<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Period Ended March 31, 1998
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Transition Period From _____________ to
_____________
COMMISSION FILE NUMBER: 0-20765
SUNRISE ASSISTED LIVING, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 54-1746596
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
9401 LEE HIGHWAY, SUITE 300
FAIRFAX, VIRGINIA 22031
(Address of principal executive offices)
(703) 273-7500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
As of April 16, 1998, there were 19,265,768 shares of the Registrant's
Common Stock outstanding.
================================================================================
<PAGE> 2
SUNRISE ASSISTED LIVING, INC.
FORM 10-Q
MARCH 31, 1998
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 1998 and
December 31, 1997 3
Consolidated Statements of Operations for the three
months ended March 31, 1998 and 1997 4
Consolidated Statements of Cash Flows for the three
months ended March 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
SUNRISE ASSISTED LIVING, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-----------------------------------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 40,922 $ 82,643
Accounts receivable, net 6,762 5,849
Prepaid expenses and other current assets 5,622 6,081
------------------- -------------------
Total current assets 53,306 94,573
Property and equipment, net 451,126 423,615
Investment and notes receivable 23,568 22,998
Restricted cash and cash equivalents 1,928 1,573
Deferred financing costs, net 7,005 7,459
Other assets 6,417 6,042
------------------- -------------------
Total assets $543,350 $556,260
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 13,371 $ 16,620
Deferred revenue 1,781 1,482
Other current liabilities 63 669
Current maturities of long-term debt 5,472 5,462
------------------- -------------------
Total current liabilities 20,687 24,233
Long-term debt, less current maturities 319,229 335,485
Notes payable to affiliated partnerships 40 40
Interests in unconsolidated partnerships 234 445
Other long-term liabilities 480 319
------------------- -------------------
Total liabilities 340,670 360,522
Minority interests 409 398
Preferred stock, $0.01 par value, 10,000,000 shares
authorized, no shares issued and outstanding - -
Common stock, $0.01 par value, 60,000,000 shares
authorized, 19,240,367 and 19,028,040 shares issued
and outstanding in 1998 and 1997 192 190
Additional paid-in capital 210,090 206,784
Accumulated deficit (8,011) (11,634)
------------------- -------------------
Total stockholders' equity 202,271 195,340
------------------- -------------------
Total liabilities and stockholders' equity $543,350 $556,260
=================== ===================
</TABLE>
Note: The balance sheet at December 31, 1997 has been derived from
the audited financial statements at that date but does not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
See accompanying notes.
3
<PAGE> 4
SUNRISE ASSISTED LIVING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
March 31,
1998 1997
--------------------------------------
<S> <C> <C>
Operating revenue $ 34,912 16,544
Operating expenses:
Facility operating 18,659 9,888
Facility development and pre-rental 1,708 1,923
General and administrative 2,952 2,832
Depreciation and amortization 4,534 1,584
Facility lease 638 33
---------------- ----------------
Total operating expenses 28,491 16,260
Income from operations 6,421 284
Other income (expense):
Interest income 1,733 1,419
Interest expense (4,696) (1,601)
---------------- ----------------
Total other expense (2,963) (182)
Equity in earnings of unconsolidated
partnerships and minority interests 165 32
---------------- ----------------
Net income $ 3,623 $ 134
================ ================
Net income per common share data:
Basic net income per common share $ 0.19 $ 0.01
================ ================
Diluted net income per common share $ 0.18 $ 0.01
================ ================
</TABLE>
See accompanying notes.
4
<PAGE> 5
SUNRISE ASSISTED LIVING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Three months ended
March 31,
1998 1997
-------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 3,623 $ 134
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in earnings of unconsolidated partnerships
and minority interests (165) (32)
Provision for bad debts 271 116
Gain on sale of assets (489) -
Accretion of interest on marketable securities - (56)
Depreciation and amortization 4,534 1,584
Amortization of financing costs and discount on long-term debt 513 128
Changes in assets and liabilities:
(Increase) decrease:
Accounts receivable (1,184) 175
Prepaid and other current assets 1,257 409
Other assets (2,509) (1,523)
Increase (decrease):
Accounts payable and accrued expenses (3,249) (1,040)
Deferred revenue 299 219
Other liabilities (445) 79
---------------- ----------------
Net cash provided by operating activities 2,456 193
INVESTING ACTIVITIES:
Increase in restricted cash and cash equivalents (355) (965)
Investment in property and equipment (29,828) (43,856)
Increase in investment and notes receivable (137) -
Proceeds from maturities of marketable securities - 3,320
Contributions to investment in unconsolidated partnerships (344) -
---------------- ----------------
Net cash used in investing activities (30,664) (41,501)
FINANCING ACTIVITIES:
Net proceeds from exercised options 3,308 1,071
Additional borrowings under long-term debt 28 20,145
Repayment of long-term debt (16,378) (245)
Financing costs paid (471) (302)
Repayment of related party note payable - (508)
---------------- ----------------
Net cash (used in) provided by financing activities (13,513) 20,161
---------------- ----------------
Net decrease in cash and cash equivalents (41,721) (21,147)
Cash and cash equivalents at beginning of period 82,643 101,811
---------------- ----------------
Cash and cash equivalents at end of period $ 40,922 $ 80,664
================ ================
</TABLE>
See accompanying notes.
5
<PAGE> 6
SUNRISE ASSISTED LIVING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have
been prepared by the Company and include all normal recurring adjustments which
are, in the opinion of management, necessary for a fair presentation of the
results for the three-month periods ended March 31, 1998 and 1997 pursuant to
the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain
information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. These
consolidated financial statements should be read in conjunction with the
Company's consolidated financial statements and the notes thereto for the year
ended December 31, 1997 included in the Company's 1997 Annual Report to
Stockholders. Operating results for the three month period ended March 31, 1998
are not necessarily indicative of the results that may be expected for the
entire year ending December 31, 1998. Unless the context indicates otherwise,
the Company means Sunrise Assisted Living, Inc. and its consolidated
subsidiaries.
Certain 1997 balances have been reclassified to conform with the 1998
presentation.
2. LONG-TERM DEBT
Long-term debt was $324.7 million at March 31, 1998, excluding notes
payable to affiliated entities, compared to $341.0 million at December 31, 1997.
On June 6, 1997, the Company issued and sold $150 million aggregate
principal amount of 5 1/2% convertible subordinated notes due 2002 (the
"Notes"). The Notes bear interest at 5 1/2% per annum, payable semiannually on
June 15 and December 15 of each year. The conversion price is $37.1875
(equivalent to a conversion rate of 26.89 shares per $1,000 principal amount of
the Notes). The Notes are redeemable at the option of the Company commencing
June 15, 2000, at specified premiums. The holders of the Notes may require the
Company to repurchase the Notes upon a Change of Control (as defined) of the
Company.
The Company has an $86.6 million dollar multi-property mortgage (the
"Multi-Property Mortgage"), collateralized by a blanket first mortgage on all
assets of a subsidiary of the Company, consisting of 15 facilities. The
Multi-Property Mortgage consists of two separate debt classes: Class (A) in the
amount of $65.0 million 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 $21.6
million bears a variable interest rate of LIBOR plus 1.75%.
A subsidiary of the Company has obtained a syndicated revolving
credit facility for $250.0 million to be used for general corporate purposes,
including the continued construction and development of assisted living
facilities. The Company guarantees the repayment of all amounts outstanding
under this credit facility. The credit facility is for a term of three years
with the right to extend, and is secured by cross-collateralized first mortgages
on the real property and improvements and first liens on all other assets of the
subsidiary. Advances under the facility bear interest at LIBOR plus 1.00% to
LIBOR plus 1.50%. The Company paid down $16.0 million during the three month
period ended March 31, 1998. There were $35.0 million of advances outstanding
under this credit facility as of March 31, 1998.
A subsidiary of the Company has received a commitment for a $51.0
million revolving construction credit facility. The Company closed $32.1 million
of the total commitment. The credit facility provides for construction and
interim loans to finance the development of up to seven assisted living
facilities. The
6
<PAGE> 7
SUNRISE ASSISTED LIVING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
2. LONG-TERM DEBT (CONTINUED)
Company has agreed to guarantee the repayment of all amounts outstanding under
this credit facility. The credit facility is for a term of five years and is
secured by cross-collateralized first mortgages on the real property and liens
on receivables. Advances under the credit facility bear variable interest rates
based upon LIBOR plus 2.00% to LIBOR plus 2.35%. There were $4.7 million of
advances outstanding under this facility as of March 31, 1998.
A subsidiary of the Company has received a commitment for a $15.7
million revolving construction credit facility. As of March 31, 1998, the
Company had closed on the total commitment amount. The credit facility provides
for construction and interim loans to finance the development of up to two
assisted living facilities. The Company guarantees the repayment of all amounts
outstanding under this credit facility. The credit facility is for a term of
three years and is secured by cross-collateralized first mortgages on the real
property and improvements and first liens on all other assets of the subsidiary.
Advances under the credit facility bear variable interest rates based upon LIBOR
plus 1.25% to LIBOR plus 1.75%. There were no advances outstanding under this
facility as of March 31, 1998.
The Company has entered into a swap transaction whereby, effective
during the period June 18, 1998 through June 18, 2001, outstanding advances of
up to $19.0 million LIBOR floating rate debt bear interest at a fixed rate based
on a fixed LIBOR base rate of 7.30%. The Company has entered into another swap
transaction whereby effective during the period August 20, 1997 through April 1,
2003, outstanding advances of up to $7.0 million under LIBOR floating rate debt
bear interest at a fixed LIBOR based rate of 7.14%. The Company also has
renegotiated interest rate reductions from LIBOR plus 2.75% to corresponding
U.S. Treasuries plus 1.00% on $15.7 million of credit facilities.
3. STOCK OPTION PLANS
The Company has stock option plans providing for the grant of
incentive and non-qualified stock options to employees, directors, consultants
and advisors for a fixed number of shares with an exercise price equal to the
fair value of the shares at the date of grant. The Company accounts for stock
options grants in accordance with APB Opinion No. 25, Accounting for Stock
Issued to the Employees and accordingly recognizes no compensation expense for
the stock option grants.
A summary of the Company's stock option activity and related
information as of March 31, 1998, are presented below:
<TABLE>
<CAPTION>
WEIGHTED-
SHARES AVERAGE
FIXED OPTIONS (000) EXERCISE PRICE
- ------------------------------------------------- -----------------------------------------
<S> <C> <C>
Outstanding - January 1, 1998 3,156 $ 22.76
Granted 950 43.68
Exercised (230) 16.58
Forfeited (298) 23.88
- ------------------------------------------------- =========================================
Outstanding - March 31, 1998 3,578 $ 28.63
=========================================
Exercisable - March 31, 1998 437
===================
</TABLE>
7
<PAGE> 8
SUNRISE ASSISTED LIVING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
3. STOCK OPTION PLANS (CONTINUED)
The following table summarizes information about stock options
outstanding at March 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------------------------------------------------
Weighted- Weighted- Weighted
Number Average Average Number average
Range of Exercise Outstanding Remaining Exercise exercisable Exercise
Prices (000) Contractual Life Price (000) Price
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 3.00 to 8.00 266 7.4 $ 5.43 90 $ 5.60
10.50 to 20.00 421 8.1 16.50 112 16.85
21.50 to 25.63 1,509 8.9 25.00 217 25.38
29.94 to 36.63 443 9.5 34.54 18 34.66
37.00 to 44.00 939 9.9 43.68 -
---------------- -------------------
$ 3.00 to 44.00 3,578 437
================ ===================
</TABLE>
4. COMMITMENTS AND CONTINGENCIES
The Company has entered into contracts to purchase and lease
additional sites. Total contracted purchase price of these sites amounts to
$53.3 million. The Company is pursuing additional development opportunities and
also plans to acquire additional facilities as market conditions warrant.
5. NET INCOME PER COMMON SHARE
The Company adopted Statement of Financial Accounting Standards No.
128 Earnings Per Share (Statement 128). Statement 128 replaced the calculation
of primary and fully diluted earnings per share with basic and diluted earnings
per share. Unlike primary earnings per share, basic earnings per share excludes
any dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all applicable periods
have been presented, and where appropriate, restated to conform to the Statement
128 requirements. Shares issuable upon the conversion of convertible
subordinated notes have been excluded from the computation because the effect of
their inclusion would be anti-dilutive.
8
<PAGE> 9
SUNRISE ASSISTED LIVING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
5. NET INCOME PER COMMON SHARE (CONT'D)
The following table summarizes the computation of basic and diluted
net income per share amounts presented in the accompanying consolidated
statements of operations (in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1997
-------- -------
<S> <C> <C>
Numerator for basic and diluted
net income per share $ 3,623 $ 134
=========== ===========
Denominator
Denominator for basic net income per
common share-weighted average shares 19,089 18,560
Effect of dilutive securities:
Employee stock options 1,392 901
Warrants 30 20
----------- -----------
Denominator for diluted net income per
common share-weighted average shares
plus assumed conversions 20,511 19,481
=========== ===========
Basic net income per common share $ 0.19 $ 0.01
=========== ===========
Diluted net income per common share $ 0.18 $ 0.01
=========== ===========
</TABLE>
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Management's discussion and analysis contains certain forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including, among others, development
and construction risks, acquisition risks, licensing risks, business conditions,
risks of downturns in economic conditions generally, satisfaction of closing
conditions and availability of financing for development and acquisitions.
Certain of these factors are discussed elsewhere herein. Unless the context
suggests otherwise, references herein to the "Company" or "Sunrise" means
Sunrise Assisted Living, Inc. and its subsidiaries.
OVERVIEW
The Company is a leading provider of assisted living services to the
elderly. The Company currently operates 68 facilities in 13 states with a
capacity of more than 5,900 residents, including 60 facilities owned by the
Company or in which it has ownership interests and eight facilities managed for
third parties. The Company also operates two skilled nursing facilities owned by
a third party.
The Company reported net income of $3.6 million, or $0.18 per share
(diluted), on revenue of $34.9 million for the three months ended March 31,
1998, compared to a net income of $0.1 million or $0.01 per share (diluted), on
revenue of $16.5 million for the three months ended March 31, 1997.
The Company's previously announced growth objectives include
developing at least 55 new Sunrise model assisted living facilities with an
additional resident capacity of more than 4,500 by the end of 1999. To date, the
Company has completed development of 29 such facilities with a resident capacity
of 2,596 and has 14 facilities currently under construction with a resident
capacity of 1,294. The Company has also entered into contracts to purchase 39
additional sites, 11 of which are zoned, and to lease two additional sites. The
Company is pursuing additional development opportunities and also plans to
acquire additional facilities as market conditions warrant.
The Company has begun efforts to explore international development
and acquisition possibilities in the United Kingdom and Canada. A subsidiary of
the Company has acquired a property near London, England on which it plans to
develop an assisted living and Alzheimer's care property. The Company plans to
complete this and other international projects through joint ventures with third
parties that will provide the majority of the equity capital. The Company will
provide management and development services on a contract-fee basis with rights
to acquire the assets in the future. The Company is currently concluding
negotiations with a joint venture partner expected to initially participate in
up to eight projects in the United Kingdom and Canada.
During the three months ended March 31, 1998, the Company recorded a
gain of $0.5 million on the sale of its interest in a tenancy-in-common that
owned one facility. In light of the size of the Company's current real estate
portfolio, the Company anticipates, subject to market conditions, selling
selected real estate assets as a normal part of its operations while retaining
long-term management through operating agreements and/or leases. This strategy
of selling selected real estate assets as a normal part of operations should
enable the Company to reduce debt, redeploy its capital into new development
projects and recognize gains on appreciate real estate.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1997
Operating Revenue. Operating revenue for the three months ended March
31, 1998 increased 111.0% to $34.9 million from $16.5 million for the three
months ended March 31, 1997 due primarily to the growth in resident fees.
Resident fees (including community fees) and fees for Basic Care (assistance
with activities of daily living and other personalized support services),
Assisted Living Plus Care ("Plus Care") (additional specialized care and
services to residents with low acuity medical needs), and Alzheimer's Care
(specialized care and services to residents with Alzheimer's disease or other
forms of dementia) for the three months ended March 31, 1998 increased $15.4
million compared to the three months ended March 31, 1997. This increase was due
primarily to the inclusion, for the three months ended March 31, 1998, of $11.7
million of total revenue generated from the openings of Sunrise developed
facilities and additional total revenue of $2.8 million generated from the
operations of acquired facilities. The remaining increase of $0.9 million was
attributed to changes in resident occupancy and average daily resident fees.
Average resident occupancy for owned facilities operated by the
Company for at least 12 months or that have achieved stabilization of 95%
("Stabilized Facilities"), decreased to 93% for the three months ended March 31,
1998 from 95% for the three months ended March 31, 1997. One of the Company's
larger facilities located in Boca Raton, Florida accounted for approximately one
half of a full single percentage of the decrease in the Stabilized Facilities'
average occupancy. This facility's average occupancy fell to 80% for the three
months ended March 31, 1998 compared to an average occupancy of 92% for the
three months ended March 31, 1997 due to a significant capital renovation
project recently completed. Occupancy at this facility is currently
approximately 84%. The average daily resident fee (excluding community fees) for
Stabilized Facilities increased to $84 in the three months ended March 31, 1998
from $80 in the three months ended March 31, 1997. Excluding acquired
facilities, the average daily resident fee (excluding community fees) increased
to $91 in the three months ended March 31, 1998 from $88 in the three months
ended March 31, 1997 due to an increase in the Basic Care rate and an increase
in the number of residents receiving Plus care and Alzheimer's Care Services.
Included in operating revenue is management services income
representing fees from the development and operations of facilities for joint
ventures and third party owners. Management services income for the three
months ended March 31, 1998 increased to $3.1 million from $0.6 million for the
three months ended March 31, 1997. This increase resulted primarily from a $2.5
million increase in fees from development activities (site selection, land
acquisition, zoning, and construction management) and finance services relating
to six facilities currently under construction owned by a joint venture entity
of which the Company has less than 10% interest. Each of the six facilities
will be managed by the Company upon the commencement of operations. Also
included in operating revenue is $0.5 million which represents the gain to the
Company from the sale of its minority interest in a tenancy-in-common that
owned one facility. In March of 1998, the Company increased its third-party
management business by entering into an agreement expanding its relationship
with Resource Housing of America, an Atlanta-based nonprofit organization for
which the Company currently manages two nursing homes and an assisted living
community. Under the new agreement, the Company will develop and manage several
new communities in the southeastern United States. In April of 1998, the
Company also signed an agreement with a New York City-based development company
to manage an assisted living community to be built in Brooklyn.
Operating Expenses. Operating expenses for the three months ended
March 31, 1998 increased by 75.2% to $28.5 million from $16.3 million for the
three months ended March 31, 1997. The increase in operating expenses for the
quarter ended March 31, 1998 was attributable primarily to the growth in
facility operating and depreciation and amortization expenses.
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Facility operating expenses for the three months ended March 31,
1998, increased 88.7% to $18.7 million from $9.9 million in the three months
ended March 31, 1997. As a percentage of resident fees, facility operating
expenses in the three months ended March 31, 1998, decreased to 59.6% from 62.0%
in the three months ended March 31, 1997. Of the $8.8 million increase, $8.5
million was attributable to expenses from the operations of four acquired
facilities and commencement of operations of 23 Sunrise developed facilities.
Facility operating expenses at existing facilities increased $0.3 million.
Facility development and pre-rental expenses for the three months
ended March 31, 1998 decreased $0.2 million to $1.7 million from $1.9 million
for the three months ended March 31, 1997. This was due to a $0.3 million
increase in non-capitalized labor and related development costs offset by an
increase in other capitalized development costs of $0.5 million.
General and administrative expenses in the three months ended March
31, 1998 increased 4.2% to $3.0 million from $2.8 million in the three months
ended March 31, 1997. As a percentage of operating revenue, general and
administrative expenses in the three months ended March 31, 1998 decreased to
8.5% from 17.1% in the three months ended March 31, 1997, reflecting higher
operating revenue in the 1998 period. The $0.2 million increase in general and
administrative expenses in the three months ended March 31, 1998 was related to
increases in various corporate expenses other than labor.
Depreciation and amortization in the three months ended March 31,
1998 compared to the three months ended in March 31, 1997 increased $2.9
million, or 186.2%, to $4.5 million primarily due to the commencement of
operations of 23 Sunrise developed facilities and the acquisition and operation
of four other facilities.
Facility lease expense represents rent expense on five facilities
that are leased but not owned by the Company. All of these facilities were
developed by the Company.
Other income (expense). Interest income increased to $1.7 million for
the three months ended March 31, 1998 compared to $1.4 million for the three
months ended March 31, 1997. This increase was due primarily to interest earned
on funds received from the Company's syndicated revolving credit facility, as
well as funds received from the Notes issued and sold in June 1997. Interest
expense increased for the three months ended March 31, 1998 to $4.7 million from
$1.6 million for the three months ended March 31, 1997. Of this increase, $2.1
million was due to accrued interest on the $150.0 million aggregate principal
amount of the Notes, offset, in part, by an increase in capitalized interest of
$0.3 million.
Net income. Net income was $3.6 million for the three months ended
March 31, 1998 compared to a net income of $0.1 million for the three months
ended March 31, 1997. The $3.5 million change was primarily attributable to a
$18.4 million increase in operating revenue, offset, in part, by a $12.2 million
increase in operating expense and a $2.8 million increase in net interest
expense.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has financed its operations from long-term
borrowings, equity offerings and cash generated from operations. At March 31,
1998, the Company had $324.7 million of outstanding debt (excluding notes
payable to affiliates) at a weighted average interest rate of 6.69%. Of such
amount, the Company had $260.6 million of fixed-rate debt (excluding a $1.3
million loan discount) at a weighted average interest rate of 6.54%, and $65.4
million of variable rate debt at a weighted average interest rate of 7.38%.
Increases in prevailing interest rates could increase the Company's interest
payment obligations relating to variable-rate debt.
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
At March 31, 1998, the Company had approximately $40.9 million in
unrestricted cash and cash equivalents, including $20.4 million in high quality
short-term investments (A1/P1 rated), $32.6 million in net working capital, and
currently has $277.0 million of unused lines of credit.
Working capital decreased to $32.6 million at March 31, 1998,
compared to $70.3 million as of December 31, 1997, primarily due to the
Company's continued investment in the development and ownership of Sunrise model
facilities and a $16.4 million repayment of long-term debt.
Net cash provided by operating activities for the three months ended
March 31, 1998 and 1997, was approximately $2.5 million and $0.2 million,
respectively.
For the three months ended March 31, 1998 and 1997, the Company used
cash in investing activities of $30.7 million and $41.5 million, respectively.
Investing activities included $29.8 million and $43.5 million, respectively,
used for construction of assisted living facilities for each period,
respectively.
Net cash used in financing activities was $13.5 million for the three
months ended March 31, 1998 compared to net cash provided by financing of $20.2
million for the three months ended March 31, 1997. Cash used in financing
activities for the three months ended March 31, 1998 included a $16.4 million
repayment of long-term debt. Cash provided by financing activities for the
three months ended March 31, 1997 included $20.1 million in additional
borrowings.
The Company's previously announced three-year growth objectives
include developing at least 55 new Sunrise model assisted living facilities with
an additional resident capacity of more than 4,500 by the end of 1999. To date,
the Company has completed development of 29 such facilities with an additional
resident capacity of 2,596 (Pinehurst, CO, Huntcliff, GA, East Cobb, GA, Fresno,
CA, Haverford, PA, Decatur, GA, Walnut Creek, CA, Glen Cove, NY, Ivey Ridge, GA,
Cohasset, MA, Denver, CO, Alexandria, VA, Norwood, MA, Wayne, NJ, Wayland, MA,
Westfield, NJ, Rockville, MD, Philadelphia, PA (3), Old Tappan, NJ, Morris
Plains, NJ, Severna Park, MD (2), Springfield, VA, Oakton, VA, Petaluma, CA,
Blue Bell, PA, and Columbia, MD) and has 14 facilities currently under
construction with a resident capacity of 1,294. The Company has also entered
into contracts to purchase 39 additional sites, 11 of which are zoned, and to
lease two additional sites. The Company is pursuing additional development
opportunities and also plans to acquire additional facilities as market
conditions warrant.
The Company has begun efforts to explore international development
and acquisition possibilities in the United Kingdom and Canada. A subsidiary of
the Company has acquired a property near London, England on which it plans to
develop an assisted living and Alzheimer's care property. The Company plans to
complete this and other international projects through joint ventures with third
parties that will provide the majority of the equity capital. The Company will
provide management and development services on a contract-fee basis with rights
to acquire the assets in the future. The Company is currently concluding
negotiations with a joint venture partner expected to initially participate in
up to eight projects in the United Kingdom and Canada.
The Company currently estimates that the net proceeds to the Company
from the sale of the Notes, the recent expansion of an existing credit facility,
together with existing working capital, financing commitments and financing
expected to be available, will be sufficient to fund its development and
acquisition programs for at least the next 18 months. The estimated cost to
complete and lease up the 26 remaining new Sunrise model facilities targeted for
completion by the end of 1999 is between $221 million and $312 million.
Additional financing will be required to complete the Company's growth plans and
13
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
to refinance existing indebtedness. There can be no assurance that such
financing will be available on acceptable terms.
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 subcontractor 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.
The Company's previously announced growth plan included the
acquisition of up to 15 facilities by the end of 1999, of which nine have been
acquired. There can be no assurance that the Company will be able to complete
the acquisition of additional assisted living facilities. 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 or
operate acquired facilities effectively may have a material adverse effect on
the Company's business, financial condition and results of operations.
14
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
The long-term care industry is highly competitive and the Company
believes that the assisted living segment, in particular, will become more
competitive in the future. The Company will be competing with numerous other
companies providing assisted living and other 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 faces competition in
its efforts to develop and acquire assisted living facilities and is
experiencing competition in many of its opened facilities. Some of the Company's
present and potential competitors are significantly larger and have, or may
obtain, greater financial resources than the Company. 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 affect 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.
Providers of assisted living and related services compete for residents
primarily on the basis of quality of care, price, reputation, physical
appearance and location of the facilities, services offered, and family and
physician preferences. As assisted living receives increased attention, the
Company believes that competition will grow from new and existing local,
regional, and national companies that operate, manage and develop assisted
living facilities within the same geographic areas as the Company. The Company
believes that each local market is different and the Company is and will
continue to react in a variety of ways, including selective price discounting,
to the specific competitive environment that exists in each market.
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) one of the Company's Founders (Paul
and Teresa Klaassen) serve as Chairman of the Board and Chief Executive Officer
of the Company, (iii) require consent for changes in management or control of
the Company, (iv) 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 (v) prohibit the Company
from operating competing facilities within certain distances from mortgaged
facilities.
At March 31, 1998, the Company had stockholders' equity of $202.3
million compared to stockholders' equity of $195.3 million at December 31, 1997.
The change resulted primarily from (i) adding the receipt of net proceeds of
$3.3 million from common shares issued from the exercise of stock options
granted, and (ii) adding net income for the three months ended March 31, 1998 of
$3.6 million. At March 31, 1998, the Company had net operating loss
carryforwards for income tax purposes of approximately $21.2 million which
expire from 2010 through 2011.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARD
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131, Disclosures about
Segments of an Enterprise and Related Information ("Statement 131"), which
is effective for fiscal years beginning after December 15, 1997. Statement 131
establishes standards for the way that a public company reports information
about operating segments in annual financial statements and requires that
those companies report selected information about operating segments in
interim financial reports. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
The Company will adopt the new requirements in 1998. Management has not
completed its review of Statement 131; however, the adoption of Statement 131
is not anticipated to affect results of operations or financial position, but
could add to the Company's current operating disclosures.
15
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
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
initiatives, have previously had a negative impact on operating margins and may
again do so in the foreseeable future.
Substantially all of the Company's resident agreements are for terms of
one year (but are terminable by the resident at any time upon 30 days' notice)
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 increase due to inflation or other
causes.
IMPACT OF YEAR 2000
Some of the older computer programs utilized by the Company were
written using two digits rather than four to define the applicable year. As a
result, those computer programs have time-sensitive software that recognize a
date using "00" as the year 1900 rather than the year 2000 ("Year 2000 Issue").
This could cause a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business activities.
During the past year, the Company has continued to invest resources
developing the needed infrastructure to support current and anticipated growth.
In most cases, the Company has implemented financial and accounting systems
that will support its development plans, which includes year 2000 compliant
software. To date, financial and accounting systems implemented or updated that
are year 2000 compliant include the accounting general ledger system, the
resident billing system, the cash disbursement or accounts payable system, the
development or project cost system, the fixed asset system, the employee stock
option system and substantially all software residing on the Company's home
office and facility desk-top and lap-top computers.
The Company recently selected for implementation during 1998 a payroll
system with expanded functionality. Included among the requirements for
selection is that the payroll system be year 2000 compliant. The project is
estimated to be completed not later than December 31, 1998, which is prior to
any anticipated impact of the Year 2000 Issue on its operations. The Company
will continue to assess its software to determine whether additional portions
will have to be modified or replaced so that its computer systems will function
properly with respect to dates in the year 2000 and thereafter. The Company
believes that with modifications to existing software and conversions to new
software, planned and completed, the Year 2000 Issue will not pose significant
operational problems or costs. However, if such modifications and conversions
are not made or are not completed timely, the Year 2000 Issue could have a
material impact on the operations of the Company.
16
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
The costs of the payroll system conversion and the date on which the
Company believes it will complete the year 2000 modifications are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events, including the continued availability of certain resources and
other factors. However, there can be no assurance that these estimates will be
achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are
not limited to, the availability and cost of personnel trained in this area,
the ability to locate and correct all relevant computer codes, and similar
uncertainties.
17
<PAGE> 18
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 27,1998, the Company held its 1998 annual meeting of
stockholders at The Ritz-Carlton (Tysons Corner), 1700 Tysons Boulevard, McLean,
Virginia. The annual meeting was called for the following purposes: (1) to elect
two directors for terms of three years each; (2) to approve the 1998 Stock
Option Plan; and (3) to transact such other business as may properly come before
the annual meeting or any adjournments thereof.
The following table sets forth the names of the directors elected at
the annual meeting for new three year terms and the number of votes cast for and
withheld for each director:
<TABLE>
<CAPTION>
WITHHOLD
AUTHORITY
Directors FOR TO VOTE
--------- --- ---------
<S> <C> <C>
Paul J. Klaassen 16,340,976 79,170
Richard A. Doppelt 16,340,626 79,520
</TABLE>
The names of each of the other directors whose term of offices
continued after the annual meeting is as follows: David W. Faeder, Teresa M.
Klaassen, Ronald V. Aprahamian, Thomas J. Donohue, Scott F. Meadow and David G.
Bradley.
The 1998 Stock Option Plan also was approved at the meeting. The vote
tabulation was as follows: 11,931,994 votes (65.6% of the total eligible votes
excluding broker-non-votes) were cast for approval of the 1998 stock option
plan, 3,491,146 votes (19.2% of the total eligible votes excluding
broker-non-votes) were cast against such approval, and 24,107 votes (0.1% of the
total eligible votes excluding broker-non-votes) were abstentions. Broker
non-votes totaled 972,899.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Exhibit Name
----------- ------------
<S> <C>
10.1 1998 Stock Option Plan
10.2 1996 Directors' Stock Option Plan, as amended
10.3 Separation Agreement and General Release between the Company
and Timothy S. Smick dated March 6, 1998
27 Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information only and is not
filed.
</TABLE>
(b) REPORTS ON FORM 8-K
On March 5, 1998, the Company filed a Form 8-K with the Securities
and Exchange Commission announcing the date of the Company's 1998 annual meeting
of stockholders.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<CAPTION>
SUNRISE ASSISTED LIVING, INC.
(Registrant)
<S> <C>
Date: May 1, 1998 /S/ David W. Faeder
-------------------- --------------------------------------------
David W. Faeder
Executive Vice President and
Chief Financial Officer
Date: May 1, 1998 /S/ Larry E. Hulse
-------------------- --------------------------------------------
Larry E. Hulse
Chief Accounting Officer
</TABLE>
19
<PAGE> 20
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Exhibit Name Page
- ----------- ------------ ----
<S> <C>
10.1 1998 Stock Option Plan 21
10.2 1996 Directors' Stock Option Plan, as amended 34
10.3 Separation Agreement and General Release 42
between the Company and Timothy S. Smick dated
March 6, 1998
27 Financial Data Schedule, which is submitted 76
electronically to the Securities and Exchange
Commission for information only and is not
filed.
</TABLE>
20
<PAGE> 1
EXHIBIT 10.1
SUNRISE ASSISTED LIVING, INC.
1998 STOCK OPTION PLAN
SUNRISE ASSISTED LIVING, INC., a Delaware corporation (the
"Corporation"), sets forth herein the terms of this 1998 Stock Option Plan (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)
entered into hereunder and all such other actions and determinations not
inconsistent with the
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<PAGE> 2
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, or may appoint the Compensation Committee to serve as the Stock
Option Committee (the "Committee"). 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 Restated 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.
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 (1,000,000)
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.
A-2
<PAGE> 3
4. ELIGIBILITY
(a) DESIGNATED RECIPIENTS
Subject to the next sentence, Options may be granted under the
Plan to (i) any 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 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
eligible individual shall be NSOs.
(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. 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
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<PAGE> 4
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.
(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
500,000 shares during the first ten years after the effective date of the Plan
and 200,000 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
A-4
<PAGE> 5
Code as then in effect (a "Parachute Payment") and (ii) if, as a result of
receiving a Parachute Payment, the 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. 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 or The Nasdaq Stock Market, 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 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.
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<PAGE> 6
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 person who is required
to file reports under Section 16(a) of the Securities Exchange Act of 1934 (as
now in effect or as hereafter amended) 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 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.
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(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
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.
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(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 OPTIONS
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. 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 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).
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.
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
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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). 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.
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, would cause the Plan to not
comply with Sections 162(m) or 422 of 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
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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
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,
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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 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
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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 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
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
delivered or withheld shall have a fair market value equal to such withholding
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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 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.
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 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 10.2
SUNRISE ASSISTED LIVING, INC.
1996 DIRECTORS' STOCK OPTION PLAN, AS AMENDED
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
of the Director to his or her first term as a Director provided, however, that
with respect to Richard A. Doppelt and Scott A. Meadow, "Commencement of
Service" shall mean the date of each of their respective reelections to the
Board of Directors (if so reelected) at the 1998 annual meeting of stockholders
(in the case of Mr. Doppelt) and at the 2000 annual meeting of stockholders (in
the case of Mr. Meadow).
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.
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 100,000. 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.
5
<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.
6
<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
7
<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 effectiveness of such
registration or the availability of such an exemption.
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.
* * * * *
8
<PAGE> 1
EXHIBIT 10.3
CONFIDENTIAL SEPARATION AGREEMENT AND GENERAL RELEASE
This Agreement is made by and between Timothy S. Smick
(hereinafter "Employee"), and Sunrise Assisted Living, Inc. and Sunrise
Assisted Living Management, Inc., their affiliates and operating entities
(together hereinafter "Sunrise"). The Employee and Sunrise may be referred
to collectively herein from time to time as "the Parties."
WHEREAS, Employee served as Chief Operating Officer and Executive
Vice President of Sunrise Assisted Living, Inc., and President of Sunrise
Assisted Living Management, Inc.;
WHEREAS, the Parties desire to change the relationship between
them;
NOW THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the Parties agree as follows:
1. The Employee acknowledges and agrees that he has resigned his
employment with Sunrise and that his employment with Sunrise is therefore
terminated as of January 31, 1998. As of January 31, 1998, the Employee will
have no duties or responsibilities to be performed for Sunrise, other than those
set forth herein, and shall have no authority to act on Sunrise's behalf in any
way.
2. The Employee will not receive compensation or benefits after
January 31, 1998, except as hereafter provided in this paragraph 2 of this
Agreement. The Employee acknowledges and understands that these benefits are not
routinely provided, that they exceed those provided under existing policies, and
that they are given in consideration of his release and waiver of any claim that
he may have against Sunrise in connection with his employment and termination of
1
<PAGE> 2
that employment. Employee further agrees that he waives any and all right to
exercise or receive payment for any vacation or sick leave accrued during his
employment with Sunrise up to and including the effective date of this
agreement.
a. The Employee will receive his present base salary, less
applicable withholding and taxes, through January 31, 1998.
b. After January 31, 1998, the Employee and eligible dependents
may elect to continue any medical and/or dental insurance coverage for eighteen
(18) months in accordance with the provisions of the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA").
c. All of the Employee's remaining stock options are set forth in
the documents attached hereto as Exhibits A and B. All other options are
forfeited. Sunrise will cooperate fully in the Employee's exercise of any stock
option he may have. Employee covenants and agrees that he will not purchase or
sell any securities of Sunrise until after the 3rd business day following the
release by Sunrise of its earnings release for 1997.
3. Not later than ten (10) days following the execution of this
Agreement, the Employee shall submit for payment all his outstanding
reimbursable business expenses incurred prior to January 31, 1998.
Reasonable business expenses shall be paid.
4. The Employee agrees to return to Chris Braccio, Sunrise Human
Resources Director, all credit cards, keys, beepers, laptop computers,
computer/fax/phone equipment, policy and procedure manuals, or any other Sunrise
property no later than ten (10) days following the execution of this Agreement.
The
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<PAGE> 3
Employee may purchase the facsimile machine provided for his use during his
employment at a mutually determined fair market value.
5. In light of his resignation of employment, the Employee shall
resign from the Board of Directors of Sunrise Assisted Living, Inc. effective
immediately and will execute the resignation letter attached hereto as Exhibit C
which states that the Employee is resigning from the Board of Directors because
of his resignation of employment from Sunrise.
6. As of February 1, 1998, Employee will assume the lease, and all
obligations under the lease, of the Infinity automobile that has been provided
for his use by Sunrise if such assumption is permitted by the automobile leasing
company. Sunrise will pay all lease payments due and owing prior to February 1,
1998.
7. To the extent permitted by law, the Parties agree that they will
maintain the strictest secrecy and will not communicate, make known, or divulge
to any person or agency, any information whatsoever relating to the terms of
this Agreement, including but not limited to the negotiations, the sums of money
received, and any other consideration received, except to the Employee's
immediate family, or where disclosure is compelled pursuant to legal process or
for reporting purposes to the federal, state or local taxing authorities, or to
lawyers or accountants engaged for such purposes or engaged in connection with
this Agreement or any dispute arising hereunder, who shall likewise make no
disclosures to others.
8. The Parties agree not to make disparaging, negative or defamatory
comments, whether written or oral, about or concerning the business, officers,
directors, supervisors or employees or individual character or reputation
thereof, regarding the other party.
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<PAGE> 4
9. (a) The Employee acknowledges that he is receiving substantial
consideration under the terms of this Agreement and that his skills, abilities
and expertise are readily transferable and applicable throughout a wide variety
of industries, including many aspects of the health care industry. Accordingly,
Employee agrees that he will not, for a one (1) year period commencing January
31, 1998, directly or indirectly, enter into, engage in, consult, be employed,
render services of an advisory nature, sit as a member of the board of
directors, be an officer or partner of, any entity in the assisted living and
elderly housing industries that, during any part of the one (1) year period, has
any operations or facilities within one hundred (100) miles of any operations or
facilities of Sunrise, either as an individual on his own account, or as a
partner, or joint venturer, or as an officer, director, agent or employee for
any person, firm, partnership, corporation or other entity. Not withstanding the
above, the Employee may own not more than ten per cent (10%) of the stock of any
publicly-traded company, provided the Employee does not engage in any of the
prohibitive acts set forth in this paragraph.
(b) Employee shall have the right to request that Sunrise waive the
provisions of Section 9(a) above for specific identified activities proposed by
Employee. Sunrise shall have sole discretion in determining whether to waive
such provisions.
10. The Employee shall not, for a period of two (2) years following
January 31, 1998, seek to induce, by any method whatsoever, any executive,
officer, supervisor, or employee of Sunrise to leave their employment with
Sunrise, and the Employee is prohibited, either directly or indirectly, from
hiring any employee of Sunrise during that period of time.
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<PAGE> 5
11. The Employee shall issue no press release or public announcement
regarding the Employee's separation from employment or regarding Sunrise without
the prior written approval of Sunrise.
12. The Employee agrees that, if he breaches this Agreement, Sunrise
will suffer substantial damages, the amount of which cannot readily be
ascertained. Consequently, the Employee agrees that if he breaches this
Agreement, Sunrise shall be entitled to recover from him as liquidated damages
any after tax profit he may obtain through exercise of the stock options
described in paragraph 2d(1) of this Agreement; provided, however, Employee
shall have five (5) days after receiving notice from Sunrise in which to cure a
breach of this Agreement before Sunrise shall be entitled to such damages..
13. The Employee agrees and specifically acknowledges that his
employment relationship with Sunrise has been permanently and irrevocably
severed, that he will not apply for or otherwise seek employment with Sunrise,
or any of its affiliates, and that Sunrise and any of its affiliates have no
obligation, contractual or otherwise, to employ him in the future.
14. Sunrise, and all persons having an interest in Sunrise,
including its directors, agents, employees, parent(s), affiliates, subsidiaries,
successors, assigns and representatives, hereby irrevocably and unconditionally
release and discharge Employee, his heirs, personal representatives, assigns,
agents, and attorneys from and covenants not to sue them for any and all claims,
known or unknown, which Sunrise has or may have against Employee arising under
any federal, state or local law, rule or regulation, or common law theory. This
release does not affect any claims which may arise after the execution of this
Agreement.
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<PAGE> 6
15. The Employee, on behalf of himself and anyone claiming for or
through him, knowingly, voluntarily and fully waives, unconditionally releases
and forever discharges Sunrise and all affiliated entities, and their officers,
directors, partners, owners, employees, agents, representatives, predecessors
and successors, and covenants not to sue them for, any and all claims, damages
or causes of action, whether known or unknown, occurring prior to and up to the
date of this Agreement. The foregoing includes, but is not limited to, all
claims which could have been raised under common law, including wrongful
discharge or breach of contract, any federal, state or local statute, including
Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment
Act, the Fairfax County Human Rights Ordinance, the Americans with Disabilities
Act, the Family and Medical Leave Act, the WARN Act, the Employment Retirement
Income Security Act, any claims based on any tort, such as fraud, defamation,
intentional infliction of emotional distress, or any claims for wages, insurance
or other fringe benefits, including group health and pension benefits.
16. With respect to the waiver of the Employee's rights under the
Age Discrimination in Employment Act, the Employee acknowledges that he is aware
of and understands the following rights under the Older Workers Benefit
Protection Act:
a. The Employee should consult an attorney before executing the
waiver herein of his rights under the Age Discrimination in Employment Act;
b. The Employee has at least twenty-one (21) days within which to
consider the waiver of his rights herein under the Age Discrimination in
Employment Act;
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<PAGE> 7
c. For a period of seven (7) days following the execution of this
waiver of rights under the Age Discrimination in Employment Act, the Employee
can revoke the Agreement by providing written notice of such revocation to Chris
Braccio, Sunrise Human Resources Director, or her successor, and the Agreement
shall not become effective or enforceable until the seven (7) day revocation
period has expired.
17. Should either party file suit against the other to enforce the
terms and conditions of this Agreement, the prevailing party shall be entitled
to recover from the other its reasonable attorneys' fees and court costs
associated with such suit or proceeding.
18. The Employee expressly covenants and warrants that he personally
has read this Agreement; that his legal counsel has fully explained the contents
and the ramifications of the execution thereof; that he has had sufficient time
to consider this Agreement and fully understand the contents thereof, including
the fact that it contains a release of and a covenant not to sue for any and all
claims which he may have against Sunrise, both known and unknown, even though
there may be facts and consequences which are unknown to the Employee; and that
he freely and voluntarily entered into this Agreement.
19. This Agreement contains all of the agreements and understandings
between the Parties and supersedes any prior or contemporaneous negotiations or
agreements, written or oral. This Agreement can only be modified by a written
Agreement signed by each party to the modification.
20. This Agreement shall be governed by the laws of the Commonwealth
of Virginia, without regard to its conflict of law rules. Any action for
violation of this Agreement or to enforce its terms shall be brought in the
Circuit
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<PAGE> 8
Court for Fairfax County, Virginia, or the United States District Court
for the Eastern District of Virginia, as appropriate The Parties consent to
jurisdiction and venue in these courts.
21. In the event any portion of this Agreement shall be determined
to be invalid under any applicable law, such provision shall be deemed void and
the remainder of this Agreement shall continue in full force and effect.
22. This Agreement may be executed in counterparts, each of which
shall be deemed an original for all purposes.
[Signatures on the following page]
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<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the dates indicated below.
TIMOTHY S. SMICK SUNRISE ASSISTED LIVING
MANAGEMENT, INC.
/s/ Timothy S. Smick By: /s/ David W. Faeder
---------------- --------------------
Executive Vice President
------------------------
Title
March 6, 1998 March 6, 1998
- ------------------------------ ----------------------
Date Date
SUNRISE ASSISTED LIVING, INC.
By: /s/ David W. Faeder
--------------------
Executive Vice President
------------------------
Title
March 6, 1998
------------------------
Date
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<PAGE> 10
EXHIBIT A
SUNRISE ASSISTED LIVING, INC.
1995 STOCK OPTION PLAN
AMENDED NON-INCENTIVE STOCK OPTION AGREEMENT
<PAGE> 11
SUNRISE ASSISTED LIVING, INC.
1995 STOCK OPTION PLAN
AMENDED NON-INCENTIVE STOCK OPTION AGREEMENT
TABLE OF CONTENTS
1. GRANT OF OPTION...................................................3
2. TERMS OF PLAN.....................................................4
3. PRICE.............................................................4
4. VESTING IN OPTIONS................................................4
5. EXERCISE OF OPTION................................................4
(a) Time of Exercise of Option...................................4
(b) Termination of Option........................................5
(c) Method of Exercise of Option.................................5
6. TRANSFERABILITY...................................................6
7. EFFECT OF CHANGES IN CAPITALIZATION...............................6
(a) Changes in Stock.............................................6
(b) Reorganization in Which the Corporation Is the Surviving
Corporation................................................6
(c) Dissolution, Liquidation, Sale of Assets, Reorganization
in Which the Corporation Is Not the Surviving
Corporation, Etc...........................................7
(d) Adjustments..................................................7
(e) No Limitations on Corporation................................7
8. REQUIREMENTS OF LAW...............................................8
9. RIGHTS AS STOCKHOLDER.............................................9
10. WITHHOLDING OF TAXES.............................................9
11. DISCLAIMER OF RIGHTS.............................................9
12. INTERPRETATION OF THIS OPTION AGREEMENT..........................9
13. GOVERNING LAW....................................................10
14. BINDING EFFECT...................................................10
15. NOTICE...........................................................10
16. PARACHUTE PAYMENTS...............................................10
17. ENTIRE AGREEMENT.................................................10
<PAGE> 12
SUNRISE ASSISTED LIVING, INC.
1995 STOCK OPTION PLAN
AMENDED NON-INCENTIVE STOCK OPTION AGREEMENT
This Amended Non-Incentive Stock Option Agreement (the "Option Agreement")
is made as of January 31, 1998, by and between Sunrise Assisted Living, Inc., a
Delaware corporation (the "Corporation"), and Timothy S. Smick, an individual
who is employed by or otherwise has a relationship with the Corporation or its
subsidiaries (the "Optionee").
WHEREAS, the Board of Directors of the Corporation has duly adopted and
approved the Sunrise Assisted Living, Inc. 1995 Stock Option Plan (the "Plan"),
which Plan authorizes the Corporation to grant to eligible individuals options
for the purchase of shares of the Corporation's common stock, par value $.01 per
share (the "Stock"); and
WHEREAS, the Corporation has previously granted to the Optionee, pursuant
to the Plan, an option to purchase a certain number of shares of Stock, in order
to provide the Optionee with an incentive 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");
WHEREAS, the Corporation has determined that it is desirable and in its
best interests to amend the prior Option Agreement with the Optionee in
connection with Optionee's termination of employment with the Corporation, all
according to the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties hereto do hereby agree as follows:
1. GRANT OF OPTION
Subject to the terms of the Plan (attached hereto as Exhibit A), the
Corporation hereby grants to the Optionee the right and option (the "Option") to
purchase from the Corporation, on the terms and subject to the conditions set
forth in the Plan and in this Option Agreement, One Hundred Forty One Thousand
Six Hundred Sixty Seven (141,667) shares of Stock ( after giving effect to the 1
for 3 reverse stock split). This Option shall not constitute an incentive stock
option within the meaning of Section 422 of the Internal Revenue Code of 1986,
as
<PAGE> 13
amended (the "Code"). The date of grant of this Option is February 15, 1996,
the date on which the grant of the Option was approved by the Stock Option
Committee (the "Committee") of the Board of Directors of the Corporation (the
"Board").
2. TERMS OF PLAN
The Option granted pursuant to this Option Agreement is granted
subject to the terms and conditions set forth in the Plan. All terms and
conditions of the Plan, as it may be amended from time to time, are hereby
incorporated into this Option Agreement by reference and shall be deemed to be
part of this Option Agreement, without regard to whether such terms and
conditions are not otherwise set forth in this Option Agreement. In the event
that there is any inconsistency between the provisions of this Option Agreement
and of the Plan, the provisions of the Plan shall govern.
3. PRICE
The purchase price (the "Option Price") for the shares of Stock
subject to the Option granted by this Option Agreement is $10.50 per share.
4. VESTING IN OPTIONS
Optionee has exercised this Option as to all Shares which became
vested prior to January 31, 1998. The Option became vested as an additional 25%
of the shares of Stock purchasable pursuant to the Option (i.e. 35,417 shares of
Stock) as of January 31, 1998 provided, however, that the Option may be
exercised as to the 35,417 shares of Stock which vested as of January 31, 1998
only between June 5, 1998 and December 5, 1998. Optionee's continuous employment
terminated as of January 31, 1998 and Optionee will not be vested as to any
additional shares of Stock subject to the Option.
5. EXERCISE OF OPTION
Except as otherwise provided herein, and subject to the provisions
of the Plan, the Option granted pursuant to this Option Agreement shall be
subject to exercise as follows:
(a) TIME OF EXERCISE OF OPTION
The Optionee may exercise the Option (subject to the limitations on
exercise set forth in this Option Agreement and in the Plan), (i) to the extent
the Option is vested (subject to the limitations in Section 4 as to the 35,417
shares of Stock which vested as of January 31, 1998) and (ii) has not terminated
under Section 5(b). No single exercise of the Option shall be for less than 100
shares of Stock, unless the number of shares purchased is the total number at
the time available for purchase under this Option.
<PAGE> 14
(b) TERMINATION OF OPTION
The Option shall terminate upon the earliest of (i) the expiration
of a period of ten years from the date of grant of the Option, as set forth in
Section 1 above, (ii) the occurrence of a transaction or event described in
Section 7(c) which causes termination of the Option, (iii) the Optionee's
termination of employment with the Corporation or a Subsidiary to the extent the
Option has not become vested in accordance with Section 4 (regardless of whether
such termination is with or without cause or by reason of death, disability or
voluntary resignation), (iv) the Optionee's termination of employment with the
Corporation or a Subsidiary for Cause (as defined below) whether or not the
Option has become vested; (v) one year after the Optionee's termination of
employment with the Corporation or a Subsidiary due to death or disability, to
the extent the Option has become vested in accordance with Section 4; or (vi)
three months after the Optionee's termination of employment with the Corporation
or a Subsidiary other than for Cause, death or disability, to the extent the
Option has become vested in accordance with Section 4 except as to the 35,417
shares of Stock which vested as of January 31, 1998 which shall terminate on
December 6, 1998 or such later date as determined in accordance with Section 8.
For purposes of this Agreement, Cause means, as determined by the Board, (i)
fraud or theft against the Corporation or a Subsidiary or conviction (no longer
subject to appeal) for a felony offense; (ii) conviction (no longer subject to
appeal) for a criminal offense involving moral turpitude; (iii) compromising
trade secrets or other proprietary information of the Corporation or a
Subsidiary; (iv) willful failure or refusal to perform material assigned duties;
or (v) gross or willful misconduct that causes substantial and material harm to
the business and operations of the Corporation or a Subsidiary.
(c) METHOD OF EXERCISE OF OPTION
Subject to the terms and conditions of this Option Agreement, the
Option may be exercised by delivering written notice of exercise to the
Corporation, at its principal office, addressed to the attention of the
President, which notice shall specify the number of shares for which the Option
is being exercised, and shall be accompanied by payment in full of the Option
Price of the shares of Stock for which the Option is being exercised. Payment of
the Option Price for the shares of Stock purchased pursuant to the exercise of
the Option shall be made in cash or by certified check payable to the order of
the Corporation. 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 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 Option Price. If the person
exercising the Option is not the Optionee, such person shall also
<PAGE> 15
deliver with the notice of exercise appropriate proof of his or her right to
exercise the Option. An attempt to exercise the Option granted hereunder other
than as set forth above shall be invalid and of no force and effect. Promptly
after exercise of the Option as provided for above, the Corporation shall
deliver to the person exercising the Option a certificate or certificates for
the shares of Stock being purchased.
6. TRANSFERABILITY.
During the lifetime of the Optionee, only such Optionee (or, in the
event of legal incapacity or incompetency, the Optionee's guardian or legal
representative) may exercise the Option. No Option shall be assignable or
transferable by the Optionee to whom it is granted, other than by will or the
laws of descent and distribution.
7. 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 date of grant of the
Option, the number and kind of shares of Stock for which the Option was granted
shall be adjusted proportionately and accordingly so that the proportionate
interest of the Optionee immediately following such event shall, to the extent
practicable, be the same as immediately before such event. Any such adjustment
in the Option shall not change the aggregate Option Price payable with respect
to shares that are subject to the unexercised portion of the Option 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 7(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, the Option shall pertain to and
apply to the securities to which a holder of the number of shares of Stock
subject to the 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.
<PAGE> 16
(c) DISSOLUTION, LIQUIDATION, SALE OF ASSETS, REORGANIZATION
IN WHICH THE CORPORATION IS NOT THE SURVIVING
CORPORATION, ETC.
The Option 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
assumption of the Option or for the substitution for the Option of a new
option(s) 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 Option theretofore granted shall
continue in the manner and under the terms so provided. In the event of any such
termination of the Option, the Optionee shall have the right (subject to the
general limitations on exercise set forth in Section 5), 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, whether or not
such Option was otherwise exercisable at the time such termination occurs. The
Corporation shall send written notice of a transaction or event that will result
in such a termination to Optionee not later than the time at which the
Corporation gives notice thereof to its stockholders.
(d) ADJUSTMENTS
Adjustments under this Section 7 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 the Option 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,
<PAGE> 17
consolidate, dissolve, or liquidate, or to sell or transfer all or any part of
its business or assets.
8. REQUIREMENTS OF LAW
The Corporation shall not be required to sell or issue any shares of
Stock under the 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.
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). 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.
Nothwithstanding any provision in this Agreement to the contrary, if prior
to the termination of this Option, there is a period during which Optionee would
be precluded from exercising the Option and selling the shares of Stock covered
by the Option due to this Section 8, the date of termination of this Option
shall be extended for a period equal to the period during which Optionee was so
precluded, but in no event after the expiration of a period of ten (10) years
from the date of grant of the Option as set forth in Section 1. During any
period in which Optionee
<PAGE> 18
is precluded from exercising the Option and selling the shares of Stock as
described herein, Optionee may elect to forfeit the Option at which time the
covenant not to compete with the Corporation, if then in effect, shall
terminate.
9. RIGHTS AS STOCKHOLDER
Neither the Optionee nor any executor, administrator, distributee or
legatee of the Optionee's estate shall be, or have any of the rights or
privileges of, a stockholder of the Corporation in respect of any shares of
Stock issuable hereunder unless and until such shares have been fully paid and
certificates representing such shares have been endorsed, transferred and
delivered, and the name of the Optionee (or of such personal representative,
administrator, distributee or legatee of the Optionee's estate) has been entered
as the stockholder of record on the books of the Corporation.
10. WITHHOLDING OF TAXES
The parties hereto recognize that the Corporation or a Subsidiary
may be obligated to withhold federal, state and local income taxes and Social
Security taxes to the extent that the Optionee realizes ordinary income in
connection with the exercise of the Option or in connection with a disposition
of any shares of Stock acquired by exercise of the Option or in connection with
the purchase of the Option by the Corporation. The Optionee agrees that the
Corporation or a Subsidiary may withhold amounts needed to cover such taxes from
payments otherwise due and owing to the Optionee, and also agrees that upon
demand the Optionee will promptly pay to the Corporation or a Subsidiary having
such obligation any additional amounts as may be necessary to satisfy such
withholding tax obligation. Such payment shall be made in cash or by certified
check payable to the order of the Corporation or a Subsidiary.
11. DISCLAIMER OF RIGHTS
No provision in this Option Agreement shall be construed to confer
upon the Optionee 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 of the Optionee at
any time, or to terminate any employment or other relationship between the
Optionee and the Corporation or any Subsidiary.
12. INTERPRETATION OF THIS OPTION AGREEMENT
All decisions and interpretations made by the Board or the Committee
thereof with regard to any question arising under the Plan or this Option
Agreement shall be final, binding and conclusive on the Corporation and
<PAGE> 19
the Optionee and any other person entitled to exercise the Option as provided
for herein.
13. GOVERNING LAW
This Option Agreement shall be governed by the laws of the State of
Delaware (excluding its choice of law rules).
14. BINDING EFFECT
Subject to all restrictions provided for in this Option Agreement,
the Plan and by applicable law limiting assignment and transfer of this Option
Agreement and the Option provided for herein, this Option Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, executors, administrators, successors, and assigns.
15. NOTICE
Any notice hereunder by the Optionee to the Corporation shall be in
writing and shall be deemed duly given if mailed or delivered to the Corporation
at its principal office, addressed to the attention of the President, or if so
mailed or delivered to such other address as the Corporation may hereafter
designate by notice to the Optionee. Any notice hereunder by the Corporation to
the Optionee shall be in writing and shall be deemed duly given if mailed or
delivered to the Optionee at the address specified below by the Optionee for
such purpose, or if so mailed or delivered to such other address as the Optionee
may hereafter designate by written notice given to the Corporation.
16. PARACHUTE PAYMENTS
Notwithstanding any provision of the Plan or of any other agreement,
contract, or understanding heretofore or hereafter entered into by the Optionee
with the Corporation, this Option Agreement expressly modifies and excludes
application of Section 7(b) of the Plan relating to "parachute payments" within
the meaning of Section 280G(b)(2) of the Code.
17. ENTIRE AGREEMENT
This Option Agreement and the Plan together constitute the entire
agreement and supersede all prior understandings and agreements, written or
oral, of the parties hereto with respect to the subject matter hereof. Neither
this Option Agreement nor any term hereof may be amended, waived, discharged or
terminated except by a written instrument signed by the Corporation and the
Optionee; provided, however, that the Corporation unilaterally may waive any
provision hereof in writing to the extent that such waiver does not adversely
affect the interests of the Optionee hereunder, but no such waiver shall operate
as or be
<PAGE> 20
construed to be a subsequent waiver of the same provision or a waiver
of any other provision hereof.
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Option Agreement, or caused this Option Agreement to be duly
executed and delivered in their names and on their behalf, as of the day and
year first above written.
SUNRISE ASSISTED LIVING, INC.
By: /s/ Thomas B. Newell
--------------------------------
Title: Executive Vice President
-------------------------------
OPTIONEE:
/s/ Timothy S. Smick
------------------------------------
Timothy S. Smick
ADDRESS FOR NOTICE TO
OPTIONEE:
937 Bellview Road
-----------------
Number Street
McLean, Virginia 22102
----------------------
City State Zip Code
<PAGE> 21
EXHIBIT A: 1995 STOCK OPTION PLAN (EXHIBIT 10.20 TO THE COMPANY'S ANNUAL REPORT
ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997)
<PAGE> 22
EXHIBIT B
SUNRISE ASSISTED LIVING, INC.
1996 NON-INCENTIVE STOCK OPTION PLAN
AMENDED NON-INCENTIVE STOCK OPTION AGREEMENT
<PAGE> 23
SUNRISE ASSISTED LIVING, INC.
1996 NON-INCENTIVE STOCK OPTION PLAN
AMENDED NON-INCENTIVE STOCK OPTION AGREEMENT
TABLE OF CONTENTS
1. GRANT OF OPTION...................................................i
2. TERMS OF PLAN.....................................................ii
3. PRICE.............................................................ii
4. VESTING IN OPTIONS................................................ii
5. EXERCISE OF OPTION................................................ii
(a) Time of Exercise of Option...................................ii
(b) Termination of Option........................................iii
(c) Method of Exercise of Option.................................iii
6. TRANSFERABILITY...................................................iv
7. EFFECT OF CHANGES IN CAPITALIZATION...............................iv
(a) Changes in Stock.............................................iv
(b) Reorganization in Which the Corporation Is the Surviving
Corporation................................................iv
(c) Dissolution, Liquidation, Sale of Assets, Reorganization
in Which the Corporation Is Not the Surviving
Corporation, Etc...........................................v
(d) Adjustments..................................................v
(e) No Limitations on Corporation................................v
8. REQUIREMENTS OF LAW...............................................vi
9. RIGHTS AS STOCKHOLDER.............................................vii
10. WITHHOLDING OF TAXES.............................................vii
11. DISCLAIMER OF RIGHTS.............................................vii
12. INTERPRETATION OF THIS OPTION AGREEMENT..........................vii
13. GOVERNING LAW....................................................viii
14. BINDING EFFECT...................................................viii
15. NOTICE...........................................................viii
16. PARACHUTE PAYMENTS...............................................viii
17. ENTIRE AGREEMENT.................................................viii
<PAGE> 24
SUNRISE ASSISTED LIVING, INC.
1996 NON-INCENTIVE STOCK OPTION PLAN
AMENDED NON-INCENTIVE STOCK OPTION AGREEMENT
This Amended Non-Incentive Stock Option Agreement (the "Option Agreement")
is made as of January 31, 1998, by and between Sunrise Assisted Living, Inc., a
Delaware corporation (the "Corporation"), and Timothy S. Smick, an individual
who is employed by or otherwise has a relationship with the Corporation or its
subsidiaries (the "Optionee").
WHEREAS, the Board of Directors of the Corporation has duly adopted and
approved the Sunrise Assisted Living, Inc. 1996 Non-Incentive Stock Option Plan
(the "Plan"), which Plan authorizes the Corporation to grant to eligible
individuals options for the purchase of shares of the Corporation's common
stock, par value $.01 per share (the "Stock"); and
WHEREAS, the Corporation has previously granted to the Optionee, pursuant
to the Plan, an option to purchase a certain number of shares of Stock, in order
to provide the Optionee with an incentive 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");
WHEREAS, the Corporation has determined that it is desirable and in its
best interests to amend the prior Option Agreement with the Optionee in
connection with Optionee's termination of employment with the Corporation, all
according to the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties hereto do hereby agree as follows:
1. GRANT OF OPTION
Subject to the terms of the Plan (attached hereto as Exhibit A), the
Corporation hereby grants to the Optionee the right and option (the "Option") to
purchase from the Corporation, on the terms and subject to the conditions set
forth in the Plan and in this Option Agreement, One Hundred Thousand (100,000)
shares of Stock. This Option shall not constitute an incentive stock option
within
<PAGE> 25
the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"). The date of grant of this Option is December 13, 1996, the
date on which the grant of the Option was approved by the Stock Option Committee
(the "Committee") of the Board of Directors of the Corporation (the "Board").
2. TERMS OF PLAN
The Option granted pursuant to this Option Agreement is granted
subject to the terms and conditions set forth in the Plan. All terms and
conditions of the Plan, as it may be amended from time to time, are hereby
incorporated into this Option Agreement by reference and shall be deemed to be
part of this Option Agreement, without regard to whether such terms and
conditions are not otherwise set forth in this Option Agreement. In the event
that there is any inconsistency between the provisions of this Option Agreement
and of the Plan, the provisions of the Plan shall govern.
3. PRICE
The purchase price (the "Option Price") for the shares of Stock
subject to the Option granted by this Option Agreement is $25.625 per share.
4. VESTING IN OPTIONS
The Option became vested as to 25% of the shares of Stock
purchasable pursuant to the Option on the first anniversary of the date of grant
of the Option (the "Anniversary Date"). Optionee's continuous employment
terminated as of January 31, 1998 and Optionee will not be vested as to any
additional shares of Stock subject to the Option.
5. EXERCISE OF OPTION
Except as otherwise provided herein, and subject to the provisions
of the Plan, the Option granted pursuant to this Option Agreement shall be
subject to exercise as follows:
(a) TIME OF EXERCISE OF OPTION
The Optionee may exercise the Option (subject to the limitations on
exercise set forth in this Option Agreement and in the Plan), (i) to the extent
the Option is vested and (ii) has not terminated under Section 5(b). No single
exercise of the Option shall be for less than 100 shares of Stock, unless the
number of shares purchased is the total number at the time available for
purchase under this Option.
<PAGE> 26
(b) TERMINATION OF OPTION
The Option shall terminate upon the earliest of (i) the expiration
of a period of ten years from the date of grant of the Option, as set forth in
Section 1 above, (ii) the occurrence of a transaction or event described in
Section 7(c) which causes termination of the Option, (iii) the Optionee's
termination of employment with the Corporation or a Subsidiary to the extent the
Option has not become vested in accordance with Section 4 (regardless of whether
such termination is with or without cause or by reason of death, disability or
voluntary resignation), (iv) the Optionee's termination of employment with the
Corporation or a Subsidiary for Cause (as defined below) whether or not the
Option has become vested; (v) one year after the Optionee's termination of
employment with the Corporation or a Subsidiary due to death or disability, to
the extent the Option has become vested in accordance with Section 4; or (vi)
July 1, 1998 or such later date as determined in accordance with Section 8, to
the extent the Option has become vested in accordance with Section 4. For
purposes of this Agreement, Cause means, as determined by the Board, (i) fraud
or theft against the Corporation or a Subsidiary or conviction (no longer
subject to appeal) for a felony offense; (ii) conviction (no longer subject to
appeal) for a criminal offense involving moral turpitude; (iii) compromising
trade secrets or other proprietary information of the Corporation or a
Subsidiary; (iv) willful failure or refusal to perform material assigned duties;
or (v) gross or willful misconduct that causes substantial and material harm to
the business and operations of the Corporation or a Subsidiary.
(c) METHOD OF EXERCISE OF OPTION
Subject to the terms and conditions of this Option Agreement, the
Option may be exercised by delivering written notice of exercise to the
Corporation, at its principal office, addressed to the attention of the
President, which notice shall specify the number of shares for which the Option
is being exercised, and shall be accompanied by payment in full of the Option
Price of the shares of Stock for which the Option is being exercised. Payment of
the Option Price for the shares of Stock purchased pursuant to the exercise of
the Option shall be made in cash or by certified check payable to the order of
the Corporation. 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 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 Option Price. If the person
exercising the Option is not the Optionee, such person shall also deliver with
the notice of exercise appropriate proof of his or her right to exercise the
Option. An attempt to exercise the Option granted hereunder other than as set
forth above shall be invalid and of no force and effect. Promptly after exercise
of the Option as provided for above, the Corporation shall deliver to the person
<PAGE> 27
exercising the Option a certificate or certificates for the shares of Stock
being purchased.
6. TRANSFERABILITY.
During the lifetime of the Optionee, only such Optionee (or, in the
event of legal incapacity or incompetency, the Optionee's guardian or legal
representative) may exercise the Option. No Option shall be assignable or
transferable by the Optionee to whom it is granted, other than by will or the
laws of descent and distribution.
7. 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 date of grant of the
Option, the number and kind of shares of Stock for which the Option was granted
shall be adjusted proportionately and accordingly so that the proportionate
interest of the Optionee immediately following such event shall, to the extent
practicable, be the same as immediately before such event. Any such adjustment
in the Option shall not change the aggregate Option Price payable with respect
to shares that are subject to the unexercised portion of the Option 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 7(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, the Option shall pertain to and
apply to the securities to which a holder of the number of shares of Stock
subject to the 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.
<PAGE> 28
(c) DISSOLUTION, LIQUIDATION, SALE OF ASSETS, REORGANIZATION
IN WHICH THE CORPORATION IS NOT THE SURVIVING
CORPORATION, ETC.
The Option 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
assumption of the Option or for the substitution for the Option of a new
option(s) 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 Option theretofore granted shall
continue in the manner and under the terms so provided. In the event of any such
termination of the Option, the Optionee shall have the right (subject to the
general limitations on exercise set forth in Section 5), 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, whether or not
such Option was otherwise exercisable at the time such termination occurs. The
Corporation shall send written notice of a transaction or event that will result
in such a termination to Optionee not later than the time at which the
Corporation gives notice thereof to its stockholders.
(d) ADJUSTMENTS
Adjustments under this Section 7 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 the Option 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,
<PAGE> 29
consolidate, dissolve, or liquidate, or to sell or transfer all or any part of
its business or assets.
8. REQUIREMENTS OF LAW
The Corporation shall not be required to sell or issue any shares of
Stock under the 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.
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). 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.
Nothwithstanding any provision in this Agreement to the contrary, if
prior to the termination of this Option, there is a period during which Optionee
would be precluded from exercising the Option and selling the shares of Stock
covered by the Option due to this Section 8, the date of termination of this
Option shall be extended for a period equal to the period during which Optionee
was so precluded, but in no event after the expiration of a period of ten (10)
years from the date of grant of the Option as set forth in Section 1. During any
period in
<PAGE> 30
which Optionee is precluded from exercising the Option and selling the
shares of Stock as described herein, Optionee may elect to forfeit the Option,
at which time the covenant not to compete with the Corporation, if then in
effect, shall terminate.
9. RIGHTS AS STOCKHOLDER
Neither the Optionee nor any executor, administrator, distributee or
legatee of the Optionee's estate shall be, or have any of the rights or
privileges of, a stockholder of the Corporation in respect of any shares of
Stock issuable hereunder unless and until such shares have been fully paid and
certificates representing such shares have been endorsed, transferred and
delivered, and the name of the Optionee (or of such personal representative,
administrator, distributee or legatee of the Optionee's estate) has been entered
as the stockholder of record on the books of the Corporation.
10. WITHHOLDING OF TAXES
The parties hereto recognize that the Corporation or a Subsidiary
may be obligated to withhold federal, state and local income taxes and Social
Security taxes to the extent that the Optionee realizes ordinary income in
connection with the exercise of the Option or in connection with a disposition
of any shares of Stock acquired by exercise of the Option or in connection with
the purchase of the Option by the Corporation. The Optionee agrees that the
Corporation or a Subsidiary may withhold amounts needed to cover such taxes from
payments otherwise due and owing to the Optionee, and also agrees that upon
demand the Optionee will promptly pay to the Corporation or a Subsidiary having
such obligation any additional amounts as may be necessary to satisfy such
withholding tax obligation. Such payment shall be made in cash or by certified
check payable to the order of the Corporation or a Subsidiary.
11. DISCLAIMER OF RIGHTS
No provision in this Option Agreement shall be construed to confer
upon the Optionee 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 of the Optionee at
any time, or to terminate any employment or other relationship between the
Optionee and the Corporation or any Subsidiary.
12. INTERPRETATION OF THIS OPTION AGREEMENT
All decisions and interpretations made by the Board or the Committee
thereof with regard to any question arising under the Plan or this Option
Agreement shall be final, binding and conclusive on the Corporation and
<PAGE> 31
the Optionee and any other person entitled to exercise the Option as provided
for herein.
13. GOVERNING LAW
This Option Agreement shall be governed by the laws of the State of
Delaware (excluding its choice of law rules).
14. BINDING EFFECT
Subject to all restrictions provided for in this Option Agreement,
the Plan and by applicable law limiting assignment and transfer of this Option
Agreement and the Option provided for herein, this Option Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, executors, administrators, successors, and assigns.
15. NOTICE
Any notice hereunder by the Optionee to the Corporation shall be in
writing and shall be deemed duly given if mailed or delivered to the Corporation
at its principal office, addressed to the attention of the President, or if so
mailed or delivered to such other address as the Corporation may hereafter
designate by notice to the Optionee. Any notice hereunder by the Corporation to
the Optionee shall be in writing and shall be deemed duly given if mailed or
delivered to the Optionee at the address specified below by the Optionee for
such purpose, or if so mailed or delivered to such other address as the Optionee
may hereafter designate by written notice given to the Corporation.
16. PARACHUTE PAYMENTS
Notwithstanding any provision of the Plan or of any other agreement,
contract, or understanding heretofore or hereafter entered into by the Optionee
with the Corporation, this Option Agreement expressly modifies and excludes
application of Section 7(b) of the Plan relating to "parachute payments" within
the meaning of Section 280G(b)(2) of the Code.
17. ENTIRE AGREEMENT
This Option Agreement and the Plan together constitute the entire
agreement and supersede all prior understandings and agreements, written or
oral, of the parties hereto with respect to the subject matter hereof. Neither
this Option Agreement nor any term hereof may be amended, waived, discharged or
terminated except by a written instrument signed by the Corporation and the
Optionee; provided, however, that the Corporation unilaterally may waive any
provision hereof in writing to the extent that such waiver does not adversely
affect the interests of the Optionee hereunder, but no such waiver shall operate
as or be construed to be a subsequent waiver of the same provision or a waiver
of any other provision hereof.
<PAGE> 32
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Option Agreement, or caused this Option Agreement to be duly executed and
delivered in their names and on their behalf, as of the day and year first above
written.
SUNRISE ASSISTED LIVING, INC.
By: /s/ Thomas B. Newell
--------------------------------
Title: Executive Vice President
-----------------------------
OPTIONEE:
/s/ Timothy S. Smick
-----------------------------------
Timothy S. Smick
ADDRESS FOR NOTICE TO
OPTIONEE:
937 Bellview Road
-----------------
Number Street
McLean, Virginia 22102
----------------------
City State Zip Code
<PAGE> 33
EXHIBIT A: 1996 NON-INCENTIVE STOCK OPTION PLAN (EXHIBIT 10.24 TO THE COMPANY'S
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997)
<PAGE> 34
EXHIBIT C
M E M O R A N D U M
TO: The Board of Directors of Sunrise Assisted Living, Inc.
FROM: Timothy S. Smick /s/ Timothy S. Smick
RE: Resignation of Employment from Board of Directors
of Sunrise Assisted Living, Inc.
================================================================================
Please accept my resignation from the Board of Directors effective
March 3, 1998 in light of my resignation from the employment of Sunrise Assisted
Living, Inc.
1
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