<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Sunrise Assisted Living, Inc.
------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
---------
2) Aggregate number of securities to which transaction applies:
----------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------
4) Proposed maximum aggregate value of transaction:
--------------
5) Total fee paid:
--------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
--------------------------------------------------
2) Form, Schedule or Registration Statement No.:
----------------------------
3) Filing Party:
------------------------------------------------------------
4) Date Filed:
--------------------------------------------------------------
<PAGE> 2
SUNRISE ASSISTED LIVING, INC.
9401 LEE HIGHWAY
SUITE 300
FAIRFAX, VA 22031
(703) 273-7500
April 3, 1998
Dear Stockholder:
You are cordially invited to attend the 1998 annual meeting of
stockholders (the "Annual Meeting") of Sunrise Assisted Living, Inc. (the
"Company") to be held on Monday, April 27, 1998, at 9:00 a.m., at The
Ritz-Carlton (Tysons Corner), 1700 Tysons Boulevard, McLean, Virginia.
The Annual Meeting has been 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.
It is important that your shares be represented at the Annual Meeting.
Whether or not you plan to attend the Annual Meeting, you are requested to
complete, date, sign and return the enclosed proxy card in the enclosed envelope
for which postage has been paid.
Very truly yours,
/s/ Paul J. Klaassen
Paul J. Klaassen
Chairman of the Board
and Chief Executive Officer
<PAGE> 3
SUNRISE ASSISTED LIVING, INC.
9401 LEE HIGHWAY
SUITE 300
FAIRFAX, VA 22031
(703) 273-7500
------------------
NOTICE TO ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 27, 1998
------------------
NOTICE IS HEREBY GIVEN that the 1998 annual meeting of stockholders
(the "Annual Meeting") of Sunrise Assisted Living, Inc. (the "Company") will be
held at The Ritz-Carlton (Tysons Corner), 1700 Tysons Boulevard, McLean,
Virginia on Monday, April 27, 1998 at 9:00 a.m., for the following purposes:
(1) To elect two directors of the Company for three-year terms and
until their successors shall have been elected and qualified;
(2) To approve the 1998 Stock Option Plan; and
(3) To transact such other business as may properly come before
the meeting or any adjournments thereof.
Pursuant to the Bylaws, the Board of Directors has fixed March 16, 1998
as the record date for the determination of stockholders entitled to notice of
and to vote at the Annual Meeting and to all adjournments thereof. Only
stockholders of record at the close of business on that date will be entitled to
notice and to vote at the Annual Meeting. All stockholders are cordially invited
to attend the Annual Meeting.
In the event that there are not sufficient votes to approve any one or
more of the foregoing proposals at the time of the Annual Meeting, the Annual
Meeting may be adjourned in order to permit further solicitation of proxies by
the Company.
By Order of the Board of Directors
/s/ Paul J. Klaassen
Paul J. Klaassen
Chairman of the Board
and Chief Executive Officer
Fairfax, Virginia
April 3, 1998
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE URGED TO
SIGN, DATE AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING PRE-ADDRESSED
ENVELOPE WHICH REQUIRES NO POSTAGE STAMP. YOUR PROXY MAY BE REVOKED PRIOR TO THE
VOTING BY FILING WITH THE SECRETARY OF THE COMPANY A WRITTEN REVOCATION OR A
DULY EXECUTED PROXY BEARING A LATER DATE OR BY ATTENDING THE ANNUAL MEETING AND
VOTING IN PERSON.
<PAGE> 4
SUNRISE ASSISTED LIVING, INC.
9401 LEE HIGHWAY
SUITE 300
FAIRFAX, VA 22031
(703) 273-7500
------------------
PROXY STATEMENT
1998 ANNUAL MEETING OF STOCKHOLDERS
APRIL 27, 1998
------------------
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
This proxy statement is furnished to stockholders of Sunrise Assisted
Living, Inc. (the "Company") in connection with the solicitation by the Board of
Directors of the Company of proxies to be used at the 1998 annual meeting of
stockholders (the "Annual Meeting"), to be held at The Ritz-Carlton (Tysons
Corner), 1700 Tysons Boulevard, McLean, Virginia on Monday, April 27, 1998 at
9:00 a.m., and at any adjournments thereof.
If the enclosed form of proxy is properly executed and returned to the
Company in time to be voted at the Annual Meeting, the shares represented
thereby will be voted in accordance with the instructions marked thereon.
EXECUTED BUT UNMARKED PROXIES WILL BE VOTED (i) FOR THE ELECTION OF THE BOARD OF
DIRECTORS' TWO NOMINEES AS DIRECTORS AND (ii) FOR APPROVAL OF THE 1998 STOCK
OPTION PLAN. If any other matters are properly brought before the Annual
Meeting, the persons named in the accompanying proxy will vote the shares
represented by such proxies on such matters as determined by a majority of the
Company's board of directors. The presence of a stockholder at the Annual
Meeting will not automatically revoke such stockholder's proxy. Stockholders
may, however, revoke a proxy at any time prior to its exercise by filing with
the secretary of the Company a written revocation or a duly executed proxy
bearing a later date or by attending the Annual Meeting and voting in person.
The cost of solicitation of proxies in the form enclosed herewith will
be borne by the Company. In addition to the solicitation of proxies by mail, the
Company, through its directors, officers and regular employees, may also solicit
proxies personally or by telephone or telegraph. The Company will also request
persons, firms and corporations holding shares in their names, or in the name of
their nominees, to send proxy material to and obtain proxies from beneficial
owners and will reimburse such holders for their reasonable expenses in so
doing. The Company has also retained Corporate Investor Communications, Inc., a
proxy soliciting firm, to assist in solicitation of proxies at a fee of $3,000,
plus reimbursement of out-of-pocket expenses. It is anticipated that this proxy
statement will be mailed to stockholders on or about April 3, 1998.
The securities which can be voted at the Annual Meeting consist of
shares of common stock of the Company, par value $.01 per share (the "Common
Stock"). Each share entitles its owner to one vote on all matters. The Company's
Certificate of
<PAGE> 5
Incorporation does not provide for cumulative voting in the election of
directors. The close of business on March 16, 1998 has been fixed by the Board
as the record date for determination of stockholders entitled to vote at the
Annual Meeting. The number of shares of Common Stock outstanding on the record
date was 19,227,450.
The presence, in person or by proxy, of at least a majority of the
outstanding shares of Common Stock is necessary to constitute a quorum at the
Annual Meeting. Stockholders' votes will be tabulated by the persons appointed
by the Board of Directors to act as inspectors of election for the Annual
Meeting. Abstentions and broker non-votes will be treated as shares that are
present, in person or by proxy, and entitled to vote for purposes of determining
the presence of a quorum at the Annual Meeting. Broker non-votes will not be
counted as a vote cast or entitled to vote on any matter presented at the Annual
Meeting. Abstentions will have the same effect as a negative vote on Proposal 2.
A copy of the Company's Annual Report to Stockholders for the year
ended December 31, 1997 accompanies this Proxy Statement. THE COMPANY IS
REQUIRED TO FILE AN ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31,
1997 WITH THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC"). STOCKHOLDERS MAY
OBTAIN, FREE OF CHARGE, A COPY OF THE COMPANY'S 1997 ANNUAL REPORT ON FORM 10-K
(WITHOUT EXHIBITS) BY WRITING TO SUNRISE ASSISTED LIVING, INC., 9401 LEE
HIGHWAY, SUITE 300, FAIRFAX, VA 22301, ATTENTION: CORPORATE SECRETARY. THE
COMPANY WILL PROVIDE COPIES OF THE EXHIBITS TO THE FORM 10-K UPON PAYMENT OF A
REASONABLE FEE.
ELECTION OF DIRECTORS
(PROPOSAL 1)
The Company's Certificate of Incorporation provides for a minimum of
two directors and a maximum of 11 directors. The Board of Directors of the
Company currently consists of eight members. The directors are divided into
three classes, each consisting of approximately one-third of the total number of
directors. In general, the term of office of only one class expires in each year
and their successors are elected for terms of three years and until their
successors are elected and qualified. At the Annual Meeting, two directors will
be elected, each for a three-year term. As described below, the Board of
Directors' nominees are Richard A. Doppelt and Paul J. Klaassen. THE BOARD OF
DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE BOARD OF DIRECTORS' TWO NOMINEES FOR
ELECTION AS DIRECTORS.
Unless otherwise specified on the proxy, it is the intention of the
persons named in the proxy to vote the shares represented by each properly
executed proxy for the election as directors of Messrs. Doppelt and Klaassen for
three-year terms. The Board of Directors believes that such nominees will stand
for election and will serve if elected as directors. However, if any person
nominated by the Board of Directors fails to stand for election or is unable to
accept election, the proxies will be voted for the election of such other person
or persons as a majority of the Company's Board of Directors may recommend.
Pursuant to the Company's Bylaws, directors are elected by plurality vote.
- 2 -
<PAGE> 6
INFORMATION AS TO NOMINEES AND OTHER DIRECTORS
The following table sets forth certain information regarding the Board
of Directors' two nominees for election as directors and those directors who
will continue to serve as such after the Annual Meeting.
<TABLE>
<CAPTION>
AGE AT
MARCH 15, DIRECTOR FOR TERM POSITION(S) HELD WITH
1998 SINCE (1) TO EXPIRE THE COMPANY
--------- --------- --------- ---------------------
<S> <C> <C> <C> <C>
NOMINEES:
- ---------
Richard A. Doppelt...................... 42 1995 2001 Director
Paul J. Klaassen (2).................... 40 1981 2001 Chairman of the Board and
Chief Executive Officer
CONTINUING DIRECTORS:
- ---------------------
Ronald V. Aprahamian.................... 51 1995 1999 Director and Consultant
Teresa M. Klaassen (2).................. 42 1981 1999 Executive Vice President,
Secretary and Director
David G. Bradley........................ 45 1997 1999 Director
Thomas J. Donohue....................... 59 1995 2000 Director
David W. Faeder......................... 41 1993 2000 President, Chief Financial
Officer and Director
Scott F. Meadow......................... 44 1996 2000 Director
</TABLE>
- ----------------------
(1) The dates shown (except for Mr. Meadow) reflect the year in which these
persons were first elected as directors of the Company or its
predecessors. Mr. Meadow also served as a director of the Company from
January 1995 to August 1995, and most recently has been a director
since February 1996. Messrs. Doppelt and Meadow were designated as
director representatives of the former holders of series A convertible
preferred stock, Messrs. Aprahamian and Donohue were designated as
non-management directors and Messrs. Klaassen and Faeder and Ms.
Klaassen were designated as management directors, pursuant to a
Stockholders' Agreement dated as of January 4, 1995. The Stockholders'
Agreement terminated upon completion of the Company's initial public
offering in June 1996.
(2) Paul J. Klaassen and Teresa M. Klaassen are related as husband and
wife.
- 3 -
<PAGE> 7
The principal occupations for the past five years of each of the two
nominees for director and the six directors whose terms of office will continue
after the Annual Meeting are set forth below.
RICHARD A. DOPPELT is Director of Allstate Private Equity, a division
of Allstate Insurance Company. He has been a member of Allstate Venture Capital
since 1987. Prior to joining Allstate, he practiced as a corporate attorney with
the law firm of Morrison & Foerster. Mr. Doppelt is a director of Factory Card
Outlet, a specialty retail company, and of several privately held companies.
PAUL J. KLAASSEN, a co-founder of the Company, has served as Chairman
of the Board and Chief Executive Officer of the Company and its predecessor
entities since 1981. He also served as President of the Company and its
predecessor entities from 1981 through July 1997. Mr. Klaassen is the founding
Chairman of the Assisted Living Facilities Association of America ("ALFAA"), the
largest assisted living industry trade association. He is a director of ACSYS,
Inc., a temporary staffing company, and also serves on the editorial advisory
boards of Contemporary Long Term Care, Retirement Housing Report, Assisted
Living Today and Assisted Living Briefing magazines.
RONALD V. APRAHAMIAN served as Chairman of the Board and Chief
Executive Officer of The Compucare Company, a health care information technology
company, from 1988 until October 1996. In May 1997, he became a consultant to
the Company. Mr. Aprahamian also is a director of Metrocall, Inc., a paging
company.
TERESA M. KLAASSEN, a co-founder of the Company, has served as
Executive Vice President and Secretary of the Company and its predecessor
entities since 1981. Ms. Klaassen is a founding member of ALFAA and currently
serves on the boards of directors of several long-term care organizations.
DAVID G. BRADLEY is Chairman and owner of the Advisory Board Company, a
750-person think tank and for-profit membership association in Washington, D.C.,
and owner of the National Journal, a Washington, D.C.-based public policy
magazine. He also serves on the Boards of Directors of Georgetown University, MD
Anderson Cancer Center, City of Hope National Medical Center and The Wolf Trap
Foundation. Mr. Bradley previously worked at the White House, the White House
Conference on Children and Youth and the Wall Street law firm of Cravath, Swaine
& Moore.
THOMAS J. DONOHUE is President and Chief Executive Officer of the U.S.
Chamber of Commerce. From 1984 to September 1997 he was President and Chief
Executive Officer of the American Trucking Association, the national trade
organization of the trucking industry. Mr. Donohue is a director of: Marymount
University; the National Football League Alumni Association; IPAC, an
international consulting firm; Newmyer Associates, a Washington, D.C. firm that
tracks and analyzes public policy; and the Hudson Institute. In addition, Mr.
Donohue served on the President's Commission on Intermodal Transportation.
- 4 -
<PAGE> 8
DAVID W. FAEDER has served as Executive Vice President and Chief
Financial Officer of the Company and its predecessor entities since 1993. He was
named President of the Company in July 1997. From 1991 to 1993, Mr. Faeder was a
Vice President of CS First Boston Corporation, serving in both the investment
banking and fixed income departments. From 1984 to 1991, Mr. Faeder served as a
Vice President of Morgan Stanley, where he worked in the Real Estate Capital
Markets Group.
SCOTT F. MEADOW has been a Vice President of The Sprout Group, the
venture capital division of DLJ Capital Corporation, since February 1996. From
1992 to 1995, Mr. Meadow was a General Partner of Frontenac Company, a venture
capital firm. From 1982 to 1992, he was a general partner of William Blair
Venture Partners, a venture capital firm. Mr. Meadow is a director of several
privately held companies.
OTHER EXECUTIVE OFFICERS
The principal occupation during the past five years of the Company's
other executive officers follows:
THOMAS B. NEWELL, 40, has served as General Counsel of the Company and
President of Sunrise Development, Inc., the Company's development subsidiary,
since January 1996 and was named an Executive Vice president of the Company in
May 1996. From 1989 to January 1996, Mr. Newell was a partner with the law firm
of Watt Tieder & Hoffar, where his practice concentrated on all aspects of
commercial and real estate development transactions and where he represented the
Company for more than five years.
BRIAN C. SWINTON, 52, joined the Company as Executive Vice President,
Sales and Marketing, in May 1996. From January 1994 to April 1996, Mr. Swinton
was a Senior Vice President of Forum Group, Inc., a developer and operator of
retirement communities and assisted living facilities, where his
responsibilities included marketing, sales and product development. From 1986 to
1994, Mr. Swinton served as Vice President, Sales, Marketing and Product
Development at Marriott International, where he was responsible for designing,
developing, marketing and the initial operations of the Brighton Gardens
assisted living concept.
TIFFANY TOMASSO, 35, was promoted to Executive Vice President --
Operations of the Company, in March 1998. She joined the Company in 1993 as
Regional Vice President in charge of developing assisted living facilities in
New Jersey, Pennsylvania and Delaware, and was promoted in 1994 to Senior Vice
President. Prior to 1993, Ms. Tomasso was Vice President of Operations for
assisted living and healthcare at Presbytarian Homes of New Jersey. She
previously served in a variety of long-term care administrator positions in
facilities owned by HBA Management, Inc.
Executive officers are elected annually and serve at the discretion of
the Board of Directors.
- 5 -
<PAGE> 9
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS AND NOMINATIONS BY
STOCKHOLDERS
During 1997, the Company's Board of Directors held three regular
meetings and three special meetings. For the 1997 period, no director attended
less than 75 percent of the (i) total number of meetings held by the Board and
(ii) total number of meetings held by all committees of the Board on which the
director served. The Company has the following standing committees of the Board:
Executive Committee. The members of the Executive Committee are Messrs.
Klaassen and Faeder and Ms. Klaassen. The Executive Committee has been delegated
all of the powers of the Board of Directors, when the Board of Directors is not
in session, to the extent permitted under the Delaware General Corporation Law.
The Executive Committee held no meetings during 1997.
Audit Committee. The members of the Audit Committee are Messrs.
Aprahamian, Donohue and Doppelt, all of whom are non-employee directors. The
Audit Committee, among other things, makes recommendations concerning the
engagement of the Company's independent auditors, reviews the results and scope
of the annual audit and other services provided by the Company's independent
auditors and reviews the adequacy of the Company's internal accounting controls.
The Audit Committee held one meeting during 1997.
Compensation Committee. The members of the Compensation Committee are
Messrs. Aprahamian, Donohue and Meadow, all of whom are non-employee directors.
The Compensation Committee makes recommendations to the full Board of Directors
concerning salary and bonus compensation and benefits for executive officers of
the Company. The Compensation Committee held one meeting during 1997.
Stock Option Committee. The members of the Stock Option Committee are
Messrs. Meadow, Bradley and Donohue, all of whom are non-employee directors. The
Stock Option Committee has the power and authority to take all actions and make
all determinations under the Company's stock option plans, including the grant
of options thereunder. The Stock Option Committee held six meetings during 1997.
The entire Board of Directors of the Company acts as a nominating
committee for selecting management's nominees for election as directors and has
made its nominations for the Annual Meeting. The Company's Bylaws require that
stockholder nominations for directors be made pursuant to timely notice in
writing to the secretary of the Company. To be timely, notice must be delivered
to, or mailed to and received at, the principal executive offices of the Company
not less than 60 days prior to the meeting; however, in the event that less than
75 days notice or prior public disclosure of the date of the meeting is given or
made to stockholders, notice by the stockholder to be timely must be received no
later than the close of business on the 15th day following the day on which such
notice of the date or public disclosure was made. Public notice of the date of
the Annual Meeting was made on March 4, 1998 by the issuance of a press release
and on March 5, 1998 by the filing of a current report on Form 8-K with the SEC.
A stockholder's notice of nomination must set forth certain information
specified in the Company's Bylaws concerning each person the
- 6 -
<PAGE> 10
stockholder proposes to nominate for election and the nominating stockholder.
Stockholder nominations for the Annual Meeting were required to be received on
or before March 19, 1998. No such nominations were received. The Company's
Bylaws provide that no person may be elected as a director unless nominated in
accordance with the procedures set forth in the Bylaws.
COMPENSATION OF DIRECTORS
Non-employee directors are reimbursed for expenses actually incurred in
connection with attending meetings of the Board of Directors. No Board fees are
paid for attendance at Board or committee meetings. In 1997, Messrs. Aprahamian
and Donohue each received grants of ten-year non-incentive stock options for
5,000 shares of Common Stock at an exercise price of $24.875 per share under the
Company's 1996 Directors' Stock Option Plan, as amended. Mr. Bradley received an
initial grant of a ten-year non-incentive option under the Directors' Stock
Option Plan for 10,000 shares upon his becoming a director of the Company in
August 1997. The option exercise price of his options is $36.125 per share. Mr.
Aprahamian became a consultant to the Company in May 1997, and in connection
therewith he received a grant of a ten-year non-incentive option under the
Company's 1997 Stock Option Plan, as amended, for 100,000 shares at an exercise
price of $24.375 per share and vesting over a four-year period. The per share
option exercise prices for all such options equaled the fair market value of a
share of Company Common Stock on the date of grant, as determined in accordance
with the terms of the respective stock option plan. Mr. Aprahamian also receives
$8,250 per month for serving as a consultant.
1996 DIRECTORS' STOCK OPTION PLAN, AS AMENDED
Non-employee directors of the Company are eligible to receive options
under the Company's 1996 Directors' Stock Option Plan, as amended (the "Director
Plan"). An aggregate of 100,000 shares of Common Stock are reserved for issuance
under the Director Plan. Each non-employee director whose commencement of
service is after April 25, 1996, the effective date of the Director Plan, and
before termination of the Director Plan will be granted an initial
non-qualifying option, as of the date of the director's commencement of service,
to purchase 10,000 shares of Common Stock. Messrs. Doppelt and Meadow, whose
commencement of service as directors began prior to April 25, 1996, will each
become eligible to receive an initial option grant for 10,000 shares of Common
Stock if reelected to the Board 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). An additional non-qualifying option to purchase 5,000
shares of Common Stock will be granted immediately after each subsequent annual
meeting of the Company's stockholders occurring before the Director Plan
terminates to each eligible non-employee director who is then serving on the
Board of Directors. In the event of any changes in the Common Stock by reason of
stock dividends, split-ups, recapitalizations, mergers, consolidations,
combinations or other exchanges of shares and the like, appropriate adjustments
will be made by the Board of Directors to the number of shares of Common Stock
available for issuance under the Director Plan, the number of shares subject to
outstanding options and/or the exercise price per share of outstanding options.
- 7 -
<PAGE> 11
Options granted under the Director Plan give the option holder the
right to purchase Common Stock at a price fixed in the stock option agreement
executed by the option holder and the Company at the time of grant. The option
exercise price will not be less than the fair market value of a share of Common
Stock on the date the option is granted. "Fair market value" for purposes of the
Director Plan generally equals to the closing price for the Common Stock on the
day prior to the date of grant. The period for exercising an option begins on
the date of grant and generally ends ten years from the date the option is
granted. Pursuant to the Director Plan, Messrs. Aprahamian, Bradley and Donohue
will each receive additional option grants for 5,000 shares, and Mr. Doppelt, if
reelected as a director at the Annual Meeting, will receive an initial option
grant for 10,000 shares, effective as of the date of the Annual Meeting.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth, for the years ended December 31, 1997,
1996 and 1995, the cash compensation paid by the Company, as well as certain
other compensation paid or accrued during those years, to the Company's Chief
Executive Officer and each of the other four most highly compensated executive
officers whose total annual salary and bonus exceeded $100,000 in 1997 (the
"named executive officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION/
AWARDS
-------------
SHARES OF
ANNUAL COMPENSATION COMMON STOCK ALL OTHER
----------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION(S) YEAR SALARY ($) OPTIONS (#) ($)(1)
- ------------------------------ ---- ---------- ------------- -------------
<S> <C> <C> <C> <C>
Paul J. Klaassen 1997 $200,000 N/A $ 942
Chairman of the Board 1996 200,000 N/A 2,375
and Chief Executive Officer 1995 200,000 N/A 2,310
David W. Faeder 1997 175,000 100,000 838
President and 1996 175,000 191,666 2,375
Chief Financial Officer 1995 175,000 450,000 2,310
Timothy S. Smick(2) 1997 175,000 150,000 -0-
Executive Vice President and 1996 175,000 266,666 N/A
Chief Operating Officer 1995 N/A N/A N/A
Thomas B. Newell(3) 1997 175,000 100,000 -0-
Executive Vice President and 1996 175,000 213,333 N/A
General Counsel of the Company 1995 N/A 66,666 N/A
and President of Sunrise
Development, Inc.
Brian C. Swinton(4) 1997 165,000 75,000 -0-
Executive Vice President, 1996 165,000 195,000 N/A
Sales and Marketing 1995 N/A N/A N/A
</TABLE>
- 8 -
<PAGE> 12
- ----------------------
(1) Represents matching contributions made by the Company under its 401(k)
plan.
(2) Mr. Smick joined the Company in February 1996. He resigned as an
officer of the Company effective January 31, 1998 and as a director of
the Company effective March 3, 1998.
(3) Mr. Newell joined the Company in January 1996.
(4) Mr. Swinton joined the Company in May 1996.
OPTION GRANTS
The following table contains certain information with respect to stock
options granted in 1997 to each of the named executive officers of the Company.
All options granted in 1997 were ten-year non-qualified options.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
% OF VALUE AT ASSUMED
SHARES OF TOTAL ANNUAL RATES OF
COMMON OPTIONS STOCK PRICE
STOCK GRANTED TO EXERCISE APPRECIATION FOR
UNDERLYING EMPLOYEES OR BASE OPTION TERM
OPTIONS IN FISCAL PRICE EXPIRATION -----------
NAME GRANTED YEAR ($/SH) DATE 5% ($) 10% ($)
---- ------- ---------- ------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Paul J. Klaassen -0- -0-% $-0- -0- $-0- $-0-
David W. Faeder 100,000(1) 7.2 24.375 5/2/07 1,532,931 3,884,747
Timothy S. Smick 100,000(2) 7.2 24.375 5/2/07 1,532,931 3,884,747
50,000(2) 3.6 24.375 5/2/07 766,465 1,942,374
Thomas B. Newell 100,000(1) 7.2 24.375 5/2/07 1,532,931 3,884,747
Brian C. Swinton 75,000(1) 5.4 24.375 5/2/07 1,149,698 2,913,560
</TABLE>
- ----------------------
(1) These options vest over a four-year period. Vesting is accelerated if
the options are not assumed in connection with any dissolution or
liquidation of the Company, the sale of substantially all of the
Company's assets, a merger, reorganization or consolidation in which
the Company is not the surviving corporation or any other transaction
(including, without limitation, a merger or reorganization in which the
Company is the surviving corporation) approved by the Board which
results in any person or entity owning 80% or more of the total
combined voting power of all classes of stock of the Company.
(2) These options terminated upon Mr. Smick's resignation as an officer of
the Company on January 31, 1998.
- 9 -
<PAGE> 13
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to each of the
named executive officers of the Company concerning the exercise of stock options
during 1997, the number of securities underlying unexercised options at the 1997
year-end and the 1997 year-end value of all unexercised in-the-money options
held by such individuals.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS(#) IN-THE-MONEY OPTIONS($)(1)
ACQUIRED ON VALUE ---------------------- --------------------------
NAME EXERCISE (#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Paul J. -0- $-0- -0- -0- $-0- $-0-
Klaassen
David W. 210,000 5,611,250 160,833 220,834 4,466,448 3,839,604
Faeder
Timothy S. 62,500 1,273,438 25,000 295,834 406,250 6,066,167
Smick
Thomas B. 50,000 1,177,507 51,251 258,751 945,344 5,420,347
Newell
Brian C. 40,000 472,500 38,750 191,250 742,188 3,539,063
Swinton
</TABLE>
- ----------------------
(1) Market values of underlying securities at exercise or year-end minus
the exercise price.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is composed entirely of non-employee
directors. During 1997, Messrs. Aprahamian, Donohue and Meadow served on the
Compensation Committee.
Scott F. Meadow is an executive officer of The Sprout Group, the
venture capital division of DLJ Capital Corporation. DLJ Capital Corporation is
an affiliate of Donaldson, Lufkin & Jenrette Securities Corporation, an initial
purchaser in the Company's June 1997 Rule 144A offering of 5 1/2% Convertible
Subordinated Notes due 2002.
- 10 -
<PAGE> 14
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on
the Company's Common Stock from May 31, 1996 (the date the Company's Common
Stock began trading on the Nasdaq National Market), through December 31, 1997,
and through February 28, 1998, with the cumulative total return of the Standard
and Poor's Index 500 Stock and the Peer Group Index (as defined below**). The
graph assumes the investment of $100 in the Company's Common Stock on May 31,
1996. The initial public offering price of the Company's Common Stock was $20.00
per share.
<TABLE>
<CAPTION>
COMPARISON OF CUMULATIVE TOTAL RETURN*
MAY 31, 1996 TO DECEMBER 31, 1997 AND TO FEBRUARY 28, 1998
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5/31/96 6/30/96 9/30/96 12/31/96 3/31/97 6/30/97 9/30/97 12/31/97 2/28/98
Sunrise Assisted Living, Inc. 100 120 140 139 140 175 181 216 211
PEER GROUP 100 99 98 104 107 144 145 152 162
S&P 500 100 100 103 112 115 135 145 150 162
</TABLE>
- ---------------------------
*Cumulative Total Return assumes an initial investment of $100 on May 31, 1996
and the reinvestment of dividends. There were no dividends paid by the Company
during the period presented.
**Peer Group Index is composed of selected assisted living or other long term
care companies. These companies are: Alternative Living Services, Inc., Assisted
Living Concepts, Inc., ATRIA Communities, Inc., CareMatrix Corporation,
Integrated Health Services, Inc. and Manor Care, Inc.
REPORT ON EXECUTIVE COMPENSATION
The Board of Directors and its Compensation and Stock Option Committees
have prepared the following report on the Company's policies with respect to the
compensation of executive officers for 1997. The Board of Directors makes all
decisions on compensation of the Company's executive officers (other than stock
options), based upon recommendations of the Compensation Committee. Decisions as
to the grant of stock options are made by the Stock Option Committee.
- 11 -
<PAGE> 15
COMPENSATION OF EXECUTIVE OFFICERS
The compensation policies of the Company are designed to enable the
Company to attract, motivate and retain experienced and qualified executives.
The Company seeks to provide competitive compensation. The Company's policy has
been to provide a significant component of an executive officer's compensation
through the grant of stock options. The Company believes that grants of stock
options to executives, as well as to employees generally, help align the
interests of such persons with the interests of Company' stockholders.
The following describes in more specific terms the elements of
compensation of executive officers for 1997:
BASE SALARIES
Base salaries of executives are initially determined by evaluating the
responsibilities of the position, the experience and knowledge of the
individual, and the competitive marketplace for executive talent. Base salaries
for executive officers are reviewed annually by the Compensation Committee and
the Board based on, among other things, individual performance and
responsibilities. Base salaries for the Company's executive officers were not
increased in 1997 due to the Company's emphasis on stock option grants as a
primary compensation tool.
STOCK OPTIONS
Stock options are considered an effective long-term incentive because
gains are linked to increases in the stock value, which in turn provides
stockholder gains. Stock options are granted by the Stock Option Committee at an
exercise price equal to the market price of the Common Stock at the date of the
grant. The options typically vest in equal portions over a four year period, and
are exercisable within ten years from the date of grant. The full benefit of the
options is realized upon appreciation of the stock price in future periods, thus
providing an incentive to create value to the Company's stockholders through
appreciation of the stock price. Management of the Company believes that stock
options have been helpful in attracting and retaining skilled executive
personnel.
Stock option grants made to executive officers in 1997 reflect
significant individual performance and contributions relating to the Company's
operations, including implementation of the Company's development and
acquisition programs. The Company also believes that the market for experienced
executives in the assisted living industry has become more competitive as the
number of public assisted living companies and entrants into the assisted living
industry has increased. The stock option grants made to the Company's executive
officers in 1997 also reflect these competitive factors.
Reflecting the Company's belief in the value and desirability of all
employees having a proprietary interest in the Company, during 1997, the Company
granted stock options covering a total of 1,364,922 shares of Common Stock to
258 employees. Such number includes options covering an aggregate of 425,000
shares of Common Stock granted to four of the Company's executive officers. The
per share option exercise prices of such options
- 12 -
<PAGE> 16
ranged from $24.375 to $36.625, which equaled the fair market value of a share
of the Company's Common Stock on the date of grant.
OTHER
The Company has adopted a contributory retirement plan (the "401(k)
Plan") for all of its employees (including executive officers) age 21 and over
with at least one year of service to the Company. The 401(k) Plan provides that
each participant may contribute up to 16% of his or her salary (not to exceed
the annual statutory limit). In general, the Company makes matching
contributions to each participant's account equal to 25% of such participant's
contribution up to 7% of such participant's annual compensation. Effective April
1, 1997, the Company on a discretionary basis makes matching contributions for
participants with annual compensation in excess of $40,000.
CEO'S COMPENSATION
Mr. Klaassen received a salary of $200,000 in 1997, 1996 and 1995 and
participated in the Company's 401(k) Plan. He and his wife, Teresa M. Klaassen,
Executive Vice President and a director of the Company, currently beneficially
own 2,989,230 shares of Company Common Stock, or approximately 15.6% of the
outstanding shares. In view of their stock ownership, neither Mr. Klaassen nor
Ms. Klaassen has received grants of stock options. The Company reserves the
right to make future grants of options to Mr. Klaassen and/or Ms. Klaassen.
COMPENSATION DEDUCTIBILITY POLICY
Under Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code") and applicable Treasury regulations, no deduction is allowed for
annual compensation in excess of $1 million paid by a publicly traded
corporation to its chief executive officer and the four other most highly
compensated officers. Under those provisions, however, there is no limitation on
the deductibility of "qualified performance-based compensation." In general, the
Company's policy is to maximize the extent of tax deductibility of executive
compensation under the provisions of Section 162(m) so long as doing so is
compatible with its determinations as to the most appropriate methods and
approaches for the design and delivery of compensation to the Company's
executive officers.
Respectfully submitted,
The Board of Directors Compensation Committee
Paul J. Klaassen, Chairman Thomas J. Donohue, Chairman
Ronald V. Aprahamian Ronald V. Aprahamian
Thomas J. Donohue Scott F. Meadow
Richard A. Doppelt
David W. Faeder Stock Option Committee
Teresa M. Klaassen
Scott F. Meadow Thomas J. Donohue, Chairman
David G. Bradley David G. Bradley
Scott F. Meadow
- 13 -
<PAGE> 17
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the Company's directors, officers and beneficial owners of more
than 10% of the Company's outstanding equity securities to file with the SEC
initial reports of ownership of the Company's equity securities and to file
subsequent reports when there are changes in such ownership. Based on a review
of reports submitted to the Company for 1997, the Company believes that all
Section 16(a) filing requirements for that year applicable to such persons were
complied with on a timely basis, except that each of Messrs. Faeder, Newell and,
Swinton were late in filing one Form 4 to report one option exercise, Larry E.
Hulse, the Company's Chief Financial Officer, was late in filing one Form 4 to
report two option exercises, Mr. Smick was late in filing one Form 4 to report
three sales of stock, Mr. and Mrs. Klaassen were late in filing two Form 4s to
report two gifts and a sale of stock by them and Mr. Bradley was late in filing
a Form 5 to report one option grant made to him.
CERTAIN TRANSACTIONS
The Company leases certain real property on which the Fairfax facility
is located from Teresa M. Klaassen and Paul J. Klaassen pursuant to a 99-year
ground lease dated June 5, 1986 (the "Ground Lease"). The Ground Lease provides
for monthly rent of $21,272, as adjusted annually based on the Consumer Price
Index. Annual rent expense under the ground lease for 1997 was $262,000. The
Company has subleased approximately 50% of the property subject to the Ground
Lease to Sunrise Foundation, Inc., a not-for-profit organization operated by the
Klaassens ("Sunrise Foundation"), which operates a school and day care center on
the property. The sublease terminates upon expiration of the Ground Lease and
provides for monthly rent equal to 50% of all of the rent payable under the
Ground Lease. Sunrise Foundation also reimburses the Company for use of office
facilities and support services. Reimbursements for 1997 were $68,000. The
Company believes that, at the time entered into, the terms of the lease and
sublease were no less favorable to the Company than those which it could have
obtained from an unaffiliated third party.
The Klaassens also lease certain real property located in Fairfax
County, Virginia for use as a residence pursuant to a 99-year ground lease with
the Company entered into in June 1994. The rent is $1.00 per month. This
property is part of a parcel, which includes the Company's Oakton facility, that
was previously transferred by the Klaassens to the Company in connection with
obtaining certain financing. Rather than attempting to subdivide the parcel,
which would have caused a significant delay in consummation of the financing
transaction, the Company agreed to lease the Klaassens' residence back to them
as a condition to the transfer of the property.
For a description of certain other transactions involving the Company
and its directors, see "Compensation Committee Interlocks and Insider
Participation."
- 14 -
<PAGE> 18
APPROVAL OF
1998 STOCK OPTION PLAN
(PROPOSAL 2)
On March 3, 1998, the Board of Directors adopted the 1998 Stock Option
Plan (the "1998 Option Plan"), subject to approval of stockholders at the Annual
Meeting. As of the date of adoption of the 1998 Option Plan by the Board, there
were approximately 950 officers and employees of the Company and its
subsidiaries who are eligible to participate in the 1998 Option Plan.
The principal provision of the 1998 Stock Option Plan are summarized
below. Such summary does not, however, purport to be complete and is qualified
in its entirety by the terms of the 1998 Option Plan, a copy of which is
attached hereto as Exhibit A and incorporated herein by reference.
DESCRIPTION OF 1998 OPTION PLAN
The 1998 Option Plan provides for the granting of options to acquire
Common Stock, which may be either incentive stock options (an "ISO") or
nonqualified stock options (an "NSO"). The 1998 Option Plan is administered by
the Stock Option Committee of the Board of Directors, and all employees of the
Company or any subsidiary and any consultant or adviser providing bona fide
services to the Company or any subsidiary (provided that such services are not
in connection with the offer or sale of securities in a capital raising
transaction) whose participation in the 1998 Option Plan is determined by the
Stock Option Committee to be in the best interests of the Company are eligible
to receive option grants thereunder. The 1998 Option Plan does not have a
termination date, but a grant of an ISO may not occur 10 years after March 3,
1998, the effective date of the 1998 Option Plan. Receipt of option grants under
the 1998 Option Plan is contingent upon the execution by each prospective option
holder of an agreement in such form as the Stock Option Committee may from time
to time determine.
The 1998 Option Plan provides for the grant of options to purchase up
to 1,000,000 shares of Common Stock. The purchase price per share of Common
Stock subject to an option is fixed by the Stock Option Committee when the
option is granted, and may be no less than fair market value of a share of
Common Stock on the date of grant (as determined in accordance with the terms of
the 1998 Option Plan). Options to purchase no more than 500,000 shares of Common
Stock may be granted to any one eligible individual during the first 10 years
after the effective date of the 1998 Option Plan and 200,000 shares per year
thereafter. The terms of options granted under the 1998 Option Plan, including
the vesting provisions of such options, will be established at the time of
grant. The Stock Option Committee, in its sole discretion, may rescind, modify
or waive an limitation or condition on the exercise of an option contained in
any option agreement so as to accelerate the time at which an option may be
exercised or extend the period during which the option may be exercised. No
person may receive an ISO if, at the time of grant, such person owns directly or
indirectly more than 10% of the total combined voting power of the Company
unless the option price is at least 110% of the fair market value of the Common
Stock and the exercise period of such ISO is by its terms limited to five years.
There is also a $100,000 limit on the value of Common Stock (determined at the
time of
- 15 -
<PAGE> 19
grant) covered by ISOs that first become exercisable by an optionee in any
calendar year. No option granted to a reporting person under Section 16 of the
Exchange Act may be exercisable during the first six months after the date of
grant.
Payment for shares purchased under the 1998 Option Plan may be made:
(i) in cash or in cash equivalents; (ii) if permitted by the option agreement,
by exchanging shares of Common Stock with a fair market value equal to or less
than the total option price plus cash for any difference; (iii) if permitted by
the option agreement, by delivery of a promissory note of the person exercising
the option; (iv) if permitted by the option agreement, by causing the Company to
withhold shares of Common Stock otherwise issuable pursuant to the exercise of
an option equal in value to the exercise price; or (v) by a combination of the
foregoing. Payment in full of the option price need not accompany the written
notice of exercise provided the notice directs that the stock certificate for
the shares for which the option is exercised be delivered to a licensed broker
acceptable to the Company as the agent for the individual exercising the option
and, at the time such stock certificate is delivered, the broker tenders to the
Company cash (or cash equivalents acceptable to the Company) equal to the option
price.
In the event of stock splits, stock dividends, recapitalizations,
combinations of shares or certain other events, the 1998 Option Plan provides
for adjustment of: (i) the number of shares available for option grants,
including the maximum number of shares that may be granted to any one
individual, and (ii) the number of shares and the per share exercise price for
shares subject to unexercised options. Upon any dissolution or liquidation of
the Company, the sale of substantially all of the Company's assets, a merger,
reorganization or consolidation in which the Company is not the surviving
corporation or any other transaction (including, without limitation, a merger or
reorganization in which the Company is the surviving corporation) approved by
the Board which results in any person or entity owning 80% or more of the total
combined voting power of all classes of stock of the Company, the 1998 Option
Plan and the options issued thereunder will terminate, unless provision is made
in connection with such transaction for the continuation of the plans and/or the
assumption of the options or for the substitution for such options of new
options covering the stock of a successor corporation or a parent or subsidiary
thereof, with appropriate adjustment as to the number and kinds of shares and
the per share exercise price. 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 the 1998 Option Plan.
Options granted under the 1998 Option Plan generally are
non-transferable except by will or by the laws of descent and distribution upon
the death of the option holder.
The Board of Directors may terminate or amend the 1998 Option Plan at
any time; provided, however, that any amendment by the Board which, if not
approved by the Company's stockholders would cause the Plan to not comply with
Sections 162(m) or 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), shall not be effective unless approved by the affirmative vote of
stockholders who hold more than 50% of the combined voting power of the
outstanding shares of voting stock of the Company present or represented, and
entitled to vote thereon, at a duly constituted stockholders' meeting.
- 16 -
<PAGE> 20
Based on the closing price of $42.625 per share on March 16, 1998, the
aggregate market value of the 1,000,000 shares of Common Stock issuable under
the 1998 Option Plan is $42.6 million. In addition to the 1998 Option Plan, the
Company maintains three other stock options plans under which employees are
eligible to receive option grants: the 1995 Stock Option Plan, as amended
(1,298,065 shares reserved, of which 1,276,662 shares have been granted, net of
forfeitures, as of March 16, 1998), the 1996 Non-Incentive Stock Option Plan, as
amended (1,100,000 shares reserved, of which 1,067,478 shares have been granted,
net of forfeitures, as of March 16, 1998) and the 1997 Stock Option Plan, as
amended (1,800,000 shares reserved, of which 1,438,197 shares have been granted,
net of forfeitures, as of March 16, 1998). In January 1995, the Company also
made a non-plan option grant to Mr. Faeder covering 450,000 shares of Common
Stock.
FEDERAL INCOME TAX CONSEQUENCES
The grant of an option will not be a taxable event for the optionee or
the Company.
Incentive Stock Options. An optionee will not recognize taxable income
upon exercise of an ISO (except that the alternative minimum tax may apply), and
any gain realized upon a disposition of shares of stock received pursuant to the
exercise of an ISO will be taxed as long-term capital gain if the optionee holds
the shares for at least two years after the date of grant and for one year after
the date of exercise (the "holding period requirement"). The Company will not be
entitled to any business expense deduction with respect to the exercise of an
ISO, except as discussed below.
For the exercise of an option to qualify for the foregoing tax
treatment, the optionee generally must be an employee of the Company or a
subsidiary from the date the option is granted through a date within three
months before the date of exercise of the option. In the case of an optionee who
is disabled, the three-month period for exercise following termination of
employment is extended to one year. In the case of an employee who dies, both
the time for exercising ISOs after termination of employment and the holding
period for stock received pursuant to the exercise of the option are waived.
If all of the foregoing requirements are met except the holding period
requirement mentioned above, the optionee will recognize ordinary income upon
the disposition of the stock in an amount generally equal to the excess of the
fair market value of the stock at the time the option was exercised over the
option exercise price (but not in excess of the gain realized on the sale). The
balance of the realized gain, if any, will be capital gain. The employer
corporation will be allowed a business expense deduction to the extent the
optionee recognizes ordinary income subject to Section 162(m) of the Code
summarized below.
If an optionee exercises an ISO by tendering shares of Common Stock
with a fair market value equal to part or all of the option exercise price, the
exchange of shares will be treated as a nontaxable exchange (except that this
treatment would not apply if the optionee had acquired the shares being
transferred pursuant to the exercise of an ISO and had not satisfied the holding
period requirement summarized above). If the exercise is treated as a tax free
exchange, the optionee would have no taxable income from the exchange and
exercise (other than minimum taxable income as discussed above) and the
- 17 -
<PAGE> 21
tax basis of the shares exchanged would be treated as the substituted basis for
the shares received. If the optionee used shares received pursuant to the
exercise of an ISO (or another statutory option) as to which the optionee had
not satisfied the applicable holding period requirement, the exchange would be
treated as a taxable disqualifying disposition of the exchanged shares.
If, pursuant to an option agreement, the Company withholds shares in
payment of the option price for incentive options, the transaction should
generally be treated as if the withheld shares had been sold in a disqualifying
disposition after exercise of the option, so that the optionee will realize
ordinary income with respect to such shares. The shares paid for by the withheld
shares should be treated as having been received upon exercise of an incentive
stock option, with the tax consequences described above. However, the Internal
Revenue Service has not ruled on the tax treatment of shares received on
exercise of an incentive stock option where the option exercise price is paid
with withheld shares.
Non-Qualified Options. Upon exercising a NSO, an optionee will
recognize ordinary income in an amount equal to the difference between the
exercise price and the fair market value of the stock on the date of exercise
(except that, if the optionee is subject to certain restrictions imposed by the
securities laws, the measurement date will be deferred, unless the optionee
makes a special tax election within 30 days after exercise). Upon a subsequent
sale or exchange of shares acquired pursuant to the exercise of a NSO, the
optionee will have taxable gain or loss, measured by the difference between the
amount realized on the disposition and the tax basis of the shares (generally,
the amount paid for the shares plus the amount treated as ordinary income at the
time the option was exercised).
If the employer corporation complies with applicable reporting
requirements and with the restrictions of Section 162(m) of the Code, it will be
entitled to a business expense deduction in the same amount and generally at the
same time as the optionee recognizes ordinary income. Under Section 162(m) of
the Code, if the optionee is one of certain specified executive officers, then,
unless certain exceptions apply, the employer is not entitled to deduct
compensation with respect to the optionee, including compensation related to the
exercise of stock options, to the extent such compensation in the aggregate
exceeds $1.0 million for the taxable year. The options are intended to comply
with the exception to Section 162(m) for "performance-based" compensation.
If the optionee surrenders shares of Common Stock in payment of part or
all of the exercise price for NSOs, no gain or loss will be recognized with
respect to the shares surrendered (regardless of whether the shares were
acquired pursuant to the exercise of an incentive option) and the optionee will
be treated as receiving an equivalent number of shares pursuant to the exercise
of the option in a nontaxable exchange. The basis of the shares surrendered will
be treated as the substituted tax basis for an equivalent number of option
shares received and the new shares will be treated as having been held for the
same holding period as had expired with respect to the transferred shares. The
difference between the aggregate option exercise price and the aggregate fair
market value of the shares received pursuant to the exercise of the option will
be taxed as ordinary income. The optionee's basis in the additional shares will
be equal to the amount included in the optionee's income.
- 18 -
<PAGE> 22
If, pursuant to an option agreement, the Company withholds shares in
payment of the option price for NSOs or in payment of tax withholding, the
transaction should generally be treated as if the withheld shares had been sold
for an amount equal to the exercise price after exercise of the option.
REASONS FOR OBTAINING STOCKHOLDER APPROVAL
The Board has approved the 1998 Option Plan subject to stockholder
approval at the Annual Meeting. The Company is submitting the 1998 Option Plan
for stockholder approval at the Annual Meeting because stockholder approval is
required to (i) qualify the 1998 Option Plan under Section 422 of the Code
relating to the grant of ISOs and (ii) obtain a federal income tax deduction
under Section 162(m) of the Code for compensation recognized by optionees in
connection with the exercise of options granted under the 1998 Option Plan.
Section 422 of the Code and applicable Treasury regulations, among
other things, condition ISO treatment for option grants on stockholder approval
of the stock option plan pursuant to which the ISOs are granted. Under Section
162(m) of the Code and applicable Treasury regulations, no deduction is allowed
for annual compensation in excess of $1 million paid by a publicly traded
corporation to its chief executive officer and the four other most highly
compensated officers. Under those provisions, however, there is no limitation on
the deductibility of "qualified performance-based compensation." To satisfy this
definition: (i) the compensation must be paid solely on account of the
attainment of one or more pre-established, objective performance goals; (ii) the
performance goals under which compensation is paid must be established by a
compensation committee having the authority to establish and administer
performance goals and comprised solely of two or more directors who qualify as
"outside directors" for purposes of the exception; (iii) the material terms
under which the compensation is to be paid must be disclosed to and subsequently
approved by stockholders of the corporation before payment is made in a separate
vote; and (iv) the compensation committee must certify in writing before payment
of the compensation that the performance goals and any other material terms were
in fact satisfied. Under applicable Treasury regulations, in the case of
compensation attributable to stock options, the performance goal requirement
(summarized in (i) above) and the stockholder approval requirement (summarized
in (iii) above) are deemed satisfied, and the certification requirement
(summarized in (iv) above) is inapplicable, if: (i) the grant or award is made
by a compensation committee satisfying the above requirements; (ii) the plan
under which the option is granted states the maximum number of shares with
respect to which options may be granted during a specified time period to an
employee; (iii) under the option exercise price equals or exceeds the fair
market value of the stock on the date of grant; and (iv) the stock option plan
is approved by stockholders.
The Company has in the past used stock options as an important device
to motivate and reward its employees and employees of its subsidiaries, and
believes that equity incentives represented by stock options enhance its ability
to attract and retain key personnel.
- 19 -
<PAGE> 23
REQUIRED VOTE
The approval by the affirmative vote of the holders of a
majority of the shares of Common Stock present or represented and entitled to
vote at the Annual Meeting is required to approve the 1998 Option Plan.
Abstentions will have the same effect as a negative vote. THE BOARD OF DIRECTORS
RECOMMENDS A VOTE FOR APPROVAL OF THE 1998 OPTION PLAN.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed Ernst & Young LLP to act as the
Company's independent auditors for 1998. Representatives of Ernst & Young LLP
will be present at the Annual Meeting. They will be given an opportunity to
make a statement if they desire to do so and will be available to respond to
appropriate questions. Ernst & Young LLP was first appointed to act as the
Company's independent auditors in November 1994.
STOCK OWNED BY MANAGEMENT
The following table sets forth certain information with respect to
beneficial ownership of the Common Stock as of March 16, 1998 by (i) each
director and nominee for director of the Company; (ii) each named executive
officer of the Company; and (iii) all executive officers and directors of the
Company as a group.
<TABLE>
<CAPTION>
NAME AND POSITION(S) AMOUNT AND NATURE OF PERCENT OF COMMON
WITH THE COMPANY BENEFICIAL OWNERSHIP(1) STOCK OUTSTANDING
- ---------------- ----------------------- -----------------
<S> <C> <C>
Paul J. Klaassen(2) 2,989,230 15.6%
Chairman of the Board
and Chief Executive Officer
Teresa M. Klaassen(2) 2,989,230 15.6
Executive Vice President and
Secretary
David W. Faeder(3) 92,751 *
President and
Chief Financial Officer
Thomas B. Newell(3) 31,251 *
Executive Vice President and
General Counsel of the Company
and President of Sunrise
Development, Inc.
Brian C. Swinton(3) 18,750 *
Executive Vice President, Sales
and Marketing
</TABLE>
- 20 -
<PAGE> 24
<TABLE>
<S> <C> <C>
Ronald V. Aprahamian(4) 85,000 *
Director
David G. Bradley 10,000 *
Director
Thomas J. Donohue(5) 72,500 *
Director
Richard A. Doppelt 1,000 *
Director
Scott F. Meadow 1,542 *
Director
Executive officers and directors as a 3,309,274 16.9
group (11 persons)(6)
</TABLE>
- ----------------------
* Less than one percent.
(1) Pursuant to Rule 13d-3 under the Exchange Act, a person has beneficial
ownership of any securities as to which such person, directly or
indirectly, through any contract, arrangement, undertaking,
relationship or otherwise has or shares voting power and/or investment
power and as to which such person has the right to acquire such voting
and/or investment power within 60 days. Percentage of beneficial
ownership as to any person as of a particular date is calculated by
dividing the number of shares beneficially owned by such person by the
sum of the number of shares outstanding as of such date and the number
of shares as to which such person has the right to acquire voting
and/or investment power within 60 days.
(2) Represents 2,989,230 shares held jointly by the Klaassens, as tenants
by the entireties. See "Principal Holders of Voting Securities."
(3) Represents shares issuable upon the exercise of stock options that are
exercisable within 60 days of March 16, 1998.
(4) Represents 45,000 shares issuable upon the exercise of stock options
that are exercisable within 60 days of March 16, 1998 and 40,000 shares
of Common Stock held directly.
(5) Represents 20,000 shares issuable upon the exercise of stock options
that are exercisable within 60 days of March 16, 1998 and 52,500 shares
of Common Stock held directly.
(6) Includes 225,002 shares issuable upon the exercise of stock options
that are exercisable within 60 days of March 16, 1998, and the
2,989,230 shares beneficially owned by Paul J. and Teresa M. Klaassen.
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<PAGE> 25
PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table sets forth information as of March 16, 1998 with
respect to the ownership of shares of Company Common Stock by each person
believed by management to be the beneficial owner of more than five percent of
the Company's outstanding Common Stock. The information is based on the most
recent Schedule 13D or 13G filed with the SEC on behalf of such persons or other
information made available to the Company. Except as otherwise indicated, the
reporting persons have stated that they possess sole voting and sole dispositive
power over the entire number of shares reported.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF COMMON
BENEFICIAL OWNER BENEFICIAL OWNERSHIP STOCK OUTSTANDING
- ---------------- -------------------- -----------------
<S> <C> <C>
Paul J. and Teresa M. Klaassen(1) 2,989,230 15.6%
9401 Lee Highway, Suite 300
Fairfax, VA 22031
Cohen & Steers Capital 2,511,900 13.1
Management, Inc.(2)
757 Third Avenue
New York, NY 10017
Pilgrim Baxter & Associates, Ltd.(3) 1,772,630 9.2
825 Duportail Road
Wayne, PA 19087
FMR Corp.(4) 1,734,250 9.0
82 Devonshire Street
Boston, MA 02109
Nicholas-Applegate Capital 1,232,258 6.4
Management(5)
600 West Broadway, 29th Floor
San Diego, CA 92101
</TABLE>
- ----------------------
(1) See "Stock Owned by Management."
(2) Amendment No. 2 to Schedule 13G dated February 6, 1998 of Cowen &
Steers Capital Management, Inc. ("Cowen & Steers") states that Cowen &
Steers, an investment adviser, has sole power to vote 2,151,800 shares
and sole power to dispose of 2,511,900 shares.
(3) The Schedule 13G dated January 20, 1998 of Pilgrim Baxter & Associates,
Ltd. ("Pilgrim Baxter") states that Pilgrim Baxter, an investment
adviser, has sole power to vote 1,518,030 shares, shared power to vote
1,772,630 shares and sole power to dispose of 1,772,630 shares. The
Schedule 13G also identifies PBHG Growth Fund as having sole power to
vote and sole power to dispose of 1,193,400 shares.
(4) Amendment No. 2 to Schedule 13G dated February 14, 1998 of FMR Corp.
states that FMR Corp. has sole power to vote 23,200 shares and sole
power to dispose of the entire number of such shares. The Schedule 13G
also states that Fidelity Management & Research Company, a wholly-owned
subsidiary of FMR Corp. and an investment adviser ("Fidelity"), is the
beneficial owner of 1,712,050 shares, including 134,450 shares
resulting from the assumed conversion of $5,000,000 principal amount of
5.5% Subordinated Convertible Notes due 2002 of the Company, as a
result of acting as investment adviser to various Fidelity funds and
sub-adviser to Fidelity American Special Situations Trust, a unit trust
established and authorized under the laws of England ("FASST"). The
Amendment No. 2 to Schedule 13G further states that Edward C. Johnson
3d, FMR Corp.'s Chairman, FMR Corp. through
- 22 -
<PAGE> 26
Fidelity, and the funds each has sole power to dispose of the 1,711,050
shares owned by the Fidelity funds, and that Fidelity International
Limited, the investment adviser of FASST, FMR Corp., through Fidelity,
and FASST each has sole power to vote and to dispose of the 1,000
shares held by FASST. The Amendment No. 2 to Schedule 13G also
indicates that Fidelity votes the shares owned by the Fidelity funds
under written guidelines established by the funds' boards of trustees,
which have the sole power to vote such shares, that Fidelity Management
Trust Company, a wholly owned subsidiary of FMR Corp. ("FMT"), is the
beneficial owner of 11,600 shares as a result of its serving as
investment manager of certain institutional accounts and that Mr.
Johnson and FMR Corp., through its control of FMT, each has sole voting
and dispositive power over such 11,600 shares.
(5) The Schedule 13G dated February 3, 1998 of Nicholas-Applegate Capital
Management ("Nicholas-Applegate") states that Nicholas-Applegate, an
investment adviser, has sole power to vote 956,036 shares and sole
power to dispose of the entire number of such shares.
DATE FOR SUBMISSION OF STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 1999 annual
meeting must be received by the Company no later than December 4, 1998 pursuant
to the proxy soliciting rules of the SEC in order to be considered for inclusion
in the Company's proxy statement and form of proxy relating to the 1999 annual
meeting. Nothing in this paragraph shall be deemed to require the Company to
include in its proxy statement and proxy relating to the 1999 annual meeting any
stockholder proposal which may be omitted from the Company's proxy materials
pursuant to applicable regulations of the SEC in effect at the time such
proposal is received. Pursuant to the Company's Bylaws, any stockholder of the
Company who intends to present a proposal for action at the 1999 annual meeting
also must file a copy thereof with the Secretary of the Company at least 60 days
prior to the meeting; however, in the event that less than 75 days notice or
prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be received no later
than the close of business on the 15th day following the day on which such
notice of the date or public disclosure was made.
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<PAGE> 27
OTHER BUSINESS TO BE TRANSACTED
The Board of Directors does not know of any other matters to
be presented for action by the stockholders at the Annual Meeting. If, however,
any other matters not now known are properly brought before the meeting, the
persons names in the accompanying proxy will vote such proxy in accordance with
the determination of a majority of the Company's Board of Directors.
By Order of the Board of Directors
/s/ Paul J. Klaassen
Paul J. Klaassen
Chairman of the Board
and Chief Executive Officer
Fairfax, Virginia
April 3, 1998
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<PAGE> 28
EXHIBIT A
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> 29
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.
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<PAGE> 30
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> 31
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> 32
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> 33
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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<PAGE> 34
(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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<PAGE> 35
(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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<PAGE> 36
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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<PAGE> 38
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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<PAGE> 39
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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<PAGE> 40
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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<PAGE> 41
================================================================================
TABLE OF CONTENTS
Page
Solicitation, Voting and
Revocability of Proxies................ 1
Election of Directors..................... 2
Executive Compensation and
Other Information...................... 8
Approval of 1998 Stock
Option Plan............................ 15
Independent Public Accountants............ 20
Stock Owned by Management................. 20
Principal Holders of
Voting Securities...................... 22
Date for Submission of
Stockholder Proposals.................. 23
Other Business to be Transacted........... 24
Exhibit A -- 1998 Stock
Option Plan............................ A-1
PROXY STATEMENT
SUNRISE ASSISTED LIVING, INC.
APRIL 3, 1998
================================================================================
<PAGE> 42
SUNRISE ASSISTED LIVING, INC.
9401 LEE HIGHWAY, SUITE 300, FAIRFAX, VA 22031
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS -- APRIL 27, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Sunrise Assisted Living, Inc. hereby appoints
Teresa M. Klaassen and David W. Faeder, and each of them, with full power of
substitution, as proxies to cast all votes, as designated below, which the
undersigned stockholder is entitled to cast at the 1998 annual meeting of
stockholders (the "Annual Meeting") to be held on April 27, 1998 at 9:00 a.m.,
local time, at The Ritz-Carlton (Tysons Corner), 1700 Tysons Boulevard, McLean,
Virginia, and at any adjournments thereof, upon the following matters:
1. To elect two directors each for a three-year term: Richard A. Doppelt
Paul J. Klaassen
[ ] FOR all nominees listed (except as [ ] WITHHOLD AUTHORITY to
marked to the contrary below) vote for all nominees
listed
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME ON THE SPACE PROVIDED BELOW.)
- --------------------------------------------------------------------------------
2. To approve the 1998 Stock Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued and to be signed and dated on reverse side.)
<PAGE> 43
(continued from reverse side)
This proxy will be voted as directed by the undersigned stockholder. UNLESS
CONTRARY DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE
NOMINEES LISTED IN PROPOSAL 1, FOR PROPOSAL 2 AND IN ACCORDANCE WITH THE
RECOMMENDATIONS OF A MAJORITY OF THE BOARD OF DIRECTORS AS TO OTHER MATTERS.
The undersigned stockholder hereby acknowledges receipt of the Notice of Annual
Meeting and Proxy Statement and hereby revokes any proxy or proxies heretofore
given. This proxy may be revoked at any time prior to its exercise.
If you receive more than one proxy card, please date, sign and return all cards
in the accompanying envelope.
Dated:
-------------------------------------
------------------------------------------
------------------------------------------
(Please date and sign here exactly as
name appears at left. When signing as
attorney, administrator, trustee or
guardian, give full title as such; and
when stock has been issued in the name of
two or more persons, all should sign.)
