
To the Partners
Acquired Entities of Sunrise
We have audited the accompanying combined balance sheet of Acquired Entities of
Sunrise as of December 31, 1993 and the related combined statements of
operations and partners' deficit, and cash flows for the year then ended. These
combined financial statements are the responsibility of the Acquired Entities of
Sunrise's management. Our responsibility is to express an opinion on these
combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the combined financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the combined financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Acquired Entities of
Sunrise as of December 31, 1993 and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
Hoffman, Morrison & Fitzgerald P.C.
Vienna, Virginia
March 13, 1996
F-25
<PAGE> 94
COMBINED BALANCE SHEET
ACQUIRED ENTITIES OF SUNRISE
<TABLE>
<CAPTION>
DECEMBER 31,
1993
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................. $ 9,960
Other current assets....................................................... 18,782
------------
Total current assets............................................... 28,742
Property and equipment, net.................................................. 24,188,751
Note receivable from affiliate............................................... 100,417
Organization, leasing costs and deferred financing costs, net of accumulated
amortization of $956,787................................................... 137,844
------------
Total assets....................................................... $24,455,754
============
LIABILITIES AND PARTNERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses...................................... $ 133,054
Current portion of long-term debt.......................................... 317,835
------------
Total current liabilities.......................................... 450,889
Notes payable to affiliates.................................................. 554,789
Long-term debt............................................................... 29,038,310
------------
Total liabilities.................................................. 30,043,988
Partners' deficit............................................................ (5,588,234)
------------
Total liabilities and partners' deficit............................ $24,455,754
============
</TABLE>
See accompanying notes.
F-26
<PAGE> 95
COMBINED STATEMENT OF OPERATIONS AND PARTNERS' DEFICIT
ACQUIRED ENTITIES OF SUNRISE
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
DECEMBER 31,
<S> <C>
Operating revenue:
Resident fees............................................................... $1,709,747
Building rental income...................................................... 2,695,096
-----------
4,404,843
Operating expenses:
Facility operating expenses................................................. 1,161,068
Depreciation and amortization............................................... 1,169,122
-----------
2,330,190
-----------
Income from operations........................................................ 2,074,653
Other income (expense):
Interest income............................................................. 7,226
Interest expense............................................................ (2,164,925)
-----------
Net loss...................................................................... (83,046)
Partners' deficit, beginning of year.......................................... (4,988,647)
Partners' distributions....................................................... (516,541)
-----------
Partners' deficit, end of year................................................ $(5,588,234)
============
</TABLE>
See accompanying notes.
F-27
<PAGE> 96
COMBINED STATEMENT OF CASH FLOWS
ACQUIRED ENTITIES OF SUNRISE
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
DECEMBER 31,
<S> <C>
OPERATING ACTIVITIES
Net loss....................................................................... $ (83,046)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization................................................ 1,169,122
Increase in other current assets............................................. (345)
Decrease in accounts payable and accrued expenses............................ (4,337)
-----------
Net cash provided by operating activities...................................... 1,081,394
-----------
INVESTING ACTIVITIES
Acquisition of property and equipment.......................................... (23,062)
-----------
Net cash used in investing activities.......................................... (23,062)
-----------
FINANCING ACTIVITIES
Payments on long-term debt..................................................... (603,141)
Borrowings of long-term debt................................................... 114,320
Net advances to affiliates..................................................... (10,477)
Repayment of loans to affiliates............................................... 2,547
Distributions to Founders...................................................... (516,541)
Financing costs paid........................................................... (44,763)
-----------
Net cash used in financing activities.......................................... (1,058,055)
-----------
Net increase in cash and cash equivalents...................................... 277
Cash and cash equivalents at beginning of year................................. 9,683
-----------
Cash and cash equivalents at end of year....................................... $ 9,960
==========
</TABLE>
See accompanying notes.
F-28
<PAGE> 97
ACQUIRED ENTITIES OF SUNRISE
DECEMBER 31, 1993
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION
Sunrise Assisted Living, Inc. (the "Company") does business in the assisted
living segment of providing elder care services. The Company consists of
entities that manage (Sunrise Terrace, Inc. or "STI"), own (Sunrise Assisted
Living Limited Partnership or "SALLP"), and develop (Sunrise Development, Inc.
or "SDI") assisted living facilities as well as other limited partnerships and
limited liability corporations that own facilities all of which are owned or
controlled by Paul and Teresa Klaassen ("the Founders"). The facilities provide
a residence, meals and nonmedical assistance to elderly residents for a monthly
fee. Agreements with residents are for a term of one year and are cancelable by
residents with thirty days notice. These services are generally not covered by
health insurance, so the monthly fees are generally payable by the residents,
their family or another responsible party.
SALLP was formed in May 1994 and began operations in June 1994. The
Founders contributed their interests in fifteen independent and assisted living
facilities to SALLP. At this time, SALLP used its debt facility (see Note 7) to
finance the acquisition of all outside interests in the facilities. At the
completion of this transaction, SALLP owned 100% of the facilities. The
operating assets of the facilities were recorded at their historical value
adjusted to reflect the excess of the Founders' basis in the partnerships over
the book value of their proportionate interests in the partnerships contributed
and the excess of the purchase price over the book basis of the minority
interest acquired.
In January 1995, a newly formed corporation, Sunrise Assisted Living Inc.
(the "Company") exchanged 6,019,375 shares of common stock for the equity
interests of the Founders in the various Sunrise entities. Simultaneously the
Company sold 2,444,444 shares of Series A Convertible Preferred stock at $9.00
per share. The Series A Convertible Preferred Stock has a 9% preferred return,
payable if the redemption rights, which commence in 2002, are exercised. The
Series A Preferred Stock contains various requirements based on conversion and
exercising rights.
The accompanying combined financial statements do not include all of the
Sunrise Entities, and therefore, are not intended to reflect the combined
balance sheet and operations of the entire Sunrise organization. These combined
financial statements include entities in which the Founders held a minority,
non-controlling interest in 1993, and which were subsequently acquired by SALLP.
The combined financial statements include the following entities
(collectively referred to as the "Acquired Entities of Sunrise"):
Mercer Sunrise Associates Limited Partnership ("Mercer")
The Wilson Group Limited Partnership ("Wilson")
The Fairfield Group Limited Partnership ("Fairfield")
The Glebe Group Limited Partnership ("Glebe")
2. PRINCIPLES OF COMBINATION
The combined financial statements include the combined balance sheet,
statements of operations and partners' deficit, and cash flows as of and for the
year ended December 31, 1993, of the above entities in which the Founders held a
minority, non-controlling interest ranging from 25% to 47%. Effective June 8,
1994, the Founders acquired most of the equity of these entities (see Note 7).
Receivables, payables, revenues and expenses generated between the Acquired
Entities of Sunrise have been eliminated in the combined financial statements.
F-29
<PAGE> 98
ACQUIRED ENTITIES OF SUNRISE
DECEMBER 31, 1993
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
3. SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Resident fee revenue is recognized when services are rendered and consist
of daily resident fees, resident community fees and other ancillary services.
Generally, resident community fees approximating sixty times the daily residence
fee are received from potential residents upon application. Resident community
fees are ratably refundable if the prospective resident does not move into the
facility or moves out of the facility within ninety days. Community fees
received are recognized as income over the first ninety days of the resident's
stay.
PROPERTY AND EQUIPMENT
Property and equipment are stated at the lower of cost or net realizable
value. Depreciation is computed using the straight-line method at rates intended
to amortize the cost of the related assets over their estimated useful lives.
Estimated useful life for furniture and equipment was 5-7 years and for
buildings was 30 years.
ORGANIZATION, LEASING AND DEFERRED FINANCING COSTS
Costs associated with the organization of certain of the entities are
amortized using the straight-line method over sixty months. Deferred financing
costs are amortized using the straight-line method over the related loan term.
Certain leasing costs of the communities are amortized using the straight-line
method over the one year term of the related lease.
INCOME TAXES
All of the entities included in these financial statements are
partnerships. Therefore, no provision for income taxes has been included in the
accompanying combined financial statements since taxable income or loss passes
through pro rata to the owners of the individual entities.
CASH EQUIVALENTS
For purposes of the combined statement of cash flows, unrestricted cash and
all highly liquid debt instruments purchased with a maturity of three months or
less are considered to be cash and cash equivalents.
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1993:
<TABLE>
<S> <C>
Land................................................................... $ 2,931,760
Buildings and building improvements.................................... 23,712,471
Furniture and equipment................................................ 2,348,942
-----------
28,993,173
Less accumulated depreciation.......................................... (4,804,422)
-----------
$24,188,751
==========
</TABLE>
5. RELATED-PARTY TRANSACTIONS
MANAGEMENT SERVICES
Mercer is managed by STI under a management agreement. The management
agreement has a term of five years and provides for fees based on a percentage
of the monthly gross receipts and a fixed fee. This
F-30
<PAGE> 99
ACQUIRED ENTITIES OF SUNRISE
DECEMBER 31, 1993
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
5. RELATED-PARTY TRANSACTIONS (CONTINUED)
agreement was terminated in June 1994 when controlling interest of Mercer was
purchased by the Founders. Management fee expense for the year ended December
31, 1993 was $128,077.
LEASE COMMITMENTS
Wilson, Glebe and Fairfield are leased to STI. All of the leases require
rental payments at least equal to the total of the principal and interest
payments on the underlying mortgage debt and expire at varying dates through
April 1995. These leases were terminated in June 1994 when the controlling
interests of the entities were purchased by the Founders.
NOTES RECEIVABLE FROM AFFILIATE
In 1992, Glebe loaned $103,974 at an interest rate of 7% to another Sunrise
controlled entity in Oakton, Virginia. The amount was fully repaid in June 1994.
6. NOTES PAYABLE TO AFFILIATES
Notes payable to affiliates consisted of the following at December 31,
1993:
<TABLE>
<S> <C>
Mercer had two outstanding notes payable to STI at various interest rates
from prime plus 1.5% to 12%, due 1995 through 1999...................... $522,622
Mercer had an outstanding note payable to an affiliate, due on demand..... 32,167
---------
$554,789
=========
</TABLE>
7. LONG-TERM DEBT
In 1994, various mortgages and other notes payable were refinanced in
conjunction with the formation of SALLP (see Note 1) and consolidated into two
separate debt classes, collateralized by a blanket first mortgage on all assets
of SALLP which includes the Acquired Entities of Sunrise. The GECC Mortgage is
collateralized by a blanket first mortgage on all assets of SALLP. The GECC
Mortgage consists of two separate debt classes. Classes (A) of $65,000,000 bears
a fixed interest rate of 8.56% and is interest only until the maturity date of
May 31, 2001. Class (B) of $30,000,000 bears a variable interest rate of one
month LIBOR rate plus 5.75%. Class (B) is interest only until July 1, 1997 at
which time principal and interest payments are due using a twenty-year
amortization schedule. Effective September 30, 1996, Sunrise Assisted Living
Limited Partnership is required to meet a minimum debt service coverage ratio or
principal payments accelerate to the lessor of monthly net cash flow or based on
net cash flows as specified in the loan documents and has a 25% participation
interest payable at maturity computed at either the date of maturity, initial
public offering of securities by Sunrise Assisted Living Limited Partnership or
one of its affiliates, or sale of the operating assets. The terms of the loan
contain certain covenants and prepayment restrictions. Additionally, the current
majority stockholders must maintain a 25% interest in the Company. No contingent
interest applies to 1993.
The GECC Mortgage requires Sunrise Assisted Living Limited Partnership to
maintain certain restricted cash balances. These restricted cash and cash
equivalent balances consist of escrows for an operating reserve of fifteen days
of total Sunrise Assisted Living Limited Partnership expenses, a capital reserve
of 3% of monthly revenues of Sunrise Assisted Living Limited Partnership and a
real estate tax escrow.
F-31
<PAGE> 100
ACQUIRED ENTITIES OF SUNRISE
DECEMBER 31, 1993
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
7. LONG-TERM DEBT (CONTINUED)
Principal maturities of long-term debt as of December 31, 1993, after
adjusting for the refinancing, are as follows:
<TABLE>
<S> <C>
1994................................................................... $ 317,835
1995................................................................... 11,673
1996................................................................... --
1997................................................................... --
1998................................................................... --
Thereafter............................................................. 29,026,637
---------
$29,356,145
=========
</TABLE>
A note payable with a bank was refinanced for $106,000. Interest paid
during 1993 was $2,168,670.
8. PROFIT SHARING PLAN
The employees of Acquired Entities of Sunrise may participate in a profit
sharing plan (the "Plan") under Internal Revenue Code Section 401(k) sponsored
by STI. The Plan contains two elements: a salary reduction arrangement and a
discretionary profit sharing plan. All full-time employees who have twelve
months of employment with an affiliate are eligible to participate in the Plan.
The salary reduction arrangement allows for employees to defer certain amounts
of their compensation.
The Plan provides, among other things, that the employer will contribute
$0.25 for every dollar the employee contributes, up to 7% of their compensation.
Employer matching contributions totaled $3,074 during 1993. No discretionary
profit-sharing contribution was made during 1993.
F-32
<PAGE> 101
[SUNRISE ASSISTED LIVING LOGO]
[PHOTO OF RESIDENT AT [PHOTO OF SUNRISE CO-FOUNDER
SUNRISE OF ANNAPOLIS] TERESA KLAASSEN VISITING WITH
RESIDENTS]
TOP, LEFT TO RIGHT: Resident
relaxes in living room at
Sunrise of Annapolis; Sunrise
co-founder Teresa Klaassen
visits with residents.
CENTER, LEFT TO RIGHT: Individual
interests of residents are
[PHOTO OF RESIDENT] cultivated at Sunrise; Sunrise
intergenerational programs
bring seniors and youth together.
BOTTOM, LEFT TO RIGHT: Sunrise
Assisted Living facilities in
California and Florida (Chanate
Lodge, CA (owned) and interior
and exterior at Sunrise of
Atrium, FL (owned))
[PHOTO OF INTERGENERATIONAL
PROGRAM BRINGING SENIORS AND
YOUTH TOGETHER]
[PHOTO OF EXTERIOR [PHOTO OF INTERIOR [PHOTO OF EXTERIOR
Of CHANATE LODGE] OF SUNRISE OF ATRIUM] OF SUNRISE OF ATRIUM]
<PAGE> 102
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION, NOR DOES IT CONSTITUTE AN OFFER TO
SELL OR SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE COMMON STOCK
OFFERED HEREBY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary......................... 3
Risk Factors............................... 5
The Company and its Predecessors........... 13
Use of Proceeds............................ 14
Dividend Policy............................ 14
Capitalization............................. 15
Dilution................................... 16
Selected Financial Data.................... 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 19
Business................................... 28
Management................................. 42
Certain Transactions....................... 50
Principal and Selling Stockholders......... 53
Description of Capital Stock............... 55
Shares Eligible for Future Sale............ 60
Underwriting............................... 61
Legal Matters.............................. 63
Experts.................................... 63
Change in Independent Accountants.......... 63
Additional Information..................... 64
Index to Financial Statements.............. F-1
</TABLE>
------------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
5,000,000 SHARES
[SUNRISE LOGO]
COMMON STOCK
--------------------
PROSPECTUS
--------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
ALEX. BROWN & SONS
INCORPORATED
NATWEST SECURITIES LIMITED
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 103
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered hereby, other than
underwriting discounts and commissions. The Company will bear all of such
expenses, except that to the extent the Underwriters exercise the over-allotment
option, the Selling Stockholders will bear their proportionate share of the SEC
registration fee and Blue Sky fees and expenses. All amounts are estimated
except for the Securities and Exchange Commission registration fee and the
National Association of Securities Dealers, Inc. ("NASD") filing fee.
<TABLE>
<CAPTION>
PAYABLE BY
REGISTRANT
<S> <C>
SEC registration fee.................................................... $ 37,673
NASD filing fee......................................................... 11,425
Nasdaq National Market entry fee........................................ 50,000
Blue Sky fees and expenses.............................................. 40,000
Accounting fees and expenses............................................ 400,000
Legal fees and expenses................................................. 390,000
Printing and engraving expenses......................................... 190,000
Registrar and transfer agent's fees..................................... 10,000
Directors' and officers' liability insurance............................ 240,000
Miscellaneous fees and expenses......................................... 130,902
Total......................................................... $1,500,000
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the Delaware General Corporation Law (the "Delaware
Law"), a corporation may indemnify its directors, officers, employees and agents
and its former directors, officers, employees and agents and those who serve, at
the corporation's request, in such capacities with another enterprise, against
expenses (including attorneys' fees), as well as judgments, fines and
settlements in non-derivative lawsuits, actually and reasonably incurred in
connection with the defense of any action, suit or proceeding in which they or
any of them were or are made parties or are threatened to be made parties by
reason of their serving or having served in such capacity. The Delaware Law
provides, however, that such person must have acted in good faith and in a
manner he or she reasonably believed to be in (or not opposed to) the best
interests of the corporation and, in the case of a criminal action, such person
must have had no reasonable cause to believe his or her conduct was unlawful. In
addition, the Delaware Law does not permit indemnification in an action or suit
by or in the right of the corporation, where such person has been adjudged
liable to the corporation, unless, and only to the extent that, a court
determines that such person fairly and reasonably is entitled to indemnity for
expenses the court deems proper in light of liability adjudication. Indemnity is
mandatory to the extent a claim, issue or matter has been successfully defended.
The Company's Amended and Restated Bylaws (the "Bylaws") provide for
mandatory indemnification of directors and officers generally to the same extent
authorized by the Delaware Law. Under the Bylaws, the Company shall advance
expenses incurred by an officer or director in defending any such action if the
director or officer undertakes to repay such amount if it is determined that he
or she is not entitled to indemnification. The Company has obtained directors'
and officers' liability insurance, including a policy relating solely to
liabilities arising from or in connection with the Offering.
Prior to completion of the Offering, the Company intends to enter into
separate indemnification agreements with its directors and officers. Each
indemnification agreement provides for, among other things: (i) indemnification
against any and all expenses, liabilities and losses (including attorneys' fees,
judgments,
II-1
<PAGE> 104
fines, taxes, penalties and amounts paid in settlement) of any claim against an
indemnified party unless it is determined, as provided in the indemnification
agreement, that indemnification is not permitted under applicable law and (ii)
prompt advancement of expenses to any indemnified party in connection with his
or her defense against any claim.
The Underwriting Agreement provides for indemnification by the Underwriters
of the directors, officers and controlling persons of the Company against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"), under certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On December 19, 1994, the Company issued 100 shares of Common Stock to Paul
and Teresa Klaassen (the "Founders") as part of the Company's initial
capitalization. These securities were issued without registration under the
Securities Act, in reliance upon the exemption in Section 4(2) of the Securities
Act.
On January 4, 1995, the Company exchanged 6,019,375 shares of Common Stock
for (i) the equity interests of the Founders in the various asset partnerships
and other Sunrise entities that owned or had interests in 22 facilities, (ii)
100% of the capital stock of Sunrise Terrace Inc., the Company's management
subsidiary, and (iii) 100% of the capital stock of Sunrise Development Inc., the
Company's development subsidiary (collectively, the "Contribution Transaction").
In connection with the Contribution Transaction, the Sunrise entities made
distributions aggregating $9.6 million to, and the Company assumed $2.1 million
of indebtedness of, the Founders. These securities were issued without
registration under the Securities Act, in reliance upon the exemption in Section
4(2) of the Securities Act.
On January 4, 1995, the Company issued an aggregate of 2,444,444 shares of
Series A Convertible Preferred Stock to three institutional investors and
certain affiliates thereof (the "Series A Investors") for $21,999,996. These
securities were issued without registration under the Securities Act, in
reliance upon the exemption in Section 4(2) of the Securities Act.
On January 19, 1996, the Company issued an aggregate of 1,000,000 shares of
Series B Exchangeable Preferred Stock to the Series A Investors for $10,000,000.
These securities were issued without registration under the Securities Act, in
reliance upon the exemption in Section 4(2) of the Securities Act.
On March 19, 1996, the Company issued warrants covering 50,000 shares of
Common Stock to a lender. The warrants have a per share exercise price equal to
85% of the initial public offering price. These securities were issued without
registration under the Securities Act, in reliance upon the exemption in Section
4(2) of the Securities Act.
Upon completion of the Offering being registered hereby, the Company
intends to issue 52,500 shares of Common Stock to Thomas J. Donohue and his
wife, jointly, in exchange for their 30% interest in the limited liability
company that owns the Village House facility. These securities will be issued
without registration under the Securities Act, in reliance upon the exemption in
Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
1.1 Form of Underwriting Agreement
1.2 Form of Custody Agreement
3.1 Form of Restated Certificate of Incorporation of the Company
3.2 Form of Amended and Restated By-laws of the Company
4.1 Form of Common Stock certificate
4.2 Form of Stockholder Rights Agreement
5 Opinion of Hogan & Hartson L.L.P. regarding legality of shares being registered
</TABLE>
II-2
<PAGE> 105
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
*10.1.1 Assignment and Contribution Agreement, effective as of January 4, 1995, by and
between Paul and Teresa Klaassen and the Company
10.1.2 Assignment and Contribution Agreement, dated as of January 4, 1995, by and between
Paul J. Klaassen and Teresa M. Klaassen and Sunrise Partners, L.P. and Sunrise
Assisted Living Investments, Inc.
*10.2 Series A and Series B Preferred Stock Purchase Agreement, dated as of December 19,
1994, by and between the Company and the purchasers listed therein
*10.3 Registration Agreement, dated January 4, 1995, by and among the Company, the
Investors (as defined therein) and Paul and Teresa Klaassen
*10.4 Promissory Note, dated June 8, 1994, executed by Sunrise Assisted Living Limited
Partnership in favor of General Electric Capital Corporation
*10.4.1 Indemnity Agreement dated as of June 8, 1994 by Paul J. Klaassen and Teresa M.
Klaassen to and for the benefit of General Electric Capital Corporation
*10.4.2 First Loan Modification Agreement dated as of February 15, 1996 by and between
General Electric Capital Corporation and Sunrise Assisted Living Limited
Partnership
*10.4.3 Second Loan Modification Agreement dated as of May 1, 1996 by and between General
Electric Capital Corporation and Sunrise Assisted Living Limited Partnership
*10.4.4 Letter Agreement dated as of May 1, 1996 by and between General Electric Capital
Corporation and Sunrise Assisted Living Limited Partnership
*10.5 Credit Line Deed of Trust and Security Agreement, Assignment of Leases and Rents,
Fixture Filing and Financing Statement, dated as of June 8, 1994 (Arlington,
Bluemont Park, and Falls Church)
*10.6 Credit Line Deed of Trust and Security Agreement, Assignment of Leases and Rents,
Fixture Filing and Financing Statement, dated as of June 8, 1994 (Gunston and
Oakton)
*10.7 Credit Line Deed of Trust and Security Agreement, Assignment of Leases and Rents,
Fixture Filing and Financing Statement, dated as of June 8, 1994 (Fairfax
Leasehold)
*10.8 Credit Line Deed of Trust and Security Agreement, Assignment of Leases and Rents,
Fixture Filing and Financing Statement, dated as of June 8, 1994 (Warrenton)
*10.9 Credit Line Deed of Trust and Security Agreement, Assignment of Leases and Rents,
Fixture Filing and Financing Statement, dated as of June 8, 1994 (Countryside and
Leesburg)
*10.10 First Mortgage and Security Agreement, Assignment of Leases and Rents, Fixture
Filing and Financing Statement, dated as of June 8, 1994 (Boca Raton)
*10.11 First Deed of Trust and Security Agreement, Assignment of Leases and Rents, Fixture
Filing and Financing Statement, dated as of June 8, 1994 (Frederick)
*10.12 First Deed of Trust and Security Agreement, Assignment of Leases and Rents, Fixture
Filing and Financing Statement, dated as of June 8, 1994 (Mercer Island)
10.13 Stock Option Plan, as amended
10.13.1 1996 Directors' Stock Option Plan
*10.14 Stock Option Agreement, entered into, effective as of January 4, 1995, by and
between the Company and David W. Faeder
10.14.1 Form of Amendment No. 1 to Stock Option Agreement by and between the Company and
David W. Faeder
*10.15 Amended and Restated Lease Agreement and Assignment of Leasehold Right, dated June
6, 1994, by and among Barbara M. Volentine and Teresa M. Klaassen, the Executor of
the Estate of Eldon J. Merritt, Sunrise Assisted Living Limited Partnership,
Assisted Living Group--Fairfax Associates, and Sunrise Foundation, Inc.
*10.16 Ground Lease, dated June 7, 1994, by and between Sunrise Assisted Living Limited
Partnership and Paul J. Klaassen and Teresa M. Klaassen
*10.17 Amended and Restated Agreement of Sublease, Indemnification and Easements dated
February 5, 1995 by and between Assisted Living Group -- Fairfax Associates and
Sunrise Foundation, as amended
*10.18 Sunrise Village House LLC Operating Agreement, dated as of April 15, 1993, by and
between Paul J. Klaassen and Teresa M. Klaassen and Thomas Donohue and Elizabeth
Donohue, as amended
</TABLE>
II-3
<PAGE> 106
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
*10.19 Letter Agreement, dated January 4, 1995, from Paul J. Klaassen and Teresa M.
Klaassen to the Series A Preferred Stockholders regarding cash distributions from
Sunrise Retirement Investments, Inc., Sunrise Terrace of Gunston, Inc., Sunrise
Terrace of Countryside, Inc. and Sunrise Atrium, Inc.
*10.20 Loan Agreement, dated as of March 19, 1996, between the Company and Creditanstalt-
Bankverein
*10.21 Warrant Agreement, dated as of March 19, 1996, between the Company and
Creditanstalt-Bankverein
*10.22 Commitment Letter for $80,000,000 syndicated line of credit for
Construction/Interim Loans from NationsBank, N.A. to an entity to be formed by
Sunrise Assisted Living, Inc.
10.23 Form of Membership Interest Purchase Agreement among the Company and Thomas and
Elizabeth Donohue.
10.24 Form of Indemnification Agreement
*16 Letter re change in Certifying Accountant
21 Subsidiaries of the Company
23.1 Consent of Ernst & Young LLP
23.2 Consent of Hoffman, Morrison & Fitzgerald P.C.
23.3 Consent of Hogan & Hartson L.L.P. (included in Exhibit 5)
*24 Power of attorney from officers and directors of the Company signing by an attorney
in fact (included on Signature Page)
27 Financial Data Schedule
</TABLE>
- ---------------
* Previously filed.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Company hereby further undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 107
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Fairfax, Commonwealth of Virginia, on
the 28th day of May, 1996.
SUNRISE ASSISTED LIVING, INC.
By /s/ DAVID W. FAEDER
------------------------------------
David W. Faeder
Executive Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed below on May 28, 1996 by the following persons in the capacities
indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE
<C> <S>
*
- -----------------------------------
PAUL J. KLAASSEN Chairman of the Board of Directors, President and Chief
Executive Officer (Principal Executive Officer)
- -----------------------------------
TERESA M. KLAASSEN Executive Vice President and Director
/s/ DAVID W. FAEDER
- -----------------------------------
DAVID W. FAEDER Executive Vice President, Chief Financial Officer and
Director (Principal Financial Officer)
/s/ LARRY E. HULSE
- -----------------------------------
LARRY E. HULSE Controller (Principal Accounting Officer)
*
- -----------------------------------
RONALD V. APRAHAMIAN Director
*
- -----------------------------------
THOMAS J. DONOHUE Director
*
- -----------------------------------
RICHARD A. DOPPELT Director
*
- -----------------------------------
SCOTT F. MEADOW Director
*
- -----------------------------------
DARCY J. MOORE Director
</TABLE>
- ---------------
* David W. Faeder, by signing his name hereto, does sign this document on behalf
of the persons indicated above pursuant to powers of attorney duly executed by
such persons and filed with the Securities and Exchange Commission.
/s/ DAVID W. FAEDER
- -----------------------------------
ATTORNEY-IN-FACT
II-5
<PAGE> 108
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
<C> <S> <C>
1.1 Form of Underwriting Agreement.......................................
1.2 Form of Custody Agreement............................................
3.1 Form of Restated Certificate of Incorporation of the Company.........
3.2 Form of Amended and Restated By-laws of the Company..................
4.1 Form of Common Stock certificate.....................................
4.2 Form of Stockholder Rights Agreement.................................
5 Opinion of Hogan & Hartson L.L.P. regarding legality of shares being
registered...........................................................
*10.1.1 Assignment and Contribution Agreement, effective as of January 4,
1995, by and between Paul and Teresa Klaassen and the Company........
10.1.2 Assignment and Contribution Agreement, dated as of January 4, 1995,
by and between Paul J. Klaassen and Teresa M. Klaassen and Sunrise
Partners, L.P. and Sunrise Assisted Living Investments, Inc. ........
*10.2 Series A and Series B Preferred Stock Purchase Agreement, dated as of
December 19, 1994, by and between the Company and the purchasers
listed therein.......................................................
*10.3 Registration Agreement, dated January 4, 1995, by and among the
Company, the Investors (as defined therein) and Paul and Teresa
Klaassen.............................................................
*10.4 Promissory Note, dated June 8, 1994, executed by Sunrise Assisted
Living Limited Partnership in favor of General Electric Capital
Corporation..........................................................
*10.4.1 Indemnity Agreement dated as of June 8, 1994 by Paul J. Klaassen and
Teresa M. Klaassen to and for the benefit of General Electric Capital
Corporation..........................................................
*10.4.2 First Loan Modification Agreement dated as of February 15, 1996 by
and between General Electric Capital Corporation and Sunrise Assisted
Living Limited Partnership...........................................
*10.4.3 Second Loan Modification Agreement dated as of May 1, 1996 by and
between General Electric Capital Corporation and Sunrise Assisted
Living Limited Partnership...........................................
*10.4.4 Letter Agreement dated as of May 1, 1996 by and between General
Electric Capital Corporation and Sunrise Assisted Living Limited
Partnership..........................................................
*10.5 Credit Line Deed of Trust and Security Agreement, Assignment of
Leases and Rents, Fixture Filing and Financing Statement, dated as of
June 8, 1994 (Arlington, Bluemont Park, and Falls Church)............
*10.6 Credit Line Deed of Trust and Security Agreement, Assignment of
Leases and Rents, Fixture Filing and Financing Statement, dated as of
June 8, 1994 (Gunston and Oakton)....................................
*10.7 Credit Line Deed of Trust and Security Agreement, Assignment of
Leases and Rents, Fixture Filing and Financing Statement, dated as of
June 8, 1994 (Fairfax Leasehold).....................................
*10.8 Credit Line Deed of Trust and Security Agreement, Assignment of
Leases and Rents, Fixture Filing and Financing Statement, dated as of
June 8, 1994 (Warrenton).............................................
*10.9 Credit Line Deed of Trust and Security Agreement, Assignment of
Leases and Rents, Fixture Filing and Financing Statement, dated as of
June 8, 1994 (Countryside and Leesburg)..............................
*10.10 First Mortgage and Security Agreement, Assignment of Leases and
Rents, Fixture Filing and Financing Statement, dated as of June 8,
1994 (Boca Raton)....................................................
</TABLE>
<PAGE> 109
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
<C> <S> <C>
*10.11 First Deed of Trust and Security Agreement, Assignment of Leases and
Rents, Fixture Filing and Financing Statement, dated as of June 8,
1994 (Frederick).....................................................
*10.12 First Deed of Trust and Security Agreement, Assignment of Leases and
Rents, Fixture Filing and Financing Statement, dated as of June 8,
1994 (Mercer Island).................................................
10.13 Stock Option Plan, as amended........................................
10.13.1 1996 Directors' Stock Option Plan....................................
*10.14 Stock Option Agreement, entered into, effective as of January 4,
1995, by and between the Company and David W. Faeder.................
10.14.1 Form of Amendment No. 1 to Stock Option Agreement by and between the
Company and David W. Faeder..........................................
*10.15 Amended and Restated Lease Agreement and Assignment of Leasehold
Right, dated June 6, 1994, by and among Barbara M. Volentine and
Teresa M. Klaassen, the Executor of the Estate of Eldon J. Merritt,
Sunrise Assisted Living Limited Partnership, Assisted Living
Group--Fairfax Associates, and Sunrise Foundation, Inc...............
*10.16 Ground Lease, dated June 7, 1994, by and between Sunrise Assisted
Living Limited Partnership and Paul J. Klaassen and Teresa M.
Klaassen.............................................................
*10.17 Amended and Restated Agreement of Sublease, Indemnification and
Easements dated February 5, 1995 by and between Assisted Living
Group -- Fairfax Associates and Sunrise Foundation, as amended.......
*10.18 Sunrise Village House LLC Operating Agreement, dated as of April 15,
1993, by and between Paul J. Klaassen and Teresa M. Klaassen and
Thomas Donohue and Elizabeth Donohue, as amended.....................
*10.19 Letter Agreement, dated January 4, 1995, from Paul J. Klaassen and
Teresa M. Klaassen to the Series A Preferred Stockholders regarding
cash distributions from Sunrise Retirement Investments, Inc., Sunrise
Terrace of Gunston, Inc., Sunrise Terrace of Countryside, Inc. and
Sunrise Atrium, Inc..................................................
*10.20 Loan Agreement, dated as of March 19, 1996, between the Company and
Creditanstalt-Bankverein.............................................
*10.21 Warrant Agreement, dated as of March 19, 1996, between the Company
and Creditanstalt-Bankverein.........................................
*10.22 Commitment Letter for $80,000,000 syndicated line of credit for
Construction/ Interim Loans from NationsBank, N.A. to an entity to be
formed by Sunrise Assisted Living, Inc...............................
10.23 Form of Membership Interest Purchase Agreement among the Company and
Thomas and Elizabeth Donohue.........................................
10.24 Form of Indemnification Agreement....................................
*16 Letter re change in Certifying Accountant............................
21 Subsidiaries of the Company..........................................
23.1 Consent of Ernst & Young LLP.........................................
23.2 Consent of Hoffman, Morrison & Fitzgerald P.C........................
23.3 Consent of Hogan & Hartson L.L.P. (included in Exhibit 5)............
*24 Power of attorney from officers and directors of the Company signing
by an attorney in fact (included on Signature Page)..................
27 Financial Data Schedule..............................................
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
EXHIBIT 1.1
5,000,000 Shares
SUNRISE ASSISTED LIVING, INC.
Common Stock
UNDERWRITING AGREEMENT
__________, 1996
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
ALEX. BROWN & SONS INCORPORATED
NATWEST SECURITIES LIMITED
As representatives of the
several underwriters
named in Schedule I hereto
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
Dear Sirs:
Sunrise Assisted Living, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell 5,000,000 shares of its Common Stock, $.01 par value
per share ("Common Stock"), to the several underwriters named in Schedule I
hereto (the "Underwriters"). Such 5,000,000 shares of Common Stock are
hereinafter referred to as the "Firm Shares"). In addition, the stockholders
of the Company named in Schedule II hereto (collectively, the "Selling
Stockholders"), propose to sell to the several Underwriters not more than
750,000 additional shares of Common Stock (the "Additional Shares") if
requested by the Underwriters as provided in Section 2 hereof. The Firm Shares
consist of authorized and unissued shares to be issued and sold by the Company
and the Additional Shares consist of issued and outstanding shares to be sold
by the Selling Stockholders. The Firm Shares and the Additional Shares are
herein collectively called the "Shares". The Company and the Selling
Stockholders are hereinafter collectively called the "Sellers".
<PAGE> 2
1. Registration Statement and Prospectus. The Company has
prepared and filed with the Securities and Exchange Commission (the
"Commission") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder
(collectively called the "Act"), a registration statement on Form S-1 including
a prospectus relating to the Shares, which may be amended. The registration
statement as amended at the time when it becomes effective, including a
registration statement (if any) filed pursuant to Rule 462(b) under the Act
increasing the size of the offering registered under the Act and information
(if any) deemed to be part of the registration statement at the time of
effectiveness pursuant to Rule 430A under the Act, is hereinafter referred to
as the "Registration Statement", and the prospectus in the form first used to
confirm sales of Shares is hereinafter referred as the "Prospectus".
2. Agreements to Sell and Purchase. On the basis of the
representations and warranties contained in this Agreement, and subject to its
terms and conditions, (i) the Company agrees to issue and sell 5,000,000 Firm
Shares to the Underwriters and (ii) each Underwriter agrees, severally and not
jointly, to purchase from the Company at a price per share of $______ (the
"Purchase Price") the number of Firm Shares set forth opposite the name of such
Underwriter in Schedule I hereto.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, (i) the Selling
Stockholders agree to sell up to 750,000 Additional Shares to the Underwriters
and (ii) the Underwriters shall have the right to purchase, severally and not
jointly, up to an aggregate of 750,000 Additional Shares from the Selling
Stockholders at the Purchase Price. Additional Shares may be purchased solely
for the purpose of covering over-allotments made in connection with the
offering of the Firm Shares. The Underwriters may exercise their right to
purchase Additional Shares in whole or in part from time to time by giving
written notice thereof to the Selling Stockholders, care of the Company, within
30 days after the date of this Agreement. You shall give any such notice on
behalf of the Underwriters and such notice shall specify the aggregate number
of Additional Shares to be purchased pursuant to such exercise and the date for
payment and delivery thereof. The date specified in any such notice shall be a
business day (i) no earlier than the Closing Date (as hereinafter defined),
(ii) no later than ten business days after such notice has been given and (iii)
no earlier than two business days after such notice has been given. If any
Additional Shares are to be purchased, each Underwriter, severally and not
jointly, agrees to purchase from the Selling Stockholders the number of
Additional Shares (subject to such adjustments to eliminate fractional shares
as you may determine) which bears the same proportion to the total number of
Additional Shares to be purchased from the Selling Stockholders as the number
of Firm Shares set forth opposite the name of such Underwriter in Schedule I
bears to the total number of Firm Shares.
The Company agrees that the Company shall, concurrently with the
execution of this Agreement, deliver letter agreements executed by (i) each of
the directors and officers of the Company and (ii) each stockholder listed on
Annex I hereto, pursuant to which each
- 2 -
<PAGE> 3
such person agrees, not to offer, sell, contract to sell, grant any option to
purchase, or otherwise dispose of any Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or in any
other manner transfer all or a portion of the economic consequences associated
with the ownership of any Common Stock, except to the Underwriters pursuant to
this Agreement, for a period of 180 days after the effective date of the
Registration Statement, other than (i) as a gift or gifts, provided the donee
or donees thereof agree in writing to be bound such letter agreement, (ii)
transfers to a transferor's affiliates, as such term is defined in Rule 405
promulgated under the Act, provided the transferee agrees in writing to be
bound by such letter agreement, or (iii) with the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation (except as to shares held
by affiliates of Donaldson, Lufkin & Jenrette Securities Corporation which
require the prior written consent of Alex. Brown & Sons Incorporated and
NatWest Securities Limited). Notwithstanding the foregoing, during such period
the Company (i) may grant stock options (and may issue shares of its Common
Stock upon exercise thereof) pursuant to the Company's existing 1995 Stock
Option Plan or the Company's existing 1996 Directors' Stock Option Plan
(collectively, the "Option Plans"), (ii) may issue shares of Common Stock upon
the exercise of any of the 450,000 stock options granted to David W. Faeder
outside of the Option Plans, (iii) may issue shares of Common Stock upon the
exercise of the 50,000 warrants outstanding on the date hereof or upon the
conversion of the 2,444,444 shares of Series A Convertible Preferred Stock of
the Company outstanding on the date hereof, and (iv) may issue shares of Common
Stock in connection with the Company's acquisition of assets of, or an
ownership interest in, another business or entity, provided, however, that,
without the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation, the Company may not (i) register such shares of Common Stock under
the Act for a period of 180 days after the effective date of the Registration
Statement or (ii) grant any registration rights with respect to such shares of
Common Stock that are exercisable within 180 days after the effective date of
the Registration Statement.
3. Terms of Public Offering. The Sellers are advised by you that
the Underwriters propose (i) to make a public offering of their respective
portions of the Shares as soon after the effective time of the Registration
Statement as in your judgment is advisable and (ii) initially to offer the
Shares upon the terms set forth in the Prospectus.
4. Delivery and Payment. Delivery to the Underwriters of and
payment for the Firm Shares shall be made at 10:00 A.M., New York City time, on
the third or fourth business day (unless otherwise permitted by the Commission
pursuant to Rule 15c6-1 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) following the date of the initial public offering (the
"Closing Date"), at the offices of Hogan & Hartson L.L.P., 555 Thirteenth
Street, NW, Washington, D.C. 20004, or at such other place outside the State of
New York as you shall designate. The Closing Date and the location of delivery
of and the form of payment for the Firm Shares may be varied by agreement
between you and the Company.
- 3 -
<PAGE> 4
Delivery to the Underwriters of and payment for any Additional Shares
to be purchased by the Underwriters shall be made at the offices of Hogan &
Hartson L.L.P., 555 Thirteenth Street, NW, Washington, D.C. 20004, or at such
other place as you shall designate, at 10:00 A.M., New York City time, on the
date specified in the applicable exercise notice given by you pursuant to
Section 2 (an "Option Closing Date"). Any such Option Closing Date and the
location of delivery of and the form of payment for such Additional Shares may
be varied by agreement between you and the Sellers.
Certificates for the Shares shall be registered in such names and
issued in such denominations as you shall request in writing not later than two
full business days prior to the Closing Date or an Option Closing Date, as the
case may be. Such certificates shall be made available to you for inspection
not later than 9:30 A.M., New York City time, on the business day next
preceding the Closing Date or an Option Closing Date, as the case may be.
Certificates in definitive form evidencing the Shares shall be delivered to you
on the Closing Date or an Option Closing Date, as the case may be, with any
transfer taxes thereon duly paid by the respective Sellers, for the respective
accounts of the several Underwriters, against payment of the Purchase Price
therefor by wire transfer of immediately available funds to the order of the
applicable Sellers.
5. Agreements of the Company. The Company agrees with you:
(a) To advise you promptly and, if requested by you, to
confirm such advice in writing, (i) when any post-effective amendment
to the Registration Statement becomes effective, (ii) of any request
by the Commission for amendments to the Registration Statement or
amendments or supplements to the Prospectus or for additional
information, (iii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the
suspension of qualification of the Shares for offering or sale in any
jurisdiction, or the initiation of any proceeding for such purposes,
and (iv) of the occurrence of any event during the period referred to
in paragraph (e) below which makes any statement of a material fact
made in the Registration Statement or the Prospectus untrue or which
requires the making of any additions to or changes in the Registration
Statement or the Prospectus in order to make the statements therein
not misleading. If at any time the Commission shall issue any stop
order suspending the effectiveness of the Registration Statement, the
Company will make every reasonable effort to obtain the withdrawal or
lifting of such order at the earliest possible time.
(b) To furnish to you, without charge, four signed copies
of the Registration Statement as first filed with the Commission and
of each amendment to it, including all exhibits, and to furnish to you
and each Underwriter designated by you such number of conformed copies
of the Registration Statement as so filed and of each amendment to it,
without exhibits, as you may reasonably request.
- 4 -
<PAGE> 5
(c) Not to file any amendment or supplement to the
Registration Statement, whether before or after the time when it
becomes effective, or to make any amendment or supplement to the
Prospectus of which you shall not previously have been advised or to
which you shall reasonably object; and to prepare and file with the
Commission, promptly upon your reasonable request, any amendment to
the Registration Statement or supplement to the Prospectus which may
be necessary or advisable in connection with the distribution of the
Shares by you, and to use its best efforts to cause the same to become
promptly effective.
(d) Promptly after the Registration Statement becomes
effective, and from time to time thereafter for such period as a
prospectus is required by law to be delivered in connection with sales
by an Underwriter or a dealer, to furnish to each Underwriter and
dealer as many copies of the Prospectus (and of any amendment or
supplement to the Prospectus) as such Underwriter or dealer may
reasonably request.
(e) If during the period specified in paragraph (d) any
event shall occur as a result of which, in the judgment of the Company
or in the opinion of counsel for the Underwriters, it becomes
necessary to amend or supplement the Prospectus in order to make the
statements therein, in the light of the circumstances when the
Prospectus is delivered to a purchaser, not misleading, or if it is
necessary to amend or supplement the Prospectus to comply with any
law, forthwith to prepare and file with the Commission an appropriate
amendment or supplement to the Prospectus so that the statements in
the Prospectus, as so amended or supplemented, will not in the light
of the circumstances when it is so delivered, be misleading, or so
that the Prospectus will comply with law, and to furnish to each
Underwriter and to such dealers as you shall specify, such number of
copies thereof as such Underwriter or dealers may reasonably request.
(f) Prior to any public offering of the Shares, to
cooperate with you and counsel for the Underwriters in connection with
the registration or qualification of the Shares for offer and sale by
the several Underwriters and by dealers under the state securities or
Blue Sky or real estate syndication laws of such jurisdictions as you
may request, to continue such qualification in effect so long as
required for distribution of the Shares and to file such consents to
service of process or other documents as may be necessary in order to
effect such registration or qualification; provided, however, that the
Company shall not be obligated in connection therewith or as a
condition thereof to (i) file any general consent to service of
process or to qualify as a foreign corporation in any jurisdiction in
which it is not otherwise required to so file a general consent to
service of process or to be so qualified, or (ii) take any action that
would subject it to income taxation in any jurisdiction in which it is
not otherwise subject to income taxation. In addition, the Company
agrees to comply in all material respects with (i) the undertakings
set forth in numbered paragraphs 12, 13, 14 and 18 of its "Application
for Exemption Under Sections 352-g(2) and 359-f(2) of the New
- 5 -
<PAGE> 6
York General Business Law for a Real Estate Syndication Offering
Registered with the Securities and Exchange Commission Under the
Federal Securities Act of 1933", dated March 21, 1996, as amended to
date and as may be amended hereafter, and (ii) any applicable
provisions of Section 352-e of the New York General Business Law or
the rules and regulations promulgated thereunder.
(g) To mail and make generally available to its
stockholders as soon as reasonably practicable, but in any event not
later than the 90th day following the end of the fiscal quarter first
occurring after the first anniversary of the effective date of the
Registration Statement, an earning statement covering a period of at
least twelve months after the effective date of the Registration
Statement which shall satisfy the provisions of Section 11(a) of the
Act and Rule 158 thereunder.
(h) For a period of five (5) years from the date of this
Agreement, to furnish to you as soon as available copies of all annual
reports and other documents, reports, financial statements and
information (i) furnished by the Company to its stockholders, (ii)
furnished to The Nasdaq Stock Market, Inc. National Market (the
"Nasdaq National Market") or any securities exchange upon which the
Common Stock may be listed or quoted pursuant to the requirements of
or agreements with such market or exchange or (iii) filed with the
Commission under or pursuant to the Act or the Exchange Act.
(i) To pay all costs, expenses, fees and transfer taxes
incident to (i) the preparation, printing, filing and distribution
under the Act of the Registration Statement (including financial
statements and exhibits), each preliminary prospectus and all
amendments and supplements to any of them prior to or during the
period specified in paragraph (e), (ii) the printing and delivery of
the Prospectus and all amendments or supplements to it during the
period specified in paragraph (e), (iii) the printing and delivery of
this Agreement, the Preliminary and Supplemental Blue Sky Memoranda
and all other agreements, memoranda, correspondence and other
documents printed and delivered in connection with the offering of the
Shares (including in each case any disbursements of counsel for the
Underwriters relating to such printing and delivery), (iv) the
registration or qualification of the Shares for offer and sale under
the securities or Blue Sky laws of the several states (including in
each case the fees and disbursements of counsel for the Underwriters
relating to such registration or qualification and memoranda relating
thereto), (v) filings and clearance with the National Association of
Securities Dealers, Inc. ("NASD") in connection with the offering,
(vi) the listing of the Shares on the Nasdaq National Market, (vii)
furnishing such copies of the Registration Statement, the Prospectus
and all amendments and supplements thereto as may be reasonably
requested for use in connection with the offering or sale of the
Shares by the Underwriters or by dealers to whom Shares may be sold
and (viii) the performance by the Sellers of their other obligations
under this Agreement. The Selling Stockholders have agreed with the
Company to reimburse the Company for a portion of such expenses.
- 6 -
<PAGE> 7
(j) To use its best efforts to maintain the inclusion of
the Common Stock in the Nasdaq National Market (or on a national
securities exchange) for a period of five years after the effective
date of the Registration Statement.
(k) To use its best efforts to do and perform all things
required or necessary to be done and performed under this Agreement by
the Company prior to the Closing Date or any Option Closing Date, as
the case may be, and to satisfy all conditions precedent on its part
to the delivery of the Shares.
6. Representations and Warranties of the Company and the Selling
Stockholders. Each of the Company and the Selling Stockholders, jointly and
severally, represents and warrants to each Underwriter that:
(a) The Registration Statement has become effective; no
stop order suspending the effectiveness of the Registration Statement
is in effect, and no proceedings for such purpose are pending before
or, to the Company's knowledge, threatened by the Commission.
(b)(i) The Registration Statement, when it became effective,
did not contain and, as amended or supplemented, if applicable, will
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) the Registration Statement and
the Prospectus comply and, as amended or supplemented, if applicable,
will comply in all material respects with the Act and (iii) the
Prospectus does not contain and, as amended or supplemented, if
applicable, will not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading, except that the representations and warranties set
forth in this paragraph (b) do not apply to statements or omissions in
the Registration Statement or the Prospectus based upon information
relating to any Underwriter furnished to the Company in writing by or
on behalf of such Underwriter through you expressly for use therein.
(c) Each preliminary prospectus filed as part of the
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the Act, and each
Registration Statement filed pursuant to Rule 462(b) under the Act, if
any, complied when so filed in all material respects with the Act; and
did not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(d) The Company has been duly organized, is validly
existing as a corporation in good standing under the laws of the State
of Delaware and has the
- 7 -
<PAGE> 8
corporate power and authority to own, lease and operate its properties
and to conduct its business as described in the Prospectus, and is
duly qualified and is in good standing as a foreign corporation
authorized to do business in each jurisdiction in which the nature of
its business or its ownership or leasing of property requires such
qualification, except where the failure to be so qualified would not
have a material adverse effect on the condition (financial or other),
business, prospects, properties, net worth or results of operations of
the Company and the Subsidiaries (hereafter defined), taken as a
whole.
(e) All of the outstanding shares of capital stock of the
Company (including the Shares to be sold by the Selling Stockholders)
have been duly authorized and validly issued and are fully paid and
non-assessable, have been issued in compliance with all federal and
state securities laws, and were not issued in violation of or subject
to any preemptive or similar rights. The Firm Shares to be issued and
sold by the Company hereunder have been duly authorized for issuance
and sale to the Underwriters pursuant to this Agreement and, when
issued and delivered to the Underwriters against payment therefor as
provided in this Agreement, will be duly and validly issued and fully
paid and non-assessable, and will be sold free and clear of any
pledge, lien, security interest, encumbrance, claim or equitable
interest; and no preemptive right, co-sale right, tag along right,
registration right, right of first refusal or other similar right of
stockholders exists with respect to any of the Firm Shares or the
issuance and sale thereof, other than those that have been expressly
waived prior to the date hereof and those that will automatically
expire upon the consummation of the transactions contemplated by this
Agreement on the Closing Date. No further consent, approval or
authorization of any stockholder, the Board of Directors of the
Company, any court or governmental agency or body, or others is
required for the issuance and sale or transfer of the Firm Shares
except as may be required under the federal securities laws or under
any state or other securities, Blue Sky or real estate syndication
laws and except as may be required to be obtained by the Underwriters.
Except as disclosed in the Prospectus, there are no stockholders
agreements or voting agreements with respect to the Common Stock to
which the Company is a party or, to the knowledge of the Company,
between or among any of the Company's stockholders, other than those
that will automatically terminate upon the consummation of the
transactions contemplated by this Agreement on the Closing Date.
(f) The authorized capital stock of the Company (i) is as
set forth in the Prospectus under the caption "Capitalization" and
(ii) conforms to the description thereof and the statements relating
thereto contained in the Prospectus.
(g) All of the consolidated corporations, partnerships
and limited liability companies in which the Company has a direct or
indirect ownership interest are listed in Exhibit 21 to the
Registration Statement (collectively, the "Subsidiaries"). The
Company's ownership interest in each of the facilities listed in
- 8 -
<PAGE> 9
the Prospectus under the caption "Business--Owned Facilities"
is owned by the Company directly or indirectly through one or more
Subsidiaries and the Company's direct or indirect percentage ownership
interests in such facilities are as described under such caption.
(h) Each Subsidiary that is a corporation (a "Corporate
Subsidiary") has been duly organized, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation and has the corporate power and authority to own, lease
and operate its properties and to conduct its business as described in
the Prospectus, and is duly qualified and is in good standing as a
foreign corporation authorized to do business in each jurisdiction in
which the nature of its business or its ownership or leasing of
property requires such qualification, except where the failure to be
so qualified would not have a material adverse effect on the condition
(financial or other), business, prospects, properties, net worth or
results of operations of the Company and the Subsidiaries, taken as a
whole. All of the outstanding shares of capital stock of each
Corporate Subsidiary have been duly authorized and validly issued, are
fully paid and nonassessable, were issued and sold in compliance with
all applicable federal and state securities laws, were not issued in
violation of or subject to any preemptive or similar rights, and are
owned by the Company directly, or indirectly through one of the other
Subsidiaries, free and clear of any security interest, claim, lien,
encumbrance or adverse interest of any nature, except (i) for those
encumbrances disclosed in the Prospectus, (ii) for interests or liens
held by others as security for indebtedness of the Company or any
Subsidiary disclosed in the Prospectus and (iii) for transfer
restrictions under applicable federal and state securities and real
estate syndication laws.
(i) Each Subsidiary that is a limited partnership (a
"Limited Partnership Subsidiary") has been duly organized, is validly
existing as a limited partnership in good standing under the laws of
its jurisdiction of organization and has the limited partnership power
and authority to own, lease and operate its properties and to conduct
its business as described in the Prospectus, and is duly qualified and
is in good standing (where applicable) as a foreign limited
partnership authorized to do business in each jurisdiction in which
the nature of its business or its ownership or leasing of property
requires such qualification, except where the failure to be so
qualified would not have a material adverse effect on the condition
(financial or other), business, prospects, properties, net worth or
results of operations of the Company and the Subsidiaries, taken as a
whole. All outstanding limited partnership interests in the Limited
Partnership Subsidiaries were issued and sold in compliance with the
applicable limited partnership agreements of such Limited Partnership
Subsidiaries and all applicable federal and state securities laws, and
the limited partnership interests therein held directly or indirectly
by the Company are owned free and clear of any security interest,
claim, lien, encumbrance or adverse interest of any nature, except (i)
for those encumbrances disclosed in the Prospectus, (ii) for interests
or liens held by others as security for indebtedness of
- 9 -
<PAGE> 10
the Company or any Subsidiary disclosed in the Prospectus, (iii) to
the extent provided in the applicable limited partnership agreements
of such Limited Partnership Subsidiaries and (iv) for transfer
restrictions under applicable federal and state securities and real
estate syndication laws. To the knowledge of the Company, each
limited partnership agreement pursuant to which the Company or a
Subsidiary holds a partnership interest in a Limited Partnership
Subsidiary is in full force and effect and constitutes the legal,
valid and binding agreement of the parties thereto, enforceable
against such parties in accordance with the terms thereof, except as
enforcement thereof may be limited by bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors' rights generally
or by general equitable principles. There has been no material breach
of or default under, and no event which with notice or lapse of time
would constitute a material breach of or default under, such limited
partnership agreements by the Company or any Subsidiary or, to the
Company's knowledge, any other party to such agreements.
(j) Each Subsidiary that is a limited liability company
(an "LLC Subsidiary") has been duly organized, is validly existing as
a limited liability company in good standing under the laws of its
jurisdiction of organization and has the limited liability company
power and authority to own, lease and operate its properties and to
conduct its business as described in the Prospectus, and is duly
qualified and is in good standing (where applicable) as a foreign
limited liability company authorized to do business in each
jurisdiction in which the nature of its business or its ownership or
leasing of property requires such qualification, except where the
failure to be so qualified would not have a material adverse effect on
the condition (financial or other), business, prospects, properties,
net worth or results of operations of the Company and the
Subsidiaries, taken as a whole. All outstanding membership interests
in the LLC Subsidiaries were issued and sold in compliance with the
applicable operating agreements of such LLC Subsidiaries and all
applicable federal and state securities laws, and the membership
interests therein held directly or indirectly by the Company are owned
free and clear of any security interest, claim, lien, encumbrance or
adverse interest of any nature, except (i) for those encumbrances
disclosed in the Prospectus, (ii) for interests or liens held by
others as security for indebtedness of the Company or any Subsidiary
disclosed in the Prospectus, (iii) to the extent provided in the
applicable operating agreements of such LLC Subsidiaries and (iv) for
transfer restrictions under applicable federal and state securities
and real estate syndication laws. To the knowledge of the Company,
each operating agreement pursuant to which the Company or a Subsidiary
holds a membership interest in an LLC Subsidiary is in full force and
effect and constitutes the legal, valid and binding agreement of the
parties thereto, enforceable against such parties in accordance with
the terms thereof, except as enforcement thereof may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement
of creditors' rights generally or by general equitable principles.
There has been no material breach of or default
- 10 -
<PAGE> 11
under, and no event which with notice or lapse of time would
constitute a material breach of or default under, such operating
agreements by the Company or any Subsidiary or, to the Company's
knowledge, any other party to such agreements.
(k) Neither the Company nor any of the Subsidiaries is in
violation of its respective charter, by-laws, partnership agreement,
operating agreement or other governing document(s). Neither the
Company nor any of the Subsidiaries is in default in the performance
of any obligation, agreement or condition contained in any bond,
debenture, note or any other evidence of indebtedness or in any other
agreement, indenture or instrument material to the conduct of the
business of the Company and the Subsidiaries, taken as a whole, to
which the Company or any of the Subsidiaries is a party or by which it
or any of the Subsidiaries or their respective property is bound,
except for any such defaults that would not have a material adverse
effect on the condition (financial or other), business, prospects,
properties, net worth or results of operations of the Company and the
Subsidiaries, taken as a whole. Neither the Company nor any of the
Subsidiaries is in material violation of any order, writ, injunction,
judgment or decree of any court, government or governmental agency or
body, domestic or foreign, having jurisdiction over the Company or any
of the Subsidiaries or over any of their respective property. Neither
the Company nor any of the Subsidiaries is in violation of any law,
ordinance, rule or regulation applicable to the Company or any of the
Subsidiaries, which violation would have a material adverse effect on
the condition (financial or other), business, prospects, properties,
net worth or results of operations of the Company and the
Subsidiaries, taken as a whole.
(l) The Company has, and on the Closing Date will have,
full legal right, power and authority to enter into this Agreement
and, as to the Company, to issue, sell and deliver the Firm Shares in
the manner provided herein. This Agreement has been duly authorized,
executed and delivered by the Company and this Agreement is a valid
and binding agreement of the Company enforceable in accordance with
its terms, except as rights to indemnity and contribution hereunder
may be limited by applicable law. The execution, delivery and
performance of this Agreement, compliance by the Company with all the
provisions hereof and the consummation by the Company of the
transactions contemplated hereby will not require any consent,
approval, authorization or other order of any court, regulatory body,
administrative agency or other governmental body (except as has been
obtained and except as may be required under the federal securities
laws or the securities, Blue Sky or real estate syndication laws of
the various states) and will not conflict with or constitute a breach
of any of the terms or provisions of, or a default under, the charter,
by-laws, partnership agreement, operating agreement or other governing
document(s) of the Company or any of the Subsidiaries or any
agreement, indenture or other instrument to which the Company or any
of the Subsidiaries is a party or by which the Company or any of the
Subsidiaries or their respective property is bound, or violate or
conflict with any laws, administrative regulations or rulings or court
decrees applicable to the Company, any of the Subsidiaries or their
respective property, except as disclosed
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<PAGE> 12
in the Prospectus and except as rights to indemnity and contribution
hereunder may be limited by applicable law.
(m) Except as otherwise set forth in the Prospectus,
there are no material legal or governmental proceedings pending or, to
the Company's knowledge, threatened or contemplated to which the
Company or any of the Subsidiaries is a party or of which any of their
respective property is the subject that (i) are required to be set
forth in the Registration Statement, (ii) could reasonably be expected
to result in a material adverse change in the condition (financial or
other), business, prospects, properties, net worth or results of
operations of the Company and the Subsidiaries, taken as a whole, or
(iii) could reasonably be expected to adversely effect the issuance or
validity of the Firm Shares. No contract or document of a character
required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration Statement
is not so described or filed as required.
(n) Neither the Company nor any of the Subsidiaries has
violated any foreign, federal, state or local law or regulation
relating to the protection of human health and safety, the environment
or hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), nor any federal or state law relating to
discrimination in the hiring, promotion or pay of employees nor any
applicable federal or state wages and hours laws, nor any provisions
of the Employee Retirement Income Security Act or the rules and
regulations promulgated thereunder, which in each case could
reasonably be expected to result in any material adverse change in the
condition (financial or other), business, prospects, properties, net
worth or results of operations of the Company and the Subsidiaries,
taken as a whole.
(o) Except as described in the Prospectus, the Company
and the Subsidiaries have operated and currently operate their
business in conformity with all applicable laws, rules and regulations
of each jurisdiction in which it is conducting business, except where
the failure to be so in compliance would not have a material adverse
effect on the condition (financial or other), business, prospects,
properties, net worth or results of operations of the Company and the
Subsidiaries, taken as a whole. The Company and each of the
Subsidiaries has such permits, licenses, franchises and authorizations
of governmental or regulatory authorities ("permits"), including,
without limitation, under any applicable Environmental Laws, as are
necessary to own, lease and operate its respective properties and to
conduct its business; the Company and each of the Subsidiaries has
fulfilled and performed all of its material obligations with respect
to such permits and no event has occurred which allows, or after
notice or lapse of time would allow, revocation or termination thereof
or results in any other material impairment of the rights of the
holder of any such permit; and, except as described in the Prospectus,
such permits contain no restrictions that are materially burdensome to
the Company or any of the Subsidiaries. The Company and the
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<PAGE> 13
Subsidiaries are not aware of any existing or imminent matter which
could reasonably be expected to adversely impact their operations or
business prospects other than as disclosed in the Prospectus.
(p) Except as otherwise set forth in the Prospectus or
such as are not material to the business, prospects, financial
condition or results of operation of the Company and the Subsidiaries,
taken as a whole, the Company and each of the Subsidiaries has good
and marketable title, free and clear of all liens, claims,
encumbrances and restrictions except liens for taxes not yet due and
payable, to all property and assets described in the Registration
Statement as being owned by it (other than stock or other ownership
interests in Subsidiaries, which are the subject of the
representations in paragraphs (h) through (j) above). The agreements
to which the Company or any of the Subsidiaries is a party described
in the Registration Statement and Prospectus are valid agreements,
enforceable by the Company and the Subsidiaries (as applicable),
except as the enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by
general equitable principles and, to the Company's knowledge, the
other contracting party or parties thereto are not in material breach
or material default under any of such agreements. All leases to which
the Company or any of the Subsidiaries is a party are valid and
binding and no default has occurred or is continuing thereunder, which
could reasonably be expected to result in any material adverse change
in the condition (financial or other), business, prospects,
properties, net worth or results of operations of the Company and the
Subsidiaries, taken as a whole, and the Company and the Subsidiaries
enjoy peaceful and undisturbed possession under all such leases to
which any of them is a party as lessee with such exceptions as do not
materially interfere with the use made by the Company or such
Subsidiary.
(q) The Company and the Subsidiaries maintain insurance
with insurers of recognized financial responsibility of the types and
in the amounts generally deemed adequate for their respective
businesses and consistent with insurance coverage maintained by
similar companies in similar businesses, including, but not limited
to, insurance covering real and personal property owned or leased by
the Company or its subsidiaries against theft, damage, destruction,
acts of vandalism and all other risks customarily insured against, all
of which insurance is in full force and effect.
(r) Except as disclosed in the Prospectus, there are no
outstanding subscriptions, rights, warrants, options, calls,
convertible securities, commitments of sale or liens related to or
entitling any person to purchase or otherwise to acquire any shares of
the capital stock of, or other ownership interest in, the Company or
any Subsidiary.
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<PAGE> 14
(s) There is (i) no material unfair labor practice
complaint pending against the Company or any of the Subsidiaries or,
to the knowledge of the Company, threatened against any of them,
before the National Labor Relations Board or any state or local labor
relations board, and no material grievance or arbitration proceeding
arising out of or under any collective bargaining agreement is so
pending against the Company or any of the Subsidiaries or, to the
knowledge of the Company, threatened against any of them, and (ii) no
material strike, labor dispute, slowdown or stoppage pending against
the Company or any of the Subsidiaries or, to the knowledge of the
Company, threatened against it or any of the Subsidiaries. No
collective bargaining agreement exists with any of the Company's
employees and, to the Company's knowledge, no such agreement is
imminent.
(t) All material tax returns required to be filed by the
Company and each of the Subsidiaries in any jurisdiction have been
filed, other than those filings being contested in good faith, and all
material taxes, including withholding taxes, penalties and interest,
assessments, fees and other charges due pursuant to such returns or
pursuant to any assessment received by the Company or any of the
Subsidiaries have been paid, other than those being contested in good
faith and for which adequate reserves have been provided.
(u) Except as described in the Prospectus, the Company
owns or possesses adequate rights to use all material trademarks,
service marks, trade names, trademark registrations, service mark
registrations, copyrights and licenses necessary for the conduct of
its business and has no reason to believe that the conduct of its
business as described in the Prospectus will conflict with any such
rights of others.
(v) Neither the Company nor any of the Subsidiaries, nor
to the knowledge of the Company, any agent or other person acting on
behalf of the Company or any Subsidiary has, directly or indirectly,
used any corporate funds for unlawful contributions, gifts,
entertainment or other unlawful expenses related to foreign or
domestic political activity; made any unlawful payment to foreign or
domestic government officials or employees or to foreign or domestic
political parties or campaigns from corporate funds; failed to
disclose fully any contribution in violation of law; violated in any
material respect any provision of the Foreign Corrupt Practices Act of
1977, as amended; or made any unlawful bribe, rebate, payoff,
influence, kick-back or other unlawful payment.
(w) Ernst & Young LLP are independent public accountants
with respect to the Company as required by the Act.
(x) The financial statements, together with related
schedules and notes forming part of the Registration Statement and the
Prospectus (and any amendment or supplement thereto), present fairly
the consolidated financial
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<PAGE> 15
position, results of operations and changes in financial position of
the Company and the Subsidiaries on the basis stated in the
Registration Statement at the respective dates or for the respective
periods to which they apply; such statements and related schedules and
notes have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods
involved, except as disclosed therein; and the other financial and
statistical information and data set forth in the Registration
Statement and the Prospectus (and any amendment or supplement thereto)
is, in all material respects, accurately presented and prepared (i) on
a basis consistent with such financial statements and the books and
records of the Company and (ii) as to pro forma information, in good
faith on the basis of the assumptions described in the Registration
Statement and such assumptions are reasonable and the adjustments used
therein are appropriate to give effect to the transactions and
circumstances referred to therein.
(y) Neither the Company nor any of the Subsidiaries is,
nor will the Company or any of the Subsidiaries become upon the sale
of the Shares and the application of the proceeds therefrom as
described in the Prospectus under the caption "Use of Proceeds," an
"investment company" or a person "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended.
(z) Except as disclosed in the Prospectus, no holder of
any security of the Company has any right to require registration of
shares of Common Stock or any other security of the Company.
(aa) The Company has complied with all provisions of
Section 517.075, Florida Statutes (Chapter 92-198, Laws of Florida).
(bb) The Company has filed a registration statement
pursuant to Section 12(g) of the Exchange Act, to register the Common
Stock, has filed an application to list the Shares on the Nasdaq
National Market, and has received notification that the listing has
been approved, subject to official notice of issuance.
(cc) Except as disclosed in the Prospectus, there are no
business relationships or related party transactions required to be
disclosed therein by Item 404 of Regulation S-K of the Commission.
(dd) The Company and each of the Subsidiaries maintains a
system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations; (ii)
transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or
specific authorization; and (iv) the
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<PAGE> 16
recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(ee) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus,
there has not been (i) any material adverse change in the condition
(financial or otherwise), earnings, operations, business or business
prospects of the Company and the Subsidiaries, taken as a whole, (ii)
any transaction that is material to the Company and the Subsidiaries,
taken as a whole, except transactions entered into in the ordinary
course of business, (iii) any obligation, direct or contingent, that
is material to the Company and the Subsidiaries, taken as a whole,
incurred by the Company or the Subsidiaries, except obligations
incurred in the ordinary course of business, (iv) any change in the
capital stock (other than as expressly contemplated therein) or
outstanding indebtedness of the Company or any of the Subsidiaries
that is material to the Company and the Subsidiaries, taken as a
whole, (v) any dividend or distribution of any kind declared, paid or
made on the capital stock of the Company or any of the Subsidiaries
(other than quarterly dividends on the Series B Exchangeable Preferred
Stock of the Company), or (vi) any loss or damage (whether or not
insured) to the property of the Company or any of the Subsidiaries
which has been sustained or will have been sustained which has a
material adverse effect on the condition (financial or other),
business, prospects, properties, net worth or results of operations of
the Company and the Subsidiaries, taken as a whole.
(ff) The Company has not distributed and will not
distribute prior to the later of (i) the Closing Date, or any date on
which Additional Shares are to be purchased, as the case may be, and
(ii) completion of the distribution of the Shares, any offering
material in connection with the offering and sale of the Shares other
than any preliminary prospectuses filed as part of the Registration
Statement, the Prospectus, the Registration Statement and other
materials, if any, permitted by the Act.
(gg) The Company has not taken and will not take, directly
or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the
price of the Common Stock to facilitate the sale or resale of the
Shares.
7. Representations and Warranties of the Selling Stockholders.
The Selling Stockholders jointly represent and warrant to each Underwriter
that:
(a) The Selling Stockholders are the lawful joint owners,
as tenants by the entireties, of the Additional Shares that may be
sold by the Selling Stockholders pursuant to Section 2 of this
Agreement and have, and on any Option Closing Date will have, good and
valid title to such Shares, free of all
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<PAGE> 17
restrictions on transfer, pledges, liens, encumbrances, security
interests and claims whatsoever.
(b) Upon delivery of and payment for such Shares pursuant
to this Agreement, good and valid title to such Shares will pass to
the Underwriters, free and clear of all restrictions on transfer,
pledges, liens, encumbrances, security interests and claims
whatsoever; and no co-sale right, tag along right, right of first
refusal or other similar right exists with respect to any of the
Additional Shares or the transfer and sale thereof, other than those
that have been expressly waived prior to the date hereof and those
that will automatically expire upon the consummation of the
transactions contemplated by this Agreement on the Closing Date.
(c) The Selling Stockholders have, and on any Option
Closing Date will have, full legal right, power and authority to enter
into this Agreement and the Letter of Transmittal and Custody
Agreement between the Selling Stockholders and First Union National
Bank of North Carolina, as Custodian (the "Custody Agreement"), and to
sell, assign, transfer and deliver such Shares in the manner provided
herein and therein, and this Agreement and the Custody Agreement have
been duly executed and delivered by the Selling Stockholders and each
of this Agreement and the Custody Agreement is a valid and binding
agreement of the Selling Stockholders enforceable in accordance with
its terms, except as enforcement thereof may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of
creditors' rights generally or by general equitable principles, and
except as rights to indemnity and contribution hereunder may be
limited by applicable law.
(d) The Selling Stockholders have not taken, and will not
take, directly or indirectly, any action designed to, or which might
reasonably be expected to, cause or result in stabilization or
manipulation of the price of any security of the Company to facilitate
the sale or resale of the Shares pursuant to the distribution
contemplated by this Agreement; and other than as permitted by the
Act, the Selling Stockholders have not distributed and will not
distribute any prospectus or other offering material in connection
with the offering and sale of the Shares.
(e) The execution, delivery and performance of this
Agreement by the Selling Stockholders, compliance by the Selling
Stockholders with all the provisions hereof and the consummation by
the Selling Stockholders of the transactions contemplated hereby will
not require any consent, approval, authorization or order of any
court, regulatory body, administrative agency or other governmental
body or of any other governmental or non-governmental person or entity
(except as has been obtained and except as may be required under the
federal securities laws or the state securities, Blue Sky or real
estate syndication laws) and will not conflict with or constitute a
breach of any of the terms or provisions of, or a default under, any
agreement, indenture or other
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<PAGE> 18
instrument to which the Selling Stockholders are a party or by which
the Selling Stockholders or property of the Selling Stockholders are
bound, or violate or conflict with any laws, administrative regulation
or ruling or court decree applicable to the Selling Stockholders or
property of the Selling Stockholders, except as rights to indemnity
and contribution hereunder may be limited by applicable law.
(f) Such parts of the Registration Statement under the
caption "Principal and Selling Stockholders" which specifically relate
to the Selling Stockholders do not, and will not (after amendment, if
necessary, for any change in such information as provided in paragraph
7(g) below) on any Option Closing Date, contain any untrue statement
of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light
of circumstances under which they were made, not misleading.
(g) At any time during the period described in paragraph
5(e) hereof, if there is any change in the information referred to in
paragraph 7(f) above, the Selling Stockholders will immediately notify
you of such change.
8. Indemnification. (a) The Company and each Selling
Stockholder, jointly and severally, agree to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, from and
against any and all losses, claims, damages, liabilities and judgments caused
by or based upon any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) or any preliminary prospectus, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or judgments are caused by any such untrue
statement or omission or alleged untrue statement or omission based upon
information relating to any Underwriter furnished in writing to the Company by
or on behalf of any Underwriter through you expressly for use therein.
Notwithstanding the foregoing, the aggregate liability of the Selling
Stockholders pursuant to the provisions of this paragraph, or for any breaches
of one or more representations or warranties contained in this Agreement, shall
be limited to an amount equal to the aggregate purchase price (net of
underwriting discounts and commissions) received by the Selling Stockholders
from the sale of the Additional Shares hereunder; provided, however, that the
foregoing indemnity agreement with respect to any preliminary prospectus shall
not inure to the benefit of any Underwriter from whom the person asserting any
such losses, claims, damages and liabilities and judgments purchased Shares, or
any person controlling such Underwriter, if a copy of the Prospectus (as then
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such Underwriter
to such person, if required by law so to have been delivered, at or prior to
the written confirmation of the sale of the Shares to such person, and if the
Prospectus (as so amended and
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<PAGE> 19
supplemented) would have cured the defect giving rise to such loss, claim,
damage, liability or judgment.
(b) In case any action shall be brought against any
Underwriter or any person controlling such Underwriter, based upon any
preliminary prospectus, the Registration Statement or the Prospectus or any
amendment or supplement thereto and with respect to which indemnity may be
sought against the Company or the Selling Stockholders, such Underwriter shall
promptly notify the Company and the Selling Stockholders in writing and the
Company and the Selling Stockholders shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to such indemnified
party and payment of all reasonable fees and expenses. Any Underwriter or any
such controlling person shall have the right to employ separate counsel in any
such action and participate in the defense thereof, but the reasonable fees and
expenses of such counsel shall be at the expense of such Underwriter or such
controlling person unless (i) the employment of such counsel has been
specifically authorized in writing by the Company, (ii) the Company and the
Selling Stockholders shall have failed to assume the defense and employ counsel
or (iii) the named parties to any such action (including any impleaded parties)
include both such Underwriter or such controlling person and the Company or any
Selling Stockholder, as the case may be, and such Underwriter or such
controlling person shall have been advised by such counsel that there may be
one or more legal defenses available to it which are different from or
additional to those available to the Company or the Selling Stockholders, as
the case may be, (in which case the Company and the Selling Stockholders shall
not have the right to assume the defense of such action on behalf of such
Underwriter or such controlling person, it being understood, however, that the
Company and the Selling Stockholders shall not, in connection with any one such
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys (in addition to any local counsel) for all such Underwriters and
controlling persons, which firm shall be designated in writing by Donaldson,
Lufkin & Jenrette Securities Corporation and that all such fees and expenses
shall be reimbursed as they are incurred). A Seller shall not be liable for
any settlement of any such action effected without the written consent of such
Seller but if settled with the written consent of such Seller, such Seller
agrees to indemnify and hold harmless any Underwriter and any such controlling
person from and against any loss or liability by reason of such settlement. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and indemnity
could have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such proceeding.
(c) Each Underwriter agrees, severally and not jointly,
to indemnify and hold harmless the Company, its directors, its officers who
sign the Registration Statement, any person controlling the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, each
Selling Stockholder and each person, if any,
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<PAGE> 20
controlling such Selling Stockholder within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act to the same extent as the foregoing
indemnity from the Sellers to each Underwriter but only with reference to
information relating to such Underwriter furnished in writing by or on behalf
of such Underwriter through you expressly for use in the Registration
Statement, the Prospectus or any preliminary prospectus. In case any action
shall be brought against the Company, any of its directors, any such officer or
any person controlling the Company, or any Selling Stockholder or any person
controlling such Selling Stockholder, based on the Registration Statement, the
Prospectus or any preliminary prospectus and in respect of which indemnity may
be sought against any Underwriter, the Underwriter shall have the rights and
duties given to the Sellers (except that if any Seller shall have assumed the
defense thereof such Underwriter shall not be required to do so, but may employ
separate counsel therein and participate in the defense thereof but the fees
and expenses of such counsel shall be at the expense of such Underwriter), and
the Company, its directors, any such officers and any person controlling the
Company, and the Selling Stockholders and any person controlling such Selling
Stockholders, shall have the rights and duties given to the Underwriters, by
Section 8(b) hereof.
(d) If the indemnification provided for in this Section 8
is unavailable to an indemnified party in respect of any losses, claims,
damages, liabilities or judgments referred to therein, then each indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages, liabilities and judgments (i) in such proportion as is
appropriate to reflect the relative benefits received by the Sellers on the one
hand and the Underwriters on the other hand from the offering of the Shares or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault
of the Sellers and the Underwriters in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
judgments, as well as any other relevant equitable considerations. The
relative benefits received by the Sellers and the Underwriters shall be deemed
to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Sellers, and the total underwriting
discounts and commissions received by the Underwriters, bear to the total price
to the public of the Shares, in each case as set forth in the table on the
cover page of the Prospectus. The relative fault of the Sellers and the
Underwriters shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission to
state a material fact relates to information supplied by the Company, the
Selling Stockholders or the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Sellers and the Underwriters agree that it would not be
just and equitable if contribution pursuant to this Section 8(d) were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations
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<PAGE> 21
referred to in the immediately preceding paragraph. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages, liabilities
or judgments referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 8, no Underwriter shall be required to contribute
any amount in excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission and the Selling Stockholders shall not be required
to contribute any amount in excess of the aggregate purchase price (net of
underwriting discounts and commissions) received by the Selling Stockholders
from the sale of the Additional Shares hereunder. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 8(d) are several in proportion to the respective
number of Shares purchased by each of the Underwriters hereunder and not joint.
(e) You, on behalf of the Underwriters, represent and
warrant that (i) the information set forth in the last paragraph on the front
cover page, on the inside front cover page concerning United Kingdom
purchasers, stabilization and over-allotment, and under the caption
"Underwriting" in the Registration Statement, any preliminary prospectus and
the Prospectus relating to the Shares (insofar as such information relates to
the Underwriters) constitutes the only information furnished by the
Underwriters for inclusion in the Registration Statement, any preliminary
prospectus and the Prospectus.
(f) The Company and the Selling Stockholders have entered
into a Registration Agreement dated January 4, 1995, pursuant to which the
Company has agreed to indemnify the Selling Stockholders against certain
liabilities (and vice versa).
(g) NatWest Securities Limited hereby agrees that, as
part of the distribution of the Common Stock offered by the Prospectus and
subject to certain exceptions, it will not offer any Common Stock within the
United States, its territories or possessions, or to persons who are citizens
thereof or residents therein. NatWest Securities Limited further represents
and agrees that: (i) it has not offered or sold and will not offer or sell any
shares of Common Stock to persons in the United Kingdom except to persons whose
ordinary activities involve them in acquiring, holding, managing or disposing
of investments (whether as principal or agent) for the purposes of their
businesses or otherwise in circumstances that have not resulted and will not
result in an offer to the public in the United Kingdom within the meaning of
the Public Offers of Securities Regulations 1995 or the Financial Services Act
1986 (the "Act"); (ii) it has complied and will comply with all applicable
provisions of the Act with respect to anything done by it in relation to the
shares of Common Stock in, from, or otherwise involving the United Kingdom; and
(iii) it has only issued or passed on and will only issue or pass on, in
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<PAGE> 22
the United Kingdom, any document that consists of or any part of listing
particulars, supplementary listing particulars, or any other document required
or permitted to be published by listing rules under Part IV of the Act, to a
person who is of a kind described in Article 11(3) of the Financial Services
Act 1986 (Investment Advertisements) (Exemptions) Order 1995 or is a person to
whom the document may otherwise lawfully be issued or passed on.
9. Conditions of Underwriters' Obligations. The several
obligations of the Underwriters to purchase the Firm Shares under this
Agreement are subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company
and the Subsidiaries contained in this Agreement shall be true and
correct on the Closing Date with the same force and effect as if made
on and as of the Closing Date.
(b) The Registration Statement shall have become
effective not later than 5:00 P.M.(and in the case of a Registration
Statement filed under Rule 462(b) of the Act, not later than 10:00
p.m.), New York City time, on the date of this Agreement or at such
later date and time as you may approve in writing, and at the Closing
Date no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose
shall have been commenced or shall be pending before or, to the
knowledge of the Company or any Underwriter, contemplated by the
Commission.
(c)(i) Since the date of the latest balance sheet included
in the Registration Statement and the Prospectus, there shall not have
been any material adverse change, or any development involving a
prospective material adverse change, in the condition (financial or
other), business, prospects, properties, net worth or results of
operations, whether or not arising in the ordinary course of business,
of the Company, (ii) since the date of the latest balance sheet
included in the Registration Statement and the Prospectus there shall
not have been any material adverse change, or any development
involving a prospective material adverse change, in the capital stock
or in the long-term debt of the Company from that set forth in or
contemplated by the Registration Statement and Prospectus, (iii) the
Company and the Subsidiaries shall have no liability or obligation
(other than long-term debt, which is the subject of the immediately
preceding clause (ii) of this paragraph 9(c)), direct or contingent,
which is material to the Company and the Subsidiaries, taken as a
whole, other than those reflected in the Registration Statement and
the Prospectus and (iv) on the Closing Date you shall have received a
certificate dated the Closing Date, signed by Paul J. Klaassen and
David W. Faeder, in their capacities as the Chief Executive Officer
and Chief Financial Officer of the Company, respectively, confirming
the matters set forth in paragraphs (a), (b), and (c) of this Section
9 and addressing such other matters as may be reasonably requested by
you or your counsel.
- 22 -
<PAGE> 23
(d) All the representations and warranties of the Selling
Stockholders contained in this Agreement shall be true and correct on
the Closing Date with the same force and effect as if made on and as
of the Closing Date and you shall have received a certificate to such
effect, dated the Closing Date, from the Selling Stockholders.
(e) You shall have received on the Closing Date an
opinion (reasonably satisfactory to you and counsel for the
Underwriters), dated the Closing Date, of Hogan & Hartson L.L.P.,
counsel for the Company, to the effect that:
(i) The Company was duly incorporated, and is
validly existing and in good standing under the laws of the
State of Delaware as of the date specified in such opinion
letter, and has the corporate power and corporate authority to
own, lease and operate its properties and to conduct its
business as described in the Prospectus. The Company is
authorized to transact business as a foreign corporation in
each jurisdiction identified on a Schedule to such opinion
letter, as of the respective dates of the certificates
specified therein.
(ii) The authorized, issued and outstanding
capital stock of the Company, as of March 31, 1996, was set
forth under the caption "Capitalization" in the Prospectus.
All shares of Common Stock shown as issued and outstanding
under said caption (including the Shares that may be sold by
the Selling Stockholders pursuant to Section 2 of this
Agreement) have been duly authorized and are validly issued,
fully paid and non-assessable, and were not issued in
violation of (A) any preemptive rights under the Company's
Certificate of Incorporation or Delaware corporate law or (B)
to such counsel's knowledge, similar contractual rights.
(iii) The Company has the corporate power and
corporate authority to enter into this Agreement and to
consummate the transactions contemplated hereby and this
Agreement has been duly authorized, executed and delivered by
the Company. The Shares, when issued and delivered to the
Underwriters against payment therefor as provided in this
Agreement, will be duly authorized, validly issued, fully paid
and non-assessable, and will not have been issued in violation
of (A) any preemptive rights under the Company's Certificate
of Incorporation or Delaware corporate law or (B) to such
counsel's knowledge, similar contractual rights.
(iv) Each of the Corporate Subsidiaries
incorporated in Virginia was incorporated, and is validly
existing and in good standing under the laws of its
jurisdiction of incorporation as of the respective dates
specified in such opinion letter and has the corporate power
and corporate authority to own, lease and operate its
properties and to conduct its business as
- 23 -
<PAGE> 24
described in the Prospectus. Each such Corporate Subsidiary
is authorized to transact business as a foreign corporation in
each jurisdiction identified on a Schedule to such opinion
letter, as of the respective dates of the certificates
specified therein.
(v) All of the outstanding shares of capital
stock of each such Corporate Subsidiary (a) have been duly
authorized and are validly issued, fully paid and
nonassessable, and (b) to such counsel's knowledge, were not
issued in violation of any preemptive rights under such
Corporate Subsidiary's charter or under the laws of the
jurisdiction of its incorporation or in violation of any
similar contractual rights.
(vi) Each Limited Partnership Subsidiary formed in
Virginia or Maryland was formed, and is validly existing and
in good standing under the laws of its jurisdiction of
organization as of the respective dates specified in such
opinion letter, and has the limited partnership power and
limited partnership authority to own, lease and operate its
properties and to conduct its business as described in the
Prospectus. Each Limited Partnership Subsidiary is authorized
to transact business as a foreign limited partnership in each
jurisdiction identified on a Schedule to such opinion letter,
as of the respective dates of the certificates specified
therein.
(vii) Each LLC Subsidiary formed in Maryland was
formed, and is validly existing and in good standing under the
laws of its jurisdiction of organization as of the respective
dates specified in such opinion letter, and has the limited
liability company power and limited liability company
authority to own, lease and operate its properties and to
conduct its business as described in the Prospectus.
(viii) The authorized capital stock of the Company
conforms in all material respects to the description thereof
contained in the Prospectus under the caption "Description of
Capital Stock". The form of certificate evidencing the Firm
Shares has been duly authorized and complies with the
requirements of the Delaware General Corporation Law and the
Certificate of Incorporation and Bylaws of the Company.
(ix) The Registration Statement has become
effective under the Act and, to such counsel's knowledge, no
stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose
have been instituted or threatened by the Commission.
(x) The execution, delivery and performance as of
the Closing Date by the Company of this Agreement do not (i)
violate the Certificate of Incorporation or Bylaws of the
Company, the charter, bylaws, partnership
- 24 -
<PAGE> 25
agreements or operating agreements of any of the Subsidiaries
or the General Corporation Law of the State of Delaware or
(ii) breach or constitute a default under any contract or
agreement listed on a Schedule to such opinion letter. No
approval or consent of any Delaware, Virginia or Maryland
governmental agency is required to be obtained by the Company
in connection with the execution, delivery and performance as
of the Closing Date by the Company of this Agreement.
(xi) Each of the Company's owned assisted living
facilities in Maryland and Virginia currently holds (or has
pending a renewal application for) a license authorizing such
facility to furnish assisted living services as described
under the heading "Services" on pages 30-31 of the Prospectus.
(xii) To such counsel's knowledge, except as set
forth in the Prospectus, no holders of Common Stock or other
securities of the Company have registration rights with
respect to securities of the Company and, except as set forth
in the Prospectus, all holders of securities of the Company
having rights to registration of shares of Common Stock or
other securities because of the filing of the Registration
Statement by the Company have, solely with respect to the
offering contemplated thereby, waived such rights.
(xiii) Neither the Company nor any of the
Subsidiaries is required to be registered as an "investment
company" under the 1940 Act.
(xiv) The Registration Statement (including any
Registration Statement filed under 462(b) of the Act, if any)
and the Prospectus and any supplement or amendment thereto
(except for financial statements and supporting schedules and
other financial and statistical information and data included
therein, as to which no opinion need be expressed) comply as
to form in all material respects with the Act.
(xv) To such counsel's knowledge, the Company owns
directly or indirectly the ownership interests in the
Subsidiaries set forth on Exhibit 21 to the Registration
Statement.
In addition to the matters set forth above, such opinion
letter shall also include a statement to the effect that no facts have
come to the attention of such counsel which cause them to believe that
(i) the Registration Statement, at the time it became effective,
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus, as of the
Closing Date, contains an untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements
therein, in the light of the circumstances
- 25 -
<PAGE> 26
under which they were made, not misleading, (ii) there are any legal
or governmental proceedings pending or threatened against the Company
that are required to be disclosed in the Registration Statement or the
Prospectus, other that those disclosed therein, or (iii) there are any
contracts or documents of a character required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to
the Registration Statement that are not described or referred to
therein or so filed; provided that in making the foregoing statements
(which shall not constitute an opinion), such counsel need not express
any views as to the financial statements and supporting schedules and
other financial and statistical information and data included in or
omitted from the Registration Statement or the Prospectus.
In giving its opinion required by this paragraph (e) above,
such counsel may rely, (A) as to all matters of fact, upon
certificates and written statements of officers and employees of the
Company and its Subsidiaries, and (B) as to the qualification and good
standing of the Company and its Subsidiaries to do business in any
jurisdiction, upon certificates of appropriate government officials in
such jurisdictions. Further, such counsel may state that their
opinion is based as to matters of law solely upon (i) the federal
securities laws, (ii) the General Corporation Law, as amended, of each
of the States of Delaware and Virginia, (iii) the limited partnership
acts of Virginia and Maryland, (iv) the limited liability company act
of Maryland, (v) Hospitals and Related Institutions, Md. Health-Gen.
Code Ann. Section Section 19-301 to 19-374, (vi) Domiciliary Care
Homes, Md. Regs. Code Section Section 10.07.03.01 to 10.07.03.27,
(vii) Licensing of Homes for Aged, Infirm or Disabled Adults, Va. Code
Ann. Section Section 63.1-172 to 182.1, and (viii) Standards and
Regulations for Licensed Adult Care Residences, 22 Va. Admin. Code
Section Section 40-70-10 to 40-745-110; and that such counsel
expresses no opinion as to any other laws, statutes, ordinances, rules
or regulations.
The opinion of Hogan & Hartson L.L.P. described in this
paragraph (e) shall be rendered to you at the request of the Company
and shall so state therein.
(f) You shall have received on the Closing Date an
opinion (reasonably satisfactory to you and counsel for the
Underwriters) dated the Closing Date, of Watt, Tieder & Hoffar,
counsel for the Selling Stockholders, to the effect that:
(i) The Selling Stockholders have full right,
power and authority to enter into and to perform their
obligations under this Agreement and to sell, transfer, assign
and deliver the Additional Shares hereunder.
(ii) This Agreement has been duly executed and
delivered by or on behalf of the Selling Stockholders.
- 26 -
<PAGE> 27
(iii) The execution, delivery and performance of
this Agreement by the Selling Stockholders, compliance by the
Selling Stockholders with all the provisions hereof and the
consummation of the transactions of the Selling Stockholders
contemplated hereby do not (a) require any consent, approval,
authorization, order or other action of any Maryland or
Virginia court, regulatory body, administrative agency or
other governmental agency or body (except as may be required
under the securities or Blue Sky laws of such states, as to
which such counsel need express no opinion), (b) constitute a
breach of, or a default under, any agreement, promissory note,
mortgage or other instrument to which any Selling Stockholder
is a party or by which any Selling Stockholder is bound and of
which such counsel has knowledge, or (c) violate or conflict
with any applicable Maryland or Virginia law, rule or
regulation (except the securities or Blue Sky laws of such
states, as to which such counsel need express no opinion) or
any order, writ or decree of any Maryland or Virginia court or
governmental agency or body having jurisdiction over any
Selling Stockholder.
(iv) The Selling Stockholders have full right,
power and authority to enter into and perform their
obligations under the Custody Agreement to be executed and
delivered by the Selling Stockholders in connection with the
transactions contemplated by this Agreement; the Custody
Agreement has been duly executed and delivered by the Selling
Stockholders; and the Custody Agreement constitutes a valid
and binding agreement of the Selling Stockholders, enforceable
in accordance with its terms, except as enforcement thereof
may be limited by bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors' rights generally or by
general equitable principles.
The opinion of Watt, Tieder & Hoffar described in this
paragraph (f) shall be rendered to you at the request of the Selling
Stockholders (and shall so state therein) and shall be limited to
matters of Virginia law and Maryland law (other than the securities or
Blue Sky laws of such states, as to which such counsel need express no
opinion).
(g) You shall have received on the Closing Date an
opinion, dated the Closing Date, of Alston & Bird, counsel for the
Underwriters, in form and substance reasonably satisfactory to you,
with respect to the sufficiency of all such corporate proceedings and
other legal matters relating to this Agreement and the transactions
contemplated hereby as you may reasonably require, and the Company
shall have furnished to such counsel such documents as they may have
requested for the purpose of enabling them to pass upon such matters.
(h) You shall have received a letter on and as of the
Closing Date, in form and substance satisfactory to you, from Ernst &
Young LLP, independent
- 27 -
<PAGE> 28
public accountants, with respect to the financial statements and
certain financial information contained in the Registration Statement
and the Prospectus and substantially in the form and substance of the
letter delivered to you by Ernst & Young LLP on the date of this
Agreement.
(i) The Company and the Selling Stockholders shall not
have failed at or prior to the Closing Date to perform or comply with
any of the agreements herein contained and required to be performed or
complied with by the Company or the Selling Stockholders at or prior
to the Closing Date.
(j) The Company and the Selling Stockholders shall have
furnished to you such further certificates and documents as you or
your counsel shall reasonably request, including, without limitation,
certificates of officers of the Company and certificates of the
Selling Stockholders as to the accuracy of the representations and
warranties of the Company and the Selling Stockholders herein, as to
the performance by the Company and the Selling Stockholders of their
respective obligations hereunder and as to the other conditions
concurrent and precedent to the obligations of the Underwriters
hereunder.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to counsel to the Underwriters. The Company and the Selling Stockholders will
furnish you with such number of conformed copies of such opinions,
certificates, letters and documents as you shall reasonably request.
The several obligations of the Underwriters to purchase any Additional
Shares hereunder are subject to the delivery to you on the applicable Option
Closing Date of such documents as you may reasonably request with respect to
the good standing of the Company, title to the Additional Shares, the
Registration Statement and Prospectus and other matters related to the Company
or the purchase of such Additional Shares, including, without limitation, (i)
an opinion dated the Option Closing Date of Watt, Tieder & Hoffar, counsel for
the Selling Stockholders, with respect to the matters set forth in paragraph
9(f) above and to the effect that, upon the delivery of and payment for the
Additional Shares as contemplated in this Agreement, each of the Underwriters
(assuming they are bona fide purchasers within the meaning of the Uniform
Commercial Code) will have acquired title to the Additional Shares purchased by
it, free and clear of any adverse claims, (ii) an opinion dated the Option
Closing Date of Hogan & Hartson L.L.P., counsel for the Company, with respect
to the matters set forth in paragraph 9(e) above (other than opinions relating
solely to the Firm Shares), (iii) an opinion dated the Option Closing Date of
Alston & Bird, counsel for the Underwriters, with respect to the sufficiency of
all such corporate proceedings and other legal matters relating to this
Agreement and the transactions contemplated hereby as you may reasonably
require, (iv) a letter dated the Option Closing Date from Ernst & Young LLP
with respect to the matters set forth in paragraph 9(h) above, and (v)
certificates dated the Option Closing Date as to the matters referred to in
paragraph 9(j) above.
- 28 -
<PAGE> 29
10. Effective Date of Agreement and Termination. This Agreement
shall become effective upon the later of (i) execution of this Agreement and
(ii) the effectiveness of the Registration Statement.
This Agreement may be terminated at any time prior to the
Closing Date by you by written notice to the Sellers if any of the following
has occurred: (i) since the respective dates as of which information is given
in the Registration Statement and the Prospectus, any material adverse change
or development involving a prospective material adverse change in the condition
(financial or other) of the Company and the Subsidiaries, taken as a whole, or
the business, prospects, properties, net worth or results of operations of the
Company and the Subsidiaries, taken as a whole, whether or not arising in the
ordinary course of business, which would, in your judgment, make it
impracticable to market the Shares on the terms and in the manner contemplated
in the Prospectus, (ii) any outbreak or escalation of hostilities or other
national or international calamity or crisis or change in economic conditions
or in the financial markets of the United States or elsewhere that, in your
judgment, is material and adverse and would, in your judgment, make it
impracticable to market the Shares on the terms and in the manner contemplated
in the Prospectus, (iii) the suspension or material limitation of trading in
securities on the New York Stock Exchange, the American Stock Exchange or the
Nasdaq National Market or limitation on prices for securities on any such
exchange or Nasdaq National Market, (iv) the enactment, publication, decree or
other promulgation of any federal or state statute, regulation, rule or order
of any court or other governmental authority which in your opinion materially
and adversely affects, or will materially and adversely affect, the business or
operations of the Company and the Subsidiaries, taken as a whole, (v) the
declaration of a banking moratorium by either federal or New York State
authorities or (vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs which in your
opinion has a material adverse effect on the financial markets in the United
States.
If on the Closing Date or on an Option Closing Date, as the
case may be, any one or more of the Underwriters shall fail or refuse to
purchase the Firm Shares or Additional Shares, as the case may be, which it or
they have agreed to purchase hereunder on such date and the aggregate number of
Firm Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters, as the case may be, agreed but failed or refused
to purchase is not more than one-tenth of the total number of Shares to be
purchased on such date by all Underwriters, each non-defaulting Underwriter
shall be obligated severally, in the proportion which the number of Firm Shares
set forth opposite its name in Schedule I bears to the total number of Firm
Shares which all the non-defaulting Underwriters, as the case may be, have
agreed to purchase, or in such other proportion as you may specify, to purchase
the Firm Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters, as the case may be, agreed but failed or refused
to purchase on such date; provided that in no event shall the number of Firm
Shares or Additional Shares, as the case may be, which any Underwriter has
agreed to purchase pursuant to Section 2 hereof be increased pursuant to this
Section
- 29 -
<PAGE> 30
10 by an amount in excess of one-ninth of such number of Firm Shares or
Additional Shares, as the case may be, without the written consent of such
Underwriter. If on the Closing Date or on an Option Closing Date, as the case
may be, any Underwriter or Underwriters shall fail or refuse to purchase Firm
Shares, or Additional Shares, as the case may be, and the aggregate number of
Firm Shares or Additional Shares, as the case may be, with respect to which
such default occurs is more than one-tenth of the aggregate number of Shares to
be purchased on such date by all Underwriters and arrangements satisfactory to
you and the applicable Sellers for purchase of such Shares are not made within
48 hours after such default, this Agreement will terminate without liability on
the part of any non-defaulting Underwriter and the applicable Sellers. In any
such case which does not result in termination of this Agreement, either you or
the Sellers shall have the right to postpone the Closing Date or the applicable
Option Closing Date, as the case may be, but in no event for longer than seven
days, in order that the required changes, if any, in the Registration Statement
and the Prospectus or any other documents or arrangements may be effected. Any
action taken under this paragraph shall not relieve any defaulting Underwriter
from liability in respect of any default of any such Underwriter under this
Agreement.
11. Agreements of the Selling Stockholders. The Selling
Stockholders jointly and severally agree with you and the Company:
(a) To pay or to cause to be paid all transfer taxes with
respect to the Additional Shares; and
(b) To take all reasonable actions in cooperation with
the Company and the Underwriters to cause the Registration Statement
to become effective at the earliest possible time, to do and perform
all things to be done and performed by the Selling Stockholders under
this Agreement prior to the Closing Date or the Option Closing Date,
as the case may be, and to satisfy all conditions precedent to the
delivery by the Selling Stockholders of the Additional Shares pursuant
to this Agreement.
12. Miscellaneous. Notices given pursuant to any provision of
this Agreement shall be addressed as follows: (a) if to the Company, to Paul
J. Klaassen, Chief Executive Officer, Sunrise Assisted Living, Inc., 9401 Lee
Highway, Suite 300, Fairfax, Virginia 22031, (b) if to the Selling
Stockholders, to Paul J. and Teresa M. Klaassen c/o Sunrise Assisted Living,
Inc., 9401 Lee Highway, Suite 300, Fairfax, Virginia 22031 and (c) if to any
Underwriter or to you, to you c/o Donaldson, Lufkin & Jenrette Securities
Corporation, 277 Park Avenue, New York, New York 10172, Attention: Syndicate
Department, or in any case to such other address as the person to be notified
may have requested in writing.
The respective indemnities, contribution agreements,
representations, warranties and other statements of the Selling Stockholders,
the Company, its officers and directors and of the several Underwriters set
forth in or made pursuant to this Agreement
- 30 -
<PAGE> 31
shall remain operative and in full force and effect, and will survive delivery
of and payment for the Shares, regardless of (i) any investigation, or
statement as to the results thereof, made by or on behalf of any Underwriter or
by or on behalf of the Sellers, the officers or directors of the Company or any
controlling person of the Sellers, (ii) acceptance of the Shares and payment
for them hereunder and (iii) termination of this Agreement.
If this Agreement shall be terminated by the Underwriters
because of any failure or refusal on the part of the Company or the Selling
Stockholders to comply with the terms or to fulfill any of the conditions of
this Agreement, the Company or the Selling Stockholders, as the case may be,
agree to reimburse the several Underwriters for all out-of-pocket expenses
(including the reasonable fees and disbursements of counsel) reasonably
incurred by them.
Except as otherwise provided, this Agreement has been and is
made solely for the benefit of and shall be binding upon the Sellers, the
Underwriters, any controlling persons referred to herein and their respective
successors and assigns, all as and to the extent provided in this Agreement,
and no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include a purchaser of
any of the Shares from any of the several Underwriters merely because of such
purchase.
This Agreement shall be governed and construed in accordance
with the laws of the State of New York.
This Agreement may be signed in various counterparts which
together shall constitute one and the same instrument.
- 31 -
<PAGE> 32
Please confirm that the foregoing correctly sets forth the
agreement by and among the Company, the Selling Stockholders and the several
Underwriters.
Very truly yours,
SUNRISE ASSISTED LIVING, INC.
By:
----------------------------
Name:
Title:
THE SELLING STOCKHOLDERS
NAMED IN SCHEDULE II HERETO
----------------------------
Paul J. Klaassen
----------------------------
Teresa M. Klaassen
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
ALEX. BROWN & SONS INCORPORATED
NATWEST SECURITIES LIMITED
Acting severally on behalf of
themselves and the several
Underwriters named in
Schedule I hereto
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:
--------------------------
- 32 -
<PAGE> 33
SCHEDULE I
<TABLE>
<CAPTION>
Number of Firm Shares
Underwriters to be Purchased
------------ -------------------------
<S> <C> <C>
Donaldson, Lufkin & Jenrette
Securities Corporation
Alex. Brown & Sons Incorporated
NatWest Securities Limited
-------------------------
Total 5,000,000
</TABLE>
- 33 -
<PAGE> 34
SCHEDULE II
Selling Stockholders
<TABLE>
<CAPTION>
Number of Additional
Name Shares Being Sold
---- -----------------
<S> <C> <C>
Paul J. and Teresa M. Klaassen,
as tenants by the entireties 750,000
-----------------
Total 750,000
</TABLE>
- 34 -
<PAGE> 35
ANNEX I
Required Stockholder Lock-Ups
Allstate Insurance Company
Allstate Life Insurance Company
Continental Trust Company as Trustee for the Allstate Retirement Plan
Continental Trust Company as Trustee for the Agents Pension Plan
Sprout Growth II, L.P.
DLJ Capital Corporation
Frontenac VI Limited Partnership
- 35 -
<PAGE> 1
EXHIBIT 1.2
SUNRISE ASSISTED LIVING, INC.
LETTER OF TRANSMITTAL AND CUSTODY AGREEMENT
First Union National Bank
of North Carolina
[Address]
Ladies and Gentlemen:
There are delivered to you herewith certificates representing shares
of Common Stock, par value $0.01 per share ("Common Stock"), of Sunrise
Assisted Living, Inc., a Delaware corporation (the "Company"), as set forth at
the end of this letter on the page entitled "CERTIFICATES DEPOSITED". Each of
the certificates so delivered is accompanied by a duly executed assignment form
duly endorsed for transfer and are in negotiable form bearing the signature of
the undersigned guaranteed by a commercial bank or trust company having an
office or a correspondent in New York City, New York or by a member firm of the
New York, American or Pacific Stock Exchange. The stock certificates are to be
held by you as Custodian for the account of the undersigned and are to be
disposed of by you in accordance with this Letter of Transmittal and Custody
Agreement (the "Custody Agreement").
The undersigned agree to deliver to you such additional documentation
as the Company or the Representatives (as herein defined) or you or any of
their respective counsel may request to effectuate or confirm compliance with
any of the provisions hereof or of the Underwriting Agreement (as herein
defined), all of the foregoing to be in form and substance satisfactory in all
material respects to and you and such counsel.
Concurrently with the execution and delivery of this Custody
Agreement, the undersigned have executed an underwriting agreement (the
"Underwriting Agreement") among the Company, the undersigned (referred to
therein as the "Selling Stockholders"), and Donaldson, Lufkin & Jenrette
Securities Corporation, Alex. Brown & Sons Incorporated and NatWest Securities
Limited, as the representatives (the "Representatives") of and on behalf of
each of the several underwriters named in the Underwriting Agreement (the
"Underwriters"). All items not otherwise defined herein shall have the same
meaning as in the Underwriting Agreement. Pursuant to the terms and conditions
of the Underwriting Agreement, the undersigned have agreed, subject to the
exercise by the Underwriters of their over-allotment option thereunder, to sell
from the
<PAGE> 2
number of securities represented by the certificates deposited with you
hereunder up to that number of securities indicated at the end of this Custody
Agreement on the page entitled "CERTIFICATES DEPOSITED" (the "Securities").
You are authorized and directed to hold the Securities deposited with
you hereunder in your custody, and on the Option Closing Date or such other
date specified in the Underwriting Agreement you shall (i) take all necessary
action to cause the Securities to be sold and transferred on the books of the
Company into such names as the Representatives, on behalf of the several
Underwriters, shall have instructed you and to surrender the certificates
representing the shares of Common Stock to you, as transfer agent for the
Common Stock, in exchange for new certificates for shares of Common Stock
registered in such names and in such denominations as the Representatives shall
have instructed you; (ii) deliver such new certificates to the Representatives,
for the accounts of the several Underwriters, against payment for such
Securities at the purchase price per share as determined in accordance with the
Underwriting Agreement, and give receipt for such payment; (iii) deposit the
same to your account as Custodian, and draw upon such account to pay such
expenses, if any (the "Expenses"), as you may be instructed to pay by the
undersigned, or any one of them; (iv) when instructed by the undersigned, or
any one of them, to do so, you are to transmit to the undersigned, within 24
hours of such instruction to you, the balance, if any, of the amount received
by you as payment for the Securities after deducting the Expenses. Such
balance is to be paid in the manner requested by the undersigned, or any one of
them, at the end of this Custody Agreement or in such manner as you, in
accordance with the terms hereof, shall deem appropriate. With such remittance
you shall also return to the undersigned new certificates representing the
number of shares of Common Stock, if any, deposited with you hereunder which
are in excess of the number of Securities sold by the undersigned to the
Underwriters.
The obligations of the undersigned pursuant to the Underwriting
Agreement are not subject to termination by the undersigned or by operation of
law, whether by the death or incapacity of the undersigned or otherwise, and
shall remain in full force and effect , to the extent provided therein.
Accordingly, the certificates deposited with you hereunder and this Custody
Agreement and your authority hereunder are subject to the interests of the
several Underwriters and the Company, and this Custody Agreement and your
authority hereunder are irrevocable and are not subject to termination by the
undersigned or by operation of law, whether by the death or incapacity of the
undersigned, the termination of any trust or estate, the death or incapacity of
one or more trustees, guardians, executors or administrators under such trust
or estate, the dissolution or liquidation of any corporation or partnership or
the occurrence of any other event. If the undersigned should die or become
incapacitated, if any trust or estate should be terminated, if any corporation
or partnership should be dissolved or liquidated, or if any other such event
should occur before the delivery of the Securities to be sold by the
undersigned under the Underwriting Agreement, certificates for such Securities
shall be delivered by you on behalf of the undersigned in accordance with the
terms and conditions of the Underwriting Agreement and this Custody Agreement,
and action taken by you
- 2 -
<PAGE> 3
pursuant to this Custody Agreement shall be as valid as if such death or
incapacity, termination, dissolution, liquidation or other event had not
occurred, regardless of whether or not you shall have received notice of such
death, incapacity, termination, dissolution, liquidation or other event. Each
of the undersigned has authority to instruct you on irregularities or
discrepancies in letters of transmittal, discrepancies in the form of
certificates representing the Securities and accompanying documents.
Until payment of the purchase price for the Securities has been made
to you by or for the account of the several Underwriters, the undersigned shall
remain the owners of the Securities and shall have the right to vote the
Securities and all other securities, if any, represented by the certificates
deposited with you hereunder and to receive all dividends and distributions
thereon.
You shall be entitled to act and rely upon any statement, request,
notice or instructions respecting this Custody Agreement given to you on behalf
of the undersigned, if the same shall have been made or given to you by the
undersigned; provided, however, that you shall not be entitled to act on any
statement or notice to you with respect to the Option Closing Date under the
Underwriting Agreement, or with respect to the non-effectiveness or termination
of the Underwriting Agreement, or advising that the Underwriting Agreement has
not been executed and delivered, unless such statement or notice shall have
been confirmed in writing to you by the Representatives.
In taking any action requested or directed by the Representatives
under the terms of this Custody Agreement, you will be entitled to rely upon a
writing signed by an authorized employee of Donaldson, Lufkin & Jenrette
Securities Corporation.
It is understood that you assume no responsibility or liability to any
person other than to deal with the certificate(s) deposited with you hereunder
and the proceeds from the sale of all or a portion of the securities
represented thereby in accordance with the provisions of this Custody
Agreement, and the undersigned agrees to indemnify and hold you harmless with
respect to anything done by you in good faith in accordance with the foregoing
instructions.
The undersigned jointly represent and warrant that:
(i) Such Selling Stockholder is the lawful owner of the
Securities to be sold by such Selling Stockholder pursuant to the
Underwriting Agreement.
(ii) Upon delivery of and payment for such Securities
pursuant to the Underwriting Agreement, good and clear title to such
Securities will pass to the Underwriters, free of all restrictions on
transfer, liens, encumbrances, security interests and claims
whatsoever.
(iii) Such Selling Stockholder has, and on the Option
Closing Date will have, full legal right, power and authority to enter
into the Underwriting
- 3 -
<PAGE> 4
Agreement and this Custody Agreement and to sell, assign, transfer and
deliver the Securities in the manner provided herein and therein, and
the Underwriting Agreement and this Custody Agreement have been duly
authorized, executed and delivered by such Selling Stockholder.
The foregoing representations, warranties and agreements are made for
the benefit of, and may be relied upon by, (i) the Company, (ii) Hogan &
Hartson L.L.P., (iii) the Underwriters and their representatives, agents and
counsel, Alston & Bird, (iv) the Custodian, and (v) Watt, Tieder & Hoffar,
counsel to the undersigned.
The Custody Agreement shall be governed by the laws of the State of
Maryland.
Please acknowledge your acceptance
hereof as Custodian, and receipt of the certificate(s) deposited with you
hereunder, by executing and returning the enclosed copy hereof to the
undersigned in care of _______________________________.
Dated: ___________, 1996 Very truly yours,
*
--------------------------------
,*
-------------------------------
as tenants by the entireties
Printed Names and Address:
Paul J. and Teresa M. Klaassen, as
tenants by the entireties
109 Scott Drive
Annapolis, Maryland 21401
Taxpayer I.D. #'s:
Paul:_____________________
Teresa:___________________
Telephone Number: (401) 626-1792
- ------------------
*To be signed in exactly the same manner as the securities are registered.
- 4 -
<PAGE> 5
Instruction: Complete each column as to certificates to be deposited with the
Custodian.
CERTIFICATES DEPOSITED
<TABLE>
<CAPTION>
Number of Shares Maximum Number of
of Common Stock Shares of Common
Stock Represented by Stock To Be Sold
Cert. No. Each Certificate from Certificate*
--------- ---------------- ----------------------
<S> <C>
TOTAL:
----------------- --------------------------
</TABLE>
* If no indication is made to the certificates from which securities
to be sold shall be allocated, then selection will be made at the
Custodian's discretion. The Selling Shareholders have not agreed to
sell a greater number of securities than is listed in this column,
although they may sell a lesser number.
- 5 -
<PAGE> 6
Instruction: Indicate how you wish to receive payment for the securities
sold to the Underwriters. A wire transfer can be made only to an account
standing in exactly the same name as the person holding the securities being
sold.
MANNER OF PAYMENT
I request that payment of the net proceeds from the sale of the shares
of Common Stock of the Company to be sold by me pursuant to the Underwriting
Agreement be made in the following manner (CHECK ONE):
<TABLE>
<S> <C>
(______) CHECK made payable to:
-------------------------------------------
to be sent to the following address:
-------------------------------------------
-------------------------------------------
phone ( )
--- --------------------------------
Please send by (check one):
(_______) Via First Class Mail
(_______) Via Federal Express
Federal Express Account Number: ____________________
(_______) WIRE TRANSFER to the following account:
Account No.
---------------------------------------
Bank
----------------------------------------------
(Name)
---------------------------------------------------
(Address)
ABA No.
-------------------------------------------
phone ( )
--- ----------------------------------------
(________) OTHER (please specify):
---------------------------------------------------
---------------------------------------------------
---------------------------------------------------
</TABLE>
- 6 -
<PAGE> 7
CUSTODIAN'S ACKNOWLEDGMENT AND RECEIPT
First Union National Bank of North Carolina, as Custodian,
acknowledges acceptance of the duties of the Custodian under the foregoing
Custody Agreement and receipt of the certificates referred to therein.
Dated: ____________, 1996
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
By:
----------------------------
Name:
Title:
DO NOT DETACH FROM CUSTODY AGREEMENT
- 7 -
<PAGE> 1
EXHIBIT 3.1
FORM OF RESTATED CERTIFICATE OF INCORPORATION
OF
SUNRISE ASSISTED LIVING, INC.
Sunrise Assisted Living, Inc., a corporation organized and
existing under the laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is Sunrise Assisted Living,
Inc., and the name under which the corporation was originally incorporated was
Sunrise Assisted Living Holdings, Inc. The date of filing its original
Certificate of Incorporation with the Secretary of State of the State of
Delaware was December 14, 1994.
2. Pursuant to Section 245 of the General Corporation Law of
the State of Delaware, this Restated Certificate of Incorporation restates and
integrates but does not further amend the provisions of this corporation's
Certificate of Incorporation as heretofore amended or supplemented, and there
is no discrepancy between those provisions and the provisions of this Restated
Certificate of Incorporation (except for the omission, as permitted by Section
245(c) of the General Corporation Law of the State of Delaware, of such
provisions contained in previous amendments to this corporation's Certificate
of Incorporation as were necessary to effect changes, exchanges,
reclassifications or cancellations of stock, which changes, exchanges,
reclassifications or cancellations have become effective).
3. The text of the Restated Certificate of Incorporation is
as follows:
RESTATED CERTIFICATE OF INCORPORATION
OF
SUNRISE ASSISTED LIVING, INC.
ARTICLE 1. NAME
The name of this corporation is Sunrise Assisted Living, Inc.
(the "Corporation").
<PAGE> 2
ARTICLE 2. REGISTERED OFFICE AND AGENT
The registered office of the Corporation shall be located at
1013 Centre Road, Wilmington, Delaware 19805. The registered agent of the
Corporation at such address shall be Corporation Service Company.
ARTICLE 3. PURPOSE AND POWERS
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 the State of Delaware (the "Delaware General Corporation
Law"). The Corporation shall have all power necessary or convenient to the
conduct, promotion or attainment of such acts and activities.
ARTICLE 4. CAPITAL STOCK
4.1. AUTHORIZED SHARES
The total number of shares of all classes of stock that the
Corporation shall have authority to issue is 70,000,000 of which 60,000,000
shall be Common Stock, having a par value of $.01 per share ("Common Stock"),
and 10,000,000 shall be Preferred Stock, having a par value of $.01 per share
("Preferred Stock").
4.2. COMMON STOCK
4.2.1 RELATIVE RIGHTS
The Common Stock shall be subject to all of the rights,
privileges, preferences and priorities of the Preferred Stock as set forth in
the certificate(s) of designations filed to establish the respective series of
Preferred Stock. Each share of Common Stock shall have the same relative
rights as and be identical in all respects to all the other shares of Common
Stock.
4.2.2 DIVIDENDS
Whenever there shall have been paid, or declared and set aside
for payment, to the holders of shares of any class of stock having preference
over the Common Stock as to the payment of dividends, the full amount of
dividends and of sinking fund or retirement payments, if any, to which such
holders are respectively entitled in preference to the Common Stock, then
dividends may be paid on the Common Stock and on any class or series of stock
entitled to participate therewith as to dividends, out of any assets legally
available for the payment of dividends thereon, but only when and as declared
by the Board of Directors of the Corporation.
- 2 -
<PAGE> 3
4.2.3 DISSOLUTION, LIQUIDATION, OR WINDING UP
In the event of any dissolution, liquidation, or winding up of
the Corporation, whether voluntary or involuntary, the holders of the Common
Stock, and holders of any class or series of stock entitled to participate
therewith, in whole or in part, as to the distribution of assets in such event,
shall become entitled to participate in the distribution of any assets of the
Corporation remaining after the Corporation shall have paid, or provided for
payment of, all debts and liabilities of the Corporation and after the
Corporation shall have paid, or set aside for payment, to the holders of any
class of stock having preference over the Common Stock in the event of
dissolution, liquidation or winding up the full preferential amounts (if any)
to which they are entitled.
4.2.4. VOTING RIGHTS
Each holder of shares of Common Stock shall be entitled to
attend all special and annual meetings of the stockholders of the Corporation
and, share for share and without regard to class, together with the holders of
all other classes of stock entitled to attend such meetings and to vote (except
any class or series of stock having special voting rights), to cast one vote
for each outstanding share of Common Stock so held upon any matter or thing
(including, without limitation, the election of one or more directors) properly
considered and acted upon by the stockholders.
4.3. PREFERRED STOCK
The Board of Directors is authorized, subject to limitations
prescribed by the Delaware General Corporation Law and the provisions of this
Certificate of Incorporation, to provide, by resolution or resolutions from
time to time and by filing a certificate(s) pursuant to the Delaware General
Corporation Law, for the issuance of the shares of Preferred Stock in series,
to establish from time to time the number of shares to be included in each such
series, to fix the powers, designations, preferences and relative,
participating, optional or other special rights of the shares of each such
series and to fix the qualifications, limitations or restrictions thereof.
ARTICLE 5. INCORPORATOR
The name and mailing address of the incorporator (the
"Incorporator") are Corporation Service Company, 1013 Centre Road, Wilmington,
Delaware 19805 The powers of the Incorporator shall terminate upon the filing
of this Certificate of Incorporation.
- 3 -
<PAGE> 4
ARTICLE 6. BOARD OF DIRECTORS
ARTICLE 6.1. NUMBER; ELECTION; AND CLASSIFICATION
The number of directors of the Corporation shall be not less
than two nor more than eleven directors, the exact number of directors to be
fixed from time to time by or in the manner provided in the bylaws of the
Corporation. The directors of the Corporation shall be divided into three
classes, each consisting of approximately one-third of the total number of
directors. The term of office of each class shall be three years and shall
expire in successive years at the time of the annual meeting of stockholders.
Upon the filing in the Office of the Secretary of State of Delaware of the
Certificate of Amendment of Certificate of Incorporation of the Corporation,
whereby this Article 6.1 is amended to read as set forth herein, the classes of
directors are as follows:
Class I (terms of office expiring at the 1998 annual meeting
of stockholders) -- Paul J. Klaassen and Richard Doppelt;
Class II (terms of office expiring at the 1999 annual meeting
of stockholders) -- Teresa M. Klaassen, Ronald V. Aprahamian and Darcy Moore;
and
Class III (terms of office expiring at the 1997 annual meeting
of stockholders) -- David W. Faeder, Thomas Donohue and Scott Meadow.
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 and until their successors
shall be elected and qualified. Unless and except to the extent that the
bylaws of the Corporation shall otherwise require, the election of directors of
the Corporation need not be by written ballot.
Any vacancy occurring in the Board of Directors, including any
vacancy created by an increase in the number of directors, shall be filled for
the unexpired term by the vote of a majority of the directors then in office,
whether or not a quorum, or by a sole remaining director, and any director so
chosen shall hold office for the remainder of the full term of the class in
which the new directorship was created or the vacancy occurred and until such
director's successor shall have been elected and qualified. No director may be
removed except for cause and then only by an affirmative vote of the holders of
at least a majority of the outstanding shares of stock of the Corporation
entitled to vote thereon at a duly constituted meeting of stockholders called
for such purpose. At least 30 days prior to such meeting of stockholders,
written notice shall be sent to the director or directors whose removal shall
be considered at such meeting.
- 4 -
<PAGE> 5
6.1. MANAGEMENT OF BUSINESS AND AFFAIRS OF THE CORPORATION
The business and affairs of the Corporation shall be managed
by or under the direction of the Board of Directors.
6.2. LIMITATION OF LIABILITY
No director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that this provision shall not eliminate or limit
the liability of a director (a) for any breach of the director's duty of
loyalty to the Corporation or its stockholders; (b) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law; (c) under Section 174 of the Delaware General Corporation Law; or (d) for
any transaction from which the director derived an improper personal benefit.
Any repeal or modification of this Article 6.3 shall be prospective only and
shall not adversely affect any right or protection of, or any limitation on the
liability of, a director of the Corporation existing at, or arising out of
facts or incidents occurring prior to, the effective date of such repeal or
modification.
ARTICLE 7. COMPROMISE OR ARRANGEMENT
Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders of any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for the Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for the Corporation under the provisions of Section 279 of Title 8 of
the Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths in value of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of the Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of the Corporation, as the case may be,
and also on the Corporation.
- 5 -
<PAGE> 6
ARTICLE 8. AMENDMENT OF BYLAWS
The Board of Directors or the stockholders may from time to
time adopt, amend or repeal the by-laws of the Corporation. Such action by the
Board of Directors shall require the affirmative vote of at least two-thirds of
the directors then in office at a duly constituted meeting of the Board of
Directors called for such purpose. Such action by the stockholders shall
require the affirmative vote of the holders of at least two-thirds of the
outstanding shares of stock of the Corporation entitled to vote thereon at a
duly constituted meeting of stockholders called for such purpose.
ARTICLE 9. RESERVATION OF RIGHT TO AMEND CERTIFICATE OF INCORPORATION
The Corporation reserves the right at any time, and from time
to time, to amend, alter, change, or repeal any provision contained in this
Certificate of Incorporation, and other provisions authorized by the laws of
the State of Delaware at the time in force may be added or inserted, in the
manner now or hereafter prescribed by law; and all rights, preferences, and
privileges of any nature conferred upon stockholders, directors, or any other
persons by and pursuant to this Certificate of Incorporation in its present
form or as hereafter amended are granted subject to the rights reserved in this
Article 9.
ARTICLE 10. STOCKHOLDER MATTERS
10.1. CONSENT IN LIEU OF MEETING
Any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual or
special meeting of such holders and may not be effected by any consent in
writing by such holders, unless such consent is unanimous.
10.2. CALL OF SPECIAL MEETINGS
Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute, may be called by the Board of
Directors, the Chairman of the Board or the President of the Corporation, and
shall be called by the President or the Secretary of the Corporation at the
request in writing of stockholders possessing at least 25 percent of the voting
power of the issued and outstanding voting stock of the Corporation entitled to
vote generally for the election of directors. Such request shall include a
statement of the purpose or purposes of the proposed meeting.
- 6 -
<PAGE> 7
ARTICLE 11. OTHER CONSTITUENCIES
The Board of Directors of the Corporation, when evaluating any
offer, bid, proposal, or similar communication of another party to (a) make a
tender or exchange offer for any equity security of the Corporation, (b) merge
or consolidate the Corporation with or into another corporation or
corporations, or (c) purchase or otherwise acquire all or substantially all of
the properties and assets of the Corporation, shall, in connection with the
exercise of its judgment in determining what is in the best interests of the
Corporation and its stockholders, give due consideration to all relevant
factors, including, without limitation, the social, economic and regulatory
effects on the Corporation, on employees, providers and payors of the
Corporation and its subsidiaries, on residents and families served by the
Corporation and its subsidiaries, on operations of the Corporation's
subsidiaries and on the communities in which the Corporation and its
subsidiaries operate or are located.
ARTICLE 12. AMENDMENT OF CERTIFICATE OF INCORPORATION
Except as set forth in this Article 12 or as otherwise
specifically required by law, no amendment of any provision of this Certificate
of Incorporation shall be made unless such amendment has been first proposed by
the Board of Directors of the Corporation upon the affirmative vote of at least
two-thirds of the directors then in office at a duly constituted meeting of the
Board of Directors called for such purpose and thereafter approved by
stockholders of the Corporation by the affirmative vote of the holders of at
least a majority of the outstanding shares of stock of the Corporation entitled
to vote thereon; provided, however, if such amendment is to the provisions set
forth in this clause of Article 12 or in Articles 4.1 (insofar as relating to
the authorized number of shares of Preferred Stock), 4.3, 6, 8, 10 or 11
hereof, such amendment must be approved by the affirmative vote of the holders
of at least two-thirds of the outstanding shares of stock of the Corporation
entitled to vote thereon rather than a majority of such shares.
4. This Restated Certificate of Incorporation was duly
adopted by the Board of Directors of the corporation in accordance with the
applicable provisions of Section 245 of the General Corporation Law of the
State of Delaware.
- 7 -
<PAGE> 8
IN WITNESS WHEREOF, Sunrise Assisted Living, Inc. has caused
this Restated Certificate of Incorporation to be signed by its duly authorized
officer, as of the _____ day of ___________, 1996.
SUNRISE ASSISTED LIVING, INC.
By:
-----------------------------------------
Paul J. Klaassen
Chairman of the Board, President
and Chief Executive Officer
- 8 -
<PAGE> 9
CERTIFICATE OF DESIGNATION, PREFERENCES AND
RIGHTS OF
SERIES C JUNIOR PARTICIPATING PREFERRED STOCK
of
SUNRISE ASSISTED LIVING, INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
Sunrise Assisted Living, Inc., a corporation organized under
the laws of the State of Delaware (the "Corporation"), hereby certifies that,
pursuant to the authority conferred upon the Board of Directors by the
Certificate of Incorporation, as amended, of the said Corporation, the said
Board of Directors on April 25, 1996, adopted the following resolution creating
a series of 30,000 shares of Preferred Stock designated as Series C Junior
Participating Preferred Stock:
RESOLVED, that pursuant to the authority granted to and vested
in the Board of Directors of this Corporation (the "Board") in accordance with
the provisions of its Certificate of Incorporation, as amended, a series of
Preferred Stock of the Corporation be and it hereby is created, and that the
designation and amount thereof and the voting rights or powers, preferences and
relative, participating, optional and other special rights of the shares of
such series, and the qualifications, limitations or restrictions thereof are as
follows:
Section 1. Designation and Amount. The shares of such
series, par value $0.01 per share, shall be designated as "Series C Junior
Participating Preferred Stock" and the number of shares constituting such
series shall be 30,000. 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 C Junior Participating 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
Corporation convertible into Series C Junior Participating Preferred Stock.
<PAGE> 10
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders
of any shares of any series of Preferred Stock ranking prior and superior to
the shares of Series C Junior Participating Preferred Stock with respect to
dividends, the holders of shares of Series C Junior Participating 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, quarterly dividends
payable in cash on the 15th day of April, July, October and January, in each
year (each such date being referred to herein as a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date after first
issuance of a share or fraction of a share of Series C Junior Participating
Preferred Stock, in an amount per share (rounded to the nearest cent) equal to
the greater of (a) $10.00 or (b) subject to the provision for adjustment
hereinafter set forth, 1,000 times the aggregate per share amount of all cash
dividends, and 1,000 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, par value $.01 per share, of the Corporation (the
"Common Stock"), or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock, since the
immediately preceding Quarterly Dividend Payment Date, or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series C Junior Participating Preferred Stock. In the
event the Corporation shall at any time after April 25, 1996 (the "Rights
Declaration Date") (i) declare or pay any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the amount to which holders of shares of Series C Junior
Participating Preferred Stock 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 Corporation shall declare a dividend or
distribution on the Series C Junior Participating Preferred Stock as provided
in paragraph (A) above 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 Quarterly Dividend
Payment Date and the next subsequent Quarterly Dividend Payment Date, a
dividend of $10.00 per share on the Series C Junior Participating Preferred
- 2 -
<PAGE> 11
Stock shall nevertheless be payable on such subsequent Quarterly Dividend
Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series C Junior Participating Preferred Stock from the
Quarterly Dividend Payment Date next preceding the date of issue of such shares
of Series C Junior Participating Preferred Stock, unless the date of issue of
such shares is prior to the record date set for the first Quarterly 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 Quarterly
Dividend Payment Date or is a date after the record date for the determination
of holders of shares of Series C Junior Participating Preferred Stock entitled
to receive a quarterly dividend and before such Quarterly Dividend Payment
Date, in either of which event such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Series C
Junior Participating 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 C Junior Participating Preferred
stock entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be no more than 60 days prior to the date
fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series
C Junior Participating Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter
set forth, each share of Series C Junior Participating Preferred Stock shall
entitle the holder thereof to 1,000 votes on all matters submitted to a vote of
the stockholders of the Corporation. In the event the Corporation shall at any
time after the Rights Declaration Date (i) declare any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock,
or (iii) combine the outstanding Common Stock into a smaller number of shares,
then in each such case the number of votes per share to which holders of shares
of Series C Junior Participating 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 by law, the holders of
shares of Series C Junior Participating Preferred Stock and the holders of
shares of
- 3 -
<PAGE> 12
Common Stock shall vote together as one class on all matters submitted to a
vote of stockholders of the Corporation.
(C) Except as set forth herein, holders of Series C Junior
Participating 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 dividends or distributions payable on the
Series C Junior Participating Preferred Stock as provided in Section 2 are not
paid, thereafter and until such dividends and distributions, whether or not
declared, on shares of Series C Junior Participating Preferred Stock
outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends on, or make any
other distributions on, or redeem or purchase or otherwise acquire for
consideration any shares of stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Series C Junior
Participating Preferred Stock; or
(ii) declare or pay dividends on, or make any
other distributions on, any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series C
Junior Participating Preferred Stock, except dividends paid ratably on the
Series C Junior Participating Preferred Stock and all such parity stock on
which dividends are payable in proportion to the total amounts to which the
holders of all such shares are then entitled; or
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as to dividends
or upon liquidation, dissolution or winding up) with the Series C Junior
Participating Preferred Stock, provided that the Corporation may at any time
redeem, purchase or otherwise acquire shares of any such parity stock in
exchange for shares of any stock of the Corporation ranking junior (either as
to dividends or upon dissolution, liquidation or winding up) to the Series C
Junior Participating Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Series C Junior Participating Preferred Stock, or
any shares of stock ranking on a parity with the Series C Junior Participating
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
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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 Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation 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 C
Junior Participating Preferred Stock purchased or otherwise acquired by the
Corporation in any manner whatsoever shall be retired and cancelled promptly
after the acquisition thereof. All such shares shall upon their cancellation
become authorized but unissued shares of Preferred Stock and may be reissued as
part of a new series of Preferred Stock to be created by resolution or
resolutions of the Board of Directors, subject to the conditions and
restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation (voluntary or otherwise),
dissolution or winding up of the Corporation, no distribution shall be made to
the holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series C Junior Participating
Preferred Stock unless, prior thereto, the holders of shares of Series C Junior
Participating Preferred Stock shall have received $85,000 per share, plus any
unpaid dividends and distributions payable thereon, whether or not declared, to
the date of such payment (the "Series C Liquidation Preference"). Following
the payment of the full amount of the Series C Liquidation Preference, no
additional distributions shall be made to the holders of Series C Junior
Participating Preferred Stock unless, prior thereto, the holders of shares of
Common Stock shall have received an amount per share (the "Common Adjustment")
equal to the quotient obtained by dividing (i) the Series C Liquidation
Preference by (ii) 1,000 (as appropriately adjusted as set forth in
subparagraph (C) below to reflect such events as stock splits, stock dividends
and recapitalizations with respect to the Common Stock) (such number in clause
(ii) immediately above being referred to as the "Adjustment Number").
Following the payment of the full amount of the Series C Liquidation Preference
and the Common Adjustment in respect of all outstanding shares of Series C
Junior Participating Preferred Stock and Common Stock, respectively, holders of
Series C Junior Participating Preferred Stock and holders of shares of Common
Stock shall receive their ratable and proportionate share of the
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remaining assets to be distributed in the ratio of the Adjustment Number to one
(1) with respect to such Preferred Stock and Common Stock, on a per share
basis, respectively.
(B) In the event, however, that there are not sufficient
assets available to permit payment in full of the Series C Liquidation
Preference and the liquidation preferences of all other series of preferred
stock, if any, which rank on a parity with the Series C Junior Participating
Preferred Stock, then such remaining assets shall be distributed ratably to the
holders of such parity shares in proportion to their respective liquidation
preferences. In the event, however, that there are sufficient assets available
to permit payment in full of the Common Adjustment, then such remaining assets
shall be distributed ratably to the holders of Common Stock.
(C) In the event the Corporation shall at any time after
the Rights Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the Adjustment Number in effect immediately prior to such event
shall be adjusted by multiplying such Adjustment 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.
Section 7. Consolidation, Merger, etc. In case the
Corporation 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 the shares of Series C Junior Participating Preferred Stock shall at
the same time be similarly exchanged or changed in an amount per share (subject
to the provision for adjustment hereinafter set forth) equal to 1,000 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 Corporation shall at any time
after the Rights Declaration Date (i) declare any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock,
or (iii) combine the outstanding Common Stock into a smaller number of shares,
then in each such case the amount set forth in the preceding sentence with
respect to the exchange or change of shares of Series C Junior Participating
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
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number of shares of Common Stock that were outstanding immediately prior to
such event.
Section 8. Redemption. The outstanding shares of Series C
Junior Participating Preferred Stock may be redeemed as a whole, but not in
part, at any time, or from time to time, at the option of the Board, at a cash
price per share equal to 105 percent of (i) the product of the Adjustment
Number times the Average Market Value (as such term is hereinafter defined) of
the Common Stock, plus (ii) all dividends which on the redemption date are
payable on the shares to be redeemed and have not been paid or declared, and a
sum sufficient for the payment thereof set apart, without interest. The
"Average Market Value" is the average of the closing sale prices of the Common
Stock during the 30 day period immediately preceding the date before the
redemption date on the Composite Tape for New York Stock Exchange Listed
Stocks, or, if such stock is not quoted on the Composite Tape, on the New York
Stock Exchange, or, if such stock is not listed on such Exchange, on the
principal United States securities exchange registered under the Securities
Exchange Act of 1934, as amended, on which such stock is listed, or, if such
stock is not listed on any such exchange, the average of the closing sale
prices with respect to a share of Common Stock during such 30 day period, as
quoted on the National Association of Securities Dealers, Inc. Automated
Quotations System or any system then in use, or if no such quotations are
available, the fair market value of the Common Stock as determined by the Board
in good faith.
Section 9. Ranking. Notwithstanding anything contained
herein to the contrary, the Series C Junior Participating Preferred Stock shall
rank junior to all other series of the Corporation's Preferred Stock as to
voting rights, the payment of dividends and the distribution of assets in
liquidation, unless the terms of any such series shall provide otherwise.
Section 10. Amendment. The Certificate of Incorporation,
as amended, of the Corporation shall not be further amended in any manner which
would materially alter or change the powers, preferences or special rights of
the Series C Junior Participating Preferred Stock so as to affect them
adversely without the affirmative vote of the holders of at least a majority of
the outstanding shares of Series C Junior Participating Preferred Stock, voting
separately as a class.
Section 11. Fractional Shares. Series C Junior
Participating Preferred Stock may be issued in fractions of a share which shall
entitle the holders, in proportion to such holders fractional shares, to
exercise voting rights, receive dividends, participate in distributions and to
have the benefit of all other rights of holders of Series C Junior
Participating Preferred Stock.
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IN WITNESS WHEREOF, Sunrise Assisted Living, Inc. has caused
this Certificate of Designation to be executed as of May ___, 1996.
SUNRISE ASSISTED LIVING, INC.
By:
------------------------------
Thomas B. Newell
Executive Vice President
and General Counsel
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EXHIBIT 3.2
FORM OF AMENDED AND RESTATED BYLAWS
OF
SUNRISE ASSISTED LIVING, INC.
1. OFFICES
1.1. REGISTERED OFFICE
The initial registered office of the Corporation shall be in
Wilmington, Delaware, and the initial registered agent in charge thereof shall
be Corporation Service Company, 1013 Centre Road, Wilmington, Delaware 19805.
1.2. OTHER OFFICES
The Corporation may also have offices at such other places,
both within and without the State of Delaware, as the Board of Directors may
from time to time determine or as may be necessary or useful in connection with
the business of the Corporation.
2. MEETINGS OF STOCKHOLDERS
2.1. PLACE OF MEETINGS
All meetings of the stockholders shall be held at such place
as may be fixed from time to time by the Board of Directors, the Chairman of
the Board or the President.
2.2. ANNUAL MEETINGS
The Corporation shall hold annual meetings of stockholders,
commencing with the year 1995, on such date and at such time as shall be
designated from time to time by the Board of Directors, the Chairman of the
Board or the President, at which stockholders shall elect successors to that
class of directors whose terms shall have expired and transact such other
business as may properly be brought before the meeting.
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2.3. SPECIAL MEETINGS
Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute, may be called by the Board of
Directors, the Chairman of the Board or the President of the Corporation, and
shall be called by the President or the Secretary of the Corporation at the
request in writing of stockholders possessing at least 25 percent of the voting
power of the issued and outstanding voting stock of the Corporation entitled to
vote generally for the election of directors. Such request shall include a
statement of the purpose or purposes of the proposed meeting.
2.4. NOTICE OF MEETINGS
Notice of any meeting of stockholders, stating the place, date
and hour of the meeting, and (if it is a special meeting) the purpose or
purposes for which the meeting is called, shall be given to each stockholder
entitled to vote at such meeting not less than ten nor more than sixty days
before the date of the meeting (except to the extent that such notice is waived
or is not required as provided in the General Corporation Law of the State of
Delaware (the "Delaware General Corporation Law") or these Bylaws). Such
notice shall be given in accordance with, and shall be deemed effective as set
forth in, Section 222 (or any successor section) of the Delaware General
Corporation Law.
2.5. WAIVERS OF NOTICE
Whenever the giving of any notice is required by statute, the
Certificate of Incorporation of the Corporation (which shall include any
amendments thereto and shall be hereinafter referred to as so amended as the
"Certificate of Incorporation") or these Bylaws, a waiver thereof, in writing
and delivered to the Corporation, signed by the person or persons entitled to
said notice, whether before or after the event as to which such notice is
required, shall be deemed equivalent to notice. Attendance of a stockholder at
a meeting shall constitute a waiver of notice (1) of such meeting, except when
the stockholder at the beginning of the meeting objects to holding the meeting
or transacting business at the meeting, and (2) (if it is a special meeting) of
consideration of a particular matter at the meeting that is not within the
purpose or purposes described in the meeting notice, unless the stockholder
objects to considering the matter at the beginning of the meeting.
2.6. BUSINESS AT SPECIAL MEETINGS
Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice (except to the extent
that such notice is
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waived or is not required as provided in the Delaware General Corporation Law
or these Bylaws).
2.7. LIST OF STOCKHOLDERS
After the record date for a meeting of stockholders has been
fixed, at least ten days before such meeting, the officer who has charge of the
stock ledger of the Corporation shall make a list of all stockholders entitled
to vote at the meeting, arranged in alphabetical order and showing the address
of each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder for
any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place in the city
where the meeting is to be held, which place is to be specified in the notice
of the meeting, or at the place where the meeting is to be held. Such list
shall also, for the duration of the meeting, be produced and kept open to the
examination of any stockholder who is present at the time and place of the
meeting.
2.8. QUORUM AT MEETINGS
Stockholders may take action on a matter at a meeting only if
a quorum exists with respect to that matter. Except as otherwise provided by
statute or by the Certificate of Incorporation, the holders of a majority of
the shares entitled to vote at the meeting, and who are present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. Where a separate vote by a class
or classes is required, the holders of a majority of the outstanding shares of
such class or classes, who are present in person or represented by proxy, shall
constitute a quorum entitled to take action on that matter. Once a share is
represented for any purpose at a meeting (other than solely to object (1) to
holding the meeting or transacting business at the meeting, or (2) (if it is a
special meeting) to consideration of a particular matter at the meeting that is
not within the purpose or purposes described in the meeting notice), it is
deemed present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for the
adjourned meeting. The holders of a majority of the voting shares represented
at a meeting, whether or not a quorum is present, may adjourn such meeting from
time to time.
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2.9. VOTING AND PROXIES
Unless otherwise provided in the Delaware General Corporation
Law or in the Corporation's Certificate of Incorporation, and subject to the
other provisions of these Bylaws, each stockholder shall be entitled to one
vote on each matter, in person or by proxy, for each share of the Corporation's
capital stock that has voting power and that is held by such stockholder. No
proxy shall be voted or acted upon after three years from its date, unless the
proxy provides for a longer period. A duly executed appointment of proxy shall
be irrevocable if the appointment form states that it is irrevocable and if,
and only as long as, it is coupled with an interest sufficient in law to
support an irrevocable power.
2.10. REQUIRED VOTE
When a quorum is present at any meeting of stockholders, all
matters shall be determined, adopted and approved by the affirmative vote
(which need not be by ballot) of the holders of a majority of the shares
present in person or represented by proxy at the meeting and entitled to vote
with respect to the matter, unless the proposed action is one upon which, by
express provision of statutes or of the Certificate of Incorporation, a
different vote is specified and required, in which case such express provision
shall govern and control the decision of such question. Where a separate vote
by a class or classes is required, the affirmative vote of the holders of a
majority of the shares of such class or classes present in person or
represented by proxy at the meeting shall be the act of such class, unless the
proposed action is one upon which, by express provision of statutes or of the
Certificate of Incorporation, a different vote is specified and required, in
which case such express provision shall govern and control the decision of such
question. Notwithstanding the foregoing, directors shall be elected by a
plurality of the votes of the shares present in person or represented by proxy
at the meeting and entitled to vote on the election of directors.
2.11. ACTION WITHOUT A MEETING
Any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual or
special meeting of such stockholders and may not be effected by any consent in
writing by such stockholders, unless such consent is unanimous.
2.12. BUSINESS AT ANNUAL MEETING
At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. To
be properly
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brought before an annual meeting, business must be (a) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the
Board of Directors, (b) otherwise properly brought before the meeting by or at
the direction of the Board of Directors, or (c) otherwise properly brought
before the meeting by a stockholder. For business to be properly brought
before an annual meeting by a stockholder, a stockholder must have given timely
notice thereof in writing to the Secretary of the Corporation.
To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation not
less than 60 days prior to the meeting; provided, however, that in the event
that less than 75 days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder to be
timely must be so received not later than the close of business on the 15th day
following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure was made. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the annual meeting (a) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (b) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business, (c) the class
and number of shares of the Corporation's stock which are beneficially owned by
the stockholder, and (d) any material interest of the stockholder in such
business. No later than the tenth day following the date of receipt of a
stockholder notice pursuant to this Section 2.12, the Chairman of the Board of
Directors of the Corporation shall, if the facts warrant, determine and notify
in writing the stockholder submitting such notice that such notice was not made
in accordance with the time limits and/or other procedures prescribed by the
Bylaws. If no such notification is mailed to such stockholder within such
ten-day period, such stockholder notice containing a matter of business shall
be deemed to have been made in accordance with the provisions of this Section
2.12. Notwithstanding anything in these Bylaws to the contrary, no business
shall be conducted at an annual meeting except in accordance with the
procedures set forth in this Section 2.12.
3. DIRECTORS
3.1. POWERS
The business and affairs of the Corporation shall be managed
by or under the direction of the Board of Directors, which may exercise all
such powers of the Corporation and do all such lawful acts and things, subject
to any limitation set
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forth in the Certificate of Incorporation or as otherwise may be provided in
the Delaware General Corporation Law. The Board of Directors shall annually
elect a Chairman of the Board from among its members and shall designate, when
present, either the Chairman of the Board or the President to preside at its
meetings. If neither the Chairman of the Board nor the President is present,
the Board of Directors may designate another officer to preside at such
meeting. The Chairman of the Board and the President may be the same person.
The Board of Directors may also annually elect one or more Vice Chairmen from
among its members, with such duties as the Board of Directors shall from time
to time prescribe.
3.2. NUMBER, CLASSES, ELECTION AND TERM OF OFFICE
As of the closing of the Corporation's initial public
offering of equity securities under the Securities Act of 1933, as amended, the
total number of directors which shall constitute the entire Board of Directors
shall be eight. The term "entire Board of Directors" as used herein shall mean
the total number of directors constituting the entire Board of Directors
irrespective of the number of directors then in office or vacancies.
Thereafter, the total number of directors constituting the entire Board of
Directors shall be determined by resolution of the Board of Directors passed by
the affirmative vote of at least two-thirds of the directors then in office,
provided, that such number shall be consistent with the minimum and maximum
number of directors set forth in the Certificate of Incorporation. Directors
shall be divided into three classes, each consisting of approximately one-third
of the total number of directors, as provided in the Certificate of
Incorporation. At the 1995 annual meeting of stockholders and at each
subsequent annual meeting of stockholders, directors elected to succeed those
whose terms are expiring shall be elected for a term of office to expire at the
third succeeding annual meeting of stockholders and when their respective
successors are duly elected and qualified. Directors shall be elected at
annual meetings of the stockholders, except as provided in Section 3.3 hereof,
and each director elected shall hold office until his successor is elected and
qualified or until his earlier death, resignation or removal. Directors need
not be stockholders.
3.3. VACANCIES
Vacancies and newly created directorships resulting from any increase
in the authorized number of directors elected by all of the stockholders having
the right to vote as a single class may be filled by a majority of the
directors then in office, although fewer than a quorum, or by a sole remaining
director. Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
Certificate of Incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a
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majority of the directors elected by such class or classes or series thereof
then in office, or by the sole remaining director so elected. Each director so
chosen shall hold office until the next election of the class for which such
director shall have been chosen, and until such director's successor is elected
and qualified, or until the director's earlier resignation or removal. In the
event that one or more directors resigns from the Board, effective at a future
date, a majority of the directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote thereon
to take effect when such resignation or resignations shall become effective,
and each director so chosen shall hold office until the next election of the
class for which such director shall have been chosen, and until such director's
successor is elected and qualified, or until the director's earlier resignation
or removal.
3.4. MEETINGS
3.4.1. REGULAR MEETINGS
Regular meetings of the Board of Directors may be held without
notice at such time and at such place as shall from time to time be determined
by the Board of Directors.
3.4.2. SPECIAL MEETINGS
Special meetings of the Board may be called by the Chairman of
the Board or President on one day's notice to each director, either personally
or by telephone, express delivery service (so that the scheduled delivery date
of the notice is at least one day in advance of the meeting), telegram or
facsimile transmission, and on five days' notice by mail (effective upon
deposit of such notice in the mail). The notice need not describe the purpose
of a special meeting.
3.4.3. TELEPHONE MEETINGS
Members of the Board of Directors may participate in a meeting
of the Board by any communication by means of which all participating directors
can simultaneously hear each other during the meeting. A director
participating in a meeting by this means is deemed to be present in person at
the meeting.
3.4.4. ACTION WITHOUT MEETING
Any action required or permitted to be taken at any meeting of
the Board of Directors may be taken without a meeting if the action is taken by
all members of the Board. The action must be evidenced by one or more written
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consents describing the action taken, signed by each director, and delivered to
the Corporation for inclusion in the minute book.
3.4.5. WAIVER OF NOTICE OF MEETING
A director may waive any notice required by statute, the
Certificate of Incorporation or these Bylaws before or after the date and time
stated in the notice. Except as set forth below, the waiver must be in writing,
signed by the director entitled to the notice, and delivered to the Corporation
for inclusion in the minute book. Notwithstanding the foregoing, a director's
attendance at or participation in a meeting waives any required notice to the
director of the meeting unless the director at the beginning of the meeting
objects to holding the meeting or transacting business at the meeting and does
not thereafter vote for or assent to action taken at the meeting.
3.5. QUORUM AND VOTE AT MEETINGS
At all meetings of the Board, a quorum of the Board of
Directors consists of the presence of a majority of the total number of
directors constituting the entire Board of Directors. The affirmative vote of
a majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute, the Certificate of Incorporation or these
Bylaws.
3.6. COMMITTEES OF DIRECTORS
The Board of Directors may by resolution designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. If a member of a committee shall be absent from
any meeting, or disqualified from voting thereat, the remaining member or
members present and not disqualified from voting, whether or not such member or
members constitute a quorum, may, by unanimous vote, appoint another member of
the Board of Directors to act at the meeting in the place of such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
Certificate of Incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of
shares of stock adopted by the Board of Directors pursuant to Section 151(a) of
the Delaware General Corporation Law, fix the designations and any of the
preferences
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or rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the Corporation or the conversion into, or the
exchange of such shares for, shares of any other class or classes or any other
series of the same or any other class or classes of stock of the Corporation or
fix the number of shares of any series of stock or authorize the increase or
decrease of any shares of any series), adopting an agreement of merger or
consolidation pursuant to Sections 251, 252, 257, 258, 263 or 264 of the
Delaware General Corporation Law, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the Corporation's property and
assets, recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or amending the Bylaws; and unless the
resolutions, these Bylaws or the Certificate of Incorporation expressly so
provide, no such committee shall have the power or authority to declare a
dividend, to authorize the issuance of stock, or to adopt a certificate of
ownership and merger pursuant to Section 253 of the Delaware General
Corporation Law. Such committee or committees shall have such name or names as
may be determined from time to time by resolution adopted by the Board of
Directors. Unless otherwise specified in the resolution of the Board of
Directors designating the committee, at all meetings of each such committee of
directors, a majority of the members of the committee shall constitute a quorum
for the transaction of business, and the affirmative vote of a majority of the
members of the committee present at any meeting at which there is a quorum
shall be the act of the committee. Each committee shall keep regular minutes
of its meetings and report the same to the Board of Directors, when required.
3.7. COMPENSATION OF DIRECTORS
The Board of Directors shall have the authority to fix the
compensation of directors. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor.
3.8. NOMINEES
Only persons who are nominated in accordance with the
procedures set forth in this Section 3.8 shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors of
the Corporation may be made at a meeting of stockholders by or at the direction
of the Board of Directors or by any stockholder of the Corporation entitled to
vote for the election of directors at the meeting who complies with notice
procedures set forth in this Section 3.8. Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant
to timely notice in writing to the Secretary of the Corporation. To be timely,
a stockholder notice shall be delivered to or mailed and received at the
principal executive office of the Corporation not less than 60 days
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prior to the meeting; provided, however, that in the event that less than 75
days' notice or prior public disclosure of the date of the meeting is given or
made to stockholders, notice by the stockholder to be timely must be so
received not later than the close of business on the 15th day following the day
on which such notice of the date of the meeting was mailed or such public
disclosure was made. Such stockholder's notice shall set forth (a) as to each
person whom the stockholder proposes to nominate for election or re-election as
a director, (i) the name, age, business address and residence address of such
person, (ii) the principal occupation or employment of such person, (iii) the
class and number of shares of the Corporation's stock which are beneficially
owned by such person, and (iv) any other information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (including without
limitation such person's written consent to be named in the proxy statement as
a nominee and to serving as a director if elected); and (b) as to the
stockholder giving the notice (i) the name and address, as they appear on the
Corporation's books, of such stockholder and (ii) the class and number of
shares of the Corporation's stock which are beneficially owned by such
stockholder. At the request of the Board of Directors, any person nominated by
the Board of Directors for election as a director shall furnish to the
Secretary of the Corporation that information required to be set forth in the
stockholder's notice of nomination which pertains to the nominee. No later
than the tenth day following the date of receipt of a stockholder nomination
submitted pursuant to this Section 3.8, the Chairman of the Board of Directors
of the Corporation shall, if the facts warrant, determine and notify in writing
the stockholder making such nomination that such nomination was not made in
accordance with the time limits and/or other procedures prescribed by the
bylaws. If no such notification is mailed to such stockholder within such
ten-day period, such nomination shall be deemed to have been made in accordance
with the provisions of this Section 3.8. No person shall be eligible for
election as a director of the Corporation unless nominated in accordance with
the procedures set forth in this Section 3.8.
4. OFFICERS
4.1. POSITIONS
The officers of the Corporation shall be a Chairman of the
Board, a President and Chief Executive Officer, a Chief Financial Officer, a
Secretary and a Treasurer, and such other officers as the Board of Directors
from time to time may appoint, including one or more Vice Chairpersons, a Chief
Operating Officer, Executive Vice Presidents, a General Counsel, Senior Vice
Presidents, Vice
10
<PAGE> 11
Presidents, Assistant Secretaries and Assistant Treasurers. Each such officer
shall exercise such powers and perform such duties as shall be set forth below
and such other powers and duties as from time to time may be specified by the
Board of Directors or by any officer(s) authorized by the Board of Directors to
prescribe the duties of such other officers. Any number of offices may be held
by the same person, except that in no event shall the President and the
Secretary be the same person. Each of the Chairman of the Board, the President
and Chief Executive Officer, the Chief Operating Officer, the Chief Financial
Officer, and/or any Executive Vice President or Senior Vice President may
execute bonds, mortgages and other documents under the seal of the Corporation,
except where required or permitted by law to be otherwise executed and except
where the authorization therefor shall be expressly delegated by the Board of
Directors to some other officer or agent of the Corporation.
4.2. CHAIRMAN OF THE BOARD
The Chairman of the Board shall (when present) preside at all meetings
of the Board of Directors and stockholders and shall ensure that all orders and
resolutions of the Board of Directors are carried into effect. Unless the
Board shall designate a person other than the Chairman as the President and
Chief Executive Officer, the Chairman of the Board shall also be the President
and Chief Executive Officer of the Corporation, and as such shall have overall
executive responsibility and authority for management of the business, affairs
and operations of the Corporation (subject to the authority of the Board of
Directors). As President and Chief Executive Officer, the Chairman of the
Board shall, in general, perform all duties incident to the office of a
president and chief executive officer of a corporation, including those duties
customarily performed by persons holding such offices, and shall perform such
other duties as, from time to time, may be assigned to him or her by the Board
of Directors.
4.3. PRESIDENT AND CHIEF EXECUTIVE OFFICER
The President shall be the Chief Executive Officer of the Corporation
and as such shall have overall executive responsibility and authority for
management of the business, affairs and operations of the Corporation (subject
to the authority of the Board of Directors), and, in general, shall perform all
duties incident to the office of a president and chief executive officer of a
corporation, including those duties customarily performed by persons holding
such offices, and shall perform such other duties as, from time to time, may be
assigned to him or her by the Board of Directors.
11
<PAGE> 12
4.4. CHIEF FINANCIAL OFFICER
The Chief Financial Officer of the Corporation shall have
general charge and supervision of the financial affairs of the Corporation,
including budgetary, accounting and statistical methods, and shall approve
payment, or designate others serving under him to approve for payment, all
vouchers and warrants for disbursements of funds, and, in general, shall
perform such other duties as are incident to the office of a chief financial
officer of a corporation, including those duties customarily performed by
persons occupying such office, and shall perform such other duties as, from
time to time, may be assigned to him or her by the Board of Directors or the
President and Chief Executive Officer.
4.5. CHIEF OPERATING OFFICER
The Chief Operating Officer of the Corporation shall have general
charge and supervision of the day to day operations of the Corporation (subject
to the direction of the President and Chief Executive Officer and the authority
of the Board of Directors), and, in general, shall perform such other duties as
are incident to the office of a chief operating officer of a corporation,
including those duties customarily performed by persons occupying such office,
and shall perform such other duties as, from time to time, may be assigned to
him or her by the Board of Directors or the President and Chief Executive
Officer.
4.6. GENERAL COUNSEL
The General Counsel of the Corporation shall be responsible
for supervising the legal affairs of the Corporation, and, in general, shall
perform such other duties as are incident to the office of a general counsel of
a corporation, including those duties customarily performed by persons
occupying such office, and shall perform such other duties as, from time to
time, may be assigned to him or her by the Board of Directors or the President
and Chief Executive Officer.
4.7. VICE PRESIDENT
In the absence of the President and Chief Executive Officer or
in the event of the President and Chief Executive Officer's failure or refusal
to act, the Vice President (or in the event there be more than one Vice
President, the Vice Presidents in the order designated, or in the absence of
any designation, then in the order of their election) shall perform the duties
of the President and Chief Executive Officer, and when so acting shall have all
the powers of, and be subject to all the restrictions upon, the President and
Chief Executive Officer. The Vice President or Vice Presidents, in general,
shall perform such other duties as are incident to the
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<PAGE> 13
office of a vice president of a corporation, including those duties customarily
performed by persons occupying such office, and shall perform such other duties
as, from time to time, may be assigned to him or her or them by the Board of
Directors or the President and Chief Executive Officer. The Board of Directors
may designate one or more Vice Presidents as Executive Vice Presidents or
Senior Vice Presidents.
4.8. SECRETARY
The Secretary, or an Assistant Secretary, shall attend all
meetings of the Board of Directors and all meetings of the stockholders, and
shall record all the proceedings of the meetings of the stockholders and of the
Board of Directors in a book to be kept for that purpose, and shall perform
like duties for the standing committees, when required. The Secretary shall
have custody of the corporate seal of the Corporation, and the Secretary, or an
Assistant Secretary, shall have authority to affix the same to any instrument
requiring it, and when so affixed it may be attested by the signature of the
Secretary or by the signature of such Assistant Secretary. The Board of
Directors may give general authority to any other officer to affix the seal of
the Corporation and to attest the affixing by such officer's signature. The
Secretary or an Assistant Secretary may also attest all instruments signed by
the President and Chief Executive Officer, the Chief Operating Officer, the
Chief Financial Officer or any Vice President. The Secretary, or an Assistant
Secretary, shall give, or cause to be given, notice of all meetings of the
stockholders and special meetings of the Board of Directors, and, in general,
shall perform all duties as are incident to the office of a secretary of a
corporation, including those duties customarily performed by persons occupying
such office, and shall perform such other duties as, from time to time, may be
assigned to him or her by the Board of Directors, the President and Chief
Executive Officer, the Chief Operating Officer, the Chief Financial Officer or
any Executive Vice President.
4.9. ASSISTANT SECRETARY
The Assistant Secretary, or if there be more than one, the
Assistant Secretaries in the order determined by the Board of Directors (or if
there shall have been no such determination, then in the order of their
election), shall, in the absence of the Secretary or in the event of the
Secretary's inability or refusal to act or when requested by the Chairman of
the Board, the President and Chief Executive Officer, the Chief Operating
Officer, the Chief Financial Officer or any Executive Vice President, perform
the duties and exercise the powers of the Secretary, and, in general, shall
perform all duties as are incident to the office of an assistant secretary of a
corporation, including those duties customarily performed by persons holding
such office, and shall perform such other duties as, from time to time, may be
assigned to him or her or them by the Board of Directors, the President and
Chief Executive Officer, the Chief Operating Officer,
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<PAGE> 14
the Chief Financial Officer, any Executive Vice President or the Secretary. An
Assistant Secretary may or may not be an officer, as determined by the Board of
Directors.
4.10. TREASURER
The Treasurer shall have responsibility for the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation, and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall also render to the President and Chief
Executive Officer and the Chief Operating Officer, upon request, and to the
Board of Directors at its regular meetings, or when the Board of Directors so
requires, an account of all financial transactions and of the financial
condition of the Corporation and, in general, shall perform such duties as are
incident to the office of a treasurer of a corporation, including those
customarily performed by persons occupying such office, and shall perform all
other duties as, from time to time, may be assigned to him or her by the Board
of Directors, the President and Chief Executive Officer, the Chief Operating
Officer, the Chief Financial Officer or any Executive Vice President.
4.11. ASSISTANT TREASURER
The Assistant Treasurer, or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors (or if
there shall have been no such determination, then in the order of their
election), shall, in the absence of the Treasurer or in the event of the
Treasurer's inability or refusal to act, perform the duties and exercise the
powers of the Treasurer, and, in general, shall perform all duties as are
incident to the office of an assistant treasurer of a corporation, including
those duties customarily performed by persons occupying such office, and shall
perform such other duties as, from time to time, may be assigned to him or them
by the Board of Directors, the President and Chief Executive Officer, the Chief
Operating Officer, the Chief Financial Officer, any Executive Vice President or
by the Treasurer. An Assistant Treasurer may or may not be an officer, as
determined by the Board of Directors.
4.12. TERM OF OFFICE
The officers of the Corporation shall hold office until their
successors are chosen and qualify or until their earlier resignation or
removal. Any officer may resign at any time upon written notice to the
Corporation. Any officer elected or appointed by the Board of Directors may be
removed at any time, with or without
14
<PAGE> 15
cause, by the affirmative vote of a majority of the directors constituting the
entire Board of Directors.
4.13. COMPENSATION
The compensation of officers of the Corporation shall be fixed
by the Board of Directors or by any officer(s) authorized by the Board of
Directors to prescribe the compensation of such other officers.
4.14. FIDELITY BONDS
The Corporation may secure the fidelity of any or all of its
officers or agents by bond or otherwise.
5. CAPITAL STOCK
5.1. CERTIFICATES OF STOCK; UNCERTIFICATED SHARES
The shares of the Corporation shall be represented by
certificates, provided that the Board of Directors may provide by resolution
that some or all of any or all classes or series of the Corporation's stock
shall be uncertificated shares. Any such resolution shall not apply to shares
represented by a certificate until such certificate is surrendered to the
Corporation. Notwithstanding the adoption of such a resolution by the Board of
Directors, every holder of stock represented by certificates, and upon request
every holder of uncertificated shares, shall be entitled to have a certificate
(representing the number of shares registered in certificate form) signed in
the name of the Corporation by the Chairman of the Board, President or any Vice
President, and by the Treasurer, Secretary or any Assistant Treasurer or
Assistant Secretary of the Corporation. Any or all the signatures on the
certificate may be facsimile. In case any officer, transfer agent or registrar
whose signature or facsimile signature appears on a certificate shall have
ceased to be such officer, transfer agent or registrar before such certificate
is issued, it may be issued by the Corporation with the same effect as if such
person were such officer, transfer agent or registrar at the date of issue.
5.2. LOST CERTIFICATES
The Board of Directors, Chairman of the Board, President and
Chief Executive Officer, Chief Financial Officer or Secretary may direct a new
certificate of stock to be issued in place of any certificate theretofore
issued by the Corporation and alleged to have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming that the
certificate of stock has been lost, stolen or destroyed. When authorizing such
issuance of a new certificate, the Board or any such officer may, as a
condition precedent to the issuance thereof, require the owner
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<PAGE> 16
of such lost, stolen or destroyed certificate or certificates, or such owner's
legal representative, to advertise the same in such manner as the Board or such
officer shall require and/or to give the Corporation a bond or indemnity, in
such sum or on such terms and conditions as the Board or such officer may
direct, as indemnity against any claim that may be made against the Corporation
on account of the certificate alleged to have been lost, stolen or destroyed or
on account of the issuance of such new certificate or uncertificated shares.
5.3. RECORD DATE
5.3.1. ACTIONS BY STOCKHOLDERS
In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which record date shall not be more than sixty days nor less
than ten days before the date of such meeting. If no record date is fixed by
the Board of Directors, the record date for determining stockholders entitled
to notice of or to vote at a meeting of stockholders shall be the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting, unless the Board of Directors fixes a new record
date for the adjourned meeting.
In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the
date upon which the resolution fixing the record date is adopted by the Board
of Directors, and which record date shall not be more than ten days after the
date upon which the resolution fixing the record date is adopted by the Board
of Directors. If no record date has been fixed by the Board of Directors, the
record date for determining stockholders entitled to consent to corporate
action in writing without a meeting, when no prior action by the Board of
Directors is required by the Delaware General Corporation Law, shall be the
first date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the Corporation in the manner prescribed
by Section 213(b) of the Delaware General Corporation Law. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by the Delaware General Corporation Law, the record date
for determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the day on which the
Board of Directors adopts the resolution taking such prior action.
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<PAGE> 17
5.3.2. PAYMENTS
In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
5.4. STOCKHOLDERS OF RECORD
The Corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, to receive notifications, to vote as such owner, and to exercise all
the rights and powers of an owner. The Corporation shall not be bound to
recognize any equitable or other claim to or interest in such share or shares
on the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise may be provided by the Delaware General
Corporation Law.
6. INDEMNIFICATION
6.1. AUTHORIZATION OF INDEMNIFICATION
Each person who was or is a party or is threatened to be made
a party to or is involved in any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or investigative and
whether by or in the right of the Corporation or otherwise (a "proceeding"), by
reason of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the Corporation or is or was
serving at the request of the Corporation as a director, officer, employee,
partner (limited or general) or agent of another corporation or of a
partnership, joint venture, limited liability company, trust or other
enterprise, including service with respect to an employee benefit plan, shall
be (and shall be deemed to have a contractual right to be) indemnified and held
harmless by the Corporation (and any successor to the Corporation by merger or
otherwise) to the fullest extent authorized by, and subject to the conditions
and (except as provided herein) procedures set forth in the Delaware General
Corporation Law, as the same exists or may hereafter be
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<PAGE> 18
amended (but any such amendment shall not be deemed to limit or prohibit the
rights of indemnification hereunder for past acts or omissions of any such
person insofar as such amendment limits or prohibits the indemnification rights
that said law permitted the Corporation to provide prior to such amendment),
against all expenses, liabilities and losses (including attorneys' fees,
judgments, fines, ERISA taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by such person in connection
therewith; provided, however, that the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person (except for a suit or action pursuant to
Section 6.2 hereof) only if such proceeding (or part thereof) was authorized by
the Board of Directors of the Corporation. Persons who are not directors or
officers of the Corporation may be similarly indemnified in respect of such
service to the extent authorized at any time by the Board of Directors of the
Corporation. The indemnification conferred in this Section 6.1 also shall
include the right to be paid by the Corporation (and such successor) the
expenses (including attorneys' fees) incurred in the defense of or other
involvement in any such proceeding in advance of its final disposition;
provided, however, that, if and to the extent the Delaware General Corporation
Law requires, the payment of such expenses (including attorneys' fees) incurred
by a director or officer in advance of the final disposition of a proceeding
shall be made only upon delivery to the Corporation of an undertaking by or on
behalf of such director or officer to repay all amounts so paid in advance if
it shall ultimately be determined that such director or officer is not entitled
to be indemnified under this Section 6.1 or otherwise; and provided further,
that, such expenses incurred by other employees and agents may be so paid in
advance upon such terms and conditions, if any, as the Board of Directors deems
appropriate.
6.2. RIGHT OF CLAIMANT TO BRING ACTION AGAINST THE CORPORATION
If a claim under Section 6.1 is not paid in full by the
Corporation within sixty days after a written claim has been received by the
Corporation, the claimant may at any time thereafter bring an action against
the Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such action. It shall be a defense to any such action (other than
an action brought to enforce a claim for expenses incurred in connection with
any proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Corporation) that the
claimant has not met the standards of conduct which make it permissible under
the Delaware General Corporation Law for the Corporation to indemnify the
claimant for the amount claimed or is otherwise not entitled to indemnification
under Section 6.1 but the burden of proving such defense shall be on the
Corporation. The failure of the Corporation
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<PAGE> 19
(in the manner provided under the Delaware General Corporation Law) to have
made a determination prior to or after the commencement of such action that
indemnification of the claimant is proper in the circumstances because he or
she has met the applicable standard of conduct set forth in the Delaware
General Corporation Law shall not be a defense to the action or create a
presumption that the claimant has not met the applicable standard of conduct.
Unless otherwise specified in an agreement with the claimant, an actual
determination by the Corporation (in the manner provided under the Delaware
General Corporation Law) after the commencement of such action that the
claimant has not met such applicable standard of conduct shall not be a defense
to the action, but shall create a presumption that the claimant has not met the
applicable standard of conduct.
6.3. NON-EXCLUSIVITY
The rights to indemnification and advance payment of expenses
provided by Section 6.1 hereof shall not be deemed exclusive of any other
rights to which those seeking indemnification and advance payment of expenses
may be entitled under any by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his or her official
capacity and as to action in another capacity while holding such office.
6.4. SURVIVAL OF INDEMNIFICATION
The indemnification and advance payment of expenses and
rights thereto provided by, or granted pursuant to, Section 6.1 hereof shall,
unless otherwise provided when authorized or ratified, continue as to a person
who has ceased to be a director, officer, employee, partner or agent and shall
inure to the benefit of the personal representatives, heirs, executors and
administrators of such person.
6.5. INSURANCE
The Corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee, partner (limited or general )or
agent of another corporation or of a partnership, joint venture, limited
liability company, trust or other enterprise, against any liability asserted
against such person or incurred by such person in any such capacity, or arising
out of such person's status as such, and related expenses, whether or not the
Corporation would have the power to
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<PAGE> 20
indemnify such person against such liability under the provisions of the
Delaware General Corporation Law.
7. GENERAL PROVISIONS
7.1. INSPECTION OF BOOKS AND RECORDS
Any stockholder, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
Corporation's stock ledger, a list of its stockholders, and its other books and
records, and to make copies or extracts therefrom. A proper purpose shall mean
a purpose reasonably related to such person's interest as a stockholder. In
every instance where an attorney or other agent shall be the person who seeks
the right to inspection, the demand under oath shall be accompanied by a power
of attorney or such other writing which authorizes the attorney or other agent
to so act on behalf of the stockholder. The demand under oath shall be
directed to the Corporation at its registered office or at its principal place
of business.
7.2. DIVIDENDS
The Board of Directors may declare dividends upon the capital
stock of the Corporation, subject to the provisions of the Certificate of
Incorporation and the laws of the State of Delaware.
7.3. RESERVES
The directors of the Corporation may set apart, out of the
funds of the Corporation available for dividends, a reserve or reserves for any
proper purpose and may abolish any such reserve.
7.4. EXECUTION OF INSTRUMENTS
All checks, drafts or other orders for the payment of money,
and promissory notes of the Corporation shall be signed by such officer or
officers or such other person or persons as the Board of Directors may from
time to time designate.
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7.5. FISCAL YEAR
The fiscal year of the Corporation shall be fixed by resolution of
the Board of Directors.
7.6. SEAL
The corporate seal shall be in such form as the Board of Directors
shall approve. The seal may be used by causing it or a facsimile thereof to
be impressed or affixed or otherwise reproduced.
7.7. PRONOUNS
All pronouns and any variations thereof shall be deemed to refer
to the masculine, feminine, neuter, singular or plural, as the identity of the
person or entity may require.
7.8. AMENDMENTS
The Board of Directors or the stockholders may from time to time
adopt, amend or repeal the Bylaws of the Corporation. Such action by the
Board of Directors shall require the affirmative vote of at least two-thirds of
the directors then in office at a duly constituted meeting of the Board of
Directors called for such purpose. Such action by the stockholders shall
require the affirmative vote of the holders of at least two-thirds of the
outstanding shares of stock of the Corporation entitled to vote thereon at a
duly constituted meeting of stockholders called for such purpose.
* * * * *
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<PAGE> 1
EXHIBIT 4.1
COMMON STOCK COMMON STOCK
NUMBER SHARES
SA
SUNRISE ASSISTED LIVING
INCORPORATED UNDER THE LAWS SEE REVERSE FOR
OF THE STATE OF DELAWARE CERTAIN DEFINITIONS
CUSIP 86768K 10 6
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, $.01 PAR VALUE, OF
SUNRISE ASSISTED LIVING, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate is not valid unless countersigned and registered by
the Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
[SIG] [SIG]
SECRETARY AND EXECUTIVE VICE PRESIDENT PRESIDENT AND CHIEF EXECUTIVE OFFICER
[SUNRISE ASSISTED LIVING, INC. CORPORATE SEAL 1994 DELAWARE]
COUNTERSIGNED AND REGISTERED:
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
(CHARLOTTE, NC)
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE> 2
SUNRISE ASSISTED LIVING, INC.
THE CORPORATION IS AUTHORIZED TO ISSUE MORE THAN ONE CLASS OR SERIES OF
STOCK. THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS A STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR
SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH
PREFERENCES AND/OR RIGHTS.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as through they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ..................Custodian..................
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act..........................................
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, _________________________________________ hereby sell,
assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
shares
- ------------------------------------------------------------------------
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
- ------------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
-----------------------------------------
---------------------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME
AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
SIGNATURE(S) GUARANTEED:
--------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER HEREOF TO CERTAIN
RIGHTS AS SET FORTH IN A RIGHTS AGREEMENT BETWEEN SUNRISE ASSISTED LIVING, INC.
(THE "CORPORATION") AND FIRST UNION NATIONAL BANK OF NORTH CAROLINA (THE "RIGHTS
AGENT") DATED AS OF APRIL 25, 1996 (THE "RIGHTS AGREEMENT"), THE TERMS OF WHICH
ARE HEREBY INCORPORATED HEREIN BY REFERENCE AND A COPY OF WHICH IS ON FILE AT
THE PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION, UNDER CERTAIN
CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, SUCH RIGHTS WILL BE
EVIDENCED BY SEPARATE CERTIFICATES AND WILL NO LONGER BE EVIDENCED BY THIS
CERTIFICATE. THE CORPORATION WILL MAIL TO THE HOLDER OF THIS CERTIFICATE A COPY
OF THE RIGHTS AGREEMENT AS IN EFFECT ON THE DATE OF MAILING WITHOUT CHARGE
AFTER RECEIPT OF A WRITTEN REQUEST THEREFOR.
UNDER CERTAIN CIRCUMSTANCES SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS
ISSUED TO, OR HELD BY, ANY PERSON WHO IS, WAS OR BECOMES AN ACQUIRING PERSON OR
ANY AFFILIATE OR ASSOCIATE THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
AGREEMENT), WHETHER CURRENTLY HELD BY OR ON BEHALF OF SUCH PERSON OR BY ANY
SUBSEQUENT HOLDER, MAY BECOME NULL AND VOID. THE RIGHTS SHALL NOT BE
EXERCISABLE, AND SHALL BE VOID SO LONG AS HELD, BY A HOLDER IN ANY JURISDICTION
WHERE THE REQUISITE QUALIFICATION OF THE ISSUANCE TO SUCH HOLDER, OR THE
EXERCISE BY SUCH HOLDER, OF THE RIGHTS IN SUCH JURISDICTION SHALL NOT HAVE BEEN
OBTAINED OR BE OBTAINABLE.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, MUTILATED OR
DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO
THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
<PAGE> 1
EXHIBIT 4.2
SUNRISE ASSISTED LIVING, INC.
AND
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
AS RIGHTS AGENT
RIGHTS AGREEMENT
DATED AS OF APRIL 25, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 1. Certain Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Appointment of Rights Agent. . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3. Issue of Rights Certificates. . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4. Form of Rights Certificates. . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 5. Countersignature and Registration. . . . . . . . . . . . . . . . . . . . . . 10
Section 6. Transfer, Split Up, Combination and Exchange of Rights Certificates;
Mutilated, Destroyed, Lost or Stolen Rights Certificates. . . . . . . . . . 10
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights. . . . . . . . 11
Section 8. Cancellation and Destruction of Rights Certificates. . . . . . . . . . . . . 13
Section 9. Reservation and Availability of Capital Stock. . . . . . . . . . . . . . . . 14
Section 10. Preferred Stock Record Date. . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 11. Adjustment of Purchase Price, Number and Kind of Shares or Number of Rights. 16
Section 12. Certificate of Adjusted Purchase Price or Number of Shares. . . . . . . . . 25
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power. . . . 25
Section 14. Fractional Rights and Fractional Shares. . . . . . . . . . . . . . . . . . . 28
Section 15. Rights of Action. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 16. Agreement of Rights Holders. . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 17. Rights Certificate Holder Not Deemed a Stockholder. . . . . . . . . . . . . 31
Section 18. Duties of Rights Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 19. Compensation and Indemnification of the Rights Agent. . . . . . . . . . . . 33
Section 20. Merger or Consolidation or Change of Name of Rights Agent. . . . . . . . . . 34
Section 21. Change of Rights Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 22. Issuance of New Rights Certificates. . . . . . . . . . . . . . . . . . . . . 36
Section 23. Redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 24. Exchange. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 25. Notice of Certain Events. . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 26. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 27. Supplements and Amendments. . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 28. Successors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 29. Determinations and Actions by the Board, etc. . . . . . . . . . . . . . . . 41
Section 30. Benefits of this Agreement. . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 31. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 32. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
Section 33. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 34. Descriptive Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
</TABLE>
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<PAGE> 4
RIGHTS AGREEMENT
Rights Agreement, dated as of April 25, 1996 (the
"Agreement"), between Sunrise Assisted Living, Inc., a Delaware corporation
(the "Company"), and First Union National Bank of North Carolina, a national
banking institution (the "Rights Agent").
WHEREAS, on April 25, 1996 (the "Rights Dividend Declaration
Date"), the Board of Directors of the Company authorized and declared a
dividend of one Right for each share of Common Stock (as hereinafter defined)
of the Company outstanding at the Close of Business (as defined herein) on the
Record Date (as defined herein), and has authorized the issuance of one Right
with respect to each share of Common Stock of the Company issued between the
Record Date (whether originally issued or delivered from the Company's
treasury) and the Distribution Date (as hereinafter defined), each Right
initially representing the right to purchase one one-thousandth of a share of
Series C Junior Participating Preferred Stock of the Company having the rights,
powers and preferences set forth in the form of Certificate of Designation,
Preferences and Rights attached hereto as Exhibit A, upon the terms and subject
to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein set forth, the parties hereby agree as follows:
SECTION 1. CERTAIN DEFINITIONS.
For purposes of this Agreement, the following terms have the
meanings indicated:
(a) "Acquiring Person" shall mean any Person (as such term
is hereinafter defined) who or which, together with all
Affiliates and Associates (as such terms are hereinafter
defined) of such Person, shall be the Beneficial Owner (as such
term is hereinafter defined) of 20% or more of the shares of
Common Stock then outstanding, but shall not include (i) the
Company, (ii) any Subsidiary of the Company, or (iii) any
employee benefit plan of the Company or any Subsidiary of the
Company, or any Person or entity holding shares of Common Stock
for or pursuant to the terms of any such plan to the extent, and
only to the extent, of such shares so held. Notwithstanding the
foregoing, neither Paul J. Klaassens nor Teresa M. Klaassens
(each, together with their Affiliates, Associates and Estates,
an "Exempt Person") each of whom, was, as of April 25, 1996, the
Beneficial Owner of the Company's Common Stock in excess of 20%
of the Company's outstanding Common, shall be deemed as
"Acquiring Person"; provided however, that if after
<PAGE> 5
the date hereof, any Exempt Person shall become at any time the
Beneficial Owner of an additional 2% of the shares of Common
Stock of the Company then outstanding in excess of the amount
beneficially owned as of the date hereof (or if the Company
successfully completes an initial public offering of its shares
of Common Stock pursuant to the registration provisions of the
Securities Act of 1933, as amended, (an "IPO"), an amount in
excess of the amount beneficially owned by an Exempt Person at
the closing of such initial public offering) then such Exempt
Person shall be deemed an "Acquiring Person". Notwithstanding
the foregoing, no Person shall become an "Acquiring Person" as
the result of an acquisition of shares of Common Stock by the
Company which, by reducing the number of shares of Common Stock
outstanding, increases the proportionate number of shares of
Common Stock beneficially owned by such Person to 20% or more of
the shares of Common Stock of the Company then outstanding (or
in the case of an Exempt Person, increases the proportionate
number of shares of Common Stock beneficially owned as of the
date hereof (or the date the Company's closes an IPO); provided,
however, that if a Person shall become the Beneficial Owner of
20% or more of the Common Stock of the Company then outstanding
or in the case of an Exempt Person, increases the proportionate
number of shares of Common Stock beneficially owned as of the
date hereof (or the date the Company closes an IPO) by an
additional 2%) by reason of share purchases by the Company and
shall, after such share purchases by the Company, become the
Beneficial Owner of any additional shares of Common Stock of the
Company, then such Person shall be deemed to be an "Acquiring
Person" if such Person is then the Beneficial Owner of 20% or
more of the Common Stock then outstanding (or in the case of an
Exempt Person, the Beneficial Owner of an additional 2% of the
shares of Common Stock of the Company then outstanding in excess
of the amount beneficially owned by such Exempt Person as of the
date hereof (or the date the Company closes an IPO)).
Notwithstanding the foregoing, if the Board of Directors of the
Company determines in good faith that a Person who would
otherwise be an "Acquiring Person", as defined pursuant to the
foregoing provisions of this paragraph (a), has become such
inadvertently, and such Person divests as promptly as
practicable a sufficient number of shares of Common Stock so
that such Person would no longer be an "Acquiring Person", then
such Person shall not be deemed an "Acquiring Person" for any
purposes of this Agreement unless and until such Person shall
again become an "Acquiring Person".
(b) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General
Rules and
- 2 -
<PAGE> 6
Regulations under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
(c) A Person shall be deemed the "Beneficial Owner" of and
shall be deemed to "beneficially own" any securities:
(i) which such Person or any of such Person's
Affiliates or Associates, directly or indirectly, has
the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant
to any agreement, arrangement or understanding (whether
or not in writing), or upon the exercise of conversion
rights, exchange rights, other rights (other than these
Rights), warrants or options, or otherwise; provided,
however, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own", (A)
securities tendered pursuant to a tender or exchange
offer made by or on behalf of such Person or any of
such Person's Affiliates or Associates until such
tendered securities are accepted for purchase or
exchange; or (B) securities issuable upon exercise of
Rights at any time prior to the occurrence of a
Triggering Event, or (C) securities issuable upon
exercise of Rights from and after the occurrence of a
Triggering Event which Rights were acquired by such
Person or any of such Person's Affiliates or Associates
prior to the Distribution Date or pursuant to Section
3(a) or Section 22 hereof (the "Original Rights") or
pursuant to Section 11(i) hereof in connection with an
adjustment made with respect to any Original Rights;
(ii) which such Person or any of such Person's
Affiliates or Associates, directly or indirectly, has
the right to vote or dispose of or has "beneficial
ownership" of (as determined pursuant to Rule 13d-3 of
the General Rules and Regulations under the Exchange
Act), including pursuant to any agreement, arrangement
or understanding, whether or not in writing; provided,
however, that a Person shall not be deemed the
"Beneficial Owner" of, or to beneficially own, any
security under this subparagraph (ii) as a result of an
agreement, arrangement or understanding to vote such
security if such agreement, arrangement or
understanding: (A) arises solely from a revocable
proxy given in response to a public proxy or consent
solicitation made pursuant to, and in accordance with,
the applicable provisions of the General Rules and
Regulations under the Exchange Act, and (B) is not also
then reportable by such Person on Schedule 13D under
the Exchange Act (or any comparable or successor
report); or
- 3 -
<PAGE> 7
(iii) which are beneficially owned, directly
or indirectly, by any other Person (or any Affiliate or
Associate thereof) with which such Person or any of
such Person's Affiliates or Associates has any
agreement, arrangement or understanding (whether or not
in writing), for the purpose of acquiring, holding,
voting (except pursuant to a revocable proxy as
described in the proviso to subparagraph (ii) of this
paragraph (c)) or disposing of any voting securities of
the Company; provided, however, that nothing in this
paragraph (c) shall cause a person engaged in business
as an underwriter of securities to be the "Beneficial
Owner" of, or to "beneficially own," any securities
acquired through such person's participation in good
faith in a firm commitment underwriting until the
expiration of forty days after the date of such
acquisition.
(d) "Board" shall mean the Board of Directors of the
Company.
(e) "Business Day" shall mean any day other than a
Saturday, Sunday, or a day on which banking institutions in the
State of New York are authorized or obligated by law or
executive order to close.
(f) "Close of Business" on any given date shall mean 5:00
P.M., New York City time, on such date; provided, however, that
if such date is not a Business Day it shall mean 5:00 P.M., New
York City time, on the next succeeding Business Day.
(g) "Common Stock" when used with reference to the Company
shall mean the shares of common stock, par value $.01 per share,
of the Company. "Common Stock" when used with reference to any
Person other than the Company shall mean the class of capital
stock with the greatest aggregate voting power, or the class of
equity securities or other equity interests having power to
control or direct the management, of such Person.
(h) "Company" shall mean Sunrise Assisted Living, Inc., a
Delaware Corporation.
(i) "Continuing Director" shall mean (i) any member of the
Board, while such Person is a member of the Board, who is not an
Acquiring Person, or an Affiliate or Associate of an Acquiring
Person, or a representative of any Acquiring Person or of any
such Affiliate or Associate, and was a member of the Board as of
the date of this Agreement, or (ii) any Person who subsequently
becomes a member of the Board, while such Person is a member of
the Board, who is not an Acquiring Person, or an Affiliate or
Associate of an Acquiring Person, or
- 4 -
<PAGE> 8
a representative of an Acquiring Person or of any such
Affiliate or Associate, if such Person's nomination for
election or election to the Board is recommended or approved
by a majority of the Continuing Directors.
(j) "Distribution Date" shall mean the earlier of (i) the
Close of Business on the tenth day after the Stock Acquisition
Date (or, if the tenth day after the Stock Acquisition Date
occurs before the Record Date, the close of business on the
Record Date), or (ii) the Close of Business on the tenth
Business Day (or, if such tenth Business Day occurs before the
Record Date, the Close of Business on the Record Date), or such
specified or unspecified later date on or after the Record Date
as may be determined by action of a majority of the Continuing
Directors, after the date that a tender or exchange offer by any
Person (other than the Company, any Subsidiary of the Company or
any employee benefit plan of the Company or of any Subsidiary of
the Company or any Person or entity holding shares of Common
Stock for or pursuant to the terms of any such plan) is first
published or sent or given within the meaning of Rule 14d-2(a)
of the General Rules and Regulations under the Exchange Act, if
upon consummation thereof, such Person would be the beneficial
owner of 20% or more of the outstanding shares of Common Stock.
(k) "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended, as in effect on the date of this Agreement.
(l) "Exchange Date" shall have the meaning set forth in
Section 7(a) hereof.
(m) "Expiration Date" shall have the meaning set forth in
Section 7(a) hereof.
(n) "Final Expiration Date" shall have the meaning set
forth in Section 7(a) hereof.
(o) "Outside Directors" shall mean the Continuing Directors
who are not officers of the Company.
(p) "Person" shall mean any individual, firm, corporation,
partnership or other entity, and shall include any successor (by
merger or otherwise) of such entity.
(q) "Preferred Stock" shall mean shares of Series C Junior
Participating Preferred Stock, par value $.01 per share, of the
Company.
- 5 -
<PAGE> 9
(r) "Principal Party" shall have the meaning set forth in
Section 13(b) hereof.
(s) "Purchase Price" shall have the meaning set forth in
Section 4(a) and 11(a)(ii) hereof.
(t) "Record Date" shall mean the close of business on May
15, 1996.
(u) "Redemption Period" shall have the meaning set forth
in Section 23(a) hereof.
(v) "Rights Agent" shall mean First Union National Bank of
North Carolina.
(w) "Rights Certificate" shall have the meaning set forth
in Section 3 hereof.
(x) "Rights Dividend Declaration Date" shall mean the
close of business on April 25, 1996.
(y) "Section 11(a)(ii) Event" shall mean any event
described in Section 11(a)(ii) hereof.
(z) "Section 13 Event" shall mean any event described in
clauses (x), (y) or (z) of Section 13(a) hereof.
(aa) "Securities Act" shall mean the Securities Act of 1933,
as amended, as in effect on the date of this Agreement.
(bb) "Stock Acquisition Date" shall mean the first date of
public announcement (which, for purposes of this definition,
shall include, without limitation, a report filed pursuant to
Section 13(d) of the Exchange Act) by the Company or an
Acquiring Person that an Acquiring Person has become such.
(cc) "Subsidiary" of any Person shall mean any corporation
or other entity of which a majority of the voting power of the
voting equity securities or equity interests is owned, directly
or indirectly, by such Person, or is otherwise controlled by
such Person.
(dd) "Triggering Event" shall mean any Section 11(a)(ii)
Event or any Section 13 Event.
- 6 -
<PAGE> 10
SECTION 2. APPOINTMENT OF RIGHTS AGENT.
The Company hereby appoints the Rights Agent to act as agent
for the Company and the holders of the Rights (who, in accordance with Section
3 hereof, shall prior to the Distribution Date also be the holders of the
Common Stock) in accordance with the terms and conditions hereof, and the
Rights Agent hereby accepts such appointment. The Company may from time to
time appoint such Co-Rights Agents as it may deem necessary or desirable.
SECTION 3. ISSUE OF RIGHTS CERTIFICATES.
(a) As promptly as practicable following the Record Date,
the Company will send a copy of a Summary of Rights to Purchase Preferred
Stock, in substantially the form attached hereto as Exhibit B (the "Summary of
Rights"), by first-class, postage prepaid mail, to each record holder of Common
Stock as of the Close of Business on the Record Date at the address of such
holder shown on the records of the Company. With respect to certificates for
shares of Common Stock outstanding as of the Record Date, until the
Distribution Date, the Rights will be evidenced by such certificates for the
Common Stock and the registered holders of the Common Stock shall also be the
registered holders of the associated Rights. Until the Distribution Date (or
the earlier Expiration Date or Final Expiration Date), the transfer of any
certificate representing shares of Common Stock in respect of which Rights have
been issued shall also constitute the transfer of the Rights associated with
the shares of Common Stock represented thereby.
(b) Rights shall be issued in respect of all shares of
Common Stock issued (whether originally issued or from the Company's treasury)
after the Record Date but prior to the earlier of the Distribution Date or the
Expiration Date or the Final Expiration Date. Rights shall also be issued to
the extent provided in Section 22 in respect of all shares of Common Stock
which are issued (whether originally issued or from the Company's treasury)
after the Distribution Date and prior to the Expiration Date. Certificates
representing such shares of Common Stock shall also be deemed to be
certificates for Rights, and shall bear the following legend (in addition to
any other legends that may be required):
This certificate also evidences and entitles the holder hereof
to certain Rights as set forth in a Rights Agreement between
Sunrise Assisted Living, Inc. (the "Company") and First Union
National Bank of North Carolina (the "Rights Agent") dated as of
April 25, 1996 (the "Rights Agreement"), the terms of which are
hereby incorporated herein by reference and a copy of which is
on file at the principal executive offices of the Company.
Under certain circumstances, as set forth in the Rights
Agreement, such Rights will be evidenced by separate
certificates and will no longer be evidenced by this
certificate. The Company will mail
- 7 -
<PAGE> 11
to the holder of this certificate a copy of the Rights
Agreement as in effect on the date of mailing without charge
after receipt of a written request therefor.
Under certain circumstances set forth in the Rights Agreement,
Rights issued to, or held by, any Person who is, was or becomes
an Acquiring Person or any Affiliate or Associate thereof (as
such terms are defined in the Rights Agreement), whether
currently held by or on behalf of such Person or by any
subsequent holder, may become null and void. The Rights shall
not be exercisable, and shall be void so long as held, by a
holder in any jurisdiction where the requisite qualification of
the issuance to such holder, or the exercise by such holder, of
the Rights in such jurisdiction shall not have been obtained or
be obtainable.
With respect to such certificates containing the foregoing legend, until the
earlier of (i) the Distribution Date or (ii) the Expiration Date, the Rights
associated with the Common Stock represented by such certificates shall be
evidenced by such certificates alone and registered holders of Common Stock
shall also be the registered holders of the associated Rights, and the transfer
of any such certificate shall also constitute the transfer of the Rights
associated with the Common Stock represented thereby.
(c) Until the Distribution Date (i) the Rights will be
evidenced (subject to the provisions of paragraph (a) of this Section 3) by the
certificates for Common Stock registered in the names of the holders thereof
(which certificates for Common Stock shall also be deemed to be Rights
Certificates) and not by separate Rights Certificates, and (ii) the Rights will
be transferable only in connection with the transfer of the underlying shares
of Common Stock (including a transfer to the Company).
(d) As soon as practicable after the Distribution Date, the
Rights Agent will send by first-class, insured, postage prepaid mail, to each
record holder of Common Stock as of the Close of Business on the Distribution
Date, at the address of such holder shown on the records of the Company, a
Rights Certificate, in substantially the form of Exhibit C hereto, evidencing
one Right for each share of Common Stock so held, subject to adjustment as
provided herein. In the event that an adjustment in the number of Rights per
share of Common Stock has been made pursuant to Section 11(p) hereof, at the
time of distribution of the Rights Certificates, the Company shall make
necessary and appropriate rounding adjustments (in accordance with Section
14(a) hereof) so that Rights Certificates representing only whole numbers of
Rights are distributed and cash is paid in lieu of any fractional Rights. As
of and after the Distribution Date, the Rights will be evidenced solely by such
Right Certificates.
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<PAGE> 12
SECTION 4. FORM OF RIGHTS CERTIFICATES.
(a) The Rights Certificates (and the forms of election to
purchase and of assignment to be printed on the reverse thereof) shall be
substantially the same as Exhibit C hereto and may have such marks of
identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange on which the Rights may from time to
time be listed, or to conform to usage. Subject to the provisions of Section
11 and Section 22 hereof, the Rights Certificates, whenever issued, shall be
dated as of the Record Date, and on their face shall entitle the holders
thereof to purchase such number of one one-thousandths of a share of Preferred
Stock as shall be set forth therein at the price set forth therein (such
exercise price per one one-thousandth of a share, the "Purchase Price"), but
the amount and type of securities purchasable upon exercise of each Right and
the Purchase Price thereof shall be subject to adjustment as provided herein.
(b) Any Rights Certificate issued pursuant to Section 3(d)
or Section 22 hereof that represents Rights beneficially owned by: (i) an
Acquiring Person or any Associate or Affiliate of an Acquiring Person; (ii) a
transferee of an Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee after the Acquiring Person becomes such; or (iii) a
transferee of an Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee prior to or concurrently with the Acquiring Person
becoming such and receives such Rights pursuant to either (A) a transfer
(whether or not for consideration) from the Acquiring Person to holders of
equity interests in such Acquiring Person or to any Person with whom such
Acquiring Person has any continuing agreement, arrangement or understanding
regarding the transferred Rights or (B) a transfer which a majority of the
Continuing Directors has determined is part of a plan, arrangement or
understanding which has as a primary purpose or effect avoidance of Section
7(e) hereof, and any Rights Certificate issued pursuant to Section 6 or Section
11 hereof upon transfer, exchange, replacement or adjustment of any other
Rights Certificate referred to in this sentence, shall contain (to the extent
feasible) the following legend:
The Rights represented by this Rights Certificate are or were
beneficially owned by a Person who was or became an Acquiring
Person or an Affiliate or Associate of an Acquiring Person (as
such terms are defined in the Rights Agreement). Accordingly,
this Rights Certificate and the Rights represented hereby may
become null and void in the circumstances specified in Section
7(e) of such Rights Agreement.
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<PAGE> 13
SECTION 5. COUNTERSIGNATURE AND REGISTRATION.
(a) The Rights Certificates shall be executed on behalf of
the Company by its President or a Vice-President either manually or by
facsimile signature, and have affixed thereto the Company's seal or a facsimile
thereof which shall be attested by the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer of the Company, either manually or by
facsimile signature. The Rights Certificates shall be manually countersigned
by the Rights Agent and shall not be valid for any purpose unless so
countersigned. In case any officer of the Company who shall have signed any of
the Rights Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Rights Certificates, nevertheless, may be countersigned by the Rights
Agent, and issued and delivered by the Company with the same force and effect
as though the person who signed such Rights Certificates had not ceased to be
such officer of the Company; and any Rights Certificate may be signed on behalf
of the Company by any person who, at the actual date of the execution of such
Rights Certificate, shall be a proper officer of the Company to sign such
Rights Certificate, although at the date of the execution of this Rights
Agreement any such person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will
keep or cause to be kept, at its principal office or offices designated as the
appropriate place for surrender of Rights Certificates upon exercise or
transfer, books for registration and transfer of the Rights Certificates issued
hereunder. Such books shall show the names and addresses of the respective
holders of the Rights Certificates, the number of Rights evidenced on its face
by each of the Rights Certificates and the date of each of the Rights
Certificates.
SECTION 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHTS
CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN
RIGHTS CERTIFICATES.
(a) Subject to the provisions of Section 4(b), Section 7(e)
and Section 14 hereof, at any time after the close of business on the
Distribution Date, and at or prior to the close of business on the earlier of
the Expiration Date or Final Expiration Date, any Rights Certificate or
Certificates may be transferred, split up, combined or exchanged for another
Rights Certificate or Certificates, entitling the registered holder to purchase
a like number of one one-thousandths of a share of Preferred Stock (or
following a Triggering Event, Common Stock, other securities, cash, or other
assets, as the case may be) as the Rights Certificate or Certificates
surrendered then entitled such holder (or former holder in the case of a
transfer) to purchase. Any registered holder desiring to transfer, split up,
combine or exchange any Rights Certificate shall make such request in writing
delivered to the Rights Agent, and shall surrender the Rights Certificate or
Certificates to be transferred,
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<PAGE> 14
split up, combined or exchanged at the principal office of the Rights Agent.
Neither the Rights Agent nor the Company shall be obligated to take any action
whatsoever with respect to the transfer of any such surrendered Rights
Certificate until the registered holder shall have completed and signed the
certificate contained in the form of assignment on the reverse side of such
Rights Certificate and shall have provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company shall reasonably request. Thereupon the
Rights Agent shall, subject to Section 4(b), Section 7(e) and Section 14
hereof, countersign and deliver to the person entitled thereto a Rights
Certificate or Certificates, as the case may be, as so requested. The Company
may require payment of a sum sufficient to cover any tax or governmental charge
that may be imposed in connection with any transfer, split up, combination or
exchange of Rights Certificates.
(b) Upon receipt by the Company and the Rights Agent of
evidence reasonably satisfactory to them of the loss, theft, destruction or
mutilation of a Rights Certificate, and, in case of loss, theft or destruction,
of indemnity or security reasonably satisfactory to them, and, at the Company's
request, reimbursement to the Company and the Rights Agent of all reasonable
expenses incidental thereto, and upon surrender to the Rights Agent and
cancellation of the Rights Certificate if mutilated, the Company will execute
and deliver a new Rights Certificate of like tenor to the Rights Agent for
countersignature and delivery to the registered owner in lieu of the Rights
Certificate so lost, stolen, destroyed, or mutilated.
SECTION 7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE
OF RIGHTS.
(a) Subject to Section 7(e) hereof, the registered holder
of any Rights Certificate may exercise the Rights evidenced thereby (except as
otherwise provided herein including, without limitation, the restrictions on
exercisability set forth in Section 9(c), Section 11(a)(iii) and Section 23(a)
hereof) in whole or in part at any time after the Distribution Date upon
surrender of the Rights Certificate, with the form of election to purchase and
the certificate on the reverse side thereof duly executed, to the Rights Agent
at the principal office of the Rights Agent, together with payment of the
Purchase Price for each one one-thousandth of a share of Preferred Stock (or
other securities, cash or other assets, as the case may be) as to which the
Rights are exercised, at or prior to the earlier of (i) the close of business
on April 24, 2006 (the "Final Expiration Date"), (ii) the time at which the
Rights are redeemed as provided in Section 23 hereof, (iii) the time at which
such Rights are exchanged (the "Exchange Date") as provided in Section 24
hereof, or (iv) the time at which the Rights expire pursuant to Section 13(d)
hereof (the earliest of (i), (ii), (iii) and (iv) being herein referred to as
the "Expiration Date").
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<PAGE> 15
(b) Each Right shall entitle the registered holder thereof
to purchase one one-thousandth of a share of Preferred Stock, and the Purchase
Price for each one one-thousandth of a share of Preferred Stock pursuant to the
exercise of a Right shall initially be $85.00, and shall be subject to
adjustment from time to time as provided in Sections 11 and 13 hereof and shall
be payable in lawful money of the United States of America in accordance with
paragraph (c) below.
(c) Upon receipt of a Rights Certificate representing
exercisable Rights, with the form of election to purchase and the certificate
duly executed, accompanied by payment, with respect to each Right so exercised,
of the Purchase Price per one one-thousandth of a share of Preferred Stock (or
Common Stock, other securities, cash or other assets, as the case may be) to be
purchased and an amount equal to any applicable transfer tax in cash, or by
certified check, cashier's check or bank draft payable to the order of the
Company, the Rights Agent shall, subject to Section 18(j) hereof, thereupon
promptly (i) (A) requisition from any transfer agent of the shares of Preferred
Stock (or make available, if the Rights Agent is the transfer agent)
certificates for the total number of one one-thousandths of a share of
Preferred Stock to be purchased and the Company hereby irrevocably authorizes
its transfer agent to comply with all such requests, or (B) if the Company
shall have elected to deposit the total number of shares of Preferred Stock
issuable upon exercise of the Rights hereunder with a depositary agent,
requisition from the depositary agent depositary receipts representing such
number of one one-thousandths of a share of Preferred Stock as are to be
purchased (in which case certificates for the shares of Preferred Stock
represented by such receipts shall be deposited by the transfer agent with the
depositary agent) and the Company will direct the depositary to comply with
such request, (ii) requisition from the Company the amount of cash, if any, to
be paid in lieu of issuance of fractional shares in accordance with Section 14,
(iii) promptly after receipt of such certificates or depositary receipts, cause
the same to be delivered to or upon the order of the registered holder of such
Rights Certificate, registered in such name or names as may be designated by
such holder and (iv) after receipt thereof, promptly deliver such cash, if any,
to or upon the order of the registered holder of such Rights Certificate. In
the event that the Company is obligated to issue other securities (including
Common Stock) of the Company, pay cash and/or distribute other property
pursuant to Section 11(a) hereof, the Company will make all arrangements
necessary so that such securities, cash and/or other property are available for
distribution by the Rights Agent, if and when appropriate.
(d) In case the registered holder of any Rights Certificate
shall exercise less than all the Rights evidenced thereby, a new Rights
Certificate evidencing Rights equivalent to the Rights remaining unexercised
shall be issued by the Rights Agent and delivered to, or upon the order of, the
registered holder of such Rights Certificate, registered in such name or names
as may be designated by such holder, subject to the provisions of Section 14
hereof.
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<PAGE> 16
(e) Notwithstanding anything in this Agreement to the
contrary, from and after the first occurrence of a Section 11(a)(ii) Event, any
Rights beneficially owned by (i) an Acquiring Person or an Associate or
Affiliate of an Acquiring Person, which a majority of the Continuing Directors,
in their sole discretion, determines is or was involved in or caused or
facilitated, directly or indirectly (including through any change in the
Board), such Section 11(a)(ii) Event, (ii) a transferee of an Acquiring Person
(or of any such Associate or Affiliate) who becomes a transferee after the
Acquiring Person becomes such, or (iii) a transferee of an Acquiring Person (or
of any such Associate or Affiliate) who becomes a transferee prior to or
concurrently with the Acquiring Person becoming such and receives such Rights
pursuant to either (A) a transfer (whether or not for consideration) from the
Acquiring Person to holders of equity interests in such Acquiring Person or to
any Person with whom such Acquiring Person has any continuing agreement,
arrangement or understanding regarding the transferred Rights or (B) a transfer
which a majority of the Continuing Directors has determined is part of a plan,
arrangement or understanding which has as a primary purpose or effect the
avoidance of this Section 7(e), shall become null and void without any further
action, and no holder of such Rights shall have any rights whatsoever with
respect to such Rights, whether under any provision of this Agreement or
otherwise. The Company shall use all reasonable efforts to ensure that the
provisions of this Section 7(e) and Section 4(b) hereof are complied with, but
shall have no liability to any holder of Rights Certificates or other Person as
a result of its failure to make any determinations with respect to an Acquiring
Person or its Affiliates, Associates or transferees hereunder.
(f) Notwithstanding anything in this Agreement to the
contrary, neither the Rights Agent nor the Company shall be obligated to
undertake any action with respect to a registered holder upon the occurrence of
any purported exercise as set forth in this Section 7 unless such registered
holder shall have (i) completed and signed the certificate contained in the
form of election to purchase set forth on the reverse side of the Rights
Certificate surrendered for such exercise, and (ii) provided such additional
evidence of the identity of the Beneficial Owner (or former Beneficial Owner)
or Affiliates or Associates thereof as the Company shall reasonably request.
SECTION 8. CANCELLATION AND DESTRUCTION OF RIGHTS CERTIFICATES.
All Rights Certificates surrendered for the purpose of
exercise, transfer, split up, combination or exchange shall, if surrendered to
the Company or to any of its agents, be delivered to the Rights Agent for
cancellation or in cancelled form, or, if surrendered to the Rights Agent,
shall be cancelled by it, and no Rights Certificates shall be issued in lieu
thereof except as expressly permitted by any provisions of this Rights
Agreement. The Company shall deliver to the Rights Agent for cancellation and
retirement, and the Rights Agent shall so cancel and
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<PAGE> 17
retire, any other Rights Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
cancelled Rights Certificates to the Company, or shall, at the written request
of the Company, destroy such cancelled Rights Certificates, and in such case
shall deliver a certificate of destruction thereof to the Company.
SECTION 9. RESERVATION AND AVAILABILITY OF CAPITAL STOCK.
(a) The Company covenants and agrees that it will cause to
be reserved and kept available out of its authorized and unissued shares of
Preferred Stock (and following the occurrence of a Triggering Event, out of its
authorized and unissued shares of Common Stock and/or other securities or out
of its authorized and issued shares held in its treasury), the number of shares
of Preferred Stock (and, following the occurrence of a Triggering Event, shares
of Common Stock and/or other securities) that, as provided in this Agreement,
including Section 11(a)(iii) hereof, will be sufficient to permit the exercise
in full of all outstanding Rights.
(b) In the event the shares of Preferred Stock (and,
following the occurrence of a Triggering Event, Common Stock and/or other
securities) issuable upon the exercise of Rights become listed on any national
securities exchange, the Company shall use its best efforts to cause, from and
after such time as the Rights become exercisable, all shares reserved for such
issuance to be listed on such exchange upon official notice of issuance upon
such exercise.
(c) The Company shall use its best efforts to (i) file, as
soon as practicable following the earliest date after the first occurrence of a
Section 11(a)(ii) Event on which the consideration to be delivered by the
Company upon exercise of the Rights has been determined in accordance with this
Agreement, a registration statement under the Securities Act with respect to
the Common Stock or other securities purchasable upon exercise of the Rights on
an appropriate form, (ii) cause such registration statement to become effective
as soon as practicable after such filing, and (iii) cause such registration
statement to remain effective (with a prospectus at all times meeting the
requirements of the Securities Act) until the earlier of (A) the date as of
which the Rights are no longer exercisable for such securities, and (B) the
Expiration Date. The Company will also take such action as may be appropriate
under, or to ensure compliance with, the securities or "blue sky" laws of the
various states in connection with the exercisability of the Rights. The
Company may temporarily suspend, for a period of time not to exceed ninety (90)
days after the date set forth in clause (i) of the first sentence of this
Section 9(c), the exercisability of the Rights in order to prepare and file
such registration statement and permit it to become effective. In addition, if
the Company shall determine that a registration statement is required following
the Distribution Date, the Company may temporarily suspend the exercisability
of the Rights until such time as a
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<PAGE> 18
registration statement has been declared effective. Upon any suspension of
exercisability of Rights referred to in this Section 9(c), the Company shall
issue a public announcement stating that the exercisability of the Rights has
been temporarily suspended, as well as a public announcement at such time as
the suspension is no longer in effect. Notwithstanding any provision of this
Agreement to the contrary, the Rights shall not be exercisable and shall be
void so long as held, by a holder in any jurisdiction where the requisite
qualification to the issuance to such holder, or the exercise by such holder,
of the Rights in such jurisdiction shall not have been obtained or be
obtainable, or the exercise thereof shall not be permitted under applicable law
or a registration statement shall not have been declared effective.
(d) The Company covenants and agrees that it will take all
such action as may be necessary to ensure that all one one-thousandths of a
share of Preferred Stock (and, following the occurrence of a Triggering Event,
Common Stock and/or other securities) delivered upon exercise of Rights shall,
at the time of delivery of the certificates for such shares (subject to payment
of the Purchase Price), be duly and validly authorized and issued and fully
paid and non-assessable.
(e) The Company further covenants and agrees that it will
pay when due and payable any and all federal and state transfer taxes and
charges which may be payable in respect of the issuance or delivery of the
Rights Certificates or of any certificates for a number of one one-thousandths
of a share of Preferred Stock (or Common Stock and/or other securities, as the
case may be) upon the exercise of Rights. The Company shall not, however, be
required to pay any transfer tax which may be payable in respect of any
transfer or delivery of Rights Certificates to a Person other than, or the
issuance or delivery of certificates for a number of one one-thousandths of a
share of Preferred Stock (or Common Stock and/or other securities, as the case
may be) in a name other than that of, the registered holder of the Rights
Certificate evidencing Rights surrendered for exercise or to issue or deliver
any certificates for a number of one one-thousandths of a share of Preferred
Stock (or Common Stock and/or other securities, as the case may be) in a name
other than that of the registered holder upon the exercise of any Rights until
any such tax shall have been paid (any such tax being payable by the holder of
such Rights Certificate at the time of surrender) or until it has been
established to the Company's satisfaction that no such tax is due.
SECTION 10. PREFERRED STOCK RECORD DATE.
Each person in whose name any certificate for a number of one
one-thousandths of a share of Preferred Stock (or Common Stock and/or other
securities, as the case may be) is issued upon the exercise of Rights shall for
all purposes be deemed to have become the holder of record of such fractional
shares of Preferred Stock (or Common Stock and/or other securities, as the case
may be) represented
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<PAGE> 19
thereby on, and such certificate shall be dated, the date upon which the Rights
Certificate evidencing such Rights was duly surrendered and payment of the
Purchase Price (and any applicable transfer taxes) was made; provided, however,
that if the date of such surrender and payment is a date upon which the
Preferred Stock (or Common Stock and/or other securities as the case may be)
transfer books of the Company are closed, such person shall be deemed to have
become the record holder of such shares (fractional or otherwise) on, and such
certificate shall be dated, the next succeeding Business Day on which the
Preferred Stock (or Common Stock and/or other securities as the case may be)
transfer books of the Company are open. Prior to the exercise of the Rights
evidenced thereby, the holder of a Rights Certificate shall not be entitled to
any rights of a stockholder of the Company with respect to shares for which the
Rights shall be exercisable, including, without limitation, the right to vote,
to receive dividends or other distributions or to exercise any preemptive
rights, and shall not be entitled to receive any notice of any proceedings of
the Company, except as provided herein.
SECTION 11. ADJUSTMENT OF PURCHASE PRICE, NUMBER AND KIND OF SHARES
OR NUMBER OF RIGHTS.
The Purchase Price, the number and kind of shares covered by
each Right and the number of Rights outstanding are subject to adjustment from
time to time as provided in this Section 11.
(a)(i) In the event the Company shall at any time after the
date of this Agreement (A) declare a dividend on the Preferred Stock payable in
shares of Preferred Stock, (B) subdivide the outstanding Preferred Stock, (C)
combine the outstanding Preferred Stock into a smaller number of shares or (D)
issue any shares of its capital stock in a reclassification of the Preferred
Stock (including any such reclassification in connection with a consolidation
or merger in which the Company is the continuing or surviving corporation),
except as otherwise provided in this Section 11(a) and Section 7(e) hereof, the
Purchase Price in effect at the time of the record date for such dividend or of
the effective date of such subdivision, combination or reclassification, and
the number and kind of shares of Preferred Stock or the number and kind of
shares of capital stock issuable on such date, as the case may be, shall be
proportionately adjusted so that the holder of any Right exercised after such
time shall be entitled to receive, upon payment of the aggregate adjusted
Purchase Price then in effect necessary to exercise a Right in full, the
aggregate number and kind of shares of Preferred Stock or the number and kind
of shares of capital stock, as the case may be, which, if such Right had been
exercised immediately prior to such date and at a time when the Preferred Stock
(or other capital stock, as the case may be) transfer books of the Company were
open, he would have owned upon such exercise and been entitled to receive by
virtue of such dividend, subdivision, combination, or reclassification. If an
event occurs which would require an adjustment under both this Section 11(a)(i)
and Section 11(a)(ii)
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<PAGE> 20
hereof, the adjustment provided for in this Section 11(a)(i) shall be in
addition to, and shall be made prior to, any adjustment required pursuant to
Section 11(a)(ii) hereof.
(ii) Subject to Sections 23 and 24 of this
Agreement, in the event that any Person (other than the Company, any Subsidiary
of the Company, any employee benefit plan of the Company or of any Subsidiary
of the Company, or any Person or entity organized, appointed or established by
the Company for or pursuant to the terms of any such plan), alone or together
with its Affiliates and Associates, shall, at any time after the Rights
Dividend Declaration Date, become an Acquiring Person, unless the event causing
such Person to become an Acquiring Person is a transaction set forth in Section
13(a) hereof, or is an acquisition of shares of Common Stock pursuant to a cash
tender offer made pursuant to Section 14(d) of the Exchange Act for all
outstanding shares of Common Stock (other than shares of Common Stock
beneficially owned by the person making the offer or by its Affiliates or
Associates) at a price and on terms determined by at least a majority of the
Outside Directors, after receiving advice from one or more investment banking
firms, to be (a) at a price which is fair to stockholders (taking into account
all factors which such members of the Board deem relevant including, without
limitation, prices which could reasonably be achieved if the Company or its
assets were sold on an orderly basis designed to realize maximum value) and (b)
otherwise in the best interests of the Company and its stockholders, proper
provision shall be made so that promptly following the Redemption Period (as
defined in Section 23(a)), each holder of a Right (except as provided below and
in Section 7(e) hereof) shall thereafter have the right to receive, upon
exercise thereof and payment of an amount equal to the then current Purchase
Price in accordance with the terms of this Agreement, in lieu of a number of
one one-thousandths of a share of Preferred Stock, such number of shares of
Common Stock of the Company as shall equal the result obtained by (x)
multiplying the then current Purchase Price by the then number of one
one-thousandths of a share of Preferred Stock for which a Right was or would
have been exercisable immediately prior to the first occurrence of a Section
11(a)(ii) Event, whether or not such Right was then exercisable, and (y)
dividing that product (which, following such first occurrence, shall thereafter
be referred to as the "Purchase Price" for each Right and for all purposes of
this Agreement except to the extent set forth in Section 13 thereof) by 50% of
the current market price per share of Common Stock (determined pursuant to
Section 11(d) hereof) on the date of such first occurrence (such number of
shares, the "Adjustment Shares").
(iii) The Company may at its option substitute for a
share of Common Stock issuable upon the exercise of Rights in accordance with
the foregoing subparagraph (ii) such number or fractions of shares of Preferred
Stock having an aggregate market value equal to the current per share market
price of a share of Common Stock. In the event that the number of shares of
Common Stock which is authorized by the Company's Amended and Restated
Certificate of
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<PAGE> 21
Incorporation but not outstanding, or reserved for issuance for purposes other
than upon exercise of the Rights, is not sufficient to permit the exercise in
full of the Rights in accordance with the foregoing subparagraph (ii), the
Board shall (acting by at least a majority of the Continuing Directors), to the
extent permitted by applicable law and by material agreements then in effect to
which the Company is a party, (A) determine the excess of (1) the value of the
Adjustment Shares issuable upon the exercise of a Right (the "Current Value")
over (2) the Purchase Price (such excess, the "Spread"), and (B) with respect
to each Right (subject to Section 7(e) hereof), make adequate provision to
substitute for some or all of the Adjustment Shares, upon exercise of a Right
and payment of the applicable Purchase Price, (1) cash, (2) a reduction in the
Purchase Price, (3) Common Stock or other equity securities of the Company
(including, without limitation, shares, or units of shares, of Preferred Stock
which the Board has deemed to have the same value as shares of Common Stock)
(such shares of equity securities being herein called "common stock
equivalents"), (4) debt securities of the Company, (5) other assets, or (6) any
combination of the foregoing, having an aggregate value equal to the Current
Value, where such aggregate value has been determined by the Board based upon
the advice of an investment banking firm selected by the Board; provided,
however, if the Company shall not have made adequate provision to deliver value
pursuant to clause (B) above within thirty (30) days following the later of (x)
the first occurrence of a Section 11(a)(ii) Event and (y) the date on which the
Company's right of redemption pursuant to Section 23(a) expires (the later of
(x) and (y) being referred to herein as the "Section 11(a)(ii) Trigger Date"),
then the Company shall be obligated to deliver, upon the surrender for exercise
of a Right and without requiring payment of the Purchase Price, shares of
Common Stock (to the extent available) and then, if necessary, cash, which
shares and/or cash have an aggregate value equal to the Spread. If, upon the
occurrence of a Section 11(a)(ii) Event, the Board shall determine in good
faith that it is likely that sufficient additional shares of Common Stock could
be authorized for issuance upon exercise in full of the Rights, then if the
Board so elects, the thirty (30) day period set forth above may be extended to
the extent necessary, but not more than ninety (90) days after the Section
11(a)(ii) Trigger Date, in order that the Company may seek stockholder approval
for the authorization of such additional shares (such period, as it may be
extended, the "Substitution Period"). To the extent that action is to be taken
pursuant to the preceding provisions of this Section 11(a)(iii), the Company
(x) shall provide, subject to Section 7(e) hereof, that such action shall apply
uniformly to all outstanding Rights, and (y) may suspend the exercisability of
the Rights until the expiration of the Substitution Period in order to seek any
authorization of additional shares and/or to decide the appropriate form of
distribution to be made pursuant to the first sentence of this Section
11(a)(iii) and to determine the value thereof. In the event of any such
suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a
public announcement at such time as the suspension is no longer in effect. For
purposes of this Section 11(a)(iii), the value of the Common Stock shall be the
current market price (as determined pursuant to Section 11(d)
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<PAGE> 22
hereof) per share of the Common Stock on the Section 11(a)(ii) Trigger Date and
the value of any "common stock equivalent" shall be deemed to have the same
value as the Common Stock on such date. The Board may, but shall not be
required to, establish procedures to allocate the right to receive shares of
Common Stock upon the exercise of the Rights among holders of Rights pursuant
to this Section 11(a)(iii).
(b) In case the Company shall fix a record date for the
issuance of rights, options or warrants to all holders of Preferred Stock
entitling them (for a period expiring within forty-five (45) calendar days
after such record date) to subscribe for or purchase Preferred Stock (or shares
having the same rights, privileges and preferences as the shares of Preferred
Stock ("equivalent preferred stock") or securities convertible into Preferred
Stock at a price per share of Preferred Stock or per share of "equivalent
preferred stock" (or having a conversion price per share of Preferred Stock, if
a security convertible into Preferred Stock) less than the current per share
market price of the Preferred Stock (as defined in Section 11(d)) on such
record date, the Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect immediately prior to
such record date by a fraction, the numerator of which shall be the number of
shares of Preferred Stock outstanding on such record date, plus the number of
shares of Preferred Stock which the aggregate offering price of the total
number of shares of Preferred Stock and/or equivalent preferred stock so to be
offered (and/or the aggregate initial conversion price of the convertible
securities so to be offered) would purchase at such current market price, and
the denominator of which shall be the number of shares of Preferred Stock
outstanding on such record date, plus the number of additional shares of
Preferred Stock and/or equivalent preferred stock to be offered for
subscription or purchase (or into which the convertible securities so to be
offered are initially convertible). In case such subscription price may be
paid in a consideration part or all of which shall be in a form other than
cash, the value of such consideration shall be as determined in good faith by
the Board, whose determination shall be described in a statement filed with the
Rights Agent and shall be conclusive for all purposes. Shares of Preferred
Stock owned by or held for the account of the Company shall not be deemed
outstanding for the purpose of any such computation. Such adjustment shall be
made successively whenever such a record date is fixed; and in the event that
such rights or warrants are not so issued, the Purchase Price shall be adjusted
to be the Purchase Price which would then be in effect if such record date had
not been fixed.
(c) In case the Company shall fix a record date for a
distribution to all holders of Preferred Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing or surviving corporation) of evidences of indebtedness, cash (other
than a regular quarterly cash dividend out of the earnings or retained earnings
of the Company), assets (other than a dividend payable in Preferred Stock, but
including any dividend payable in stock other than Preferred Stock), or
subscription rights or warrants (excluding
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<PAGE> 23
those referred to in Section 11(b)), the Purchase Price to be in effect after
such record date shall be determined by multiplying the Purchase Price in
effect immediately prior to such record date by a fraction, the numerator of
which shall be the current per share market price of the Preferred Stock (as
defined in Section 11(d)) on such record date, less the fair market value (as
determined in good faith by the Board, whose determination shall be described
in a statement filed with the Rights Agent and shall be conclusive for all
purposes) of the portion of the cash, assets or evidences of indebtedness so to
be distributed or of such subscription rights or warrants applicable to a share
of Preferred Stock and the denominator of which shall be such current per share
market price of the Preferred Stock. Such adjustment shall be made
successively whenever such a record date is fixed; and in the event that such
distribution is not so made, the Purchase Price shall again be adjusted to be
the Purchase Price which would then be in effect if such record date had not
been fixed.
(d) (i) For the purpose of any computation hereunder, the
"current market price" of the Common Stock on any date shall be deemed to be
the average of the daily closing prices per share of such Common Stock for the
30 consecutive Trading Days (as such term is hereinafter defined) immediately
prior to such date, and for purposes of computations made pursuant to Section
11(a)(iii) hereof, the "current market price" per share of Common Stock on any
date shall be deemed to be the average of the daily closing prices per share of
Common Stock for the ten (10) consecutive Trading Days immediately following
such date; provided, however, that in the event that the current market price
of the Common Stock is determined during a period following the announcement by
the issuer of such Common Stock of (i) a dividend or distribution on such
Common Stock payable in shares of such Common Stock or securities convertible
into such Common Stock (other than the Rights), or (ii) any subdivision,
combination or reclassification of such Common Stock, and prior to the
expiration of the requisite thirty (30) Trading Day or ten (10) Trading Day
period, as set forth above, after the ex-dividend date for such dividend or
distribution, or the record date for such subdivision, combination or
reclassification, then, and in each such case, the "current market price" shall
be appropriately adjusted to take into account ex-dividend trading. The
closing price for each day shall be the last sale price, regular way, or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange or, if the shares of Common
Stock are not listed or admitted to trading on the New York Stock Exchange, as
reported in the principal consolidated transaction reporting system with
respect to securities listed on the principal national securities exchange on
which the shares of Common Stock are listed or admitted to trading or, if the
shares of Common Stock are not listed or admitted to trading on any national
securities exchange, the last quoted price or, if not so quoted, the average of
the high bid and low asked prices in the over-the-counter market, as reported
by the National Association of Securities Dealers, Inc. Automated Quotations
System
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<PAGE> 24
("NASDAQ") or such other system then in use, or, if on any such date the shares
of Common Stock are not quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional market maker making
a market in the shares of Common Stock selected by the Board. If on any such
date no market maker is making a market in the Common Stock, the fair value of
such shares on such date as determined in good faith by the Board shall be
used. The term "Trading Day" shall mean a day on which the principal national
securities exchange on which the shares of Common Stock are listed or admitted
to trading is open for the transaction of business, or, if the shares of Common
Stock are not listed or admitted to trading on any national securities
exchange, the term "Trading Day" shall mean a Monday, Tuesday, Wednesday,
Thursday or Friday on which banking institutions in the State of New York are
not authorized or obligated by law or executive order to close. If the Common
Stock is not publicly held or not listed or traded, "current market price"
shall mean the fair value per share as determined in good faith by the Board,
whose determination shall be described in a statement filed with the Rights
Agent and shall be conclusive for all purposes.
(ii) For the purpose of any computation hereunder,
the "current market price" per share of Preferred Stock shall be determined in
the same manner as set forth above for the Common Stock in clause (i) of this
Section 11(d) (other than the last sentence thereof). If the current market
price per share of Preferred Stock cannot be determined in the manner provided
above or if the Preferred Stock is not publicly held or listed or traded in a
manner described in clause (i) of this Section 11(d), the "current market
price" per share of Preferred Stock shall be conclusively deemed to be an
amount equal to 1,000 (as such number may be appropriately adjusted for such
events as stock splits, stock dividends and recapitalizations with respect to
the Common Stock occurring after the date of this Agreement) multiplied by the
current market price per share of the Common Stock. If neither the Common
Stock nor the Preferred Stock is publicly held or so listed or traded, "current
market price" per share of the Preferred Stock shall mean the fair value per
share as determined in good faith by the Board, whose determination shall be
described in a statement filed with the Rights Agent and shall be conclusive
for all purposes. For all purposes of this Agreement, the "current market
price" of one one-thousandth of a share of Preferred Stock shall be equal to
the "current market price" of one share of Preferred Stock divided by 1,000.
(e) Anything herein to the contrary notwithstanding, no
adjustment in the Purchase Price shall be required unless such adjustment would
require an increase or decrease of at least one percent (1%) in such price;
provided, however, that any adjustments which by reason of this Section 11(e)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Section 11 shall be
made to the nearest cent or to the nearest ten-thousandth of a share of Common
Stock or other share or one-millionth of a share of Preferred Stock, as the
case may be. Notwithstanding the first sentence of this Section 11(e), an
adjustment required by this Section 11
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<PAGE> 25
shall be made no later than the earlier of (i) three years from the date of the
transaction which requires such adjustment or (ii) the Expiration Date.
(f) If as a result of an adjustment made pursuant to
Section 11(a)(ii) or Section 13(a) hereof, the holder of any Right thereafter
exercised shall become entitled to receive any shares of capital stock of the
Company other than Preferred Stock, thereafter the number of such other shares
so receivable upon exercise of any Right and the Purchase Price thereof shall
be subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Preferred Stock
contained in Sections 11(a), (b), (c), (e), (g), (h), (i), (j), (k) and (m),
and the provisions of Sections 7, 9, 10, 13 and 14 hereof with respect to the
Preferred Stock shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent
to any adjustment made to the Purchase Price hereunder shall evidence the right
to purchase, at the adjusted Purchase Price, the number of one one-thousandths
of a share of Preferred Stock purchasable from time to time hereunder upon
exercise of the Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as
provided in Section 11(i), upon each adjustment of the Purchase Price as a
result of the calculations made in Sections 11(b) and (c), each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number of
one one-thousandths of a share of Preferred Stock (calculated to the nearest
one-millionth) obtained by (i) multiplying (x) the number of one
one-thousandths of a share covered by a Right immediately prior to this
adjustment by (y) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price and (ii) dividing the product so obtained by
the Purchase Price in effect immediately after such adjustment of the Purchase
Price.
(i) The Company may elect on or after the date of any
adjustment of the Purchase Price to adjust the number of Rights, in lieu of any
adjustment in the number of one one-thousandths of a share of Preferred Stock
issuable upon the exercise of a Right. Each of the Rights outstanding after
such adjustment of the number of Rights shall be exercisable for the number of
one one-thousandths of a share of Preferred Stock for which a Right was
exercisable immediately prior to such adjustment. Each Right held of record
prior to such adjustment of the number of Rights shall become that number of
Rights (calculated to the nearest ten-thousandth) obtained by dividing the
Purchase Price in effect immediately prior to adjustment of the Purchase Price
by the Purchase Price in effect immediately after adjustment of the Purchase
Price. The Company shall make a public announcement of its election to adjust
the number of Rights, indicating the record date for the adjustment, and, if
known at the time, the amount of the adjustment to be made. This record date
may be the date on which the Purchase Price is adjusted
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<PAGE> 26
or any day thereafter, but, if the Rights Certificates have been issued, shall
be at least ten (10) days later than the date of the public announcement. If
Rights Certificates have been issued, upon each adjustment of the number of
Rights pursuant to this Section 11(i), the Company shall, as promptly as
practicable, cause to be distributed to holders of record of Rights
Certificates on such record date Rights Certificates evidencing, subject to
Section 14 hereof, the additional Rights to which such holders shall be
entitled as a result of such adjustment, or, at the option of the Company,
shall cause to be distributed to such holders of record in substitution and
replacement for the Rights Certificates held by such holders prior to the date
of adjustment, and upon surrender thereof, if required by the Company, new
Rights Certificates evidencing all the Rights to which such holders shall be
entitled after such adjustment. Rights Certificates so to be distributed shall
be issued, executed and countersigned in the manner provided for herein (and
may bear, at the option of the Company, the adjusted Purchase Price) and shall
be registered in the names of the holders of record of Rights Certificates on
the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the
Purchase Price or the number of one one-thousandths of a share of Preferred
Stock issuable upon the exercise of the Rights, the Rights Certificates
theretofore and thereafter issued may continue to express the Purchase Price
per one one-thousandth of a share and the number of one one-thousandths of a
share which were expressed in the initial Rights Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment
reducing the Purchase Price below the then-par value, if any, of the number of
one one-thousandths of a share of Preferred Stock issuable upon exercise of the
Rights, the Company shall take any corporate action which may, in the opinion
of its counsel, be necessary in order that the Company may validly and legally
issue fully paid and non-assessable such number of one one-thousandths of a
share of Preferred Stock at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that
an adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuance to the holder of any Right exercised after such record date
the number of one one-thousandths of a share of Preferred Stock and other
capital stock or securities of the Company, if any, issuable upon such exercise
over and above the number of one one-thousandths of a share of Preferred Stock
and other capital stock or securities of the Company, if any, issuable upon
such exercise on the basis of the Purchase Price in effect prior to such
adjustment; provided, however, that the Company shall deliver to such holder a
due bill or other appropriate instrument evidencing such holder's right to
receive such additional shares upon the occurrence of the event requiring such
adjustment.
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<PAGE> 27
(m) Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such reductions in the
Purchase Price, in addition to those adjustments expressly required by this
Section 11, as and to the extent that it in its sole discretion shall determine
to be advisable in order that any (i) consolidation or subdivision of the
Preferred Stock, (ii) issuance wholly for cash of any shares of Preferred Stock
at less than the current market price, (iii) issuance wholly for cash of shares
of Preferred Stock or securities which by their terms are convertible into or
exchangeable for Preferred Stock, (iv) stock dividends or (v) issuance of
rights, options or warrants referred to hereinabove in this Section 11,
hereafter made by the Company to holders of its Preferred Stock shall not be
taxable to such stockholders.
(n) The Company covenants and agrees that it shall not, at
any time after the Distribution Date, (i) consolidate with any other Person
(other than a Subsidiary of the Company in a transaction which complies with
Section 11(o) hereof), (ii) merge with or into any other Person (other than a
Subsidiary of the Company in a transaction which complies with Section 11(o)
hereof), or (iii) sell or transfer (or permit any Subsidiary to sell or
transfer), in one transaction, or a series of related transactions, assets or
earning power aggregating more than 50% of the assets or earning power of the
Company and its Subsidiaries (taken as a whole) to any other Person or Persons
(other than the Company and/or any of its Subsidiaries in one or more
transactions each of which complies with Section 11(o) hereof), if (x) at the
time of or immediately after such consolidation, merger or sale there are any
rights, warrants or other instruments or securities outstanding or agreements
in effect which would substantially diminish or otherwise eliminate the
benefits intended to be afforded by the Rights or (y) prior to, simultaneously
with or immediately after such consolidation, merger or sale, the stockholders
of the Person who constitutes, or would constitute, the "Principal Party" for
purposes of Section 13(a) hereof shall have received a distribution of Rights
previously owned by such Person or any of its Affiliates and Associates.
(o) The Company covenants and agrees that, after the
Distribution Date, it will not, except as permitted by Section 23 or Section 27
hereof, take (or permit any Subsidiary to take) any action if at the time such
action is taken it is reasonably foreseeable that such action will diminish
substantially or otherwise eliminate the benefits intended to be afforded by
the Rights.
(p) Anything in this Agreement to the contrary
notwithstanding, in the event that the Company shall at any time after the
Rights Dividend Declaration Date and prior to the Distribution Date (i) declare
a dividend on the outstanding shares of Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding shares of Common Stock, or (iii)
combine the outstanding shares of Common Stock into a smaller number of shares,
the number of Rights associated with each share of Common Stock then
outstanding, or issued or delivered thereafter but prior to the Distribution
Date, shall be proportionately adjusted so
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<PAGE> 28
that the number of Rights thereafter associated with each share of Common Stock
following any such event shall equal the result obtained by multiplying the
number of Rights associated with each share of Common Stock immediately prior
to such event by a fraction the numerator of which shall be the total number of
shares of Common Stock outstanding immediately prior to the occurrence of the
event and the denominator of which shall be the total number of shares of
Common Stock outstanding immediately following the occurrence of such event.
SECTION 12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF
SHARES.
Whenever an adjustment is made as provided in Sections 11 and
13 hereof, the Company shall (a) promptly prepare a certificate setting forth
such adjustment, and a brief statement of the facts accounting for such
adjustment, (b) promptly file with the Rights Agent and with each transfer
agent for the Preferred Stock and the Common Stock a copy of such certificate
and (c) mail a brief summary thereof to each holder of a Rights Certificate
(or, if prior to the Distribution Date, to each holder of a certificate
representing shares of Common Stock) in accordance with Section 25 hereof. The
Rights Agent shall be fully protected in relying on any such certificate and on
any adjustment therein contained and shall not be deemed to have knowledge of
any adjustment unless and until it shall have received such certificate.
SECTION 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR
EARNING POWER.
(a) Subject to Section 23 of this Agreement, in the event
that, following the Stock Acquisition Date, directly or indirectly, (x) the
Company shall consolidate with, or merge with and into, any other Person (other
than a Subsidiary of the Company in a transaction which complies with Section
11(o) hereof), and the Company shall not be the continuing or surviving
corporation of such consolidation or merger, (y) any Person (other than a
Subsidiary of the Company in a transaction which complies with Section 11(o)
hereof) shall consolidate with, or merge with or into, the Company, and the
Company shall be the continuing or surviving corporation of such consolidation
or merger and, in connection with such consolidation or merger, all or part of
the outstanding shares of Common Stock shall be changed into or exchanged for
stock or other securities of any other Person or cash or any other property, or
(z) the Company shall sell or otherwise transfer (or one or more of its
Subsidiaries shall sell or otherwise transfer), in one transaction or a series
of related transactions, assets or earning power aggregating more than 50% of
the assets or earning power of the Company and its Subsidiaries (taken as a
whole) to any Person or Persons (other than the Company or any Subsidiary of
the Company in one or more transactions each of which complies with Section
11(o) hereof), then, and in each such case (except as may be contemplated by
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<PAGE> 29
Section 13(d) hereof), proper provision shall be made so that: (i) each holder
of a Right, except as provided in Section 7(e) hereof, shall, upon the
expiration of the Redemption Period (as defined in Section 23(a)), thereafter
have the right to receive, upon the exercise thereof at the then current
Purchase Price in accordance with the terms of this Agreement, such number of
validly authorized and issued, fully paid, non-assessable and freely tradable
shares of Common Stock of the Principal Party (as such term is hereinafter
defined), not subject to any liens, encumbrances, rights of first refusal or
other adverse claims, as shall be equal to the result obtained by (1)
multiplying the then current Purchase Price by the number of one
one-thousandths of a share of Preferred Stock for which a Right was exercisable
immediately prior to the first occurrence of a Section 13 Event (or, if a
Section 11(a)(ii) Event has occurred prior to the first occurrence of a Section
13 Event, multiplying the number of one one-thousandths of a share of Preferred
Stock for which a Right was exercisable immediately prior to the first
occurrence of a Section 11(a)(ii) Event by the Purchase Price in effect
immediately prior to such first occurrence), and (2) dividing that product
(which product, following the first occurrence of a Section 13 Event, shall be
referred to as the "Purchase Price" for each Right and for all purposes of this
Agreement) by 50% of the current market price per share of the shares of Common
Stock of such Principal Party on the date of consummation of such Section 13
Event (or the fair market value on such date or other securities or property of
the Principal Party, as provided for herein); (ii) such Principal Party shall
thereafter be liable for, and shall assume, by virtue of such Section 13 Event,
all the obligations and duties of the Company pursuant to this Agreement; (iii)
the term "Company" shall thereafter be deemed to refer to such Principal Party,
it being specifically intended that the provisions of Section 11 hereof (other
than Sections 11(a)(ii) and 11(a)(iii)) shall apply only to such Principal
Party following the first occurrence of a Section 13 Event; (iv) such Principal
Party shall take such steps (including, but not limited to, the reservation of
a sufficient number of shares of its Common Stock) in connection with the
consummation of any such transaction as may be necessary to assure that the
provisions hereof shall thereafter be applicable, as nearly as reasonably may
be, in relation to its shares of Common Stock thereafter deliverable upon the
exercise of the Rights; and (v) the provisions of Section 11(a)(ii) and Section
11(a)(iii) hereof shall be of no effect following the first occurrence of any
Section 13 Event.
(b) "Principal Party" shall mean
(i) in the case of any transaction described in clause
(x) or (y) of the first sentence of Section 13(a), the Person
that is the issuer of any securities into which shares of Common
Stock of the Company are converted in such merger or
consolidation, and if no securities are so issued, the Person
that is the other party to such merger or consolidation; and
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<PAGE> 30
(ii) in the case of any transaction described in
clause (z) of the first sentence of Section 13(a), the Person
that is the party receiving the greatest portion of the assets
or earning power transferred pursuant to such transaction or
transactions; provided, however, that in any such case, (1) if
the Common Stock of such Person is not at such time and has not
been continuously over the preceding twelve (12) month period
registered under Section 12 of the Exchange Act, and such Person
is a direct or indirect Subsidiary of another Person the Common
Stock of which is and has been so registered, "Principal Party"
shall refer to such other Person; and (2) in case such Person is
a Subsidiary, directly or indirectly, of more than one Person,
the Common Stocks of two or more of which are and have been so
registered, "Principal Party" shall refer to whichever of such
Persons is the issuer of the Common Stock having the greatest
aggregate market value.
(c) The Company shall not consummate any Section 13 Event
unless the Principal Party shall have a sufficient number of authorized shares
of its Common Stock which have not been issued or reserved for issuance to
permit the exercise in full of the Rights in accordance with this Section 13
and unless prior thereto the Company and such Principal Party shall have
executed and delivered to the Rights Agent a supplemental agreement providing
for the terms set forth in paragraphs (a) and (b) of this Section 13 and
further providing that, as soon as practicable after the date of any such
Section 13 Event, the Principal Party will:
(i) prepare and file a registration statement under
the Securities Act, with respect to the Rights and the
securities purchasable upon exercise of the Rights on an
appropriate form, and will use its best efforts to cause such
registration statement to (A) become effective as soon as
practicable after such filing and (B) remain effective (with a
prospectus at all times meeting the requirements of the Act)
until the Expiration Date; and
(ii) will deliver to holders of the Rights historical
financial statements for the Principal Party and each of its
Affiliates which comply in all respects with the requirements
for registration on Form 10 under the Exchange Act.
The provisions of this Section 13 shall similarly apply to successive mergers
or consolidations or sales or other transfers. In the event that a Section 13
Event shall occur at any time after the occurrence of a Section 11(a)(ii)
Event, the Rights which have not theretofore been exercised shall thereafter
become exercisable in the manner described in Section 13(a) hereof.
(d) Notwithstanding anything in this Agreement to the
contrary, Section 13 shall not be applicable to a transaction described in
subparagraphs (x)
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<PAGE> 31
and (y) of Section 13(a) if (i) such transaction is consummated with a Person
or Persons (or a wholly owned subsidiary of any such Person or Persons) who
acquired shares of Common Stock pursuant to a cash tender offer for all
outstanding shares of Common Stock which complies with the provisions of
Section 11(a)(ii) hereof, (ii) the price per share of Common Stock offered in
such transaction is not less than the price per share of Common Stock paid to
all holders of Common Stock whose shares were purchased pursuant to such cash
tender offer and (iii) the form of consideration being offered to the remaining
holders of shares of Common Stock pursuant to such transaction is the same as
the form of consideration paid pursuant to such cash tender offer. Upon
consummation of any such transaction contemplated by this Section 13(d), all
Rights hereunder shall expire.
SECTION 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES.
(a) The Company shall not be required to issue fractions of
Rights except prior to the Distribution Date as provided in Section 11(p)
hereof, or to distribute Rights Certificates which evidence fractional Rights.
In lieu of such fractional Rights, there shall be paid to the registered
holders of the Rights Certificates with regard to which such fractional Rights
would otherwise be issuable, an amount in cash equal to the same fraction of
the current market value of the whole Right. For the purposes of this Section
14(a), the current market value of a whole Right shall be the closing price of
the Rights for the Trading Day immediately prior to the date on which such
fractional Rights would have been otherwise issuable. The closing price for
any day shall be the last sale price, or, in case no such sale takes place on
such day, the average of the high bid and low asked prices, in either case as
reported by NASDAQ or such other system then in use or, if on any such date the
Rights are not quoted by any such organization, the average of the closing bid
and asked prices as furnished by a professional market maker making a market in
the Rights selected by the Board. If on any such date no such market maker is
making a market in the Rights the fair value of the Rights on such date as
determined in good faith by the Board shall be used. In the event the Rights
are listed or admitted to trading on a national securities exchange, the
closing price for any day shall be the last sale price, regular way, or, in
case no such sale takes place on such day, the average of the high bid and low
asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to the national
securities exchange on which the Rights are listed or admitted to trading.
(b) The Company shall not be required to issue fractions of
shares of Preferred Stock (other than fractions which are integral multiples of
one one-thousandth of a share of Preferred Stock) upon exercise of the Rights
or to distribute certificates which evidence fractional shares of Preferred
Stock (other than fractions which are integral multiples of one one-thousandth
of a share of Preferred Stock). In lieu of fractional shares of Preferred
Stock that are not integral
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<PAGE> 32
multiples of one one-thousandth of a share of Preferred Stock, the Company may
pay to the registered holders of Rights Certificates at the time such Rights
are exercised as herein provided an amount in cash equal to the same fraction
of the current market value of one one-thousandth of a share of Preferred
Stock. For purposes of this Section 14(b), the current market value of one
one-thousandth of a share of Preferred Stock shall be one one-thousandth of the
closing price of a share of Preferred Stock (as determined pursuant to Section
11(d)(ii) hereof) for the Trading Day immediately prior to the date of such
exercise.
(c) Following the occurrence of one of the events specified
in Section 11 giving rise to the right to receive Common Stock, common stock
equivalents or other securities upon the exercise of a Right, the Company shall
not be required to issue fractions of shares of Common Stock, common stock
equivalents or other securities upon exercise of the Rights or to distribute
certificates which evidence fractional shares of Common Stock, common stock
equivalents or other securities. In lieu of fractional shares of Common Stock,
common stock equivalents or other securities the Company may pay to the
registered holders of Rights Certificates at the time such Rights are exercised
as herein provided an amount in cash equal to the same fraction of the current
market value of one (1) share of Common Stock, common stock equivalents or
other securities. For purposes of this Section 14(c), the current market value
of one share of Common Stock shall be the closing price of one share of Common
Stock (as determined pursuant to Section 11(d)(i) hereof) for the Trading Day
immediately prior to the date of such exercise.
(d) The holder of a Right by the acceptance of the Rights
expressly waives his right to receive any fractional Rights or any fractional
shares upon exercise of a Right, except as permitted by this Section 14.
SECTION 15. RIGHTS OF ACTION.
All rights of action in respect of this Agreement, except the
rights of action vested in the Rights Agent pursuant to Section 18 and Section
20 hereof, are vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered holders of
the Common Stock); and any registered holder of any Rights Certificate (or,
prior to the Distribution Date, of the Common Stock), without the consent of
the Rights Agent or of the holder of any other Rights Certificate (or, prior to
the Distribution Date, of the Common Stock), may, in his own behalf and for his
own benefit, enforce, and may institute and maintain any suit, action or
proceeding against the Company to enforce, or otherwise act in respect of, his
right to exercise the Rights evidenced by such Rights Certificate in the manner
provided in such Rights Certificate and in this Agreement. Without limiting
the foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have
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<PAGE> 33
an adequate remedy at law for any breach of this Agreement and will be entitled
to specific performance of the obligations under, and injunctive relief against
actual or threatened violations of, the obligations hereunder of any Person
subject to this Agreement.
SECTION 16. AGREEMENT OF RIGHTS HOLDERS.
Every holder of a Right by accepting the same consents and
agrees with the Company and the Rights Agent and with every other holder of a
Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of the Common Stock;
(b) after the Distribution Date, the Rights Certificates
are transferable only on the registry books of the Rights Agent if surrendered
at the principal office of the Rights Agent, duly endorsed or accompanied by a
proper instrument of transfer and with the appropriate form of assignment and
the certificate contained therein duly completed and executed;
(c) subject to Section 6(a) and Section 7(f) hereof, the
Company and the Rights Agent may deem and treat the person in whose name the
Rights Certificate (or, prior to the Distribution Date, the associated Common
Stock certificate) is registered as the absolute owner thereof and of the
Rights evidenced thereby (notwithstanding any notations of ownership or writing
on the Rights Certificates or the associated Common Stock certificate made by
anyone other than the Company or the Rights Agent) for all purposes whatsoever,
and neither the Company nor the Rights Agent, subject to the last sentence of
Section 7(e) hereof, shall be affected by any notice to the contrary; and
(d) Notwithstanding anything in this Agreement to the
contrary, neither the Company nor the Rights Agent shall have any liability to
any holder of a Right or other Person as a result of its inability to perform
any of its obligations under this Agreement by reason of any preliminary or
permanent injunction or other order, decree or ruling issued by a court of
competent jurisdiction or by a governmental, regulatory or administrative
agency or commission, or any statute, rule, regulation or executive order
promulgated or enacted by any government authority, prohibiting or otherwise
restraining performance of such obligation; provided, however, the Company must
use its best efforts to have any such order, decree or ruling lifted or
otherwise overturned as soon as possible.
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<PAGE> 34
SECTION 17. RIGHTS CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER.
No holder, as such, of any Rights Certificate shall be
entitled to vote, receive dividends or be deemed for any purpose the holder of
the Preferred Stock or any other securities of the Company which may at any
time be issuable on the exercise of the Rights represented thereby, nor shall
anything contained herein or in any Rights Certificate be construed to confer
upon the holder of any Rights Certificate, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors
or upon any matter submitted to stockholders at any meeting thereof, or to give
or withhold consent to any corporate action, or to receive notice of meetings
or other actions affecting stockholders (except as provided in Section 25
hereof), or to receive dividends or subscription rights, or otherwise, until
the Right or Rights evidenced by such Rights Certificate shall have been
exercised in accordance with the provisions hereof.
SECTION 18. DUTIES OF RIGHTS AGENT.
The Rights Agent undertakes the duties and obligations imposed
by this Agreement upon the following terms and conditions, by all of which the
Company and the holders of Rights Certificates, by their acceptance thereof,
shall be bound:
(a) The Rights Agent may consult with legal counsel (who
may be legal counsel for the Company), and the advice or opinion of such
counsel shall be full and complete authorization and protection to the Rights
Agent as to any action taken or omitted by it in good faith and in accordance
with such advice or opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that any fact
or matter (including, without limitation, the identity of any Acquiring Person
and the determination of "current market price") be proved or established by
the Company prior to taking or suffering any action hereunder, such fact or
matter (unless other evidence in respect thereof be herein specifically
prescribed) may be deemed to be conclusively proved and established by a
certificate signed by any person believed by the Rights Agent to be any one of
the Chairman of the Board, President, a Vice President, the Treasurer or the
Secretary of the Company and delivered to the Rights Agent; and such
certificate shall be full authorization to the Rights Agent for any action
taken or suffered in good faith by it under the provisions of this Agreement in
reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for its
own gross negligence, bad faith, or willful misconduct.
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<PAGE> 35
(d) The Rights Agent shall not be liable for or by reason
of any of the statements of fact or recitals contained in this Agreement or in
the Rights Certificates (except as to its countersignature thereof) or be
required to verify the same, but all such statements and recitals are and shall
be deemed to have been made by the Company only.
(e) The Rights Agent is serving as an administrative agent
and shall not be under any responsibility in respect of the validity of any
provision of this Agreement or the execution and delivery of this Agreement
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Rights Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in any Rights Certificate;
nor shall it be responsible for any change in the exercisability of the Rights
(including the Rights becoming void pursuant to Section 7(e) hereof) or any
adjustment required under any of the provisions hereof or responsible for the
manner, method, or amount of any such adjustment or the ascertaining of the
existence of facts that would require any such adjustment (except with respect
to the exercise of Rights evidenced by Rights Certificates after actual notice
of any such adjustment); nor shall it by any act hereunder be deemed to make
any representation or warranty as to the authorization or reservation of any
shares of Common Stock or shares of Preferred Stock to be issued pursuant to
this Agreement or any Rights Certificate or as to whether any shares of Common
Stock or shares of Preferred Stock will, when so issued, be validly authorized
and issued, fully paid and non-assessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carrying out or performing
by the Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties hereunder
from any person believed by the Rights Agent to be any one of the Chairman of
the Board, the President, a Vice President, the Secretary or the Treasurer of
the Company, and to apply to such officers for advice or instructions in
connection with its duties, and it shall not be liable for any action taken or
suffered to be taken by it in good faith in accordance with instructions of any
such officer. Any application by the Rights Agent for written instructions
from the Company may, at the option of the Rights Agent, set forth in writing
any action proposed to be taken or omitted by the Rights Agent under this
Rights Agreement and the date on or after which such action shall be taken or
such omission shall be effective. The Rights Agent shall not be liable for any
action taken by, or omission of, the Rights Agent in accordance with a proposal
included in any such application on or after the date specified in such
application (which date shall not be less than five Business Days after the
date any
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<PAGE> 36
officer of the Company actually receives such application, unless any such
officer shall have consented in writing to an earlier date) unless, prior to
taking any such action (or the effective date in the case of an omission), the
Rights Agent shall have received written instruction in response to such
application specifying the action to be taken or omitted.
(h) The Rights Agent and any stockholder, director, officer
or employee of the Rights Agent may buy, sell or deal in any of the Rights or
other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or lend
money to the Company or otherwise act as fully and freely as though it were not
Rights Agent under this Agreement. Nothing herein shall preclude the Rights
Agent from acting in any other capacity for the Company or for any other legal
entity.
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder either
itself or by or through its attorneys or agents, and the Rights Agent shall not
be answerable or accountable for any act, default, neglect, or misconduct of
any such attorneys or agents or for any loss to the Company resulting from any
such act, default, neglect, or misconduct; provided, however, the Rights Agent
was not grossly negligent in the selection and continued employment thereof.
(j) No provision of this Agreement shall require the Rights
Agent to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder or in the exercise
of its rights if there shall be reasonable grounds for believing that repayment
of such funds or adequate indemnification against such risk or liability is not
reasonably assured to it.
(k) If, with respect to any Rights Certificate surrendered
to the Rights Agent for exercise or transfer, the certificate attached to the
form of assignment or form of election to purchase, as the case may be, has
either not been completed or indicates an affirmative response to clause 1
and/or 2 thereof, the Rights Agent shall not take any further action with
respect to such requested exercise of transfer without first consulting with
the Company.
(l) The Rights Agent undertakes only the express duties and
obligations imposed on it by this Agreement and no implied duties or
obligations shall be read into this Agreement against the Rights Agent.
SECTION 19. COMPENSATION AND INDEMNIFICATION OF THE RIGHTS AGENT.
(a) The Company agrees to pay to the Rights Agent
reasonable compensation for all services rendered by it hereunder and, from
time to time, on demand of the Rights Agent, its reasonable expenses and
counsel fees and other
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disbursements incurred in the administration and execution of this Agreement
and the exercise and performance of its duties hereunder. The Company also
agrees to indemnify the Rights Agent, its officers, employees, agents and
directors for, and to hold each of them harmless against, any loss, liability,
or expense, incurred without gross negligence, bad faith or willful misconduct
on the part of the Rights Agent, for anything done or omitted by the Rights
Agent or such other indemnified party in connection with the acceptance and
administration of this Agreement and the exercise of its duties hereunder,
including the costs and expenses of defending against any claim of liability in
the premises. The indemnity provided for hereunder shall survive the
expiration of the Rights and the termination of this Agreement.
(b) The Rights Agent shall be protected and shall incur no
liability for or in respect of any action taken, suffered or omitted by it in
connection with its administration of this Agreement or the exercise of its
duties hereunder in reliance upon any Rights Certificate or certificate for
Common Stock or for other securities of the Company, instrument of assignment
or transfer, power of attorney, endorsement, affidavit, letter, notice,
direction, consent, certificate, statement, or other paper or document believed
by it to be genuine and to be signed, executed and, where necessary, verified
or acknowledged, by the proper person or persons.
(c) Anything in this Agreement to the contrary
notwithstanding, in no event shall the Rights Agent be liable for special,
indirect or consequential loss or damage of any kind whatsoever (including but
not limited to lost profits), even if the Rights Agent has been advised of the
likelihood of such loss or damage and regardless of the form of the action
unless such loss or damage results from the gross negligence, bad faith or
willful misconduct of the Rights Agent.
SECTION 20. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS
AGENT.
(a) Any corporation into which the Rights Agent or any
successor Rights Agent may be merged or with which it may be consolidated, or
any corporation resulting from any merger or consolidation to which the Rights
Agent or any successor Rights Agent shall be a party, or any corporation
succeeding to the corporate trust business of the Rights Agent or any successor
Rights Agent, shall be the successor to the Rights Agent under this Agreement
without the execution or filing of any paper or any further act on the part of
any of the parties hereto; provided, however, that such corporation would be
eligible for appointment as a successor Rights Agent under the provisions of
Section 21 hereof. In case at the time such successor Rights Agent shall
succeed to the agency created by this Agreement, any of the Rights Certificates
shall have been countersigned but not delivered, any such successor Rights
Agent may adopt the countersignature of the predecessor Rights Agent and
deliver such Rights Certificates so countersigned; and
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<PAGE> 38
in case at that time any of the Rights Certificates shall not have been
countersigned, any successor Rights Agent may countersign such Rights
Certificates either in the name of the predecessor Rights Agent or in the name
of the successor Rights Agent; and in all such cases such Rights Certificates
shall have the full force provided in the Rights Certificates and in this
Agreement.
(b) In case at any time the name of the Rights Agent shall
be changed and at any such time any of the Rights Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the
countersignature under its prior name and deliver Rights Certificates so
countersigned; and in case at that time any of the Rights Certificates shall
not have been countersigned, the Rights Agent may countersign such Rights
Certificates either in its prior name or in its changed name; and in all such
cases such Rights Certificates shall have the full force provided in the Rights
Certificates and in this Agreement.
SECTION 21. CHANGE OF RIGHTS AGENT.
The Rights Agent or any successor Rights Agent may resign and
be discharged from its duties under this Agreement upon thirty (30) days'
notice in writing mailed to the Company and to each transfer agent of the
Common Stock and the Preferred Stock by registered or certified mail, and to
the holders of the Rights Certificates by first-class mail. The Company may
remove the Rights Agent or any successor Rights Agent upon thirty (30) days'
notice in writing, mailed to the Rights Agent or successor Rights Agent, as the
case may be, and to each transfer agent of the Common Stock and Preferred Stock
by registered or certified mail, and to the holders of the Rights Certificates
by first-class mail. If the Rights Agent shall resign or be removed or shall
otherwise become incapable of acting, the Company shall appoint a successor to
the Rights Agent. If the Company shall fail to make such appointment within a
period of thirty (30) days after giving notice of such removal or after it has
been notified in writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by the holder of a Rights Certificate (who shall,
with such notice, submit his Rights Certificate for inspection by the Company),
then the registered holder of any Rights Certificate may apply to any court of
competent jurisdiction for the appointment of a new Rights Agent. Any
successor Rights Agent, whether appointed by the Company or by such a court,
shall be a corporation organized and doing business under the laws of the
United States or of the State of North Carolina, Virginia or New York (or of
any other state of the United States so long as such corporation is authorized
to do business as a banking institution in the State of Virginia or New York),
in good standing, having a principal office in the State of Virginia or New
York which is authorized under such laws to exercise corporate trust power and
is subject to supervision or examination by federal or state authority and
which has at the time of its appointment as Rights Agent a combined capital and
surplus of at least $50 million. After appointment, the successor Rights Agent
shall be vested with the
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<PAGE> 39
same powers, rights, duties and responsibilities as if it had been originally
named as Rights Agent without further act or deed; but the predecessor Rights
Agent shall deliver and transfer to the successor Rights Agent any property at
the time held by it hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Not later than the
effective date of any such appointment the Company shall file notice thereof in
writing with the predecessor Rights Agent and each transfer agent of the Common
Stock and the Preferred Stock, and mail a notice thereof in writing to the
registered holders of the Rights Certificates. Failure to give any notice
provided for in this Section 21, however, or any defect therein, shall not
affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.
SECTION 22. ISSUANCE OF NEW RIGHTS CERTIFICATES.
Notwithstanding any of the provisions of this Agreement or of
the Rights to the contrary, the Company may, at its option, issue new Rights
Certificates evidencing Rights in such form as may be approved by the Board to
reflect any adjustment or change in the Purchase Price per share and the number
or kind of class of shares or other securities or property purchasable under
the Rights Certificates made in accordance with the provisions of this
Agreement. In addition, in connection with the issuance or sale of shares of
Common Stock following the Distribution Date (other than upon exercise of a
Right) and prior to the redemption or expiration of the Rights, the Company (a)
shall, with respect to shares of Common Stock so issued or sold pursuant to the
exercise of stock options or under any employee plan or arrangement, or upon
the exercise, conversion or exchange of securities hereinafter issued by the
Company, and (b) may, in any other case, if deemed necessary or appropriate by
the Board, issue Rights Certificates representing the appropriate number of
Rights in connection with such issuance or sale; provided, however, that (i) no
such Rights Certificate shall be issued if, and to the extent that, the Company
shall be advised by counsel that such issuance would create a significant risk
of material adverse tax consequences to the Company or the Person to whom such
Rights Certificate would be issued, and (ii) no such Rights Certificate shall
be issued if, and to the extent that, appropriate adjustment shall otherwise
have been made in lieu of the issuance thereof.
SECTION 23. REDEMPTION.
(a) The Board may, at its option, at any time during the
period commencing on the Rights Dividend Declaration Date and ending on the
earlier of (i) the Close of Business on the tenth day following the Stock
Acquisition Date (or, if the Stock Acquisition Date shall have occurred prior
to the Record Date, the Close of Business on the tenth day following the Record
Date), as such period may be extended or shortened in the discretion of the
Board of Directors (the "Redemption
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<PAGE> 40
Period") or (ii) the Final Expiration Date, cause the Company to redeem all but
not less than all the then outstanding Rights at a redemption price of $.005
per Right, as such amount may be appropriately adjusted to reflect any stock
split, stock dividend or similar transaction occurring after the date hereof
(such redemption price being hereinafter referred to as the "Redemption
Price"); provided, however, that, if the Board authorizes redemption of the
Rights or a change in the Redemption Period in either of the circumstances set
forth in clauses (i) and (ii) below, then there must be Continuing Directors
then in office and such authorization shall require the concurrence of a
majority of such Continuing Directors: (i) such authorization occurs on or
after the time a Person becomes an Acquiring Person, or (ii) such authorization
occurs during the 120-day period from the date of a change (resulting from a
proxy or consent solicitation effected in compliance with applicable law and
regulations) in a majority of the directors in office at the commencement of
such solicitation if any Person who is a participant in such solicitation has
stated (or, if a majority of the directors in office at the commencement of
such solicitation has determined in good faith) that such Person (or any of its
Affiliates or Associates) intends to take, or may consider taking, any action
which would result in such Person becoming an Acquiring Person or which would
cause the occurrence of a Triggering Event unless, concurrently with such
solicitation, such Person (or one or more of its Affiliates or Associates) is
making a cash tender offer pursuant to a Schedule 14D-1 (or any successor form)
filed with the Securities and Exchange Commission for all outstanding shares of
Common Stock not beneficially owned by such Person (or by its Affiliates or
Associates). If, following the occurrence of a Stock Acquisition Date and
following the expiration of the Company's right of redemption hereunder (i) a
Person who is an Acquiring Person shall have transferred or otherwise disposed
of a number of shares of Common Stock in one transaction or series of
transactions, not directly or indirectly involving the Company or any of its
Subsidiaries, which did not result in the occurrence of a Triggering Event such
that such Person is thereafter a Beneficial Owner of 10% or less of the
outstanding shares of Common Stock, (ii) there are no other Persons,
immediately following the occurrence of the event described in clause (i), who
are Acquiring Persons, and (iii) the Board (with the concurrence of a majority
of the Continuing Directors) shall so approve, then the Company's right of
redemption shall be reinstated and thereafter be subject to the provisions of
this Section 23. Notwithstanding anything contained in this Agreement to the
contrary, the Rights shall not be exercisable after the first occurrence of a
Section 11(a)(ii) Event or a Section 13 Event until such time as the Company's
right of redemption hereunder has expired. The Company may, at its option, pay
the Redemption Price in cash, shares of Common Stock (based on the current
market price of the Common Stock at the time of redemption) or any other form
of consideration deemed appropriate by the Board.
(b) Immediately upon the action of the Board ordering the
redemption of the Rights, evidence of which shall have been filed with the
Rights Agent and without any further action and without any notice, the right
to exercise
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<PAGE> 41
the Rights will terminate and the only right thereafter of the holders of
Rights shall be to receive the Redemption Price. Promptly after the action of
the Board ordering the redemption of the Rights, the Company shall give notice
of such redemption to the Rights Agent and the holders of the then outstanding
Rights by mailing such notice to all such holders at their last addresses as
they appear upon the registry books of the Rights Agent or, prior to the
Distribution Date, on the registry books of the Transfer Agent for the Common
Stock. Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such notice
of redemption will state the method by which the payment of the Redemption
Price will be made.
SECTION 24. EXCHANGE.
(a) The Board may, at its option, at any time after any
Person becomes an Acquiring Person, exchange all or part of the then
outstanding and exercisable Rights (which shall not include Rights that have
become void pursuant to the provisions of Section 11(a)(ii) or Section 7(l)
hereof) for shares of Common Stock at an exchange ratio of one share of Common
Stock per Right, appropriately adjusted to reflect any stock split, stock
dividend or similar transaction occurring after the date hereof (such exchange
ratio being hereinafter referred to as the "Exchange Ratio").
(b) Immediately upon the action of the Board ordering the
exchange of any Rights pursuant to subsection (a) of this Section 24 and
without any further action and without any notice, the right to exercise such
Rights shall terminate and the only right thereafter of a holder of such Rights
shall be to receive that number of shares of Common Stock equal to the number
of such Rights held by such holder multiplied by the Exchange Ratio. The
Company shall promptly give public notice of any such exchange; provided,
however, that the failure to give, or any defect in, such notice shall not
affect the validity of such exchange. The Company promptly shall mail a notice
of any such exchange to all of the holders of such Rights at their last
addresses as they appear upon the registry books of the Rights Agent. Any
notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of exchange
will state the method by which the exchange of Common Stock for Rights will be
effected and, in the event of any partial exchange, the number of Rights which
will be exchanged. Any partial exchange shall be effected pro rata based on
the number of Rights (other than Rights which have become void pursuant to the
provisions of Section 11(a)(ii) or Section 7(l) hereof) held by each holder of
Rights.
(c) In the event that there shall not be sufficient Common
Stock issued but not outstanding or authorized but unissued to permit any
exchange of Rights as contemplated in accordance with this Section 24, the
Company shall take
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<PAGE> 42
all such action as may be necessary to authorize additional shares of Common
Stock for issuance upon exchange of the Rights.
(d) The Company shall not be required to issue fractions of
shares of Common Stock or to distribute certificates which evidence fractional
shares of Common Stock. In lieu of such fractional shares, the Company shall
pay to the registered holders of the Right Certificates with regard to which
such fractional shares would otherwise be issuable an amount in cash equal to
the same fraction of the current market value of a whole share of Common Stock.
For the purposes of this paragraph (d), the current market value of a whole
share of Common Stock shall be the closing price of a share of Common Stock (as
determined pursuant to the second sentence of Section 11(d) hereof) for the
Trading Day immediately prior to the date of exchange pursuant to this Section
24.
SECTION 25. NOTICE OF CERTAIN EVENTS.
(a) In case the Company shall propose, at any time after
the Distribution Date (i) to pay any dividend payable in stock of any class to
the holders of Preferred Stock or to make any other distribution to the holders
of Preferred Stock (other than a regular quarterly cash dividend out of
earnings or retained earnings) or (ii) to offer to the holders of Preferred
Stock rights or warrants to subscribe for or to purchase any additional shares
of Preferred Stock or shares of stock of any class or any other securities,
rights or options, or (iii) to effect any reclassification of its Preferred
Stock (other than a reclassification involving only the subdivision of
outstanding Preferred Stock), or (iv) to effect any consolidation or merger
into or with, or to effect any sale or other transfer (or to permit one or more
of its subsidiaries to effect any sale or other transfer), in one or more
transactions, of more than 50% of the assets or earning power of the Company
and its subsidiaries (taken as a whole) to, any other Person, or (v) to effect
the liquidation, dissolution or winding up of the Company, then, in each such
case, the Company shall give to each holder of a Rights Certificate, to the
extent feasible and in accordance with Section 26 hereof, a notice of such
proposed action, which shall specify the record date for the purposes of such
stock dividend, distribution of rights or warrants, or the date on which such
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution, or winding up is to take place and the date of participation
therein by the holders of the shares of Preferred Stock, if any such date is to
be fixed, and such notice shall be so given in the case of any action covered
by clause (i) or (ii) above at least twenty (20) days prior to the record date
for determining holders of the shares of Preferred Stock for purposes of such
action and in the case of any such other action, at least twenty (20) days
prior to the date of the taking of such proposed action or the date of
participation therein by the holders of the shares of Preferred Stock whichever
shall be the earlier.
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<PAGE> 43
(b) In case any Section 11(a)(ii) Event shall occur, then,
in any such case, (i) the Company shall as soon as practicable thereafter give
to each holder of a Rights Certificate, to the extent feasible and in
accordance with Section 26 hereof, a notice of the occurrence of such event
which shall specify the event and the consequences of the event to holders of
Rights under Section 11(a)(ii) hereof, and (ii) all references in the preceding
paragraph to Preferred Stock shall be deemed thereafter to refer to Common
Stock and/or, if appropriate other securities.
SECTION 26. NOTICES.
Notices or demands authorized by this Agreement to be given or
made by the Rights Agent or by the holder of any Rights Certificate to or on
the Company shall be sufficiently given or made if sent by first-class mail,
postage prepaid, addressed (until another address is filed in writing with the
Rights Agent) as follows:
Sunrise Assisted Living, Inc.
9401 Lee Highway
Suite 300
Fairfax, Virginia 22031
Attention: Chief Financial Officer
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Rights Certificate to or on the Rights Agent shall be sufficiently given or
made if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing with the Company) as follows:
First Union National Bank of North Carolina
230 South Tryon Street
Charlotte, North Carolina 28288
Attention: Corporate Trust Department
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to any such holder at the address of such holder as shown on the
registry books of the Company.
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<PAGE> 44
SECTION 27. SUPPLEMENTS AND AMENDMENTS.
Prior to the Distribution Date and subject to the penultimate
sentence of this Section 27, the Company may, and the Rights Agent shall, if
the Company so directs, supplement or amend any provision of this Agreement
without the approval of any holders of certificates representing shares of
Common Stock. From and after the Distribution Date and subject to the
penultimate sentence of this Section 27, the Company may, and the Rights Agent
shall at any time and from time to time, if the Company so directs, supplement
or amend this Agreement without the approval of any holders of Rights
Certificates in order (i) to cure any ambiguity, (ii) to correct or supplement
any provision contained herein which may be defective or inconsistent with any
other provisions herein, (iii) to shorten or lengthen any time period hereunder
or (iv) to change or supplement the provisions hereunder in any manner which
the Company may deem necessary or desirable and which shall not adversely
affect the interests of the holders of Rights Certificates (other than an
Acquiring Person or an Affiliate or Associate of any such Person); provided,
however, that this Agreement may not be supplemented or amended (A) to lengthen
a time period relating to when the Rights may be redeemed at such time as the
Rights are not then redeemable, or (B) to lengthen any other time period unless
such lengthening is for the purpose of protecting, enhancing or clarifying the
rights of, and/or the benefits to, the holders of Rights (other than an
Acquiring Person or an Affiliate or Associate of any such Person). Upon the
delivery of a certificate from an appropriate officer of the Company which
states that the proposed supplement or amendment is in compliance with the
terms of this Section 27, the Rights Agent shall execute such supplement or
amendment. Notwithstanding anything contained in this Agreement to the
contrary, no supplement or amendment shall be made which changes the Redemption
Price, the Final Expiration Date, the Purchase Price or the number of one
one-thousandths of a share of Preferred Stock for which a Right is exercisable.
In addition, no supplement or amendment that changes the rights and duties of
the Rights Agent under this Agreement shall be effective without the consent of
the Rights Agent. Prior to the Distribution Date, the interests of the holders
of Rights shall be deemed coincident with the interests of the holders of
shares of Common Stock.
SECTION 28. SUCCESSORS.
All the covenants and provisions of this Agreement by or for
the benefit of the Company or the Rights Agent shall bind and inure to the
benefit of their respective successors and assigns hereunder.
SECTION 29. DETERMINATIONS AND ACTIONS BY THE BOARD, ETC.
For all purposes of this Agreement, any calculation of the
number of shares of Common Stock outstanding at any particular time, including
for purposes
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<PAGE> 45
of determining the particular percentage of such outstanding shares of Common
Stock of which any Person is the Beneficial Owner, shall be made in accordance
with the last sentence of Rule 13d-3(d)(1)(i) of the General Rules and
Regulations under the Exchange Act. The Board (with, where specifically
provided for herein, the concurrence of the Continuing Directors or Outside
Directors) shall have the exclusive power and authority to administer this
Agreement and to exercise all rights and powers specifically granted to the
Board (with, where specifically provided for herein, the concurrence of the
Continuing Directors or Outside Directors) or to the Company, or as may be
necessary or advisable in the administration of this Agreement, including,
without limitation, the right and power to (i) interpret the provisions of this
Agreement, and (ii) make all determinations deemed necessary or advisable for
the administration of this Agreement (including without limitation a
determination to redeem or not redeem the Rights or to amend the Agreement).
All such actions, calculations, interpretations and determinations (including,
for purposes of clause (y) below, all omissions with respect to the foregoing)
which are done or made by the Board (with, where specifically provided for
herein, the concurrence of the Continuing Directors or Outside Directors) in
good faith, shall (x) be final, conclusive and binding on the Company, the
Rights Agent, the holders of the Rights and all other parties, and (y) not
subject any director to any liability to the holders of the Rights.
SECTION 30. BENEFITS OF THIS AGREEMENT.
Nothing in this Agreement shall be construed to give to any
Person other than the Company, the Rights Agent and the registered holders of
the Rights Certificates (and, prior to the Distribution Date, the registered
holders of the Common Stock) any legal or equitable right, remedy or claim
under this Agreement; but this Agreement shall be for the sole and exclusive
benefit of the Company, the Rights Agent and the registered holders of the
Rights Certificates (and, prior to the Distribution Date, registered holders of
Common Stock).
SECTION 31. SEVERABILITY.
If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction or other authority to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated; provided,
however, that notwithstanding anything in this Agreement to the contrary, if
any such term, provision, covenant or restriction is held by such court or
authority to be invalid, void or unenforceable and the Board of Directors
determines in its good faith judgment that severing the invalid language from
this Agreement would materially and adversely affect the purpose or effect of
this Agreement, the right of redemption set forth in Section 23 hereof shall be
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<PAGE> 46
reinstated and shall not expire until the Close of Business on the tenth day
following the date of such determination by the Board.
SECTION 32. GOVERNING LAW.
This Agreement, each Right and each Rights Certificate issued
hereunder shall be deemed to be a contract made under the laws of the State of
Delaware and for all purposes shall be governed by and construed in accordance
with laws of such State.
SECTION 33. COUNTERPARTS.
This Agreement may be executed in any number of counterparts.
It shall not be necessary that the signature of or on behalf of each party
appears on each counterpart, but it shall be sufficient that the signature of
or on behalf of each party appears on one or more of the counterparts. All
counterparts shall collectively constitute a single agreement. It shall not be
necessary in any proof of this Agreement to produce or account for more than a
number of counterparts containing the respective signatures of or on behalf of
all of the parties.
SECTION 34. DESCRIPTIVE HEADINGS.
Descriptive headings of the several Sections of this Agreement
are inserted for convenience only and shall not control or affect the meaning
or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Rights
Agreement to be duly executed and their respective corporate seals to be
hereunto affixed and attested, all as of the day and year first above written.
SUNRISE ASSISTED LIVING, INC.
Attest:
By By
------------------------ ---------------------------------
------------------------ ---------------------------------
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
By
---------------------------------
---------------------------------
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<PAGE> 47
Exhibit A
CERTIFICATE OF DESIGNATION, PREFERENCES AND
RIGHTS OF
SERIES C JUNIOR PARTICIPATING PREFERRED STOCK
of
SUNRISE ASSISTED LIVING, INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
Sunrise Assisted Living, Inc., a corporation organized under the
laws of the State of Delaware (the "Corporation"), hereby certifies that,
pursuant to the authority conferred upon the Board of Directors by the
Certificate of Incorporation, as amended, of the said Corporation, the said
Board of Directors on April 25, 1996, adopted the following resolution creating
a series of 30,000 shares of Preferred Stock designated as Series C Junior
Participating Preferred Stock:
RESOLVED, that pursuant to the authority granted to and vested
in the Board of Directors of this Corporation (the "Board") in accordance with
the provisions of its Certificate of Incorporation, as amended, a series of
Preferred Stock of the Corporation be and it hereby is created, and that the
designation and amount thereof and the voting rights or powers, preferences and
relative, participating, optional and other special rights of the shares of
such series, and the qualifications, limitations or restrictions thereof are as
follows:
Section 1. Designation and Amount. The shares of such series,
par value $0.01 per share, shall be designated as "Series C Junior
Participating Preferred Stock" and the number of shares constituting such
series shall be 30,000. 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 C Junior Participating 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
Corporation convertible into Series C Junior Participating Preferred Stock.
<PAGE> 48
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of
any shares of any series of Preferred Stock ranking prior and superior to the
shares of Series C Junior Participating Preferred Stock with respect to
dividends, the holders of shares of Series C Junior Participating 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, quarterly dividends
payable in cash on the 15th day of April, July, October and January, in each
year (each such date being referred to herein as a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date after first
issuance of a share or fraction of a share of Series C Junior Participating
Preferred Stock, in an amount per share (rounded to the nearest cent) equal to
the greater of (a) $10.00 or (b) subject to the provision for adjustment
hereinafter set forth, 1,000 times the aggregate per share amount of all cash
dividends, and 1,000 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, par value $.01 per share, of the Corporation (the
"Common Stock"), or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock, since the
immediately preceding Quarterly Dividend Payment Date, or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series C Junior Participating Preferred Stock. In the
event the Corporation shall at any time after April 25, 1996 (the "Rights
Declaration Date") (i) declare or pay any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the amount to which holders of shares of Series C Junior
Participating Preferred Stock 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 Corporation shall declare a dividend or distribution on
the Series C Junior Participating Preferred Stock as provided in paragraph (A)
above 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 Quarterly Dividend Payment Date and the
next subsequent Quarterly Dividend Payment Date, a dividend of $10.00 per share
on the Series C Junior Participating Preferred Stock shall nevertheless be
payable on such subsequent Quarterly Dividend Payment Date.
- 2 -
<PAGE> 49
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series C Junior Participating Preferred Stock from the
Quarterly Dividend Payment Date next preceding the date of issue of such shares
of Series C Junior Participating Preferred Stock, unless the date of issue of
such shares is prior to the record date set for the first Quarterly 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 Quarterly
Dividend Payment Date or is a date after the record date for the determination
of holders of shares of Series C Junior Participating Preferred Stock entitled
to receive a quarterly dividend and before such Quarterly Dividend Payment
Date, IN either of which event such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Series C
Junior Participating 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 C Junior Participating Preferred
stock entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be no more than 60 days prior to the date
fixed for the payment thereof
Section 3. Voting Rights. The holders of shares of Series C
Junior Participating Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series C Junior Participating Preferred Stock shall
entitle the holder thereof to 1,000 votes on all matters submitted to a vote of
the stockholders of the Corporation. In the event the Corporation shall at any
time after the Rights Declaration Date (i) declare any dividend on Common Stock
payable in shares of Common Stock, (11) subdivide the outstanding Common Stock,
or (iii) combine the outstanding Common Stock into a smaller number of shares,
then in each such case the number of votes per share to which holders of shares
of Series C Junior Participating 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 by law, the holders of shares of
Series C Junior Participating Preferred Stock and the holders of shares of
Common Stock shall vote together as one class on all matters submitted to a
vote of stockholders of the Corporation.
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<PAGE> 50
(C) Except as set forth herein, holders of Series C Junior
Participating 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 dividends or distributions payable on the Series C
Junior Participating Preferred Stock as provided in Section 2 are not paid,
thereafter and until such dividends and distributions, whether or not declared,
on shares of Series C Junior Participating Preferred Stock outstanding shall
have been paid in full, the Corporation shall not:
(i) declare or pay dividends on, or make any other
distributions on, or redeem or purchase or otherwise acquire for consideration
any shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series C Junior Participating Preferred
Stock; or declare or pay dividends on, or make any other distributions on, any
shares of stock ranking on a parity (either as to dividends
or upon liquidation, dissolution or winding up) with the Series C Junior
Participating Preferred Stock, except dividends paid ratably on the Series C
Junior Participating Preferred Stock and all such parity stock on which
dividends are payable in proportion to the total amounts to which the holders
of all such shares are then entitled; or
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as to dividends
or upon liquidation, dissolution or winding up) with the Series C Junior
Participating Preferred Stock, provided that the Corporation may at any time
redeem, purchase or otherwise acquire shares of any such parity stock in
exchange for shares of any stock of the Corporation ranking Junior (either as
to dividends or upon dissolution, liquidation or winding up) to the Series C
Junior Participating Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Series C Junior Participating Preferred Stock, or
any shares of stock ranking on a parity with the Series C Junior Participating
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.
- 4 -
<PAGE> 51
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation 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 C Junior
Participating Preferred Stock purchased or otherwise acquired by the
Corporation IN any manner whatsoever shall be retired and cancelled promptly
after the acquisition thereof All such shares shall upon their cancellation
become authorized but unissued shares of Preferred Stock and may be reissued as
part of a new series of Preferred Stock to be created by resolution or
resolutions of the Board of Directors, subject to the conditions and
restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation (voluntary or otherwise), dissolution or
winding up of the Corporation, no distribution shall be made to the holders of
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series C Junior Participating Preferred Stock
unless, prior thereto, the holders of shares of Series C Junior Participating
Preferred Stock shall have received $85,000 per share, plus any unpaid
dividends and distributions payable thereon, whether or not declared, to the
date of such payment (the "Series C Liquidation Preference"). Following the
payment of the full amount of the Series C Liquidation Preference, no
additional distributions shall be made to the holders of Series C Junior
Participating Preferred Stock unless, prior thereto, the holders of shares of
Common Stock shall have received an amount per share (the "Common Adjustment")
equal to the quotient obtained by dividing (i) the Series C Liquidation
Preference by (ii) 1,000 (as appropriately adjusted as set forth in
subparagraph (C) below to reflect such events as stock splits, stock dividends
and recapitalizations with respect to the Common Stock) (such number IN clause
(ii) immediately above being referred to as the "Adjustment Number").
Following the payment of the full amount of the Series C Liquidation Preference
and the Common Adjustment in respect of all outstanding shares of Series C
Junior Participating Preferred Stock and Common Stock, respectively, holders of
Series C Junior Participating Preferred Stock and holders of shares of Common
Stock shall receive their ratable and proportionate share of the remaining
assets to be distributed in the ratio of the Adjustment Number to one (1) with
respect to such Preferred Stock and Common Stock, on a per share basis,
respectively.
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<PAGE> 52
(B) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series C Liquidation Preference and
the liquidation preferences of all other series of preferred stock, if any,
which rank on a parity with the Series C Junior Participating Preferred Stock,
then such remaining assets shall be distributed ratably to the holders of such
parity shares in proportion to their respective liquidation preferences. In
the event, however, that there are sufficient assets available to permit
payment in full of the Common Adjustment, then such remaining assets shall be
distributed ratably to the holders of Common Stock.
(C) In the event the Corporation shall at any time after the
Rights Declaration Date (1) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the Adjustment Number in effect immediately prior to such event
shall be adjusted by multiplying such Adjustment 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.
Section 7. Consolidation, Merger, etc. In case the Corporation
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 the shares
of Series C Junior Participating Preferred Stock shall at the same time be
similarly exchanged or changed in an amount per share (subject to the provision
for adjustment hereinafter set forth) equal to 1,000 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 Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (11) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such
case the amount set forth in the preceding sentence wit ' h respect to the
exchange or change of shares of Series C Junior Participating 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. Redemption. The outstanding shares of Series C
Junior Participating Preferred Stock may be redeemed as a whole, but not in
part, at any time, or from time to time, at the option of the Board, at a cash
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<PAGE> 53
price per share equal to 105 percent of (i) the product of the Adjustment
Number times the Average Market Value (as such term is hereinafter defined) of
the Common Stock, plus (ii) all dividends which on the redemption date are
payable on the shares to be redeemed and have not been paid or declared, and a
sum sufficient for the payment thereof set apart, without interest. The
"Average Market Value" is the average of the closing sale prices of the Common
Stock during the 30 day period immediately preceding the date before the
redemption date on the Composite Tape for New York Stock Exchange Listed
Stocks, or, if such stock is not quoted on the Composite Tape, on the New York
Stock Exchange, or, if such stock is not listed on such Exchange, on the
principal United States securities exchange registered under the Securities
Exchange Act of 1934, as amended, on which such stock is listed, or, if such
stock is not listed on any such exchange, the average of the closing sale
prices with respect to a share of Common Stock during such 30 day period, as
quoted on the National Association of Securities Dealers, Inc. Automated
Quotations System or any system then in use, or if no such quotations are
available, the fair market value of the Common Stock as determined by the Board
in good faith.
Section 9. Ranking. Notwithstanding anything contained herein
to the contrary, the Series C Junior Participating Preferred Stock shall rank
junior to all other series of the Corporation's Preferred Stock as to voting
rights, the payment of dividends and the distribution of assets in liquidation,
unless the terms of any such series shall provide otherwise.
Section 10. Amendment. The Certificate of Incorporation, as
amended, of the Corporation shall not be further amended in any manner which
would materially alter or change the powers, preferences or special rights of
the Series C Junior Participating Preferred Stock so as to affect them
adversely without the affirmative vote of the holders of at least a majority of
the outstanding shares of Series C Junior Participating Preferred Stock, voting
separately as a class.
Section 11. Fractional Shares. Series C Junior Participating
Preferred Stock may be issued in fractions of a share which shall entitle the
holders, in proportion to such holders fractional shares, to exercise voting
rights, receive dividends, participate in distributions and to have the benefit
of all other rights of holders of Series C Junior Participating Preferred
Stock.
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<PAGE> 54
IN WITNESS WHEREOF, Sunrise Assisted Living, Inc. has caused this Certificate
of Designation to be executed as of May _, 1996.
SUNRISE ASSISTED LIVING, INC.
By:
--------------------------
Thomas B. Newell
Executive Vice President
and General Counsel
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<PAGE> 55
Exhibit B
SUMMARY OF RIGHTS TO PURCHASE
SERIES C JUNIOR PARTICIPATING PREFERRED STOCK
On April 25, 1996, the Board of Directors of Sunrise Assisted
Living, Inc. (the "Company") declared a dividend distribution of one Right for
each outstanding share of common stock, par value $.01 per share (the "Common
Stock"), of the Company. The distribution is payable to stockholders of record
on May 15, 1996. Each Right, when exercisable, entitles the registered holder
to purchase from the Company one one-thousandth of a share of Series C Junior
Participating Preferred Stock ("Preferred Stock") at a price of $85.00 per one
one-thousandth share (the "Purchase Price"), subject to adjustment. The
description and terms of the Rights are set forth in a Rights Agreement (the
"Rights Agreement") between the Company and First Union National Bank of North
Carolina as Rights Agent (the "Rights Agent").
Initially, the Rights will be attached to all certificates
representing shares of Common Stock then outstanding, and no separate
certificates evidencing the Rights will be distributed. The Rights will
separate from the Common Stock and a distribution of Rights Certificates will
occur upon the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") has acquired, or obtained the right to acquire, beneficial ownership
of 20% or more of the outstanding shares of Common Stock (the "Stock
Acquisition Date") or (ii) 10 business days (or such later date as the Board of
Directors may determine) following the commencement of a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person of 20% or more of the outstanding shares of Common Stock
(the earlier of such dates being called the "Distribution Date").
Notwithstanding the foregoing, the term "Acquiring Person" shall not include
either Paul J. Klaassens or Teresa M. Klaassens (each together with their
Affiliates, Associates and Estates, an "Exempt Person") each of whom, as of the
date of adoption of the Rights Agreement, beneficially owned shares of the
Company's Common Stock in excess of 20% of the outstanding shares of Common
Stock, unless such Exempt Person acquires beneficial ownership of an additional
2% of the shares of Common Stock of the Company in excess of the amount
beneficially owned by the Exempt Person on April 25, 1996 (or if the Company
completes an initial public offering of its shares of Common Stock pursuant to
the registration provisions of the Securities Act of 1933, as amended, in
excess of the amount beneficially owned by an Exempt Person at the closing of
the initial public offering) (other than as a result of acquisitions of shares
of Common Stock by the Company which increases the proportionate number of
shares beneficially owned by such Exempt Person).
<PAGE> 56
Until the Distribution Date, (i) the Rights will be evidenced
by the Common Stock certificates, and will be transferred with and only with
the Common Stock certificates, (ii) new Common Stock certificates issued after
May 15, 1996 upon transfer or new issuance of the Common Stock will contain a
notation incorporating the Rights Agreement by reference, and (iii) the
surrender for transfer of any certificates for Common Stock outstanding will
also constitute the transfer of the Rights associated with the Common Stock
represented by such certificate.
The Rights are not exercisable until the Distribution Date and
will expire at the close of business on April 24, 2006, unless earlier redeemed
or exchanged by the Company as described below. The Rights will not be
exercisable by a holder in any jurisdiction where the requisite qualification
to the issuance to such holder, or the exercise by such holder, of the Rights
has not been obtained or is not obtainable.
As soon as practicable following the Distribution Date,
separate certificates evidencing the Rights ("Rights Certificates") will be
mailed to holders of record of the Common Stock as of the close of business on
the Distribution Date and, thereafter, the separate Rights Certificates alone
will evidence the Rights. Except as otherwise determined by the Board of
Directors, only shares of Common Stock issued prior to the Distribution Date
will be issued with Rights.
In the event that a Person becomes the beneficial owner of 20%
or more of the then outstanding shares of Common Stock (except pursuant to an
offer for all outstanding shares of Common Stock which the Outside Directors
determine to be fair to and otherwise in the best interests of the Company and
its stockholders), each holder of a Right will, after the end of a redemption
period referred to below, have the right to exercise the Right by purchasing,
for an amount equal to the Purchase Price, Common Stock (or, in certain
circumstances, cash, property or other securities of the Company) having a
value equal to two times such amount. Notwithstanding any of the foregoing,
following the occurrence of the events set forth in this paragraph, all Rights
that are, or (under certain circumstances specified in the Rights Agreement)
were, beneficially owned by any Acquiring Person will be null and void.
However, Rights are not exercisable following the occurrence of the events set
forth above until such time as the Rights are no longer redeemable by the
Company as set forth below.
For example, at a Purchase Price of $85.00 per Right, each
Right not owned by an Acquiring Person (or by certain related parties)
following an event set forth in the preceding paragraph would entitle its
holder to purchase $170.00 worth of Common Stock (or other consideration, as
noted above) for $85.00. Assuming that the Common Stock had a per share value
of $20.00 at such time, the holder of each valid Right would be entitled to
purchase four shares of Common Stock for $85.00.
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<PAGE> 57
In the event that, at any time following the Stock Acquisition
Date, (i) the Company is acquired in a merger or other business combination
transaction in which the Company is not the surviving corporation (other than a
merger which follows an offer described in the second preceding paragraph), or
(ii) 50% or more of the Company's assets or earning power is sold or
transferred, each holder of a Right (except Rights which previously have been
voided as set forth above) shall, after the expiration of the redemption period
referred to below, have the right to receive, upon exercise, common stock of
the acquiring company having a value equal to two times the Purchase Price of
the Right (e.g., common stock of the acquiring company having a value of
$170.00 for the $85.00 Purchase Price).
At any time after a person or group of affiliated or
associated persons becomes an Acquiring Person, the Board of Directors of the
Company may exchange the Rights (other than Rights owned by such person or
group which have become void), in whole or in part, at an exchange ratio of one
share of Common Stock per Right (subject to adjustment).
The Purchase Price payable, and the number of one
one-thousandths of a share of Preferred Stock or other securities or property
issuable, upon exercise of the Rights are subject to adjustment from time to
time to prevent dilution (i) in the event of a stock dividend on, or a
subdivision, combination or reclassification of the Preferred Stock (ii) upon
the grant to holders of the Preferred Stock of certain rights or warrants to
subscribe for Preferred Stock or convertible securities at less than the
current market price of the Preferred Stock or (iii) upon the distribution to
holders of the Preferred Stock of evidences of indebtedness or assets
(excluding regular quarterly cash dividends) or of subscription rights or
warrants (other than those referred to above).
With certain exceptions, no adjustment in the Purchase Price
will be required until cumulative adjustments require an adjustment of at least
1% in such Purchase Price. No fractional shares will be issued and in lieu
thereof, an adjustment in cash will be made based on the market price of the
Preferred Stock on the last trading date prior to the date of exercise.
In general, the Board of Directors of the Company, may cause
the Company to redeem the Rights in whole, but not in part, at any time during
the period commencing on April 25, 1996, and ending on the tenth day following
the Stock Acquisition Date, as such period may be extended or shortened by the
Board of Directors (the "Redemption Period") at a price of $.005 per Right
(payable in cash, Common Stock or other consideration deemed appropriate by the
Board of Directors). Under certain circumstances set forth in the Rights
Agreement, the decision to redeem the Rights will require the concurrence of a
majority of the Continuing
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<PAGE> 58
Directors. After the redemption period has expired, the Company's right of
redemption may be reinstated (with the concurrence of the Continuing Directors)
if an Acquiring Person reduces his beneficial ownership to 10% or less of the
outstanding shares of Common Stock in a transaction or series of transactions
not involving the Company and there are no other Acquiring Persons.
Immediately upon the action of the Board of Directors of the Company ordering
redemption of the Rights, with, where required, the concurrence of the
Continuing Directors, the Rights will terminate and the only right of the
holders of Rights will be to receive the $.005 redemption price.
The term "Continuing Director" means any member of the Board
of Directors of the Company who was a member of the Board of Directors prior to
the date of the Rights Agreement, and any person who is subsequently elected to
the Board if such person is recommended or approved by a majority of the
Continuing Directors, but shall not include an Acquiring Person or an affiliate
or associate of an Acquiring Person, or any representative of the foregoing
entities. The term "Outside Directors" means "Continuing Directors" who are
not officers of the Company.
Until a Right is exercised, the holder thereof, as such, will
have no rights as a stockholder of the Company, including, without limitation,
the right to vote or to receive dividends. While the distribution of the
Rights will not be subject to federal taxation to stockholders or to the
Company, stockholders may, depending upon the circumstances, recognize taxable
income in the event that the Rights become exercisable for Common Stock (or
other consideration) of the Company or for common stock of the acquiring
company as set forth above.
Other than those provisions relating to the principal economic
terms of the Rights, any of the provisions of the Rights Agreement may be
amended by the Board of Directors of the Company prior to the Distribution
Date. After the Distribution Date, the provisions of the Rights Agreement may
be amended by the Board in order to cure any ambiguity, defect or inconsistency
or to make changes which do not adversely affect the interests of holders of
Rights (excluding the interests of any Acquiring Person), or to shorten or
lengthen any time period under the Rights Agreement; provided however, no
amendment to adjust the time period governing redemption may be made at such
time as the Rights are not redeemable.
* * *
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<PAGE> 59
Exhibit C
[Form of Rights Certificate]
Certificate No. R-__________ __________ Rights
NOT EXERCISABLE AFTER April 24, 2006 OR EARLIER IF REDEEMED OR
EXCHANGED BY THE COMPANY. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT
THE OPTION OF THE COMPANY, AT $.005 PER RIGHT ON THE TERMS SET FORTH
IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, RIGHTS
BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE
OF ANY SUCH PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT)
AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID.
THE RIGHTS SHALL NOT BE EXERCISABLE, AND SHALL BE VOID SO LONG AS
HELD, BY A HOLDER IN ANY JURISDICTION WHERE THE REQUISITE
QUALIFICATION TO THE ISSUANCE TO SUCH HOLDER, OR THE EXERCISE BY SUCH
HOLDER, OF THE RIGHTS IN SUCH JURISDICTION SHALL NOT HAVE BEEN
OBTAINED OR BE OBTAINABLE. [THE RIGHTS REPRESENTED BY THIS RIGHTS
CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR
BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN
ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT).
ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY
MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION
7(e) OF SUCH AGREEMENT.] *
- -----------------------------------
* The portion of the legend in brackets shall be inserted only if
applicable and shall replace the preceding sentence.
<PAGE> 60
Rights Certificate
SUNRISE ASSISTED LIVING, INC.
This certifies that ______________________________ , or its
registered assigns, is the registered owner of the number of Rights set forth
above, each of which entitles the owner thereof, subject to the terms,
provisions and conditions of the Rights Agreement, dated as of April 25, 1996
(the "Rights Agreement"), between Sunrise Assisted Living, Inc., a Delaware
corporation (the "Company"), and First Union National Bank of North Carolina
(the "Rights Agent"), to purchase from the Company at any time prior to April
24, 2006 at the office or offices of the Rights Agent designated for such
purpose, or its successors as Rights Agent, one one-thousandth of a fully paid,
non-assessable share of Series C Junior Participating Preferred Stock, par
value $.01 per share (the "Preferred Stock") of the Company, at a purchase
price of $85.00 per one one-thousandth share (the "Purchase Price"), upon
presentation and surrender of this Rights Certificate with the Form of Election
to Purchase and related Certificate duly executed. The number of Rights
evidenced by this Rights Certificate (and the number of shares which may be
purchased upon exercise thereof) set forth above, and the Purchase Price per
share set forth above, are the number and Purchase Price as of [________ __,
199_], based on the Preferred Stock as constituted at such date, and are
subject to adjustment upon the happening of certain events as provided in the
Rights Agreement.
From and after the occurrence of an event described in Section
11(a)(ii) of the Rights Agreement, the Rights evidenced by this Rights
Certificate beneficially owned by (i) an Acquiring Person or an Affiliate or
Associate of any such Person (as such terms are defined in the Rights
Agreement), which the Continuing Directors (as defined in the Rights
Agreement), in their sole discretion, determines is or was involved in or
caused or facilitated, directly or indirectly (including through any change in
the Board), such Section 11(a)(ii) Event, (ii) a transferee of any such
Acquiring Person, Associate or Affiliate, or (iii) under certain circumstances
specified in the Rights Agreement, a transferee of a person who, concurrently
with or after such transfer, became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person shall become null and void and no holder
hereof shall have any right with respect to such Rights from and after the
occurrence of such Section 11(a)(ii) Event.
The Rights evidenced by this Rights Certificate shall not be
exercisable, and shall be void so long as held, by a holder in any jurisdiction
where the requisite qualification to the issuance to such holder, or the
exercise by such holder, of the Rights in such jurisdiction shall not have been
obtained or be obtainable.
As provided in the Rights Agreement, the Purchase Price and
the number and kind of shares of Preferred Stock or other securities, which may
be purchased upon the exercise of the Rights evidenced by this Rights
Certificate are
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<PAGE> 61
subject to modification and adjustment upon the happening of certain events,
including Triggering Events (as such term is defined in the Rights Agreement).
This Rights Certificate is subject to all of the terms,
provisions and conditions of the Rights Agreement, which terms, provisions and
conditions are hereby incorporated herein by reference and made a part hereof
and to which Rights Agreement reference is hereby made for a full description
of the rights, limitations of rights, obligations, duties and immunities
hereunder of the Rights Agent, the Company and the holders of the Rights
Certificates, which limitations of rights include the temporary suspension of
the exercisability of such Rights under the specific circumstances set forth in
the Rights Agreement. Copies of the Rights Agreement are on file at the
above-mentioned office of the Rights Agent and are also available upon written
request to the Rights Agent.
This Rights Certificate, with or without other Rights
Certificates, upon surrender at the office or offices of the Rights Agent
designated for such purpose, may be exchanged for another Rights Certificate or
Right Certificates of like tenor and date evidencing Rights entitling the
holder to purchase a like aggregate number of one one-thousandths of a share of
Preferred Stock as the Rights evidenced by the Rights Certificate or Rights
Certificates surrendered shall have entitled such holder to purchase. If this
Rights Certificate shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof another Rights Certificate or Rights Certificates
for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate may be redeemed by the Company at its option at a
redemption price of $.005 per Right at any time prior to the earlier of the
close of business on (i) the tenth day following the Stock Acquisition Date (as
such time period may be changed in the discretion of the Board of Directors
pursuant to the Rights Agreement), and (ii) the Final Expiration Date (as
defined in the Rights Agreement). Under certain circumstances set forth in the
Rights Agreement, the decision to redeem shall require the concurrence of a
majority of the Continuing Directors. After the expiration of the redemption
period, the Company's right of redemption may be reinstated if an Acquiring
Person reduces his beneficial ownership to 10% or less of the outstanding
shares of Common Stock in a transaction or series of transactions not involving
the Company, and such reinstatement is approved by the Company's Board of
Directors (with the concurrence of a majority of the Continuing Directors).
At any time after a person becomes an Acquiring Person, the
Board of Directors of the Company may exchange the Rights (other than Rights
owned by such Acquiring Person which have become void), in whole or in part, at
an exchange ratio of one share of Common Stock per Right (subject to
adjustment).
- 3 -
<PAGE> 62
No fractional shares of Preferred Stock will be issued upon
the exercise of any Right or Rights evidenced hereby, (other than fractions
which are integral multiples of one one-thousandth of a share of Preferred
Stock, which may, at the election of the Company, be evidenced by depositary
receipts), but in lieu thereof a cash payment will be made, as provided in the
Rights Agreement.
No holder of this Rights Certificate, as such, shall be
entitled to vote or receive dividends or be deemed for any purpose the holder
of shares of Preferred Stock or of any other securities of the Company which
may at any time be issuable on the exercise hereof, nor shall anything
contained in the Rights Agreement or herein be construed to confer upon the
holder hereof, as such, any of the rights of a stockholder of the Company or
any right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in the Rights Agreement), or to receive
dividends or subscription rights, or otherwise, until the Right or Rights
evidenced by this Rights Certificate shall have been exercised as provided in
the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for
any purpose until it shall have been countersigned by the Rights Agent.
- 4 -
<PAGE> 63
WITNESS the facsimile signature of the proper officers of the
Company and its corporate seal.
<TABLE>
<S> <C>
Dated as of ,
------------------ --- -------
ATTEST: SUNRISE ASSISTED LIVING, INC.
By:
- ----------------------------------------------- ------------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
Countersigned:
- -----------------------------------------
- -----------------------------------------
By:
-------------------------------------
Authorized Signature
</TABLE>
- 5 -
<PAGE> 64
[Form of Reverse Side of Rights Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if
such holder desires to transfer the
Rights Certificate.)
FOR VALUE RECEIVED ____________________________________________________________
hereby sells, assigns and transfers unto ______________________________________
_______________________________________________________________________________
(Please print name and address of transferee)
_______________________________________________________________________________
this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _____________________________
Attorney, to transfer the within Rights Certificate on the books of the
within-named Company, with full power of substitution.
<TABLE>
<S> <C>
Dated: ,
---------------------------------- -----
------------------------------------------
Signature
Signature Guaranteed:
</TABLE>
<PAGE> 65
Certificate
The undersigned hereby certifies by checking the appropriate
boxes that:
(1) this Rights Certificate [ ] is [ ] is not being sold,
assigned and transferred by or on behalf of a Person who is or was an Acquiring
Person or an Affiliate or Associate of any such Person (as such terms are
defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the
undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this
Rights Certificate from any Person who is, was or subsequently became an
Acquiring Person or an Affiliate or Associate of any such Person.
<TABLE>
<S> <C>
Dated: ,
----------------------- ---- ---------------------------------------------
Signature
Signature Guaranteed:
</TABLE>
<PAGE> 66
NOTICE
The signature to the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Rights Certificate in
every particular, without alteration or enlargement or any change whatsoever.
<PAGE> 67
FORM OF ELECTION TO PURCHASE
(To be executed if the registered holder
desires to exercise Rights represented
by the Rights Certificate.)
To: ______________________________
The undersigned hereby irrevocably elects to exercise
____________ Rights represented by this Rights Certificate to purchase the
shares of Preferred Stock issuable upon the exercise of the Rights (or such
other securities of the Company or of any other person which may be issuable
upon the exercise of the Rights) and requests that certificates for such shares
be issued in the name of and delivered to:
- -------------------------------------------------------------------------------
(Please print name and address)
- -------------------------------------------------------------------------------
Please insert social security
or other identifying number:
---------------------------------------
If such number of Rights shall not be all the Rights evidenced
by this Rights Certificate, a new Rights Certificate for the balance of such
Rights shall be registered in the name of and delivered to:
- -------------------------------------------------------------------------------
(Please print name and address)
- -------------------------------------------------------------------------------
Please insert social security
or other identifying number:
---------------------------------------
- --------------------------------------------------------------------
Dated: ,
------------------- ----
---------------------------
Signature
Signature Guaranteed:
- 2 -
<PAGE> 68
Certificate
The undersigned hereby certifies by checking the appropriate
boxes that:
(1) the Rights evidenced by this Rights Certificate [ ]
are [ ] are not being exercised by or on behalf of a Person who is or was an
Acquiring Person or an Affiliate or Associate of any such Person (as such terms
are defined in the Rights Agreement);
(2) after due inquiry and to the best knowledge of the
undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this
Rights Certificate from any Person who is, was or became an Acquiring Person or
an Affiliate or Associate of any such Person.
<TABLE>
<S> <C>
Dated: ,
------------------------- ------- -----------------------------------------------
Signature
Signature Guaranteed:
</TABLE>
- 3 -
<PAGE> 69
NOTICE
The signature to the foregoing Election to Purchase and
Certificate must correspond to the name as written upon the face of this Rights
Certificate in every particular, without alteration or enlargement or any
change whatsoever.
- 4 -
<PAGE> 1
EXHIBIT 5
[HOGAN & HARTSON L.L.P. LETTERHEAD]
May 28, 1996
Board of Directors
Sunrise Assisted Living, Inc.
9401 Lee Highway, Suite 300
Fairfax, Virginia 22031
Ladies and Gentlemen:
We are acting as counsel to Sunrise Assisted Living Inc., a Delaware
corporation (the "Company"), in connection with its registration statement on
Form S 1, as amended (the "Registration Statement"), filed with the Securities
and Exchange Commission relating to the proposed public offering of up to
5,750,000 shares of the Company's common stock, par value $.01 per share,
5,000,000 of which shares (the "Company Shares") are to be sold by the Company,
and 750,000 of which shares (the "Selling Stockholder Shares") are to be sold
by the Selling Stockholders identified in the Registration Statement if the
Underwriters exercise their over-allotment option. This opinion letter is
furnished to you at your request to enable you to fulfill the requirements of
Item 601(b)(5) of Regulation S K, 17 C.F.R. Section 229.601(b)(5), in
connection with the Registration Statement.
For purposes of this opinion letter, we have examined copies of the
following documents:
1. An executed copy of the Registration Statement.
2. The Certificate of Incorporation of the Company, as
certified by the Secretary of the Company on the date
hereof as then being complete, accurate and in effect.
3. The Bylaws of the Company, as certified by the Secretary of the
Company on the date hereof as then being complete,
accurate and in effect.
<PAGE> 2
Board of Directors
Sunrise Assisted Living, Inc.
May 28, 1996
Page 2
4. The proposed form of Underwriting Agreement among the
Company and the several Underwriters to be named
therein, for whom Donaldson, Lufkin & Jenrette Securities
Corporation, Alex. Brown & Sons Incorporated and Natwest
Securities Limited will act as representatives, filed as
Exhibit 1 to the Registration Statement (the "Underwriting
Agreement").
5. Resolutions of the Board of Directors of the Company
adopted on March 19, 1996, as certified by the
Secretary of the Company on the date hereof as then being
complete, accurate and in effect, relating to the issuance and
sale of the Company Shares and arrangements in connection
therewith.
6. Resolutions of the Board of Directors of the Company
adopted on December 19, 1994, as certified by the
Secretary of the Company on the date hereof as then being
complete, accurate and in effect, relating to the issuance and
sale by the Company to the Selling Stockholders of the Selling
Stockholder Shares and arrangements in connection therewith.
In our examination of the aforesaid documents, we have assumed the
genuineness of all signatures, the legal capacity of natural persons, the
authenticity, accuracy and completeness of all documents submitted to us, the
authenticity of all original documents and the conformity to authentic original
documents of all documents submitted to us as copies (including telecopies).
This opinion letter is given, and all statements herein are made, in the
context of the foregoing.
This opinion letter is based as to matters of law solely on the General
Corporation Law of the State of Delaware. We express no opinion herein as to
any other laws, statutes, regulations, or ordinances.
Based upon, subject to and limited by the foregoing, we are of the
opinion that, assuming that at the time the Selling Stockholder Shares were
issued the Company received the consideration therefor specified in the
resolutions of the Board of Directors referred to in paragraph 6 above, the
Selling Stockholder Shares are validly issued, fully paid and nonassessable
under the General Corporation Law of the State of Delaware, and following (i)
final action of the Pricing Committee of the Board of Directors of the Company
approving the price of the Company Shares, (ii) execution and delivery by the
Company of the Underwriting Agreement, (iii)
<PAGE> 3
Board of Directors
Sunrise Assisted Living, Inc.
May 28, 1996
Page 3
effectiveness of the Registration Statement, (iv) issuance of the Company
Shares pursuant to the terms of the Underwriting Agreement and (v) receipt by
the Company of the consideration for the Company Shares specified in the
resolutions of the Board of Directors and the Pricing Committee referred to in
paragraph 5 above, the Company Shares will be validly issued, fully paid and
nonassessable under the General Corporation Law of the State of Delaware.
We assume no obligation to advise you of any changes in the foregoing
subsequent to the delivery of this opinion letter. This opinion letter has
been prepared solely for your use in connection with the filing of the
Registration Statement on the date of this opinion letter and should not be
quoted in whole or in part or otherwise be referred to, nor filed with or
furnished to any governmental agency or other person or entity, without the
prior written consent of this firm.
We hereby consent to the filing of this opinion letter as Exhibit 5 to
the Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the prospectus constituting a part of the Registration
Statement. In giving this consent, we do not thereby admit that we are an
"expert" within the meaning of the Securities Act of 1933, as amended.
Very truly yours,
/s/ Hogan & Hartson L.L.P.
HOGAN & HARTSON L.L.P.
<PAGE> 1
EXHIBIT 10.1.2
ASSIGNMENT AND CONTRIBUTION AGREEMENT
THIS AGREEMENT is made as of the 4th day of January, 1995, by and
between Paul J. Klaassen and Teresa M. Klaassen (the "Klaassens") and Sunrise
Partners, L.P. ("SPLP"), a Virginia limited partnership, and Sunrise Assisted
Living Investments, Inc. ("SALII"), a Virginia corporation.
RECITALS
A. The Klaassens own the following specified interests in the following
listed entities:
1. A thirty-three and one-third percent (33-1/3%) interest
in certain improved real property located at 2450
Aurora Avenue, Seattle, Washington, held by the Klaassens as
tenants in common with the other owners of such property
pursuant to a Statutory Warranty Deed dated November 5, 1991
and a Tenancy in Common Agreement dated November 4, 1991, such
interest being hereinafter called the "Queen Anne Interest";
2. A fifty percent (50%) Membership Interest in Sunrise
Village House LLC, a Maryland limited liability
company, such interest being hereinafter called the "Village
House Interest";
3. A thirty-three percent (33%) limited partnership
interest in WMK Limited Partnership ("WMK"), a Washington
limited partnership, such interest being hereinafter called the
"WMK Interest";
4. A five percent (5%) membership interest in Sunrise
International LLC, a Virginia limited liability
company, such interest being hereinafter called the
"International Interest";
5. One hundred shares of the common, voting, no par value
stock of Independence Home Care Agency, Inc., as
represented by stock certificate number 1, such shares
constituting (100%) of the issued and outstanding shares of
capital stock of such corporation. Such shares of stock shall
hereinafter be called the "Independence Stock".
B. The Klaassens also own one hundred percent of the general and limited
partnership interests in SPLP.
C. The Klaassens desire to assign and contribute to SPLP 49% of the
Village House Interest, the WMK Interest, the Independence Stock, and a
beneficial
<PAGE> 2
interest in the Queen Anne Interest and SPLP desires to accept such assignment
and contribution.
D. In addition, the Klaassens desire to assign and contribute to SALII 1%
of the Village House Interest and SALII desires to accept such assignment and
contribution.
TERMS AND CONDITIONS
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto do hereby
agree as follows:
1. The Klaassens hereby assign to SPLP their Queen Anne Interest.
It is hereby acknowledged and understood that the approval of the U.S.
Department of Housing and Urban Development ("HUD") to such assignment shall be
a condition subsequent to the assignment. If such approval is not given, this
Assignment shall be void.
2. The Klaassens hereby contribute and assign 49% of their Village
House Interest to SPLP and SPLP accepts such contribution and assignment, and
the Klaassens hereby contribute and assign their remaining 1% Village House
Interest to SALII and SALII accepts such contribution and assignment. It is
hereby acknowledged and understood that the approval of the Housing Opportunity
Commission of Montgomery County and the Maryland Housing Fund to such
assignment shall be a condition subsequent to the assignment. If such approval
is not given, this Assignment shall be void.
3. The Klaassens hereby contribute and assign the WMK Interest to
SPLP and SPLP accepts such contribution and assignment. SPLP agrees it shall
be substituted for the Klaassens as a limited partner in WMK and shall be bound
by the terms of the Limited Partnership Agreement of WMK.
4. The Klaassens hereby contribute and assign the International
Interest to SPLP and SPLP accepts such contribution and assignment.
5. The Klaassens hereby contribute and assign to SPLP all right,
title and interest in and to the Independence Stock and SPLP accepts such
assignment and contribution. The Klaassens shall duly endorse the certificate
representing the Independence Stock for transfer to SPLP and shall deliver the
certificate to SPLP.
6. The Klaassens hereby represent and warrant that they own the
Queen Anne Interest, Village House Interest, WMK Interest, International
Interest and Independence Stock free and clear of all liens, encumbrances, and
adverse
2
<PAGE> 3
claims of any kind and by virtue of the assignments provided for herein SPLP
and SALII shall receive each such interest and/or such stock free and clear of
all liens, encumbrances, and adverse claims of any kind.
7. All parties hereto agree to take such actions and execute such
additional documents as are reasonably requested by any other party hereto in
order to effectuate the assignments and transfer provided for herein.
8. This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns. This
Agreement shall be governed by the laws of the Commonwealth of Virginia without
regard to conflicts of laws and may not be amended except by a further written
instrument executed by all parties hereto. This Agreement may be executed by
the parties hereto individually or in any combination, in one or more
counterparts, each of which shall be an original and all of which shall
together constitute one and the same instrument. Each party shall execute and
deliver such further assurances of the terms of this Agreement as may be
requisite.
WITNESS the execution hereof as of the day and year first
above-written.
[sig]
----------------------------------
Paul J. Klaassen
[sig]
----------------------------------
Teresa M. Klaassen
SUNRISE PARTNERS, L.P.
By: Sunrise Development, Inc.,
general partner
By:[sig]
--------------------------------
Paul J. Klaassen,
President
3
<PAGE> 1
EXHIBIT 10.13
SUNRISE ASSISTED LIVING, INC.
1995 STOCK OPTION PLAN, AS AMENDED
SUNRISE ASSISTED LIVING, INC., a Delaware corporation (the
"Corporation"), sets forth herein the terms of this 1995 Stock Option Plan, as
amended (the "Plan") as follows:
1. PURPOSE
The Plan is intended to advance the interests of the Corporation and
any subsidiary thereof within the meaning of Rule 405 of Regulation C under the
Securities Act of 1933, as amended (with the term "person" as used in such Rule
405 being defined as in Section 2(2) of such Act) (a "Subsidiary"), by
providing eligible individuals (as designated pursuant to Section 4 below) with
incentives to improve business results, by providing an opportunity to acquire
or increase a proprietary interest in the Corporation, which thereby will
create a stronger incentive to expend maximum effort for the growth and success
of the Corporation and its Subsidiaries, and will encourage such eligible
individuals to continue to serve the Corporation and its Subsidiaries, whether
as an employee, as a director, as a consultant or advisor or in some other
capacity. To this end, the Plan provides for the grant of stock options, as
set out herein.
This Plan provides for the grant of stock options (each of which is an
"Option") in accordance with the terms of the Plan. An Option may be an
incentive stock option (an "ISO") intended to satisfy the applicable
requirements under Section 422 of the Internal Revenue Code of 1986, as amended
from time to time, or the corresponding provision of any subsequently-enacted
tax statute (the "Code"), or a nonqualified stock option (an "NSO"). An Option
is an NSO to the extent that the Option would exceed the limitations set forth
in Section 7 below. An Option is also an NSO if either (i) the Option is
specifically designated at the time of grant as an NSO or not being an ISO or
(ii) the Option does not otherwise satisfy the requirements of Code Section 422
at the time of grant. Each Option shall be evidenced by a written agreement
between the Corporation and the recipient individual that sets out the terms
and conditions of the grant as further described in Section 8.
2. ADMINISTRATION
(a) BOARD
The Plan shall be administered by the Board of Directors of the
Corporation (the "Board"), which shall have the full power and authority to
take all actions and to make all determinations required or provided for under
the Plan or any Option granted or Option Agreement (as defined in Section 8
below)
<PAGE> 2
entered into hereunder and all such other actions and determinations not
inconsistent with the specific terms and provisions of the Plan deemed by the
Board to be necessary or appropriate to the administration of the Plan or any
Option granted or Option Agreement entered into hereunder. The interpretation
and construction by the Board of any provision of the Plan or of any Option
granted or Option Agreement entered into hereunder shall be final, binding and
conclusive.
(b) ACTION BY COMMITTEE
The Board from time to time may appoint a Stock Option Committee
consisting of two or more members of the Board of Directors who, in the sole
discretion of the Board, may be the same Directors who serve on the
Compensation Committee, subject to Section 2(d), or may appoint the
Compensation Committee to serve as the Stock Option Committee (the
"Committee"), subject to Section 2(d). The Board, in its sole discretion, may
provide that the role of the Committee shall be limited to making
recommendations to the Board concerning any determinations to be made and
actions to be taken by the Board pursuant to or with respect to the Plan, or
the Board may delegate to the Committee such powers and authorities related to
the administration of the Plan, as set forth in Section 2(a) above, as the
Board shall determine, consistent with the Certificate of Incorporation and
By-laws of the Corporation and applicable law. In the event that the Plan or
any Option granted or Option Agreement entered into hereunder provides for any
action to be taken by or determination to be made by the Board, such action may
be taken by or such determination may be made by the Committee if the power and
authority to do so has been delegated to the Committee by the Board as provided
for in this Section. Unless otherwise expressly determined by the Board, any
such action or determination by the Committee shall be final and conclusive.
(c) NO LIABILITY
No member of the Board or of the Committee shall be liable for any
action or determination made in good faith with respect to the Plan or any
Option granted or Option Agreement entered into hereunder.
(d) APPLICABILITY OF RULE 16b-3
Those provisions of the Plan that make express reference to Rule 16b-3
shall apply to the Corporation only at such time as the Corporation's Stock (as
defined in Section 3) or any other equity security of the Corporation is
registered under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and then only to such persons as are required to file reports under
Section 16(a) of the Exchange Act (each of whom is a "Reporting Person").
Unless not required by Rule 16b-3, from and after such time as the
Corporation's Stock or any other equity security of the Corporation is
registered
2
<PAGE> 3
under the Exchange Act (the "Registration Date"), the Board may act under the
Plan (i) only if all members of the Board are "disinterested persons" as
defined in Rule 16b-3 or (ii) by the determination of the Committee constituted
as set forth in the following sentence. From and after the Registration Date,
unless not required by Rule 16b-3, the Committee appointed pursuant to Section
2(b) shall consist of not fewer than two members of the Board each of whom
shall qualify (at the time of appointment to the Committee and during all
periods of service on the Committee) in all respects as a "disinterested
person" as defined in Rule 16b-3.
3. STOCK
The stock that may be issued pursuant to Options under the Plan shall
be shares of common stock, par value $.01 per share, of the Corporation (the
"Stock"), which shares may be treasury shares or authorized but unissued
shares. The number of shares of Stock that may be issued pursuant to Options
under the Plan shall not exceed, in the aggregate, one million two hundred
ninety eight thousand and sixty-five (1,298,065) shares. If any Option
expires, terminates, or is terminated or canceled for any reason prior to
exercise, the shares of Stock that were subject to the unexercised, forfeited,
terminated or canceled portion of such Option shall be available immediately
for future grants of Options under the Plan; provided, however, shares of Stock
that were subject to an Option that has been purchased pursuant to Section
11(c) shall not be available for future grants of Options under the Plan.
4. ELIGIBILITY
(a) DESIGNATED RECIPIENTS
Subject to the next sentence, Options may be granted under the Plan to
(i) any full-time employee of the Corporation or any Subsidiary (including any
such individual who is an officer or director of the Corporation or any
Subsidiary) as the Board shall determine and designate from time to time or
(ii) any other individual (including a non-employee director of, or consultant
or advisor providing bona fide services to, the Corporation or any Subsidiary
provided that such services must not be in connection with the offer or sale of
securities in a capital-raising transaction) whose participation in the Plan is
determined by the Board to be in the best interests of the Corporation and is
so designated by the Board. Options granted to a full-time employee of the
Corporation or a "subsidiary corporation" thereof within the meaning of Section
424(f) of the Code shall be either ISOs or NSOs, as determined in the sole
discretion of the Board, and Options granted to any other individual shall be
NSOs.
3
<PAGE> 4
(b) SUCCESSIVE GRANTS
An individual may hold more than one Option, subject to such
restrictions as are provided herein.
5. EFFECTIVE DATE AND TERM OF THE PLAN
(a) EFFECTIVE DATE
The Plan shall be effective as of the date of adoption by the Board,
subject to approval of the Plan within one year of such effective date by the
affirmative vote of stockholders who hold more than fifty percent (50%) of the
combined voting power of the outstanding shares of voting stock of the
Corporation present or represented, and entitled to vote thereon at a duly
constituted stockholders' meeting, or by consent as permitted by law and in a
manner that satisfies applicable requirements of Rule 16b-3(b) of the Exchange
Act. Upon approval of the Plan by the stockholders of the Corporation as set
forth above, however, all Options granted under the Plan on or after the
effective date shall be fully effective as if the stockholders of the
Corporation had approved the Plan on the Plan's effective date. If the
stockholders fail to approve the Plan within one year of such effective date,
any Options granted hereunder shall be null and void and of no effect.
(b) TERM
The Plan shall have no termination date, but no grant of an ISO may
occur after the date that is ten years after the effective date.
6. GRANT OF OPTIONS
(a) GENERAL
Subject to the terms and conditions of the Plan, the Board may, at any
time and from time to time, grant to such eligible individuals as the Board may
determine (each of the whom is an "Optionee"), Options to purchase such number
of shares of Stock on such terms and conditions as the Board may determine,
including any terms or conditions that may be necessary to qualify such Options
as ISOs under Section 422 of the Code. Such authority specifically includes
the authority, in order to effectuate the purposes of the Plan but without
amending the Plan, to modify grants to eligible individuals who are foreign
nationals or are individuals who are employed outside the United States to
recognize differences in local law, tax policy, or custom.
4
<PAGE> 5
(b) LIMITATION ON GRANTS OF OPTIONS
The maximum number of shares subject to Options that can be granted
under the Plan to any executive officer of the Company or a Subsidiary, or to
any other person eligible for a grant of an Option under Section 4, is 250,000
shares during the first ten years after the effective date of the Plan and
50,000 shares per year thereafter (in each case, subject to adjustment as
provided in Section 16(a) hereof).
7. LIMITATIONS ON INCENTIVE STOCK OPTIONS
(a) PRICE AND DOLLAR LIMITATIONS
An Option that is designated as being one that is intended to qualify
as an ISO shall qualify for treatment as an ISO only to the extent that the
aggregate fair market value (determined at the time the Option is granted) of
the Stock with respect to which all options that are intended to constitute
"incentive stock options," within the meaning of Code Section 422, are
exercisable for the first time by any Optionee during any calendar year (under
the Plan and all other plans of the Optionee's employer corporation and its
parent and subsidiary corporations within the meaning of Section 422(d) of the
Code) does not exceed $100,000.
(b) PARACHUTE LIMITATIONS
Notwithstanding any other provision of this Plan or of any other
agreement, contract, or understanding heretofore or hereafter entered into by
the Optionee with the Corporation, except an agreement, contract, or
understanding hereafter entered into that expressly modifies or excludes
application of this paragraph (an "Other Agreement"), and notwithstanding any
formal or informal plan or other arrangement for the direct or indirect
provision of compensation to the Optionee (including groups or classes of
participants or beneficiaries of which the Optionee is a member), whether or
not such compensation is deferred, is in cash, or is in the form of a benefit
to or for the Optionee (a "Benefit Arrangement"), if the Optionee is a
"disqualified individual," as defined in Section 280G(c) of the Code, any
Option held by that Optionee and any right to receive any payment or other
benefit under this Plan shall not become exercisable or vested (i) to the
extent that such right to exercise, vesting, payment, or benefit, taking into
account all other rights, payments, or benefits to or for the Optionee under
this Plan, all Other Agreements, and all Benefit Arrangements, would cause any
payment or benefit to the Optionee under this Plan to be considered a
"parachute payment" within the meaning of Section 280G(b)(2) of the Code as
then in effect (a "Parachute Payment") and (ii) if, as a result of receiving a
Parachute Payment, the
5
<PAGE> 6
aggregate after-tax amounts received by the Optionee from the Corporation under
this Plan, all Other Agreements, and all Benefit Arrangements would be less
than the maximum after-tax amount that could be received by him without causing
any such payment or benefit to be considered a Parachute Payment. In the event
that the receipt of any such right to exercise, vesting, payment, or benefit
under this Plan, in conjunction with all other rights, payments, or benefits to
or for the Optionee under any Other Agreement or any Benefit Arrangement would
cause the Optionee to be considered to have received a Parachute Payment under
this Plan that would have the effect of decreasing the after-tax amount
received by the Optionee as described in clause (ii) of the preceding sentence,
then the Optionee shall have the right, in the Optionee's sole discretion, to
designate those rights, payments, or benefits under this Plan, any Other
Agreements, and any Benefit Arrangements that should be reduced or eliminated
so as to avoid having the payment or benefit to the Optionee under this Plan be
deemed to be a Parachute Payment.
8. OPTION AGREEMENTS
All Options granted pursuant to the Plan shall be evidenced by
agreements ("Option Agreements"), to be executed by the Corporation and by the
Optionee, in such form or forms as the Board shall from time to time determine.
Option Agreements covering Options granted from time to time or at the same
time need not contain similar provisions; provided, however, that all such
Option Agreements shall comply with all terms of the Plan.
9. OPTION PRICE
The purchase price of each share of the Stock subject to an Option (the
"Option Price") shall be fixed by the Board and stated in each Option
Agreement. In the case of an Option intended to constitute an ISO, the Option
Price shall be not less than the greater of par value or 100 percent of the
fair market value of a share of Stock on the date on which the Option is
granted (as determined in good faith by the Board); provided, however, that in
the event the Optionee would otherwise be ineligible to receive an ISO by
reason of the provisions of Sections 422(b)(6) and 424(d) of the Code (relating
to stock ownership of more than ten percent), the Option Price of an Option
that is intended to be an ISO shall not be less than the greater of par value
or 110 percent of the fair market value of a share of Stock at the time such
Option is granted. In the event that the Stock is listed on an established
national or regional stock exchange, is admitted to quotation on the National
Association of Securities Dealers Automated Quotation System, or is publicly
traded in an established securities market, in determining the fair market
value of the Stock, the Board shall use the closing price of the Stock on such
exchange or system or in such market (the highest such closing price if there
is more than one such exchange or market) on the trading date immediately
before the
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Option is granted (or, if there is no such closing price, then the Board shall
use the mean between the highest bid and lowest asked prices or between the
high and low prices on such date), or, if no sale of the Stock has been made on
such day, on the next preceding day on which any such sale shall have been
made. In the case of an Option that is an NSO, the Option Price shall not be
less than par value.
10. TERM AND EXERCISE OF OPTIONS
(a) TERM
Upon the expiration of ten years from the date on which an ISO is
granted or on such date prior thereto as may be fixed by the Board and stated
in the Option Agreement relating to such Option, that ISO shall be ineligible
for treatment as an "incentive stock option," as defined in Section 422 of the
Code, and shall be exercisable only as an NSO. In the event the Optionee
otherwise would be ineligible to receive an "incentive stock option" by reason
of the provisions of Sections 422(b)(6) and 424(d) of the Code (relating to
stock ownership of more than 10 percent), such ten year restriction on
exercisability as an ISO shall be read to impose a five year restriction on
such exercisability. If an Optionee shall terminate employment prior to the
ten-year or five-year limitation described in the immediately preceding
sentences, any outstanding ISO shall be ineligible for treatment as an
"incentive stock option," as defined in Section 422 of the Code, and shall be
exercisable only as an NSO, unless exercised within three months after such
termination or, in the case of termination on account of "permanent and total
disability" (within the meaning of Section 22(e)(3) of the Code), within one
year after such termination.
(b) OPTION PERIOD AND LIMITATIONS ON EXERCISE
Each Option granted under the Plan shall be exercisable, in whole or in
part, at any time and from time to time, over a period commencing on or after
the date of grant and, to the extent that the Board determines and sets forth a
termination date for such Option in the Option Agreement (including any
amendment thereto), ending upon the stated expiration or termination date. The
Board in its sole discretion may specify events or circumstances, including the
giving of notice, which will cause an Option to terminate as set forth in the
Option Agreement or in this Plan. No Option granted to a Reporting Person
shall be exercisable during the first six months after the date of grant.
Without limiting the foregoing but subject to the terms and conditions of the
Plan, the Board may in its sole discretion provide that an Option may not be
exercised in whole or in part for any period or periods of time during which
such Option is outstanding and may condition exercisability (or vesting) of an
Option upon the attainment of performance objectives, upon continued service,
upon certain events or transactions, or a combination of one or more of such
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factors, or otherwise, as set forth in the Option Agreement. Subject to the
parachute payment restrictions under Section 7(b), however, the Board, in its
sole discretion, may rescind, modify, or waive any such limitation or condition
on the exercise of an Option contained in any Option Agreement, so as to
accelerate the time at which the Option may be exercised or extend the period
during which the Option may be exercised. Notwithstanding any other provisions
of the Plan, no Option granted to an Optionee under the Plan shall be
exercisable in whole or in part prior to the date on which the stockholders of
the Corporation approve the Plan, as provided in Section 5 above.
(c) METHOD OF EXERCISE
An Option that is exercisable hereunder may be exercised by delivery to
the Corporation on any business day, at the Corporation's principal office,
addressed to the attention of the President, of written notice of exercise,
which notice shall specify the number of shares with respect to which the
Option is being exercised and shall be accompanied by payment in full of the
Option Price of the shares for which the Option is being exercised. The
minimum number of shares of Stock with respect to which an Option may be
exercised, in whole or in part, at any time shall be the lesser of (i) 100
shares or such lesser number set forth in the applicable Option Agreement and
(ii) the maximum number of shares available for purchase under the Option at
the time of exercise. Payment of the Option Price for the shares of Stock
purchased pursuant to the exercise of an Option shall be made (i) in cash or in
cash equivalents; (ii) to the extent permitted by applicable law and under the
terms of the Option Agreement with respect to such Option, through the tender
to the Corporation of shares of Stock, which shares shall be valued, for
purposes of determining the extent to which the Option Price has been paid
thereby, at their fair market value (determined in accordance with Section 9)
on the date of exercise; (iii) to the extent permitted by applicable law and
under the terms of the Option Agreement with respect to such Option, by the
delivery of a promissory note of the person exercising the Option to the
Corporation on such terms as shall be set out in such Option Agreement; (iv) to
the extent permitted by applicable law and under the terms of the Option
Agreement with respect to such Option, by causing the Corporation to withhold
shares of Stock otherwise issuable pursuant to the exercise of an Option equal
in value to the Option Price or portion thereof to be satisfied pursuant to
this clause (iv); or (v) by a combination of the methods described in (i),
(ii), (iii), and (iv). An attempt to exercise any Option granted hereunder
other than as set forth above shall be invalid and of no force and effect.
Payment in full of the Option Price need not accompany the written notice of
exercise provided the notice directs that the Stock certificate or certificates
for the shares for which the Option is exercised be delivered to a licensed
broker acceptable to the Corporation as the agent for the individual exercising
the Option and, at the time such Stock certificate or certificates are
delivered, the broker tenders to the Corporation cash (or cash
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<PAGE> 9
equivalents acceptable to the Corporation) equal to the Option Price. Promptly
after the exercise of an Option and the payment in full of the Option Price of
the shares of Stock covered thereby, the individual exercising the Option shall
be entitled to the issuance of a Stock certificate or Stock certificates
evidencing his ownership of such shares. A separate Stock certificate or
separate Stock certificates shall be issued for any shares purchased pursuant
to the exercise of an Option that is an ISO, which certificate or certificates
shall not include any shares that were purchased pursuant to the exercise of an
Option that is an NSO. Unless otherwise stated in the applicable Option
Agreement, an individual holding or exercising an Option shall have none of the
rights of a stockholder (for example, the right to receive cash or stock
dividend payments attributable to the subject shares or to direct the voting of
the subject shares) until the shares of Stock covered thereby are fully paid
and issued to him. Except as provided in Section 16 below, no adjustment shall
be made for dividends or other rights for which the record date is prior to the
date of such issuance. Shares issued pursuant to the exercise of any Option
shall be subject to the applicable restrictions set out in Section 11 hereof.
(d) DATE OF GRANT
The date of grant of an Option under this Plan shall be the date as of
which the Board approves the grant.
11. TRANSFERABILITY OF STOCK AND OPTIONS
(a) LIMITATIONS ON TRANSFER
During the lifetime of an Optionee, only such Optionee (or, in the
event of legal incapacity or incompetency, the guardian or legal representative
of the Optionee) may exercise the Option, except as otherwise specifically
permitted by this Section 11(a). No Option shall be assignable or transferable
other than by will or in accordance with the laws of descent and distribution;
provided, however, subject to the terms of the applicable Option Agreement, and
to the extent the transfer is in compliance with any applicable restrictions on
transfers, an Optionee (other than, unless permissible under Rule 16b-3, an
Optionee who is, or during the preceding six months has been, a Reporting
Person) may transfer an NSO to a family member of the Optionee (defined as an
individual who is related to the Optionee by blood or adoption) or to a trust
established and maintained for the benefit of the Optionee or a family member
of the Optionee (as determined under applicable state law and the Code).
(b) REPURCHASE RIGHTS
In the Board's sole discretion, the Board may provide in an Option
Agreement that upon the termination of an Optionee's employment or other
relationship with the Corporation or a Subsidiary (whether as an employee, a
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director, a consultant or advisor providing bona fide services to the
Corporation or any Subsidiary, or otherwise), the Corporation shall have the
right, for a period of up to twelve months following such termination, to
repurchase any or all of the shares acquired by the individual pursuant to this
Plan under an Option (including shares that were previously transferred
pursuant to Section 11(d) below, unless otherwise specified in the Option
Agreement), at a price equal to the fair market value of such shares on the
date of termination (or at such other price or the fair market value on such
other date as shall have been specified by the Board at the time of grant and
set out in the appropriate Option Agreement with respect to the grant). In the
Board's sole discretion and pursuant to the terms of Section 12, the Board may
also provide in an Option Agreement that upon the exercise of an Option
following termination of an Optionee's employment or other relationship with
the Corporation or a Subsidiary (whether as an employee, a director, a
consultant or advisor providing bona fide services to Corporation or any
Subsidiary, or otherwise), the Corporation shall have the right, for a period
of up to twelve months following such exercise, to repurchase any or all such
shares of Stock acquired by the Optionee pursuant to such exercise of such
Option at a price that is equal to the fair market value of such shares
(including shares that were previously transferred pursuant to Section 11(d)
below, unless otherwise specified in the Option Agreement) on the date of
exercise (or at such other price or the fair market value on such other date as
shall have been specified by the Board at the time of grant and set out in the
appropriate Option Agreement with respect to the grant). In the event that the
Corporation determines that it cannot or will not exercise its rights to
purchase Stock under this Section 11(b) and the applicable Option Agreement, in
whole or in part, the Corporation may assign its rights, in whole or in part,
to (i) any holder of stock or securities of the Corporation (a "Stockholder"),
(ii) any employee benefit plan (within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended) maintained by the
Corporation or a Subsidiary for the benefit of employees of the Corporation or
a Subsidiary (a "Benefit Plan"), or (iii) any corporation or other trade or
business that is controlled by or under common control with the Corporation
(determined in accordance with the principles of Sections 414(b) and (c) of the
Code and regulations thereunder) (an "Affiliate"). The Corporation shall give
reasonable written notice to the individual of any assignment of its rights.
"Fair market value," for purposes of this Section 11(b), shall be determined by
the Board in the same manner used by it in good faith to determine fair market
value for purposes of determining the Option Price pursuant to Section 9.
(c) PURCHASE OF OPTIONS
In the Board's sole discretion, the Board may provide in an Option
Agreement that upon or after the termination of an Optionee's employment or
other relationship with the Corporation or a Subsidiary (whether as an
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employee, a director, a consultant or advisor providing bona fide services to
the Corporation or a Subsidiary, or otherwise), the Corporation shall have the
right, at all times before the Option is exercised, to purchase in whole or in
part each Option held by the Optionee (and each Option transferred by the
Optionee pursuant to Section 11(a) above unless otherwise specified in the
Option Agreement), at a price equal to the value of such Option on the date
such purchase right is exercised, provided the Corporation delivers to the
Optionee a notice that it is exercising such purchase right within 10 business
days of such date. For this purpose, the value of the Option (or portion
thereof being purchased) is equal to the excess (if any) of the fair market
value of the shares of Stock that are subject to the Option, (determined by the
Board in the same manner used by it in good faith to determine fair market
value for purposes of determining the Option Price pursuant to Section 9) as of
the date of the exercise of such right, over the aggregate Option Price of such
shares. Upon payment (or tender of payment) of the applicable amount to the
Optionee (or transferee of the Option), the Option shall be terminated and, if
payment has been tendered but not made, shall only represent the right to
receive such payment without interest.
(d) NONTRANSFERABILITY OF SHARES
In the Board's sole discretion, the Board may provide in an Option
Agreement that an Optionee (or such other individual who is entitled to
exercise an Option) shall not sell, pledge, assign, gift, transfer, or
otherwise dispose of any shares of Stock acquired pursuant to an Option to
anyone without first offering such shares to the Corporation for purchase on
the same terms and conditions as those offered the proposed transferee. If
such a restriction applies to an individual pursuant to an Option Agreement, an
individual who proposes such a transfer (the "Transferor") shall notify the
Corporation, in writing, of the identity of the proposed transferee and the
terms and conditions of such proposed transfer. The Corporation may exercise
its right of first refusal within 90 days after receiving such notice of the
proposed transfer. The Corporation may assign its right of first refusal under
this Section 11(d), in whole or in part, to a Stockholder, a Benefit Plan, or
an Affiliate. The Corporation shall give reasonable written notice to the
Transferor of any such assignment of its rights. If the Corporation (or its
permitted assignee) fails to exercise such right of first refusal during this
90-day period, the Transferor may proceed with the proposed transfer at any
time within the next 45 days, and if he does not do so, the restrictions of
this Section 11(d) shall re-apply. The Option Agreement may provide that the
restrictions of this Section 11(d) re-apply to any person to whom Stock that
was originally acquired pursuant to an Option is sold, pledged, assigned,
bequeathed, gifted, transferred or otherwise disposed of, without regard to the
number of such subsequent transferees or the manner in which they acquire the
Stock, but the Option Agreement may provide that the restrictions of this
Section 11(d) do not apply to a transfer of Stock that occurs
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as a result of the death of the Transferor or of any subsequent transferee (but
shall apply to the executor, the administrator or personal representative, the
estate, and the legatees, beneficiaries and assigns thereof).
(e) LEGEND
In order to enforce the restrictions imposed upon shares of Stock under
this Plan or as provided in an Option Agreement, the Board may cause a legend
or legends to be placed on any certificate representing shares issued pursuant
to this Plan that complies with the applicable securities laws and regulations
and makes appropriate reference to the restrictions imposed under it.
(f) PUT RIGHTS
The Board, by inclusion of appropriate language in the Option
Agreement, may grant the person acquiring shares of Stock thereunder the right
to put such shares to the Corporation at the fair market value of such shares
(as determined hereunder) at the time of exercise of such put, or at such other
value as shall be specified in the Option Agreement, subject to such further
terms and conditions as the Board shall include in the Option Agreement.
(g) TERMINATION OF SECTIONS 11(b) THROUGH 11(f)
Sections 11(b) through 11(f) shall terminate, and shall be of no
further force and effect, from and after the Registration Date.
12. TERMINATION OF EMPLOYMENT OR OTHER
RELATIONSHIP OF OPTIONEE
In the Board's sole discretion, the Board may include language in an
Option Agreement providing for the termination of any unexercised Option in
whole or in part upon or at any time after the termination of employment or
other relationship of the Optionee with the Corporation or a Subsidiary
(whether as an employee, a director, a consultant or advisor providing bona
fide services to the Corporation or a Subsidiary, or otherwise). Whether a
leave of absence or leave on military or government service shall constitute a
termination of employment or other relationship of the Optionee with the
Corporation or a Subsidiary for purposes of the Plan shall be determined by the
Board, which determination shall be final and conclusive.
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13. USE OF PROCEEDS
The proceeds received by the Corporation from the sale of Stock
pursuant to the exercise of Options granted under the Plan shall constitute
general funds of the Corporation.
14. REQUIREMENTS OF LAW
The Corporation shall not be required to sell or issue any shares of
Stock under any Option if the sale or issuance of such shares would constitute
a violation by the Optionee, the individual exercising the Option, or the
Corporation of any provisions of any law or regulation of any governmental
authority, including without limitation any federal or state securities laws or
regulations. If at any time the Corporation shall determine, in its
discretion, that the listing, registration, or qualification of any shares
subject to the Option upon any securities exchange or under any state or
federal law, or the consent or approval of any government regulatory or
self-regulatory body is necessary or desirable as a condition of, or in
connection with, the issuance or purchase of shares, the Option may not be
exercised in whole or in part unless such listing, registration, qualification,
consent, or approval shall have been effected or obtained free of any
conditions not acceptable to the Corporation, and any delay caused thereby
shall in no way affect the date of termination of the Option. Specifically in
connection with the Securities Act of 1933 (as now in effect or as hereafter
amended), upon the exercise of any Option, unless a registration statement
under such Act is in effect with respect to the shares of Stock covered
thereby, the Corporation shall not be required to sell or issue such shares
unless the Board has received evidence satisfactory to it that the holder of
such Option may acquire such shares pursuant to an exemption from registration
under such Act. Any determination in this connection by the Board shall be
final, binding, and conclusive. The Corporation may, but shall in no event be
obligated to, register any securities covered hereby pursuant to the Securities
Act of 1933 (as now in effect or as hereafter amended) or to register its
common stock pursuant to the Securities Exchange Act of 1934 (as now in effect
or as hereafter amended). The Corporation shall not be obligated to take any
affirmative action in order to cause the exercisability or vesting of an Option
or to cause the exercise of an Option or the issuance of shares pursuant
thereto to comply with any law or regulation of any governmental authority. As
to any jurisdiction that expressly imposes the requirement that an Option shall
not be exercisable unless and until the shares of Stock covered by such Option
are registered or are subject to an available exemption from registration, the
exercise of such Option (under circumstances in which the laws of such
jurisdiction apply) shall be deemed conditioned upon the effectiveness of such
registration or the availability of such an exemption.
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15. AMENDMENT AND TERMINATION OF THE PLAN
The Board may, at any time and from time to time, amend, suspend, or
terminate the Plan as to any shares of Stock as to which Options have not been
granted; provided, however, that any amendment by the Board which, if not
approved by the Corporation's stockholders in accordance with applicable
requirements of Rule 16b-3, would cause the Plan to not comply with Rule 16b-3
(or any successor rule or other regulatory requirements) or the Code shall not
be effective unless approved by the affirmative vote of stockholders who hold
more than fifty percent (50%) of the combined voting power of the outstanding
shares of voting stock of the Corporation present or represented, and entitled
to vote thereon at a duly constituted stockholders' meeting, or by consent as
permitted by law. The Corporation, however, may retain the right in an Option
Agreement to convert an ISO into an NSO. The Corporation may also retain the
right in an Option Agreement to cause a forfeiture of the shares of Stock or
gain realized by a holder of an Option (a) if the holder violates any agreement
covering non-competition with the Corporation or any Subsidiary or
nondisclosure of confidential information of the Corporation or any Subsidiary,
(b) if the holder's employment is terminated for cause or (c) if the Board
determines that the holder committed acts or omissions which would have been
the basis for a termination of holder's employment for cause had such acts or
omissions been discovered prior to termination of holder's employment.
Furthermore, the Corporation may, in the Option Agreement, retain the right to
annul the grant of an Option, if the holder of such grant was an employee of
the Corporation or a Subsidiary and the holder's employment is terminated for
cause, as defined in the applicable Option Agreement. Except as permitted
under this Section 15 or Section 16 hereof, no amendment, suspension, or
termination of the Plan shall, without the consent of the holder of the Option,
alter or impair rights or obligations under any Option theretofore granted
under the Plan.
16. EFFECT OF CHANGES IN CAPITALIZATION
(a) CHANGES IN STOCK
If the number of outstanding shares of Stock is increased or decreased
or the shares of Stock are changed into or exchanged for a different number or
kind of shares or other securities of the Corporation on account of any
recapitalization, reclassification, stock split-up, combination of shares,
exchange of shares, stock dividend or other distribution payable in capital
stock, or other increase or decrease in such shares effected without receipt of
consideration by the Corporation, occurring after the effective date of the
Plan, the number and kind of shares for the acquisition of which Options may be
granted under the Plan, and the limitations on the maximum number of shares
subject to Options that can be granted to any individual under the Plan as set
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forth in Section 6(b) hereof, shall be adjusted proportionately and accordingly
by the Corporation. In addition, the number and kind of shares for which
Options are outstanding shall be adjusted proportionately and accordingly so
that the proportionate interest of the holder of the Option immediately
following such event shall, to the extent practicable, be the same as
immediately before such event. Any such adjustment in outstanding Options
shall not change the aggregate Option Price payable with respect to shares that
are subject to the unexercised portion of the Option outstanding but shall
include a corresponding proportionate adjustment in the Option Price per share.
(b) REORGANIZATION IN WHICH THE CORPORATION IS
THE SURVIVING CORPORATION
Subject to Subsection (c)(iv) hereof, if the Corporation shall be the
surviving corporation in any reorganization, merger, or consolidation of the
Corporation with one or more other corporations, any Option theretofore granted
pursuant to the Plan shall pertain to and apply to the securities to which a
holder of the number of shares of Stock subject to such Option would have been
entitled immediately following such reorganization, merger, or consolidation,
with a corresponding proportionate adjustment of the Option Price per share so
that the aggregate Option Price thereafter shall be the same as the aggregate
Option Price of the shares remaining subject to the Option immediately prior to
such reorganization, merger, or consolidation.
(c) DISSOLUTION, LIQUIDATION, SALE OF ASSETS,
REORGANIZATION IN WHICH THE CORPORATION IS NOT THE
SURVIVING CORPORATION, ETC.
The Plan and all Options outstanding hereunder shall terminate (i) upon
the dissolution or liquidation of the Corporation, or (ii) upon a merger,
consolidation, or reorganization of the Corporation with one or more other
corporations in which the Corporation is not the surviving corporation, or
(iii) upon a sale of substantially all of the assets of the Corporation to
another person or entity, or (iv) upon a merger, consolidation or
reorganization (or other transaction if so determined by the Board in its sole
discretion) in which the Corporation is the surviving corporation, that is
approved by the Board and that results in any person or entity (other than
persons who are holders of Stock of the Corporation at the time the Plan is
approved by the stockholders and other than an Affiliate) owning 80 percent or
more of the combined voting power of all classes of stock of the Corporation,
except to the extent provision is made in writing in connection with any such
transaction covered by clauses (i) through (iv) for the continuation of the
Plan or the assumption of such Options theretofore granted, or for the
substitution for such Options of new options covering the stock of a successor
corporation, or a parent or subsidiary thereof, with appropriate adjustments as
to the number and kind of shares and exercise prices, in which event the Plan
and Options theretofore granted shall continue
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in the manner and under the terms so provided. In the event of any such
termination of the Plan, each individual holding an Option shall have the right
(subject to the general limitations on exercise set forth in Section 10(b)
above), during such period occurring before such termination as the Board in
its sole discretion shall determine and designate, and in any event immediately
before the occurrence of such termination, to exercise such Option in whole or
in part, to the extent that such Option was otherwise exercisable at the time
such termination occurs, except that, by inclusion of appropriate language in
an Option Agreement, the Board may provide that the Option may be exercised
before termination without regard to any installment limitation or other
condition on exercise imposed pursuant to Section 10(b) above. The Corporation
shall send written notice of a transaction or event that will result in such a
termination to all individuals who hold Options not later than the time at
which the Corporation gives notice thereof to its stockholders.
(d) ADJUSTMENTS
Adjustments under this Section 16 related to stock or securities of the
Corporation shall be made by the Board, whose determination in that respect
shall be final, binding, and conclusive. No fractional shares of Stock or
units of other securities shall be issued pursuant to any such adjustment, and
any fractions resulting from any such adjustment shall be eliminated in each
case by rounding downward to the nearest whole share or unit.
(e) NO LIMITATIONS ON CORPORATION
The grant of an Option pursuant to the Plan shall not affect or limit
in any way the right or power of the Corporation to make adjustments,
reclassifications, reorganizations, or changes of its capital or business
structure or to merge, consolidate, dissolve, or liquidate, or to sell or
transfer all or any part of its business or assets.
17. DISCLAIMER OF RIGHTS
No provision in the Plan or in any Option granted or Option Agreement
entered into pursuant to the Plan shall be construed to confer upon any
individual the right to remain in the employ or service of or to maintain a
relationship with the Corporation or any Subsidiary, or to interfere in any way
with any contractual or other right or authority of the Corporation or any
Subsidiary either to increase or decrease the compensation or other payments to
any individual at any time, or to terminate any employment or other
relationship between any individual and the Corporation or any Subsidiary. The
obligation of the Corporation to pay any benefits pursuant to this Plan shall
be interpreted as a contractual obligation to pay only those amounts described
herein, in the manner and under the conditions prescribed herein. The Plan
shall in no way be interpreted to require the Corporation to transfer
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any amounts to a third party trustee or otherwise hold any amounts in trust or
escrow for payment to any participant or beneficiary under the terms of the
Plan.
18. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan nor the submission of the Plan to the
stockholders of the Corporation for approval shall be construed as creating any
limitations upon the right and authority of the Board to adopt such other
incentive compensation arrangements (which arrangements may be applicable
either generally to a class or classes of individuals or specifically to a
particular individual or particular individuals) as the Board in its discretion
determines desirable, including, without limitation, the granting of stock
options otherwise than under the Plan.
19. CAPTIONS
The use of captions in this Plan or any Option Agreement is for the
convenience of reference only and shall not affect the meaning of any provision
of the Plan or such Option Agreement.
20. DISQUALIFYING DISPOSITIONS
If Stock acquired by exercise of an ISO granted under this Plan is
disposed of within two years following the date of grant of the ISO or one year
following the transfer of the subject Stock to the Optionee (a "disqualifying
disposition"), the holder of the Stock shall, immediately prior to such
disqualifying disposition, notify the Corporation in writing of the date and
terms of such disposition and provide such other information regarding the
disposition as the Corporation may reasonably require.
21. WITHHOLDING TAXES
(a) The Corporation shall have the right to deduct from payments of
any kind otherwise due to an Optionee any Federal, state, or local taxes of any
kind required by law to be withheld with respect to any shares issued upon the
exercise of an Option under the Plan or in connection with the purchase of an
Option by the Corporation. At the time of exercise, the Optionee shall pay to
the Corporation any amount that the Corporation may reasonably determine to be
necessary to satisfy such withholding obligation. The Board in its sole
discretion may provide in the Option Agreement that, subject to the prior
approval of the Corporation, which may be withheld by the Corporation in its
sole discretion, the Optionee may elect to satisfy such obligations, in whole
or in part, (i) by causing the Corporation to withhold shares of Stock
otherwise issuable pursuant to the exercise of an Option or (ii) by delivering
to the Corporation shares of Stock already owned by the Optionee. The shares
so
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delivered or withheld shall have a fair market value equal to such withholding
obligations. The fair market value of the shares used to satisfy such
withholding obligation shall be determined by the Corporation as of the date
that the amount of tax to be withheld is to be determined. An Optionee who has
made an election pursuant to this Section 21(a) may only satisfy his or her
withholding obligation with shares of Stock that are not subject to any
repurchase, forfeiture, unfulfilled vesting, or other similar requirements.
(b) Notwithstanding the foregoing, in the case of a Reporting
Person, no election to use shares for the payment of withholding taxes shall be
effective unless made in compliance with any applicable requirements under Rule
16b-3(e) or any successor rule under the Exchange Act.
22. OTHER PROVISIONS
Each Option granted under the Plan may be subject to, and the Option
Agreement relating to such Option may contain, such other terms and conditions
not inconsistent with the Plan as may be determined by the Board, in its sole
discretion. Notwithstanding the foregoing, each ISO granted under the Plan
shall include those terms and conditions that are necessary to qualify the ISO
as an "incentive stock option" within the meaning of the Section 422 of the
Code or the regulations thereunder and shall not include any terms or
conditions that are inconsistent therewith.
23. NUMBER AND GENDER
With respect to words used in this Plan, the singular form shall
include the plural form, the masculine gender shall include the feminine
gender, etc., as the context requires.
24. SEVERABILITY
If any provision of the Plan or any Option Agreement shall be
determined to be illegal or unenforceable by any court of law in any
jurisdiction, the remaining provisions hereof and thereof shall be severable
and enforceable in accordance with their terms, and all provisions shall remain
enforceable in any other jurisdiction.
25. GOVERNING LAW
The validity and construction of this Plan and the instruments
evidencing the Options granted hereunder shall be governed by the laws of the
State of Delaware (excluding its choice of law rules).
* * *
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EXHIBIT 10.13.1
SUNRISE ASSISTED LIVING, INC.
1996 DIRECTORS' STOCK OPTION PLAN
1. NAME AND PURPOSE.
1.1 This plan is the SUNRISE ASSISTED LIVING, INC. 1996
DIRECTORS' STOCK OPTION PLAN (the "Plan").
1.2 The purposes of the Plan are to enhance the Company's
ability to attract and retain highly qualified individuals to serve as members
of the Company's Board of Directors and to provide additional incentives to
Directors to promote the success of the Company. The Plan provides Directors
of the Company an opportunity to purchase shares of the Stock of the Company
pursuant to Options. Options granted under the Plan shall not constitute
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended.
1.3 This Plan is intended to constitute a "formula plan"
and the Directors are intended to be "disinterested administrators" of Other
Plans for purposes of Rule 16b 3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
2. DEFINITIONS.
For purposes of interpreting the Plan and related documents
(including Stock Option Agreements), the following definitions shall apply:
2.1 "Additional Option" means any Option other than an
Initial Option.
2.2 "Board" means the Board of Directors of the Company.
2.3 "Commencement of Service" means the date of election by
the stockholders of the Director to his or her first term as a Director.
2.4 "Company" means Sunrise Assisted Living, Inc., a
Delaware corporation.
2.5 "Director" means a member of the Company's Board who is
not an officer or employee of the Company or any of its subsidiaries and was
not serving as a Series A Director (as defined in that certain Stockholders'
Agreement dated as of January 4, 1995) on the Effective Date.
2.6 "Effective Date" means the date the Plan was adopted by
the Board.
2.7 "Exercise Price" means the Option Price multiplied by
the number of shares of Stock purchased pursuant to exercise of an Option.
2.8 "Expiration Date" means the tenth anniversary of the
Grant Date, or, if earlier, the termination of the Option pursuant to Section
4.2(c).
<PAGE> 2
2.9 "Fair Market Value" means the value of each share of
Stock subject to this Plan determined as follows: If on the Grant Date or
other determination date the Stock is listed on an established national or
regional stock exchange, is admitted to quotation on the National Association
of Securities Dealers Automated Quotation System, or is publicly traded on an
established securities market, the Fair Market Value of the Stock shall be the
closing price of the Stock on such exchange or in such market (the highest such
closing price if there is more than one such exchange or market) on the trading
day immediately preceding the Grant Date or other determination date (or, if
there is no such reported closing price, the Fair Market Value shall be the
mean between the highest bid and lowest asked prices or between the high and
low sale prices on such trading day), or, if no sale of the Stock is reported
for such trading day, on the next preceding day on which any sale shall have
been reported. If the Stock is not listed on such an exchange, quoted on such
System or traded on such a market, Fair Market Value shall be determined by the
Board in good faith.
2.10 "Grant Date" means the date on which an Option takes
effect pursuant to Section 7 of this Plan.
2.11 "Initial Option" means an Option received by each
Director as of the Director's Commencement of Service.
2.12 "Option" means any option to purchase one or more
shares of Stock pursuant to this Plan including both Initial Options and
Additional Options.
2.13 "Optionee" means a person who holds an Option under
this Plan.
2.14 "Option Period" means the period during which Options
may be exercised as defined in Section 9.
2.15 "Option Price" means the purchase price for each share
of Stock subject to an Option.
2.16 "Other Plan" means the Sunrise Assisted Living, Inc.
1995 Stock Option Plan and any other stock option plan adopted by the Company
or any of its subsidiaries other than the Plan.
2.17 "1933 Act" means the Securities Act of 1933, as now in
effect or as hereafter amended.
2.18 "Stock" means the Common Stock, par value $.01 per
share, of the Company.
2.19 "Stock Option Agreement" means the written agreement
evidencing the grant of an Option hereunder.
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<PAGE> 3
3. ADMINISTRATION OF THE PLAN.
The Plan shall be administered by the Board. The Board's
responsibilities under the Plan shall be limited to taking all legal actions
necessary to document the Options provided herein, to maintain appropriate
records and reports regarding those Options, and to take all acts authorized by
this Plan.
4. STOCK SUBJECT TO THE PLAN.
4.1 Subject to adjustments made pursuant to Section 4.2,
the maximum number of shares of Stock which may be issued pursuant to the Plan
shall not exceed 50,000. If any Option expires, terminates or is canceled for
any reason before it is exercised in full, the shares of Stock that were
subject to the unexercised portion of the Option shall be available for future
Options granted under the Plan.
4.2 (a) If the outstanding shares of Stock are
increased or decreased or changed into or exchanged for a different number or
kind of shares or other securities of the Company by reason of any
recapitalization, reclassification, stock split-up, combination of shares,
exchange of shares, stock dividend or other distribution payable on capital
stock, or other increase or decrease in such shares effected without receipt of
consideration by the Company, occurring after the effective date of the Plan,
the number and kinds of shares for the purchase of which Options may be granted
under the Plan shall be adjusted proportionately and accordingly by the
Company. In addition, the number and kind of shares for which Options are
outstanding shall be adjusted proportionately and accordingly so that the
proportionate interest of the holder of the Option immediately following such
event shall, to the extent practicable, be the same as immediately prior to
such event. Any such adjustment in outstanding Options shall not change the
aggregate Option Price payable with respect to shares subject to the
unexercised portion of the Option outstanding but shall include a corresponding
proportionate adjustment in the Option Price per share.
(b) Subject to Subsection (c) hereof, if the
Company shall be the surviving corporation in any reorganization, merger or
consolidation of the Company with one or more other corporations, any Option
theretofore granted pursuant to the Plan shall pertain to and apply to the
securities to which a holder of the number of shares of Stock subject to such
Option would have been entitled immediately following such reorganization,
merger or consolidation, with a corresponding proportionate adjustment of the
Option Price per share so that the aggregate Option Price thereafter shall be
the same as the aggregate Option Price of the shares remaining subject to the
Option immediately prior to such reorganization, merger or consolidation.
(c) Upon the dissolution or liquidation of the
Company, or upon a merger, consolidation or reorganization of the Company with
one or more other corporations in which the Company is not the surviving
corporation, or upon a sale of all or substantially all of the assets of the
Company to another corporation, or upon any transaction (including, without
limitation, a merger or reorganization in which the Company is the surviving
corporation) approved by the Board which results in any person
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<PAGE> 4
or entity owning 80 percent or more of the combined voting power of all classes
of stock of the Company, the Plan and all Options outstanding hereunder shall
terminate, except to the extent provision is made in writing in connection with
such transaction for the continuation of the Plan, the assumption of the
Options theretofore granted, or for the substitution for such Options of new
options covering the stock of a successor corporation, or a parent or
subsidiary thereof, with appropriate adjustments as to the number and kinds of
shares and exercise prices, in which event the Plan (if applicable) and Options
theretofore granted shall continue in the manner and under the terms so
provided. In the event of any such termination of the Plan and Options, each
individual holding an Option shall have the right immediately prior to the
occurrence of such termination and during such period occurring prior to such
termination as the Board in its sole discretion shall determine and designate,
to exercise such Option to the extent that such Option was otherwise
exercisable at the time such termination occurs. The Board shall send written
notice of an event that will result in such a termination to all individuals
who hold Options not later than the time at which the Company gives notice
thereof to its stockholders.
(d) Adjustments under this Section 4.2 related to
stock or securities of the Company shall be made by the Board, whose
determination in that respect shall be final, binding, and conclusive. No
fractional shares of Stock or units of other securities shall be issued
pursuant to any such adjustment, and any fractions resulting from any such
adjustment shall be eliminated in each case by rounding downward to the nearest
whole share or unit.
(e) The grant of an Option pursuant to the Plan
shall not affect or limit in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes of its capital or
business structure or to merge, consolidate, dissolve or liquidate, or to sell
or transfer all or any part of its business or assets.
5. ELIGIBILITY.
Eligibility under this Plan is limited to Directors of the
Company.
6. THE OPTION PRICE.
The Option Price of the Stock covered by each Option granted
under this Plan shall be the greater of the Fair Market Value or the par value
of such Stock on the Grant Date. The Option Price shall be subject to
adjustment as provided in Section 4.2 hereof.
7. NUMBER OF SHARES AND GRANT DATES.
Each Director whose Commencement of Service is after the
Effective Date and before termination of the Plan shall be granted an Initial
Option, as of the date of the Director's Commencement of Service, to purchase
10,000 shares of Stock. An Additional
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<PAGE> 5
Option to purchase 5,000 shares of Stock shall be granted immediately after
each subsequent annual meeting of the Company's stockholders (commencing with
the 1997 annual meeting) occurring before the Plan terminates to each Director
who is then serving on the Board. Notwithstanding the foregoing, no Director
shall be eligible to receive an Additional Option grant if on the Grant Date
such individual also is an officer or employee of the Company or any of its
subsidiaries.
8. VESTING OF OPTIONS.
Subject to the provisions of Section 9, the Initial and
Additional Options shall be vested upon the respective Grant Date (but shall
not be exercisable before approval of the Plan by stockholders).
9. OPTION PERIOD.
An Option shall be exercisable only during the Option Period.
The Option Period shall commence six months after the later of (i) the Grant
Date or (ii) the date on which the Plan is approved by the stockholders of the
Company (or, if a six-month delay on the sale of stock acquired pursuant to the
exercise of an Option is no longer necessary to satisfy the requirements of
Rule 16b-3 under the Exchange Act, upon the later of such dates), and shall end
at the close of business on the Expiration Date. Termination of the Optionee's
status as a Director for any reason shall not cause an Option to terminate.
10. TIMING AND METHOD OF EXERCISE.
Subject to the limitations of Sections 8 and 9, an Optionee
may, at any time, exercise an Option with respect to all or any part of the
shares of Stock then subject to such Option by giving the Company written
notice of exercise, specifying the number of shares as to which the Option is
being exercised. Such notice shall be addressed to the Secretary of the
Company at its principal office, and shall be effective when actually received
(by personal delivery, fax or other delivery) by the Secretary of the Company.
Such notice shall be accompanied by an amount equal to the Exercise Price of
such shares, in the form of any one or combination of the following: cash or
cash equivalents, or shares of Stock valued at Fair Market Value in accordance
with the Plan. If shares of Stock that are acquired by the Optionee through
exercise of an Option or an option issued under an Other Plan are surrendered
in payment of the Exercise Price of Options, the Stock surrendered in payment
must have been (i) held by the Optionee for more than six months at the time of
surrender, or (ii) acquired under an Option granted not less than six months
prior to the time of surrender. However, payment in full of the Exercise Price
need not accompany the written notice of exercise provided the notice of
exercise directs that the Stock certificate or certificates for the shares for
which the Option is exercised be delivered to a licensed broker acceptable to
the Company as the agent for the individual exercising the Option and, at the
time such Stock certificate or certificates are delivered, the broker tenders
to the Company cash (or cash equivalents acceptable to the Company) equal to
the Exercise Price.
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<PAGE> 6
11. NO STOCKHOLDER RIGHTS UNDER OPTION.
No Optionee shall have any of the rights of a stockholder with
respect to the shares of Stock subject to an Option except to the extent the
certificates for such shares shall have been issued upon the exercise of the
Option.
12. CONTINUATION OF SERVICE.
Nothing in the Plan shall confer upon any person any right to
continue to serve as a Director.
13. STOCK OPTION AGREEMENT.
Each Option granted pursuant to the Plan shall be evidenced by
a written Stock Option Agreement notifying the Optionee of the grant and
incorporating the terms of this Plan. The Stock Option Agreement shall be
executed by the Company and the Optionee.
14. WITHHOLDING.
The Company shall have the right to withhold, or require an
Optionee to remit to the Company, an amount sufficient to satisfy any
applicable federal, state, local or foreign withholding tax requirements
imposed with respect to exercise of Options. To the extent permissible under
applicable tax, securities, and other laws, the Optionee may satisfy a tax
withholding requirement by directing the Company to apply shares of Stock to
which the Optionee is entitled as a result of the exercise of an Option to
satisfy withholding requirements under this Section 14.
15. NON-TRANSFERABILITY OF OPTIONS.
Each Option granted pursuant to this Plan shall, during
Optionee's lifetime, be exercisable only by Optionee, and neither the Option
nor any right thereunder shall be transferable by the Optionee by operation of
law or otherwise other than by will or the laws of descent and distribution, or
pursuant to a qualified domestic relations order as defined in Section
414(p)(1)(B) of the Internal Revenue Code of 1986, as amended and shall not be
pledged or hypothecated (by operation of law or otherwise) or subject to
execution, attachment or similar processes.
16. USE OF PROCEEDS.
Cash proceeds realized from the sale of Stock pursuant to
Options granted under the Plan shall constitute general funds of the Company.
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<PAGE> 7
17. ADOPTION, AMENDMENT, SUSPENSION AND
TERMINATION OF THE PLAN.
17.1 The Plan shall be effective as of the date of adoption
by the Board, subject to approval of the Plan within one year of its adoption
by the Board by the affirmative votes of the holders of a majority of the Stock
of the Company present, or represented, and entitled to vote at a meeting duly
held in accordance with applicable laws of the state of Delaware, or by consent
as permitted by law, provided, that upon approval of the Plan by the
stockholders of the Company, all Options granted under the Plan on or after the
Effective Date shall be fully effective as if the stockholders had approved the
Plan on the Effective Date.
17.2 Subject to the limitation of Section 17.4, the Board
may at any time suspend or terminate the Plan, and may amend it from time to
time in such respects as the Board may deem advisable; provided, however, to
the extent required under Rule 16b 3 under the Exchange Act as in effect at the
time of such amendment, the Board shall not amend the Plan in the following
respects without the approval of stockholders then sufficient to approve the
Plan in the first instance:
(a) To materially increase the benefits accruing to
participants under the Plan (for example, to increase the number of Options
that may be granted to any Director);
(b) To materially increase the maximum number of
shares of Stock that may be issued under the Plan; or
(c) To materially modify the requirements as to
eligibility for participation in the Plan.
17.3 No Option may be granted during any suspension or after
the termination of the Plan, and no amendment, suspension or termination of the
Plan shall, without the Optionee's consent, alter or impair any rights or
obligations under any Stock Option Agreement previously entered into under the
Plan. This Plan shall terminate ten years after the Effective Date unless
previously terminated pursuant to Section 4.2 or by the Board pursuant to this
Section 17.
17.4 Notwithstanding the provisions of Section 17.2, except
to the extent permissible under Rule 16b 3 under the Exchange Act, the formula
provisions of this Plan shall not be amended more than once in any six-month
period other than to comport with changes in the Internal Revenue Code of 1986,
the Employee Retirement Income Security Act of 1974, or the rules promulgated
thereunder.
18. REQUIREMENTS OF LAW.
18.1 The Company shall not be required to sell or issue any
shares of Stock under any Option if the sale or issuance of such shares would
constitute a violation by the individual exercising the Option or the Company
of any provisions of any law or
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<PAGE> 8
regulation of any governmental authority, including without limitation any
federal or state securities laws or regulations. Specifically in connection
with the 1933 Act, upon exercise of any Option, unless a registration statement
under such Act is in effect with respect to the shares of Stock covered by such
Option, the Company shall not be required to sell or issue such shares unless
the Board has received evidence satisfactory to the Board that the holder of
such Option may acquire such shares pursuant to an exemption from registration
under such Act. Any determination in this connection by the Board shall be
final, binding, and conclusive. The Company may, but shall in no event be
obligated to, register any securities covered hereby pursuant to the 1933 Act.
The Company shall not be obligated to take any affirmative action in order to
cause the exercise of an Option or the issuance of shares pursuant thereto to
comply with any law or regulation of any governmental authority. As to any
jurisdiction that expressly imposes the requirement that an Option shall not be
exercisable unless and until the shares of Stock covered by such Option are
registered or are subject to an available exemption from registration, the
exercise of such Option (under circumstances in which the laws of such
jurisdiction apply) shall be deemed conditioned upon the
18.2 The intent of this Plan is to qualify for the exemption
provided by Rule 16b-3 under the Exchange Act. To the extent any provision of
the Plan or action by the Plan administrators does not comply with the
requirements of Rule 16b-3, it shall be deemed inoperative, to the extent
permitted by law and deemed advisable by the Plan administrators, and shall not
affect the validity of the Plan. In the event Rule 16b-3 is revised or
replaced, the Board may exercise discretion to modify this Plan in any respect
necessary to satisfy the requirements of the revised exemption or its
replacement.
19. GOVERNING LAW.
The validity, interpretation and effect of this Plan, and the
rights of all persons hereunder, shall be governed by and determined in
accordance with the laws of Delaware, other than the choice of law rules
thereof.
* * * * *
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<PAGE> 1
EXHIBIT 10.14.1
FORM OF AMENDMENT NO. 1 TO STOCK OPTION AGREEMENT
This Amendment No. 1 to Stock Option Agreement (this "Amendment") is
made as of May __,1996 by and between Sunrise Assisted Living, Inc. (the
"Corporation"), a Delaware corporation, and David W. Faeder (the "Optionee").
WHEREAS, the Optionee holds an unexercised option to purchase 450,000
shares of the Common Stock, par value $.01 per share, of the Company (the
"Stock"), at a price of $8.00 per share (the "Option") evidenced by that
certain Stock Option Agreement entered into, effective as of January 4, 1995,
by and between the Corporation and the Optionee (the "Agreement"); and
WHEREAS, the Board of Directors of the Company and the Optionee believe
it desirable to amend the Agreement to provide for the cashless exercise of the
Option through a broker; and
WHEREAS, such amendment has been approved by the Corporation's Board of
Directors and stockholders;
NOW, THEREFORE, for and in consideration of the foregoing and of the
mutual covenants and agreements set forth in this Amendment, the parties AGREE
as follows:
1. The following new sentence is added following the second
sentence of Section 4(c) of the Agreement:
Payment in full of the Aggregate Exercise Price need not
accompany the written notice of exercise provided the notice of
exercise directs that the Stock certificate or certificates for the
shares for which the Option is exercised be delivered to a licensed
broker acceptable to the Corporation as the agent for the Optionee and,
at the time such Stock certificate or certificates are delivered, the
broker tenders to the Corporation cash (or cash equivalents acceptable
to the Corporation) equal to the Aggregate Exericse Price for the
shares of Stock purchased pursuant to the exercise of the Option.
2. Except as expressly provided herein, the terms and conditions
of the Agreement shall remain in full force and effect and shall be binding on
the parties hereto.
<PAGE> 2
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Amendment, or have caused this Amendment to be duly executed and delivered in
their name and on their behalf, as of the day and year first above written.
SUNRISE ASSISTED LIVING, INC.
By: ____________________________
Its: ___________________________
OPTIONEE
________________________________
David W. Faeder
- 2 -
<PAGE> 1
EXHIBIT 10.23
FORM OF MEMBERSHIP INTEREST PURCHASE AGREEMENT
THIS MEMBERSHIP INTEREST PURCHASE AGREEMENT is entered into as
of this __ day of May, 1996 among Sunrise Assisted Living, Inc. ("Buyer"), and
Thomas Donohue and Elizabeth Donohue (collectively, "Sellers").
WHEREAS, Sellers are parties to that certain Sunrise Village
House LLC Operating Agreement (the "Operating Agreement") dated as of April 15,
1993, as amended by Amendment No. 1 dated as of June 6, 1994, and as further
amended by a Consent and Second Amendment dated as of January 4, 1995, pursuant
to which, among other things, Sellers jointly own as tenants by the entireties
a thirty (30%) membership interest in Sunrise Village House LLC (the
"Membership Interest").
WHEREAS, Sellers desire to sell to Buyer and Buyer desires to
purchase from Sellers the Membership Interest upon the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and of the
mutual covenants and agreements hereinafter set forth, the parties hereto
hereby agree as follows:
1. DEFINITIONS
For all purposes of this Purchase Agreement, certain
capitalized terms specified in Exhibit A shall have the meanings set forth in
that Exhibit A, except as otherwise expressly provided.
2. SALE AND PURCHASE OF MEMBERSHIP INTEREST
2.1. SALE AND PURCHASE OF MEMBERSHIP INTEREST
On the basis of the representations, warranties and agreements
contained herein, and subject to the terms and conditions hereof, Sellers agree
to sell to Buyer, and Buyer agrees to acquire from Sellers, the Membership
Interest, in consideration for which Buyer agrees to issue to the Sellers
52,500 shares of common stock of Buyer (the "Common Stock").
2.2. ADDITIONAL UNDERTAKINGS
Buyer and Sellers acknowledge and agree that transfer of the
Membership Interest is subject to the terms and condition of the Operating
Agreement. Therefore, as a condition concurrent to the consummation of the
purchase and sale set forth in Section 2.1 above, all members of the Sunrise
Village House LLC, simultaneously with the execution of this Purchase
Agreement, shall enter into an Amendment to the Operating Agreement in the form
attached hereto as Exhibit B (the "Amendment") pursuant to which, among other
things, Buyer shall be admitted as a member of the Sunrise Village House LLC.
Sellers further acknowledge and agree that, effective as of the execution of
this Purchase Agreement, Sellers shall be deemed, without
<PAGE> 2
any further action on their part, to have withdrawn from Sunrise Village House
LLC.
3. REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers hereby represent and warrant to Buyer as follows:
3.1. TITLE TO MEMBERSHIP INTEREST
Since the date of the acquisition of the Membership Interest by
Sellers, there has been no event, or action taken (or failure to take action)
by or against Sellers, which has resulted or might result in the creation of
any Encumbrance on the Membership Interest. Sellers have good, valid and
marketable title to the Membership Interest, free and clear of all
Encumbrances, with full right and lawful authority to sell and transfer the
Membership Interest to Buyer pursuant to this Purchase Agreement.
3.2. AUTHORITY AND CAPACITY; BINDING OBLIGATION
Sellers have full legal right, capacity, power and authority to
execute this Purchase Agreement and to consummate the transactions contemplated
hereby. This Purchase Agreement constitutes a valid and binding obligation of
each Seller, enforceable in accordance with its terms.
3.3. ABSENCE OF VIOLATION
The execution, delivery and performance by Sellers of this
Purchase Agreement, the fulfillment of and the compliance with the respective
terms and provisions hereof, and the consummation of the transactions
contemplated hereby, do not and will not (a) conflict with, or violate any
provision of, any Law having applicability to Sellers, or (b) conflict with, or
result in any breach of, or constitute a default under, any Agreement to which
either Seller is a party.
3.4. NO LITIGATION
There are no actions, suits, claims, arbitrations, proceedings
or investigations pending, threatened or reasonably anticipated against,
affecting or involving Sellers, or the transactions contemplated by this
Purchase Agreement, at law or in equity or admiralty, or before or by any
court, arbitrator or governmental authority, domestic or foreign.
3.5. RESTRICTIONS AND CONSENTS
There are no Agreements, Laws or other restrictions of any kind
to which either Seller is party or subject that would prevent or restrict the
execution, delivery or performance of this Purchase Agreement or result in any
penalty, forfeiture, Agreement termination, or restriction on business
operations of Buyer or Sellers as a result of the execution, delivery or
performance of this Agreement.
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<PAGE> 3
3.6. TRANSFER OF TITLE
Upon payment for the Membership Interest pursuant to the terms
of this Purchase Agreement, Buyer will acquire good, valid and marketable title
thereto, free and clear of all Encumbrances.
3.7. RESIDENCE OF SELLERS
Sellers represent that they are residents of the [State]
[Commonwealth] of _____________________.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Sellers as follows:
4.1. ORGANIZATION AND STANDING
Buyer is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has the full and
unrestricted corporate power and authority to carry on its business as
currently conducted, to enter into this Purchase Agreement and to carry out the
transactions contemplated hereby.
4.2. AUTHORIZATION
The execution, delivery and performance by Buyer of this
Purchase Agreement, the fulfillment of and the compliance with the respective
terms and provisions hereof, and the consummation by Buyer of the transactions
contemplated hereby have been duly authorized by its Board of Directors (which
authorization has not been modified or rescinded and is in full force and
effect), and will not: (a) conflict with, or violate any provision of, any
term or provision of the certificate or articles of organization of Buyer or
(b) conflict with, or result in any breach of, or constitute a default under,
any Agreement to which Buyer is a party or by which Buyer is bound. No other
action is necessary for Buyer to enter into this Purchase Agreement and to
consummate the transactions contemplated hereby and thereby.
4.3. ISSUANCE OF COMMON STOCK
The Common Stock to be issued to the Sellers pursuant to this
Purchase Agreement shall, upon issuance in accordance with this Purchase
Agreement, be validly issued, fully paid and nonassessable.
4.4. BINDING OBLIGATION
This Purchase Agreement constitutes a valid and binding
obligation of Buyer, enforceable in accordance with its terms.
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<PAGE> 4
5. RESTRICTED SECURITIES
Sellers hereby represent, warrant and covenant as follows:
5.1. NO REGISTRATION UNDER THE SECURITIES ACT
Sellers understand that the Common Stock to be received by them
pursuant to this Purchase Agreement has not been registered under the
Securities Act in reliance upon exemptions contained in the Securities Act or
interpretations thereof, and cannot be offered for sale, sold or otherwise
transferred unless such Common Stock being acquired hereunder subsequently is
so registered or qualifies for exemption from registration under the Securities
Act.
5.2. ACQUISITION FOR INVESTMENT
The Common Stock is being acquired under this Purchase
Agreement by Sellers in good faith solely for their own account, for investment
and not with a view toward resale or other distribution within the meaning of
the Securities Act. The Common Stock will not be offered for sale, sold or
otherwise transferred by Sellers without either registration or exemption from
registration under the Securities Act.
5.3. RESTRICTIVE LEGENDS
The Sellers acknowledge that in connection with the delivery of
the Common Stock, Buyer shall cause the following legend to be placed on the
Common Stock issued to Sellers pursuant to this Purchase Agreement:
"THE COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAS
BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR
UNDER ANY STATE SECURITIES LAWS (THE "STATE ACTS") AND
CANNOT BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED
OF IN THE ABSENCE OF REGISTRATION OR THE AVAILABILITY OF AN
EXEMPTION FROM REGISTRATION UNDER THE ACT, THE STATE ACTS
AND REGULATIONS PROMULGATED THEREUNDER."
5.4. EVALUATION OF MERITS AND RISKS OF INVESTMENT
Sellers have such knowledge and experience in financial and
business matters that Sellers are capable of evaluating the merits and risks of
Seller's acquisition of such Common Stock being acquired hereunder. Sellers
understand and are able to bear any economic risks associated with such
acquisition (including, without limitation, the necessity of holding such
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<PAGE> 5
Common Stock for an indefinite period of time, inasmuch as such Common Stock
has not been registered under the Securities Act).
6. CLOSING
6.1. CLOSING OF SALE AND PURCHASE
Subject to the terms and conditions of this Purchase Agreement,
the Closing shall take place at the offices of ______________________
simultaneously with the execution of this Purchase Agreement.
6.2. DELIVERIES BY SELLERS
At the Closing, Sellers shall deliver to Buyer the following:
(i) a counterpart copy of the Amendment duly executed by all
members (other than Buyer) of the Sunrise Village House LLC;
(ii) a counterpart copy of the registration rights letter
agreement in the form attached hereto as Exhibit C duly
executed by Sellers; and
(iii) such other Documents as Buyer may reasonably request.
6.3. DELIVERIES BY BUYER
At the Closing, Buyer shall deliver to Sellers the following:
(i) certificates representing the Common Stock;
(ii) a counterpart copy of the Amendment duly executed by
Buyer;
(iii) a counterpart copy of the registration rights letter
agreement in the form attached hereto as Exhibit C
duly executed on behalf of Buyer; and
(iv) such other Documents as Sellers may reasonably request.
7. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION; REMEDIES
7.1. SURVIVAL OF REPRESENTATIONS
All representations, warranties, covenants, indemnities and other
Agreements made by any party to this Purchase Agreement herein or pursuant
hereto shall survive the Closing and any investigation, audit or inspection at
any time made by or on behalf of any party hereto.
7.2. AGREEMENT OF SELLERS TO INDEMNIFY
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<PAGE> 6
Subject to the conditions and provisions of this Article 7,
each Seller hereby agrees to indemnify, defend and hold harmless Buyer from and
against and in respect of all Claims asserted against, resulting to, imposed
upon or incurred by Buyer, directly or indirectly, by reason of or resulting
from any misrepresentation or breach of any representation or warranty, or
noncompliance with conditions or other Agreements, given or made by Sellers in
this Purchase Agreement.
7.3. AGREEMENT OF BUYER TO INDEMNIFY
Subject to the conditions and provisions of this Article 7.,
Buyer hereby agrees to indemnify, defend and hold harmless Sellers from and
against and in respect of all Claims asserted against, resulting to, imposed
upon or incurred by Sellers, directly or indirectly, by reason of or resulting
from any misrepresentation or breach of any representation or warranty, or
noncompliance with any conditions or other Agreements, given or made by Buyer
in this Purchase Agreement.
7.4. REMEDIES CUMULATIVE
The remedies provided herein shall be cumulative and shall not
preclude the assertion by Sellers or Buyer of any other rights or the seeking
of any other remedies against the other, or their respective successors or
assigns.
8. MISCELLANEOUS
8.1. ADDITIONAL ACTIONS AND DOCUMENTS
Each of the parties hereto hereby agrees to take or cause to be
taken such further actions, to execute, deliver and file or cause to be
executed, delivered and filed such further documents, and to obtain such
consents, as may be necessary or as may be reasonably requested in order to
effectuate fully the purposes, terms and conditions of this Purchase Agreement.
8.2. ASSIGNMENT
No party shall assign its rights and obligations under this
Purchase Agreement, in whole or in part, whether by operation of law or
otherwise, without the prior written consent of the other parties hereto, and
any such assignment contrary to the terms hereof shall be null and void and of
no force and effect.
8.3. ENTIRE AGREEMENT; AMENDMENT
This Purchase Agreement and the Exhibits attached hereto
constitute the entire Agreement among the parties hereto with respect to the
transactions contemplated herein, and it supersedes all prior oral or written
Agreements, commitments or understandings with respect to the matters provided
for herein. No amendment, modification or discharge of this Purchase
6
<PAGE> 7
Agreement shall be valid or binding unless set forth in writing and
duly executed and delivered by the party against whom enforcement of the
amendment, modification, or discharge is sought.
7
<PAGE> 8
8.4. WAIVER
No delay or failure on the part of any party hereto in
exercising any right, power or privilege under this Purchase Agreement or under
any other documents furnished in connection with or pursuant to this Purchase
Agreement shall impair any such right, power or privilege or be construed as a
waiver of any default or any acquiescence therein. No single or partial
exercise of any such right, power or privilege shall preclude the further
exercise of such right, power or privilege, or the exercise of any other right,
power or privilege. No waiver shall be valid against any party hereto unless
made in writing and signed by the party against whom enforcement of such waiver
is sought and then only to the extent expressly specified therein.
8.5. SEVERABILITY
If any part of any provision of this Purchase Agreement shall
be invalid or unenforceable in any respect, such part shall be ineffective to
the extent of such invalidity or unenforceability only, without in any way
affecting the remaining parts of such provision or the remaining provisions of
this Purchase Agreement.
8.6. GOVERNING LAW
This Purchase Agreement, the rights and obligations of the
parties hereto, and any claims or disputes relating thereto, shall be governed
by and construed in accordance with the laws of the Commonwealth of Virginia
(excluding the choice of law rules thereof).
8.7. NOTICES
All notices, demands, requests, or other communications which
may be or are required to be given, served, or sent by any party to any other
party pursuant to this Purchase Agreement shall be in writing and shall be hand
delivered, sent by overnight courier or mailed by first-class, registered or
certified mail, return receipt requested, postage prepaid, or transmitted by
telegram, telecopy or telex, addressed as follows:
(i) If to Buyer:
-------------------------------
-------------------------------
-------------------------------
with a copy (which shall not constitute notice) to:
-------------------------------
-------------------------------
-------------------------------
8
<PAGE> 9
(ii) If to Seller:
-------------------------------
-------------------------------
-------------------------------
with a copy (which shall not constitute notice) to:
-------------------------------
-------------------------------
-------------------------------
Each party may designate by notice in writing a new address to which any
notice, demand, request or communication may thereafter be so given, served or
sent. Each notice, demand, request, or communication which shall be hand
delivered, sent, mailed, telecopied or telexed in the manner described above,
or which shall be delivered to a telegraph company, shall be deemed
sufficiently given, served, sent, received or delivered for all purposes at
such time as it is delivered to the addressee (with the return receipt, the
delivery receipt, or (with respect to a telecopy or telex) the answerback being
deemed conclusive, but not exclusive, evidence of such delivery) or at such
time as delivery is refused by the addressee upon presentation.
8.8. HEADINGS
Article and Section headings contained in this Purchase
Agreement are inserted for convenience of reference only, shall not be deemed
to be a part of this Purchase Agreement for any purpose, and shall not in any
way define or affect the meaning, construction or scope of any of the
provisions hereof.
8.9. EXECUTION IN COUNTERPARTS
To facilitate execution, this Purchase Agreement may be
executed in as many counterparts as may be required. It shall not be necessary
that the signatures of, or on behalf of, each party, or that the signatures of
all persons required to bind any party, appear on each counterpart; but it
shall be sufficient that the signature of, or on behalf of, each party, or that
the signatures of the persons required to bind any party, appear on one or more
of the counterparts. All counterparts shall collectively constitute a single
Agreement. It shall not be necessary in making proof of this Purchase
Agreement to produce or account for more than a number of counterparts
containing the respective signatures of, or on behalf of, all of the parties
hereto.
8.10. LIMITATION ON BENEFITS
The covenants, undertakings and agreements set forth in this
Purchase Agreement shall be solely for the benefit of, and shall be enforceable
only by, the parties hereto and their respective successors, heirs, executors,
administrators, legal representatives and permitted assigns.
9
<PAGE> 10
8.11. BINDING EFFECT
Subject to any provisions hereof restricting assignment, this
Purchase Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors, heirs, executors,
administrators, legal representatives and assigns.
10
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have duly executed this
Purchase Agreement, or have caused this Purchase Agreement to be duly executed
on their behalf, as of the day and year first above written.
BUYER:
SUNRISE ASSISTED LIVING, INC.
By:__________________________
Name:________________________
Title:_______________________
SELLERS:
_____________________________
Thomas Donohue
_____________________________
Elizabeth Donohue
11
<PAGE> 12
Exhibit A
Definitions
"AGREEMENT" means any concurrence of understanding and intention
between two or more persons (or entities) with respect to their relative rights
and/or obligations or with respect to a thing done or to be done (whether or
not conditional, executory, express, implied, in writing or meeting the
requirements of contract), including, without limitation, contracts, leases,
promissory notes, covenants, easements, rights of way, covenants, commitments,
arrangements and understandings.
"CLAIMS" means all demands, claims, actions or causes of action,
assessments, losses, damages (including, without limitation, diminution in
value), liabilities, costs and expenses, including, without limitation,
interest, penalties and attorneys' fees and disbursements.
"CLOSING" means the closing of the sale and purchase of the Membership
Interest pursuant to the Purchase Agreement.
"ENCUMBRANCE" means any mortgage, lien, pledge, encumbrance, security
interest, deed of trust, option, encroachment, reservation, order, decree,
judgment, condition, restriction, charge, Agreement, claim or equity of any
kind.
"LAWS" means all foreign, federal, state and local statutes, laws,
ordinances, regulations, rules, resolutions, orders, determinations, writs,
injunctions, awards (including, without limitation, awards of any arbitrator),
judgments and decrees applicable to the specified persons or entities and to
the businesses and assets thereof.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and all
laws promulgated pursuant thereto or in connection therewith.
<PAGE> 13
Exhibit B
Amendment to Operating Agreement
<PAGE> 14
AMENDMENT NO. 3 TO
SUNRISE VILLAGE HOUSE LLC
OPERATING AGREEMENT
This Amendment No. 3 to the Sunrise Village House LLC Operating
Agreement (this "Amendment") is made as of this _________day of May, 1996 by
and among Thomas Donohue and Elizabeth Donohue, husband and wife (the
"Donohues"), the Manor at Gunston Limited Partnership ("Gunston"), Countryside
Properties Company LP ("Countryside"), Sunrise Atrium Limited Partnership
("Atrium"), Sunrise Partners, L.P. ("SPLP"), Sunrise Assisted Living
Investments, Inc. ("SALII") and Sunrise Assisted Living, Inc. ("Sunrise").
W I T N E S S E T H:
WHEREAS, Sunrise Village House LLC, a Maryland limited
liability company (the "Company"), was formed pursuant to the Articles of
Organization dated December 11, 1992 and filed with the Maryland State
Department of Assessments and Taxation as of December 14, 1992 and the
Operating Agreement dated April 15, 1993, as amended by Amendment No. 1 dated
as of June 6, 1994 and as further amended by a Consent and Second Amendment
dated as of January 4, 1995 (the "Operating Agreement");
WHEREAS, pursuant to a Membership Interest Purchase Agreement
dated as of the date hereof (the "Membership Interest Purchase Agreement"), the
Donohues are assigning their thirty percent (30%) interest in the Company to
Sunrise and withdrawing from the Company.
WHEREAS, execution of this Amendment is a condition concurrent
to the consummation of the transactions contemplated by the Membership Interest
Purchase Agreement.
WHEREAS, the undersigned desire to amend the Operating
Agreement in order to reflect the withdrawal of the Donohues, include the
membership interest of Sunrise, and admit Sunrise as a Member of the Company,
all as set forth below.
WHEREAS, capitalized terms used herein but not defined herein
shall have the meanings ascribed to them in the Operating Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and
other good and valuable consideration, the receipt and sufficiency of which are
acknowledged by the parties, it is hereby agreed as follows:
1. The Operating Agreement is hereby amended to reflect
the withdrawal of the Donohues as Members and to admit Sunrise as a Member.
1
<PAGE> 15
2. Paragraph 2.2 of the Operating Agreement is amended to
include the following membership interests:
Member Membership Interest
Sunrise Partners, L.P. 49%
Sunrise Assisted Living, Inc. 30%
Sunrise Atrium Limited Partnership 10%
The Manor at Gunston Limited Partnership 5%
CountrySide Properties Company LP 5%
Sunrise Assisted Living Investments, Inc. 1%
---
100%
4. In accordance with Section 9.1 of the Operating
Agreement, this Amendment shall constitute written consent by all the members
of the assignment of the Donohues' interest to Sunrise.
5. In accordance with Section 9.1 of the Operating
Agreement, Sunrise hereby agrees to be bound by the terms and conditions of the
Operating Agreement and agrees to be personally obligated to the same extent as
any other Member with respect to obligations of the Company.
6. Sunrise shall assume the Donohues' obligations as a
Member in the Company. From and after the date hereof, the net profit, net
losses, net gains, credits, cash flow or transaction proceeds (including those
which have not been distributed) of the Company allocable to the Donohues'
membership interest shall be credited or charged to Sunrise.
7. This Amendment and assignment of the Donohues'
membership interest shall not dissolve the Company and the business of the
Company shall be deemed to have continued notwithstanding such assignment.
8. The Operating Agreement, as amended by this Amendment,
is hereby ratified and confirmed.
9. This Amendment may be executed in separate
counterparts, none of which need contain the signatures of all parties, and all
which taken together shall constitute one and the same instrument.
2
<PAGE> 16
IN WITNESS WHEREOF, the undersigned have executed this
Amendment No. 3 to Sunrise Village House LLC Operating Agreement as of the day
and year first above written.
THE MANOR AT GUNSTON, L.P.,
By: Sunrise Northern Virginia Limited
Partnership, General Partner
By: Sunrise Retirement Investments,
Inc., General Partner
WITNESS:
____________________________ By:_____________________________________
Paul J. Klaassen, President
COUNTRYSIDE PROPERTIES COMPANY, L.P.,
By: Sunrise Northern Virginia Limited
Partnership, General Partner
By: Sunrise Retirement Investments,
Inc., General Partner
WITNESS:
____________________________ By:_____________________________________
Paul J. Klaassen, President
SUNRISE ATRIUM LIMITED PARTNERSHIP
By: Sunrise Atrium, Inc.
General Partner
WITNESS:
____________________________ By:_____________________________________
Paul J. Klaassen, President
3
<PAGE> 17
SUNRISE PARTNERS, L.P.
By: Sunrise Development, Inc.
General Partner
WITNESS:
____________________________ By:______________________________________
Paul J. Klaassen, President
SUNRISE ASSISTED LIVING, INC.
WITNESS:
____________________________ By:______________________________________
Paul J. Klaassen, resident
SUNRISE ASSISTED LIVING
INVESTMENTS, INC.
WITNESS:
____________________________ By:______________________________________
Paul J. Klaassen, President
Acknowledged by:
WITNESS: DONOHUES:
____________________________ _________________________________________
Thomas Donohue
4
<PAGE> 18
WITNESS:
____________________________ _________________________________________
Elizabeth Donohue
5
<PAGE> 19
Exhibit C
Registration Rights Letter Agreement
1
<PAGE> 20
SUNRISE ASSISTED LIVING, INC.
9401 Lee Highway
Suite 300
Fairfax, Virginia 22031
May __, 1996
Thomas and Elizabeth Donohue
[INSERT ADDRESS]
RE: REGISTRATION RIGHTS FOR DONOHUE STOCK
Dear Mr. & Mrs. Donohue:
Reference is made to that certain (i) Membership Interest Purchase
Agreement (the "Purchase Agreement") dated as of May ___, 1996 by and among
Sunrise Assisted Living, Inc. (the "Issuer") and Thomas Donohue and Elizabeth
Donohue, (ii) Registration Agreement (the "Registration Agreement") dated as of
January 4, 1995 by and among the Issuer, the Investors and the Founders, and
(iii) Warrant Agreement (the "Warrant Agreement") dated as of March 19, 1996 by
and between Issuer and Creditanstalt-Bankberein.
Pursuant to and in accordance with the Purchase Agreement, as of the
date hereof, the Issuer is issuing to Thomas and Elizabeth Donohue 52,500
shares of the common stock of the Issuer ("Donohue Stock"). This Letter
Agreement ("Letter Agreement") sets forth the terms and conditions on which the
Issuer shall grant certain registration rights to the holders of Donohue Stock.
Capitalized terms used herein but not otherwise defined herein shall have the
meanings ascribed to them by the Registration Agreement.
The Issuer hereby grants to the holders of outstanding Donohue Stock
the same "piggyback registration rights" granted to Holders of Registrable
Shares as are set forth in Section 3 of the Registration Agreement as if the
holders of Donohue Stock had become parties to the Registration Agreement for
purposes of Section 3 and other provisions of the Registration Agreement
applicable thereto; provided, however, (a) such registration rights granted
hereunder shall be subordinated to (and not inconsistent with) (i) the
registration rights of the holders of the Convertible Preferred Stock (and
other persons) pursuant to the Registration Agreement and (ii) the registration
rights of holders of the Warrants (as defined in the Warrant Agreement) and the
Warrant Shares (as defined in the Warrant
<PAGE> 21
Agreement) issuable on exercise of the Warrants pursuant to the Warrant
Agreement and (b) such subordination (and consistency) shall be effected by
considering the Donohue Stock to be included, after inclusion pursuant to the
Warrant Agreement of the Warrants and Warrant Shares issuable on exercise of
the Warrants, in clause (D) of Sections 3(b) and 3(c) of the Registration
Agreement as ". . . other securities requested to be included in such
registration which in the opinion of such underwriter(s) can be sold (after
taking into account the securities to be sold pursuant to clauses (A), (B) and
(C)) without having a material adverse effect on the offering. . . ." and in
clause (C) of Section 2(d) of the Registration Agreement as "...other
securities requested to be included in such registration which in the opinion
of the underwriter(s) can be sold (after taking into account the Registrable
Shares to be sold pursuant to clauses (A) and (B)) without having a material
adverse effect on the offering"; and provided further that notwithstanding any
provision of the Registration Agreement to the contrary, in any registration
thereunder which includes any Donohue Stock the Issuer shall be obligated to
pay all Registration Expenses of the Issuer and the holders of such Donohue
Stock shall be obligated to pay the costs and expenses incurred by the holders
of such Donohue Stock in connection with such registration.
Each holder of Donohue Stock shall be deemed to have agreed by
acquisition of such Donohue Stock to the same obligations as Holders of
Registrable Shares and Persons and shall be entitled to the same benefits as
Holders of Registrable Shares and Persons as are set forth in Sections 4, 5, 6,
7, 8, 9, 10, 11, the second sentence of Section 12, and Sections 13, 15, 16,
17, 19 and 20 of the Registration Agreement, as if the holders of Donohue Stock
had become parties to the Registration Agreement for purposes of such Sections
(or portions thereof) and their Donohue Stock were Registrable Shares
thereunder.
The registration rights granted to holders of Donohue Stock pursuant to
this Letter Agreement shall terminate with regard to each holder of Donohue
Stock, at such time as such holder shall have an unlimited right to sell its
Donohue Stock shares in the public market without restriction on volume or
otherwise.
The registration rights granted under this Letter Agreement shall not
apply to an Initial Public Offering (as defined in the Warrant Agreement).
- 2 -
<PAGE> 22
If the foregoing is in accordance with our mutual understanding, please
so indicate by executing this Letter Agreement below and returning an original
hereof to the undersigned officer of the Issuer at the address first listed
above.
SUNRISE ASSISTED LIVING, INC.
By: ____________________________
Name: __________________________
Title:__________________________
Acknowledged and Agreed:
___________________________
Thomas Donohue
___________________________
Elizabeth Donohue
- 3 -
<PAGE> 1
EXHIBIT 10.24
FORM OF INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "Agreement") is made as of
________________, 1996 by and between Sunrise Assisted Living, Inc., a Delaware
corporation (the "Company"), and _________________________ ("Indemnitee") a
director and/or officer of the Company.
WHEREAS, Section 6 of the Bylaws of the Company, as amended (the
"Bylaws"), provide that the Company, among other things, shall indemnify and
hold harmless each person who was or is a party or is threatened to be made a
party to or is involved in any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative, or investigative and
whether by or in the right of the Company or otherwise, by reason of the fact
that he or she is or was an officer or director of the Company or is or was
serving at the request of the Company as an officer, director, employee,
partner (limited or general) or agent of another corporation or of a
partnership, joint venture, limited liability company, trust, or other
enterprise; and
WHEREAS, in recognition of Indemnitee's need for protection against
personal liability in order to enhance Indemnitee's continued service to the
Company and Indemnitee's reliance on the provisions of Section 6 of the Bylaws
requiring indemnification under certain circumstances, and in part to provide
Indemnitee with specific contractual assurance that indemnification protection
will be available and to implement such Bylaw provision, the Company wishes to
provide in this Agreement for the indemnification of, and the advancement of
expenses to, Indemnitee to the fullest extent permitted by law.
NOW, WHEREAS, in consideration of the mutual premises and covenants
contained herein, and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
<PAGE> 2
SECTION 1. Right to Indemnification. The Company shall to the fullest
extent permitted by applicable law as then in effect indemnify and hold
harmless the Indemnitee in the event that he or she was or is a party to or is
involved or becomes involved in any manner (including, without limitation, as a
party, intervenor or a witness) or is threatened to be made so involved in any
threatened, pending or completed investigation, claim, action, suit or
proceeding, whether civil, criminal, administrative or investigative (including
without limitation, any action, suit or proceeding by or in the right of the
Company to procure a judgment in its favor) (a "Proceeding") by reason of the
fact that he or she, or a person of whom he or she is the legal representative,
is or was a director and/or officer of the Company, or is or was serving at the
request of the Company as a director, officer, partner (limited or general) or
agent of another corporation, partnership, joint venture, limited liability
company, trust or other enterprise (including, without limitation, service with
respect to an employee benefit plan) against all expenses, liabilities and
losses (including attorneys' fees, judgments, fines, taxes, penalties and
amounts paid or to be paid in settlement) reasonably incurred by him or her in
connection with such Proceeding. Such indemnification shall be a contract
right and shall include the right to receive payment in advance of any expenses
incurred by the Indemnitee in connection with such Proceeding, consistent with
the provisions of applicable law as then in effect.
SECTION 2. Indemnification; Not Exclusive Right. The right of
indemnification provided in this Agreement shall not be exclusive of and shall
be in addition to, and not in lieu of, any other rights to which the Indemnitee
may otherwise be entitled under applicable law, the Bylaws, or otherwise.
Nothing in this Agreement shall diminish or otherwise restrict the Indemnitee's
right to indemnification under applicable law, the Bylaws of otherwise. The
provisions of this Agreement shall inure to the benefit of the heirs,
executors, administrators and other legal representatives of the Indemnitee and
shall be applicable to Proceedings commenced or continuing after the adoption
of this Agreement, whether arising from acts or omissions occurring before or
after its execution and delivery.
2
<PAGE> 3
SECTION 3. Advancement of Expenses; Procedures; Presumptions and
Effect of Certain Proceedings; Remedies. In furtherance, but not in limitation
of the foregoing provisions, the following procedures, presumptions and
remedies shall apply with respect to the advancement of expenses and the right
to indemnification under this Agreement:
3(a) Advancement of Expenses. All reasonable expenses incurred by or
on behalf of the Indemnitee in the defense of or other involvement in or
otherwise in connection with any Proceeding shall be advanced to the Indemnitee
by the Company within twenty (20) days after the receipt by the Company of a
statement or statements from the Indemnitee requesting such advance or advances
from time to time, whether prior to or after final disposition of such
Proceeding. Such statement or statements shall reasonably evidence the
expenses incurred by the Indemnitee and, if required by law at the time of such
advance, shall include or be accompanied by an undertaking by or on behalf of
the Indemnitee to repay the amounts advanced if it should ultimately be
determined that the Indemnitee is not entitled to be indemnified against such
expenses pursuant to this Agreement.
3(b) Procedure for Determination of Entitlement to Indemnification.
(i) To obtain indemnification under this Agreement, the Indemnitee
shall submit to the Secretary of the Company a written request, including such
documentation and information as is reasonably available to the Indemnitee and
reasonably necessary to determine whether and to what extent the Indemnitee is
entitled to indemnification (the "Supporting Documentation"). The
determination of the Indemnitee's entitlement to indemnification shall be made
not later than sixty (60) days after receipt by the Company of the written
request for indemnification together with the Supporting Documentation. The
Secretary of the Company shall, promptly upon receipt of such a request for
indemnification, advise the Board of Directors of the Company (the "Board of
Directors") in writing that the Indemnitee has requested indemnification.
3
<PAGE> 4
(ii) The Indemnitee's entitlement to indemnification under this
Agreement shall be determined in one of the following ways: (A) by a majority
vote of the Disinterested Directors (as hereinafter defined), even though less
than a quorum of the Board of Directors; (B) by a written opinion of
Independent Counsel (as hereinafter defined) if (x) a Change of Control (as
hereinafter defined) shall have occurred and the Indemnitee so requests or (y)
there are no Disinterested Directors, or a majority of Disinterested Directors,
even though less than a quorum, so directs; (C) by the stockholders of the
Company (but only if a majority of the Disinterested Directors, even though
less than a quorum of the Board of Directors, presents the issue of entitlement
to indemnification to the stockholders for their determination); or (D) as
provided in Section 3(c).
(iii) In the event the determination of entitlement to indemnification
is to be made by Independent Counsel pursuant to Section 3(b)(ii), a majority
of the Disinterested Directors, or in the absence of any Disinterested
Directors, a majority of the Board of Directors, shall select the Independent
Counsel, but only an Independent Counsel to which the Indemnitee does not
reasonably object; provided, however, that if a Change of Control shall have
occurred, the Indemnitee shall select such Independent Counsel, but only an
Independent Counsel to which the Board of Directors does not reasonably object.
3(c) Presumptions and Effect of Certain Proceedings. Except as
otherwise expressly provided in this Agreement, the Indemnitee shall be
presumed to be entitled to indemnification under this Agreement upon submission
of a request for indemnification together with the Supporting Documentation in
accordance with Section 3(b)(i), and thereafter the Company shall have the
burden of proof to overcome that presumption in reaching a contrary
determination. In any event, if the person or persons empowered under Section
3(b) to determine entitlement to indemnification shall not have been appointed
or shall not have made a determination within sixty (60) days after receipt by
the Company of the request therefor together with the Supporting Documentation,
the Indemnitee shall be deemed to be entitled to
4
<PAGE> 5
indemnification and shall be entitled to such indemnification unless (A) the
Indemnitee misrepresented or failed to disclose a material fact in making the
request for indemnification or in the Supporting Documentation or (B) such
indemnification is prohibited by law. The termination of any Proceeding
described in Section l, or of any claim, issue or matter herein, by judgment,
order, settlement or conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, adversely affect the right of the Indemnitee
to indemnification or create a presumption that the Indemnitee did not act in
good faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of the Company or, with respect to any criminal
Proceeding, that the Indemnitee had reasonable cause to believe that his or her
conduct was unlawful.
3(d) Remedies of Indemnitee.
(i) In the event that a determination is made pursuant to Section 3(b)
that the Indemnitee is not entitled to indemnification under this Agreement,
the Indemnitee shall be entitled to seek an adjudication of his or her
entitlement to such indemnification either at the Indemnitee's sole option, in
(x) an appropriate court of the State of Delaware or any other court of
competent jurisdiction or (y) an arbitration to be conducted by a single
arbitrator pursuant to the rules of the American Arbitration Association; it
being understood that any such judicial proceeding or arbitration shall be de
novo and the Indemnitee shall not be prejudiced by reason of such adverse
determination; and in any such judicial proceeding or arbitration the Company
shall have the burden of proving that the Indemnitee is not entitled to
indemnification under this Agreement.
(ii) If a determination shall have been made or deemed to have been
made, pursuant to Sections 3(b) or (c), that the Indemnitee is entitled to
indemnification, the Company shall be obligated to pay the amounts constituting
such indemnification within five (5) days after such determination has been
made or deemed to have been made and shall be conclusively bound by such
determination unless (A) the Indemnitee misrepresented or failed to disclose a
material
5
<PAGE> 6
fact in making the request for indemnification or in the Supporting
Documentation or (B) such indemnification is prohibited by law. In the event
that advancement of expenses is not timely made pursuant to Section 3(a) or
payment of indemnification is not made within five (5) days after a
determination of entitlement to indemnification has been made or deemed to have
been made pursuant to Section 3(b) or (c), the Indemnitee shall be entitled to
seek judicial enforcement of the Company's obligation to pay to the Indemnitee
such advancement of expenses or indemnification. Notwithstanding the
foregoing, the Company may bring an action, in an appropriate court in the
State of Delaware or any other court of competent jurisdiction, contesting the
right of the Indemnitee to receive indemnification hereunder due to the
occurrence of an event described in subclause (A) or (B) of this clause (ii) (a
"Disqualifying Event"); provided, however, that in any such action the Company
shall have the burden of proving the occurrence of such Disqualifying Event.
(iii) The Company shall be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to this Section 3(d) that the
procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Company is bound by all the provisions of this Agreement.
(iv) In the event that the Indemnitee, pursuant to this Section 3(d),
seeks a judicial adjudication of or an award in arbitration to enforce his or
her rights under, or to recover damages for breach of, this Agreement, the
Indemnitee shall be entitled to recover from the Company, and shall be
indemnified by the Company against, any expenses actually and reasonably
incurred by him or her if the Indemnitee prevails in such judicial adjudication
or arbitration. If it shall be determined in such judicial adjudication or
arbitration that the Indemnitee is entitled to receive part but not all of the
indemnification or advancement of expenses sought, all such expenses incurred
by the Indemnitee in connection with such judicial adjudication or arbitration
shall be paid.
6
<PAGE> 7
3(e) Definitions. For the purposes of this Section 3:
(i) "Change in Control" means a change in control of the Company of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of
1934, as amended (the "Act"), whether or not the Company is then subject to
such reporting requirement; provided that, without limitation, such a change in
control shall be deemed to have occurred if (A) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Act) becomes after the date hereof the
"beneficial owner" (as defined in Rule l3d-3 under the Act), directly or
indirectly, of securities of the Company representing twenty-five percent (25%)
or more of the combined voting power of the Company's then outstanding
securities without the prior approval of at least two-thirds of the members of
the Board of Directors in office immediately prior to such acquisition; (B) the
Company is a party to a merger, consolidation, sale of assets or other
reorganization, or a proxy contest, as a consequence of which members of the
Board of Directors in office immediately prior to such transaction or event
constitute less than a majority of the Board of Directors thereafter or (C)
during any period of two (2) consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (including for this
purpose any new director whose election or nomination for election by the
Company's stockholders was approved by a vote of at least a majority of the
directors then still in office who were directors at the beginning of such
period) cease for any reason to constitute at least a majority of the Board of
Directors.
(ii) "Disinterested Director" means a director of the Company who is
not or was not a party to the Proceeding in respect of which indemnification is
sought by the Indemnitee.
(iii) "Independent Counsel" means a law firm or a member of a law firm
that neither presently is, nor in the past five (5) years has been, retained to
represent (A) the Company or the Indemnitee in any matter material to either
such party or (B) any other party to the Proceeding giving rise to a claim for
indemnification under this Agreement. Notwithstanding the foregoing, the term
"Independent Counsel" shall not include any person who, under the
7
<PAGE> 8
applicable standards of professional conduct then prevailing under the law of
the State of Delaware, would have a conflict of interest in representing either
the Company or the Indemnitee in an action to determine the Indemnitee's rights
under this Agreement.
SECTION 4. Notification and Defense of Claim. Promptly after receipt
of notice of the commencement of any action, suit or proceeding, Indemnitee
will, if a claim in respect thereof is to be made against the Company under
this Agreement, notify the Company of the commencement thereof, but the
omission so to notify the Company will not relieve the Company from any
liability that the Company may have to Indemnitee under this Agreement unless
the Company is materially prejudiced thereby. With respect to any such action,
suit or proceeding as to which Indemnitee notifies the Company of the
commencement thereof:
4(a) The Company will be entitled to participate therein at its own
expense; and
4(b) Except as otherwise provided below, the Company jointly with any
other indemnifying party similarly notified will be entitled to assume the
defense thereof, with counsel reasonably satisfactory to Indemnitee. After
notice from the Company to Indemnitee of the Company's election so to assume
the defense thereof, the Company will not be liable to Indemnitee under this
Agreement for any legal or other expenses subsequently incurred by Indemnitee
in connection with the defense thereof other than reasonable costs of
investigation or as otherwise provided below. Indemnitee shall have the right
to employ Indemnitee's own counsel in such action, suit or proceeding, but the
fees and disbursements of such counsel incurred after notice from the Company
of the Company's assumption of the defense thereof shall be at the expense of
Indemnitee unless (i) the employment by counsel by Indemnitee has been
authorized by the Company, (ii) Indemnitee shall have reasonably concluded that
there may be a conflict of interest between the Company and Indemnitee in the
conduct of the defense of such action, (iii) such action, suit or proceeding
seeks penalties or other relief against Indemnitee with respect to which the
Company could not provide monetary indemnification to Indemnitee (such as
injunctive relief or incarceration) or (iv) the Company shall not in fact have
employed counsel to assume the defense of such action, in each of which cases
the fees and disbursements of
8
<PAGE> 9
counsel shall be at the expense of the Company. The Company shall not be
entitled to assume the defense of any action, suit or proceeding brought by or
on behalf of the Company, or as to which Indemnitee shall have reached the
conclusion specified in (ii) above, or which involves penalties or other relief
against Indemnitee of the type referred to in (iii) above. It is acknowledged
that a director or former director shall be entitled under circumstances
specified in the Bylaws to expenses of separate legal counsel, up to the amount
specified therein.
4(c) The Company shall not be liable to indemnify Indemnitee under
this Agreement for any amounts paid in settlement of any action or claim
effected without the Company's written consent. The Company shall not settle
any action or claim in any manner that would impose any penalty or limitation
on Indemnitee without Indemnitee's written consent. Neither the Company nor
Indemnitee will unreasonably withhold consent to any proposed settlement.
SECTION 5. Severability. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including, without limitation, all portions of
any paragraph of this Agreement containing any such provision held to be
invalid, illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby and (b) to
the fullest extent possible, the provisions of this Agreement (including,
without limitation, all portions of any paragraph of this Agreement containing
any such provision held to be invalid, illegal or unenforceable, that are not
themselves invalid, illegal or unenforceable) shall be construed so as to give
effect to the intent manifested by the provision held invalid, illegal or
unenforceable.
SECTION 6. Company's Right to Indemnification. Nothing in this
Agreement shall diminish, limit or otherwise restrict or modify in any way the
Company's right to indemnification or contribution from an Indemnitee or an
Indemnitee's obligation to indemnify or hold harmless the Company under any
agreement, instrument, commitment or understanding now or hereafter in effect.
9
<PAGE> 10
SECTION 7. Cancellation. The Company may cancel the provisions of
this Agreement prospectively only upon thirty (30) days' prior written notice
to Indemnitee, in order to afford Indemnitee an opportunity to resign as
officer and/or director rather than continue to serve absent indemnification
provided under this Agreement; it being understood that "prospectively only"
shall mean that the Agreement shall remain in full force and effect for all
acts or omissions that occur through the effective date of cancellation.
SECTION 8. Amendments and Waiver. No amendment, modification or
discharge or this Agreement, and no waiver hereunder, shall be valid or binding
unless set forth in writing and duly executed by both of the parties hereto.
Neither the waiver by any of the parties hereto of a breach of or a default
under any of the provisions of this Agreement, nor the failure of any of the
parties, on one or more occasions, to enforce any of the provisions of this
Agreement or to exercise any right or privilege hereunder shall thereafter be
construed as a waiver of any subsequent breach or default of a similar nature,
or as a waiver of any of such provisions, rights or privileges hereunder. No
delay or failure on the part of any party in exercising any right, power or
privilege under this Agreement or under any other instruments given in
connection with or pursuant to this Agreement shall impair any such right,
power or privilege or be construed as a waiver of any default or any
acquiescence therein. No single or partial exercise of any such right, power
or privilege shall preclude the further exercise of such right, power or
privilege, or the exercise of any other right, power or privilege.
SECTION 9. Subrogation. In the event of payment under this Agreement,
the Company shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all papers required and
shall do everything that may be necessary to secure such rights, including the
execution and delivery of such documents necessary to enable the Company
effectively to bring suit to enforce such rights.
SECTION 10. No Duplication of Payment. The Company shall not be
liable under this Agreement to make any payment in connection with any claim
made against
10
<PAGE> 11
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, Bylaw provision or otherwise) of the amounts
otherwise indemnifiable hereunder.
SECTION 11. Governing Law; Headings. This Agreement shall be governed
by and construed and enforced in accordance with the laws of the State of
Delaware applicable to contracts made and to be performed in such state without
giving effect to the principles-of conflicts of laws. The section and other
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning of interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement or have caused this Agreement to be executed and delivered as of the
day and year first above written.
SUNRISE ASSISTED LIVING, INC.
By: __________________________________
Name: ______________________________
Title: ______________________________
INDEMNITEE
By: __________________________________
Name: ______________________________
11
<PAGE> 1
EXHIBIT 21
SUNRISE ASSISTED LIVING, INC.
SCHEDULE OF SUBSIDIARIES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
DIRECT OR INDIRECT JURISDICTION OF
SUBSIDIARIES OWNERSHIP ORGANIZATION
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sunrise Terrace, Inc. 100% Virginia
Sunrise Development, Inc. 100% Virginia
Sunrise Assisted Living Investments, Inc. 100% Virginia
Sunrise Assisted Living Limited Partnership 100% Virginia
Sunrise Partners Limited Partnership 100% Virginia
Sunrise at Gardner Park Limited Partnership 50% Massachusetts
Sunrise of Raleigh, LLC 50% North Carolina
Sunrise Village House, LLC 50%(1) Maryland
Sunrise Assisted Living Limited Partnership II 100% Virginia
Sunrise Assisted Living Limited Partnership III 100% Pennsylvania
Sunrise Assisted Living Limited Partnership IV 100% New Jersey
Sunrise Assisted Living Limited Partnership V 100% New Jersey
Sunrise Assisted Living Limited Partnership VI 100% New Jersey
Sunrise Assisted Living Limited Partnership VII 100% Maryland
Sunrise Assisted Living Limited Partnership VIII 100% California
Sunrise Assisted Living of Abington, Limited Partnership 100% Pennsylvania
Sunrise Assisted Living of Granite Run, Limited Partnership 100% Pennsylvania
Sunrise Assisted Living of Franconia, Limited Partnership 100% Virginia
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------
(1) Upon completion of the Offering, the Company expects to acquire an
additional 30% membership interest in this facility.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected Financial
Data", and "Experts" and to the use of our report dated February 15, 1996
(except notes 10 and 16, as to which the date is May 1, 1996) in Amendment
No. 2 to the Registration Statement (Form S-1 No. 333-2582) and related
Prospectus of Sunrise Assisted Living, Inc. for the registration of 5,750,000
shares of its common stock.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Washington, D.C.
May 28, 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We hereby consent to the use in this Registration Statement of our report dated
March 13, 1996, relating to the combined financial statements of Acquired
Entities of Sunrise for the year ended December 31, 1993 and our report dated
March 13, 1996, relating to the combined financial statements of Sunrise
Entities for the year ended December 31, 1993 (not presented separately in the
Registration Statement), and to the reference to our Firm under the caption
"Experts" in the Prospectus.
/s/ Hoffman, Morrison & Fitzgerald, P.C.
HOFFMAN, MORRISON & FITZGERALD, P.C.
Vienna, Virginia
May 28, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> MAR-31-1996 DEC-31-1995
<CASH> 6,045,890 6,252,911
<SECURITIES> 0 0
<RECEIVABLES> 1,409,564 1,319,429
<ALLOWANCES> 141,995 185,256
<INVENTORY> 0 0
<CURRENT-ASSETS> 11,306,576 9,900,449
<PP&E> 118,929,131 119,502,062
<DEPRECIATION> 15,995,627 15,184,945
<TOTAL-ASSETS> 139,793,200 123,320,861
<CURRENT-LIABILITIES> 8,847,767 7,850,078
<BONDS> 0 0
24,463,995 23,963,496
0 0
<COMMON> 60,195 60,195
<OTHER-SE> (34,419,798) (31,773,756)
<TOTAL-LIABILITY-AND-EQUITY> 139,793,200 123,320,861
<SALES> 0 0
<TOTAL-REVENUES> 9,737,995 37,257,926
<CGS> 0 0
<TOTAL-COSTS> 9,179,746 32,065,974
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 141,995 185,256
<INTEREST-EXPENSE> 2,624,774 16,555,579
<INCOME-PRETAX> (1,708,326) (10,137,164)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,708,326) (10,137,164)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,708,326) (10,137,164)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
