<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 6, 1999
Dear Stockholder:
You are cordially invited to attend the 1999 annual meeting of
stockholders of Sunrise Assisted Living, Inc. to be held on Monday, April 26,
1999, 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:
- to elect three directors for terms of three years each;
- to approve the 1999 stock option plan; and
- to transact such other business as may properly come before
the annual meeting or any adjournments or postponements.
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
postage-paid envelope.
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 26, 1999
------------------
NOTICE IS HEREBY GIVEN that the 1999 annual meeting of stockholders of
Sunrise Assisted Living, Inc. will be held at The Ritz-Carlton -- Tysons Corner,
1700 Tysons Boulevard, McLean, Virginia on Monday, April 26, 1999 at 9:00 a.m.,
for the following purposes:
(1) To elect three directors of Sunrise for three-year terms and until
their successors shall have been elected and qualified;
(2) To approve the 1999 stock option plan; and
(3) To transact such other business as may properly come before the
meeting or any adjournments or postponements.
The board of directors has fixed March 15, 1999 as the record date for
the determination of stockholders entitled to notice of and to vote at the
annual meeting and any adjournments or postponements. Only stockholders of
record at the close of business on that date are 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 or postponed to permit further solicitation of proxies
by Sunrise.
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 6, 1999
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,
POSTAGE-PAID ENVELOPE. YOUR PROXY MAY BE REVOKED PRIOR TO THE VOTING BY FILING
WITH THE SECRETARY OF SUNRISE 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
1999 ANNUAL MEETING OF STOCKHOLDERS
APRIL 26, 1999
------------------
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
This proxy statement is furnished to stockholders of Sunrise Assisted
Living, Inc. in connection with the solicitation by the board of directors of
Sunrise of proxies to be used at the 1999 annual meeting of stockholders, to be
held at The Ritz-Carlton -- Tysons Corner, 1700 Tysons Boulevard, McLean,
Virginia on Monday, April 26, 1999 at 9:00 a.m., and at any adjournments or
postponements.
If the enclosed form of proxy is properly executed and returned to
Sunrise in time to be voted at the annual meeting, the shares represented by the
proxy will be voted consistent with the instructions marked on the proxy.
EXECUTED BUT UNMARKED PROXIES WILL BE VOTED (a) FOR THE ELECTION OF THE BOARD OF
DIRECTORS' THREE NOMINEES AS DIRECTORS AND (b) FOR APPROVAL OF THE 1999 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 the proxies on the other matters as determined by a majority of
Sunrise's board of directors. The presence of a stockholder at the annual
meeting will not automatically revoke a stockholder's proxy. Stockholders may,
however, revoke a proxy at any time prior to its exercise by filing with the
secretary of Sunrise a written revocation or a duly executed proxy bearing a
later date or by attending the annual meeting and voting in person.
Sunrise will pay for the cost of soliciting proxies. In addition to
soliciting proxies by mail, Sunrise, through its directors, officers and regular
employees, may also solicit proxies personally or by telephone or telegraph.
Sunrise also will request persons, firms and corporations holding shares in
their names, or in the name of their nominees, to send proxy materials to and
obtain proxies from beneficial owners and will reimburse these holders for their
reasonable expenses in so doing. Sunrise also has retained Corporate Investor
Communications, Inc., a proxy soliciting firm, to assist in soliciting proxies.
Sunrise will pay Corporate Investor Communications 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 6, 1999.
<PAGE> 5
The securities which can be voted at the annual meeting consist of shares
of common stock of Sunrise, par value $.01 per share. Each share entitles its
owner to one vote on all matters. Sunrise's certificate of incorporation does
not provide for cumulative voting in the election of directors. The close of
business on March 15, 1999 has been fixed by the board of directors as the
record date for determination of stockholders entitled to vote at the annual
meeting. The number of shares of common stock outstanding on that date was
19,510,726.
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 Sunrise's annual report to stockholders for the year ended
December 31, 1998 accompanies this proxy statement. SUNRISE IS REQUIRED TO FILE
AN ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998 WITH THE SEC.
STOCKHOLDERS MAY OBTAIN, FREE OF CHARGE, A COPY OF SUNRISE'S 1998 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.
SUNRISE WILL PROVIDE COPIES OF THE EXHIBITS TO THE FORM 10-K UPON PAYMENT OF A
REASONABLE FEE.
ELECTION OF DIRECTORS
(PROPOSAL 1)
Sunrise's certificate of incorporation provides for a minimum of two
directors and a maximum of 11 directors. The board of directors of Sunrise
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, three directors
will be elected, each for a three-year term. As described below, the board of
directors' nominees are Ronald V. Aprahamian, David G. Bradley and Teresa M.
Klaassen. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE BOARD OF
DIRECTORS' THREE NOMINEES FOR ELECTION AS DIRECTORS.
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<PAGE> 6
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. Aprahamian and Bradley
and Ms. Klaassen for three-year terms. The board of directors believes that
these 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 another person or persons as a majority of Sunrise's board of
directors may recommend. Under Sunrise's bylaws, directors are elected by
plurality vote.
INFORMATION AS TO NOMINEES AND OTHER DIRECTORS
The following table sets forth certain information regarding the board of
directors' three nominees for election as directors and those directors who will
continue to serve as directors after the annual meeting.
<TABLE>
<CAPTION>
AGE AT
MARCH 15, DIRECTOR FOR TERM POSITION(s) HELD
1999 SINCE (1) TO EXPIRE WITH SUNRISE
------ --------- --------- ----------------
NOMINEES:
- ---------
<S> <C> <C> <C> <C>
Ronald V. Aprahamian...................................... 52 1995 2002 Director
David G. Bradley.......................................... 46 1997 2002 Director
Teresa M. Klaassen (2).................................... 43 1981 2002 Executive Vice
President, Secretary
and Director
<CAPTION>
TERM
CONTINUING DIRECTORS: EXPIRES
- --------------------- -------
<S> <C> <C> <C> <C>
Richard A. Doppelt........................................ 43 1995 2001 Director
Paul J. Klaassen (2)...................................... 41 1981 2001 Chairman of the
Board and Chief
Executive Officer
Thomas J. Donohue......................................... 60 1995 2000 Director
David W. Faeder........................................... 42 1993 2000 President, Chief
Financial Officer and
Director
Scott F. Meadow........................................... 45 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 Sunrise or its predecessors.
Mr. Meadow previously served as a
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<PAGE> 7
director of Sunrise from January 1995 to August 1995, and most recently
has been a director since February 1996.
(2) Paul J. Klaassen and Teresa M. Klaassen are related as husband and wife.
The principal occupations for the past five years of each of the three
nominees for director and the five directors whose terms of office will continue
after the annual meeting are set forth below.
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. From May 1997 to September 1998, he was a
consultant to Sunrise. Mr. Aprahamian also is a director of Metrocall, Inc., a
paging company.
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.
TERESA M. KLAASSEN, a co-founder of Sunrise, has served as executive vice
president and secretary of Sunrise and its predecessor entities since 1981. Ms.
Klaassen is a founding member of the Assisted Living Federation of America, the
largest assisted living trade association, and currently serves on the boards of
directors of several long-term care organizations.
RICHARD A. DOPPELT has been a member of the investment management firm of
Brownson, Rehmus & Foxworth, Inc. since January 1999. From August 1987 through
December 1998, he was a director with Allstate Private Equity, an investment
division of Allstate Insurance. Before joining Allstate, he practiced as a
corporate attorney with the law firm of Morrison & Foerster. Mr. Doppelt is a
director of several privately held companies.
PAUL J. KLAASSEN, a co-founder of Sunrise, has served as chairman of the
board and chief executive officer of Sunrise and its predecessor entities since
1981. He also served as president of Sunrise and its predecessor entities from
1981 through July 1997. Mr. Klaassen is the founding chairman of the Assisted
Living Federation of America. He is a director of: ACSYS, Inc., an accounting
and staffing firm; the Advisory Board Company; the U.S. Chamber of Commerce; and
The National Chamber Foundation, an independent, nonprofit, public policy
research organization affiliated with the U.S. Chamber of Commerce. He also is
on the Board of Trustees of Marymount University and The Hudson Institute, a
public
- 4 -
<PAGE> 8
policy think tank, and the Advisory Committee for the Department of
Health Care Policy at Harvard University Medical School. Mr. Klaassen also
serves on the editorial advisory boards of Contemporary Long Term Care,
Retirement Housing Report, Assisted Living Today and Assisted Living Briefing
magazines.
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.
DAVID W. FAEDER has served as executive vice president and chief
financial officer of Sunrise and its predecessor entities since 1993. He was
named president of Sunrise 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. Mr. Faeder is a director of IBS Interactive, Inc., a technology
company.
SCOTT F. MEADOW has been a general partner 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 Sunrise's other
executive officers follows:
THOMAS B. NEWELL, 41, has served as general counsel of Sunrise and
president of Sunrise Development, Inc., Sunrise's development subsidiary, since
January 1996 and was named an executive vice president of Sunrise 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 Sunrise for
more than five years.
BRIAN C. SWINTON, 53, joined Sunrise as executive vice president, sales
and marketing, in May 1996. From January 1994 to April 1996, Mr. Swinton was a
- 5 -
<PAGE> 9
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, 36, was promoted to executive vice president --
operations of Sunrise, in March 1998. She joined Sunrise 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.
Before 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.
Sunrise has entered into a merger agreement with Karrington Health, Inc.
Under the merger agreement, Karrington would become a wholly owned subsidiary of
Sunrise. As part of the merger agreement, Sunrise agreed, following the
acquisition, to appoint Richard R. Slager, Karrington's Chief Executive Officer,
to Sunrise's board of directors as the representative of JMAC, Inc.,
Karrington's largest stockholder. As long as JMAC, Inc. continues to
beneficially own at least 500,000 shares of Sunrise common stock, Sunrise also
has agreed to re-nominate Mr. Slager, or another nominee of JMAC, Inc.
reasonably acceptable to Sunrise's directors, and solicit proxies for his
reelection as a director of Sunrise. Mr. Slager also would become an executive
officer of Sunrise. Karrington's stockholders must approve the acquisition. If
approved by Karrington's stockholders, Sunrise expects that its acquisition of
Karrington will be completed in the second quarter of 1999, and that Mr. Slager
will be appointed a director and executive officer of Sunrise promptly
thereafter. Under Delaware law, the board of directors of Sunrise has the
authority to increase the size of the board of directors and fill the vacancy
resulting from an increase in the size of the board of directors for the
remaining term of the newly created directorship.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS AND NOMINATIONS BY
STOCKHOLDERS
During 1998, Sunrise's board of directors held four regular meetings and
six special meetings. For the 1998 period, no director attended less than 75
percent of (a) the total number of meetings held by the board of directors and
(b) the total number of meetings held by all committees of the board of
directors on which the director served. Sunrise has the following standing
committees of its board of directors:
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<PAGE> 10
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 did not hold any meetings during 1998.
Audit Committee. The members of the audit committee are Messrs.
Aprahamian, Donohue and Doppelt, all of whom are non-employee directors. The
audit committee makes recommendations concerning the engagement of Sunrise's
independent auditors, reviews the results and scope of the annual audit and
other services provided by Sunrise's independent auditors and reviews the
adequacy of Sunrise's internal accounting controls. The audit committee held one
meeting during 1998.
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
Sunrise. The compensation committee held two meetings during 1998.
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 Sunrise's stock option plans, including the grant of
options. The stock option committee held seven meetings during 1998.
The entire board of directors of Sunrise acts as a nominating committee
for selecting management's nominees for election as directors and has made its
nominations for the annual meeting. Sunrise's bylaws require that stockholder
nominations for directors be made by timely notice in writing to the secretary
of Sunrise. To be timely, notice must be delivered to, or mailed to and received
at, the principal executive offices of Sunrise not less than 60 days prior to
the meeting. However, if 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 notice of the date or public disclosure
was made. Public notice of the date of the annual meeting was made on March 4,
1999 by the issuance of a press release and on March 5, 1999 by the filing of a
current report on Form 8-K with the SEC. A stockholder's notice of nomination
must set forth information specified in Sunrise's bylaws concerning each person
the 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 18, 1999. No nominations by stockholders were
received. Sunrise's bylaws provide that no person may be
- 7 -
<PAGE> 11
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 incurred in attending
meetings of the board of directors. No fees are paid for attendance at board or
committee meetings.
Non-employee directors of Sunrise are eligible to receive options under
Sunrise's 1996 directors' stock option plan, as amended. An aggregate of 75,000
shares of common stock are reserved for issuance under this plan. As of December
31, 1998, 35,000 shares remained available for grant. Under the plan, each
non-employee director whose commencement of service is after April 25, 1996, the
effective date of the plan, is entitled to receive (a) an initial non-qualifying
option, as of the date of the director's commencement of service, to purchase
10,000 shares of common stock and (b) an additional non-qualifying option to
purchase 5,000 shares of common stock as of each subsequent annual meeting of
Sunrise's stockholders if the director is then serving on the board. The option
exercise price may not be less than the fair market value of a share of common
stock on the date the option is granted. The period for exercising an option is
generally ten years from the date of grant.
In 1998, Messrs. Aprahamian, Bradley and Donohue each received grants of
ten-year non-qualified stock options for 5,000 shares of common stock at an
exercise price of $44.56 per share under Sunrise's 1996 directors' stock option
plan, as amended. Mr. Doppelt received an initial option grant in 1998 for
10,000 shares of common stock at an exercise price of $44.56. Messrs.
Aprahamian, Bradley, Donohue and Doppelt will each receive additional option
grants for 5,000 shares as of the date of the annual meeting. Directors also are
eligible to receive option grants under the 1998 stock option plan.
During the first nine months of 1998, Mr. Aprahamian was a consultant to
Sunrise for which he received $63,405.
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<PAGE> 12
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table sets forth, for the years ended December 31, 1998,
1997 and 1996, the cash compensation paid by Sunrise, as well as other
compensation paid or accrued during those years, to Sunrise's chief executive
officer and each of the other four most highly compensated executive officers
whose total annual salary and bonus exceeded $100,000 in 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION/
AWARDS
--------
SHARES OF
COMMON STOCK ALL OTHER
ANNUAL COMPENSATION UNDERLYING COMPENSATION
-------------------
NAME AND PRINCIPAL POSITION(s) YEAR SALARY ($) OPTIONS (#) ($)(1)
- ------------------------------ ---- ---------- ------------ --------
<S> <C> <C> <C> <C>
Paul J. Klaassen 1998 $200,000 N/A $ -0-
Chairman of the Board 1997 200,000 N/A 942
and Chief Executive Officer 1996 200,000 N/A 2,375
David W. Faeder 1998 175,000 400,000(2) -0-
President and 1997 175,000 100,000 838
Chief Financial Officer 1996 175,000 191,666 2,375
Thomas B. Newell(3)
Executive Vice President and
General Counsel of Sunrise 1998 175,000 400,000(2) -0-
and President of Sunrise 1997 175,000 100,000 -0-
Development, Inc. 1996 175,000 213,333 N/A
Brian C. Swinton(4) 1998 165,000 200,000(2) -0-
Executive Vice President, 1997 165,000 75,000 -0-
Sales and Marketing 1996 165,000 195,000 N/A
Tiffany Tomasso(5) 1998 165,000 430,000(2) -0-
Executive Vice President, 1997 -- -- --
Operations 1996 -- -- --
</TABLE>
- ----------------------
(1) Represents matching contributions made by Sunrise under its 401(k) plan.
(2) Includes options repriced in 1998. See "Option Grants in Last Fiscal
Year" below.
(3) Mr. Newell joined Sunrise in January 1996.
(4) Mr. Swinton joined Sunrise in May 1996.
(5) Ms. Tomasso joined Sunrise in June 1993 and was promoted to executive
vice president, operations in March 1998.
- 9 -
<PAGE> 13
OPTION GRANTS
The following table contains certain information with respect to stock
options granted in 1998 to each of the named executive officers of Sunrise,
including repriced options. All options granted in 1998, other than repriced
options, were ten-year non-qualified options.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
% OF POTENTIAL REALIZABLE
SHARES OF TOTAL VALUE AT ASSUMED
COMMON OPTIONS ANNUAL RATES OF
STOCK GRANTED TO EXERCISE STOCK PRICE
UNDERLYING EMPLOYEES OR BASE APPRECIATION FOR
OPTIONS IN FISCAL PRICE EXPIRATION OPTION TERM
-----------
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 200,000(1) 6.0 43.50 3/3/08 5,512,106 13,930,403
200,000(2) 6.0 25.00 3/3/08 2,523,942 6,436,046
Thomas B. Newell 200,000(1) 6.0 43.50 3/3/08 5,512,106 13,930,403
200,000(2) 6.0 25.00 3/3/08 2,523,942 6,436,046
Brian C. Swinton 100,000(1) 3.0 43.50 3/3/08 2,756,053 6,965,201
100,000(2) 3.0 25.00 3/3/08 1,261,971 3,218,023
Tiffany Tomasso 100,000(1) 3.0 43.50 3/3/08 2,756,053 6,965,201
100,000(1) 3.0 44.00 1/19/08 2,767,136 7,012,467
100,000(2) 3.0 25.00 3/3/08 1,261,971 3,218,023
100,000(2) 3.0 25.00 1/19/08 1,261,971 3,218,023
30,000(2) 0.9 25.00 8/28/07 378,591 965,407
</TABLE>
- ----------------------
(1) These options were canceled upon the regrant of a corresponding number of
options in September 1998, as indicated in the table. The original
vesting period of the options was four years. Vesting of options is
accelerated if the options are not assumed in connection with any
dissolution or liquidation of Sunrise, the sale of substantially all of
Sunrise's assets, a merger, reorganization or consolidation in which
Sunrise is not the surviving corporation or any other transaction
approved by the board of directors which results in any person or entity
owning 80% or more of the total combined voting power of all classes of
stock of Sunrise.
(2) Represents options regranted in September 1998. The regranted options
vest over a five-year period, as follows: 15%, 15%, 20%, 20%, and 30%.
- 10 -
<PAGE> 14
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to each of the
named executive officers of Sunrise concerning the exercise of stock options
during 1998, the number of securities underlying unexercised options at the 1998
year-end and the 1998 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
SHARES UNDERLYING VALUE OF UNEXERCISED
ACQUIRED ON UNEXERCISED OPTIONS(#) IN-THE-MONEY OPTIONS($)(1)
---------------------- --------------------------
NAME EXERCISE (#) VALUE REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ -------------------- ------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Paul J.
Klaassen -0- $-0- -0- -0- $-0- $-0-
David W.
Faeder 68,082 2,384,441 159,418 354,167 4,633,056 8,914,597
Thomas B.
Newell 20,000 470,000 120,000 370,002 3,501,559 9,782,899
Brian C.
Swinton 20,000 470,000 86,250 223,750 2,294,531 5,755,469
Tiffany Tomasso 38,834 892,276 36,000 266,001 1,063,189 6,835,732
</TABLE>
- ----------------------
(1) Market values of underlying securities at exercise or year-end minus the
exercise price.
REPORT ON OPTION REPRICING
On September 14, 1998, the stock option committee determined that, as a
result of declines in the market price of the common stock, many employees,
including Sunrise's executive officers, held options at exercise prices that
limited their effectiveness as a tool for employee retention and as a long-term
incentive. After considering the matter, the stock option committee voted to
offer employees the ability to cancel all of their options with an exercise
price of greater than $29.00 per share and to regrant to employees who accepted
the offer new stock options on a one-for-one basis with an exercise price of
$25.00 per share. The closing price of Sunrise common stock on the Nasdaq
National Market on the day preceding the repricing was $24.1875 per share.
Except for the option exercise price, the regranted stock options issued
to non-executive officer employees were identical to the canceled options. The
regranted stock options issued to executive officers were otherwise identical to
the canceled options, except that the vesting period of the new options was made
longer. The canceled options vested 25% each year over a four-year period. The
regranted options vest 15% on the first anniversary of the original grant date
of the canceled
- 11 -
<PAGE> 15
options, 15% on the second anniversary, 20% on the third anniversary, 20% on the
fourth anniversary and 30% on the fifth anniversary. In addition, the new
options granted to executive officers could not be exercised until the average
price for shares of Sunrise common stock reached $32.50 per share over a period
of five trading days following September 14, 1998. Further, the new options
granted to executive officers could not be first exercised until six months
after September 14, 1998.
Sunrise's employees exchanged approximately 1.6 million stock options,
including 700,000 stock options exchanged by Messrs. Faeder, Newell and Swinton
and Ms. Tomasso.
Respectfully submitted,
Stock Option Committee
Thomas J. Donohue, Chairman
David G. Bradley
Scott F. Meadow
OPTION REPRICING TABLE
As required by SEC rules, the following table sets forth information with
respect to all repricings of options held by any executive officer since Sunrise
became a public company in June 1996.
TEN-YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
SHARES OF
COMMON MARKET LENGTH OF
STOCK PRICE OF EXERCISE ORIGINAL
UNDERLYING STOCK AT PRICE AT NEW OPTION TERM
OPTIONS TIME OF TIME OF EXERCISE REMAINING
REPRICED REPRICING REPRICING PRICE AT DATE OF
NAME DATE (#) ($/Sh) ($/Sh) ($/Sh) REPRICING
---- ---- --- ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
David W. Faeder 9/14/98 200,000 $24.1875 $43.50 $25.00 113 months
Thomas B. Newell 9/14/98 200,000 24.1875 43.50 25.00 113 months
Brian C. Swinton 9/14/98 100,000 24.1875 43.50 25.00 113 months
Tiffany Tomasso 9/14/98 100,000 24.1875 44.00 25.00 111 months
9/14/98 100,000 24.1875 43.50 25.00 113 months
9/14/98 30,000 24.1875 30.75 25.00 106 months
</TABLE>
- ----------------------
- 12 -
<PAGE> 16
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is composed entirely of non-employee
directors. During 1998, Messrs. Aprahamian, Donohue and Meadow served on the
Compensation Committee.
Scott F. Meadow is a general partner of The Sprout Group, the venture
capital division of DLJ Capital Corporation. In 1998, Sunrise entered into a
joint venture with several affiliates of The Sprout Group and DLJ Capital
Corporation for the purpose of constructing, developing, marketing and operating
up to 22 assisted living facilities in the United Kingdom and Canada. Sunrise
has agreed to provide up to $2.8 million, and the other investors have agreed to
provide up to $55.3 million, of equity capital in the joint venture. In
connection with the establishment of the joint venture, Sunrise sold to the
joint venture its interest in an assisted living development site near London,
England. The purchase price was $4.6 million, representing the amount paid by
Sunrise to purchase the property plus related organizational and development
costs. In addition to its equity capital investment, Sunrise will provide
management and development services to the joint venture on a contract-fee basis
with rights to acquire the assets in the future. As of December 31, 1998,
Sunrise has provided approximately $0.4 million, and the other investors have
provided approximately $5.1 million, of equity capital to the joint venture.
- 13 -
<PAGE> 17
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on
Sunrise's common stock from May 31, 1996, the date Sunrise's common stock began
trading on the Nasdaq National Market, through December 31, 1998, and through
February 28, 1999, with the cumulative total return of the Standard and Poor's
Index 500 Stock, the new peer group index and the old peer group index, as
defined below**. The graph assumes the investment of $100 in Sunrise's common
stock on May 31, 1996. The initial public offering price of Sunrise's common
stock was $20.00 per share.
[graph appears here]
COMPARISON OF 33 MONTH CUMULATIVE TOTAL RETURN*
AMONG SUNRISE ASSISTED LIVING, INC., THE S&P 500 INDEX,
A NEW PEER GROUP AND AN OLD PEER GROUP
<TABLE>
<CAPTION>
5/96 6/96 9/96 12/96 3/97 6/97 9/97 12/97 3/98 6/98 9/98 12/98 2/99
---- ---- ---- ----- ---- ---- ---- ----- ---- ---- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sunrise Assisted Living,
Inc. 100 98 112 112 112 140 145 173 179 138 137 208 155
New Peer Group 100 181 149 120 156 210 228 262 288 238 215 255 172
Old Peer Group 100 109 97 120 156 161 155 166 194 174 110 118 65
S&P 500 100 100 103 112 115 135 145 150 170 176 158 192 194
</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 Sunrise
during the period presented.
**The new peer group index is composed of selected
assisted living companies whose core business and size are comparable to
Sunrise's. The old peer group represents assisted living companies and
- 14 -
<PAGE> 18
other long term care companies which comprised Sunrise's peer group index last
year and whose stock performance was measurable in 1998. The following chart
describes the companies comprising the new peer group and the old peer group:
<TABLE>
<CAPTION>
REMOVED FROM REASON FOR REMOVAL FROM
NEW PEER GROUP OLD PEER GROUP NEW PEER GROUP NEW PEER GROUP
-------------- -------------- -------------- --------------
<S> <C> <C> <C>
Alternative Living Alternative Living ATRIA Acquired during 1998; stock no
Services, Inc. Services, Inc. Communities, Inc. longer publicly traded
American Retirement Assisted Living Manor Care Acquired during 1998; sold assisted
Corporotion Concepts living segment; stock no longer
publicly traded
Assisted Living CareMatrix Corporation Integrated Health core business changed; sold assisted
Concepts Services living segment during 1998
CareMatrix Corporation Integrated Health
Services, Inc.
</TABLE>
REPORT ON EXECUTIVE COMPENSATION
The board of directors and its compensation and stock option committees
have prepared the following report on Sunrise's policies with respect to the
compensation of executive officers for 1998. The board of directors makes all
decisions on compensation of Sunrise's executive officers, other than stock
options, based upon the recommendation of the compensation committee. The stock
option committee makes decisions regarding the grant of stock options.
COMPENSATION OF EXECUTIVE OFFICERS
The compensation policies of Sunrise are designed to enable Sunrise to
attract, motivate and retain experienced and qualified executives. Sunrise seeks
to provide competitive compensation. Sunrise's policy has been to provide a
significant component of an executive officer's compensation through the grant
of stock options. Sunrise believes that grants of stock options to executives,
as well as to employees generally, help align the interests of these persons
with the interests of Company' stockholders.
The following describes in more specific terms the elements of
compensation of executive officers for 1998:
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 of directors based on various factors, including individual
performance and
- 15 -
<PAGE> 19
responsibilities. Base salaries for Sunrise's executive officers were not
increased in 1998 due to Sunrise'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 Sunrise's stockholders through
appreciation of the stock price. Management of Sunrise believes that stock
options have been helpful in attracting and retaining skilled executive
personnel.
Stock option grants made to executive officers in 1998 reflect
significant individual performance and contributions relating to Sunrise's
operations, including implementation of Sunrise's development and acquisition
programs. Sunrise 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 Sunrise's executive officers in 1998
also reflect these competitive factors.
Reflecting Sunrise's belief in the value and desirability of all
employees having a proprietary interest in Sunrise, in January and March 1998,
Sunrise granted stock options covering a total of 3,417,095 shares of common
stock, of which 1,573,532 shares were regranted in connection with the
repricing, to approximately 650 employees. This number includes options covering
an aggregate of 1,430,000 shares of common stock granted to Messrs. Faeder,
Newell and Swinton and Ms. Tomasso, of which 730,000 shares were regranted in
connection with the repricing. In September 1998, the stock option committee
determined that, as a result of declines in the market price of the common
stock, many employees, including Sunrise's executive officers, held options at
exercise prices that limited their effectiveness as a tool for employee
retention and as a long-term incentive. After considering the matter, the stock
option committee voted to offer employees the ability to cancel all of their
options with an exercise price of greater than $29.00 per share and to regrant
to employees who accepted the offer new stock options on a one-for-one basis
with an exercise price of $25.00 per share. See " Report on Repricing of
Options" for additional information.
- 16 -
<PAGE> 20
OTHER
Sunrise has adopted a 401(k) Plan for all of its employees, including
executive officers, age 21 and over with at least one year of service. 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, Sunrise makes
matching contributions to each participant's account equal to 25% of the
participant's contribution up to 7% of the participant's annual compensation.
Sunrise makes matching contributions on a discretionary basis for participants
with annual compensation in excess of $40,000.
CEO'S COMPENSATION
Mr. Klaassen received a salary of $200,000 in 1998, 1997 and 1996 and
participated in Sunrise's 401(k) Plan. He and his wife, Teresa M. Klaassen,
executive vice president and a director of Sunrise, currently beneficially own
2,800,780 shares of Sunrise common stock, or approximately 14.4% of the
outstanding shares. In view of their stock ownership, neither Mr. Klaassen nor
Ms. Klaassen has received grants of stock options. Sunrise 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,
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, Sunrise'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 Sunrise's executive officers.
Respectfully submitted,
The Board of Directors Compensation Committee
Paul J. Klaassen, Chairman Thomas J. Donohue, Chairman
Ronald A. Aprahamian Ronald A. 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
- 17 -
<PAGE> 21
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Sunrise's
directors, officers and beneficial owners of more than 10% of Sunrise's
outstanding equity securities to file with the SEC initial reports of ownership
of Sunrise's equity securities and to file subsequent reports when there are
changes in such ownership. Based on a review of reports submitted to Sunrise for
1998, Sunrise believes that all Section 16(a) filing requirements for that year
applicable to such persons were complied with on a timely basis.
CERTAIN TRANSACTIONS
Sunrise leases the real property on which the Fairfax facility is located
from Teresa M. Klaassen and Paul J. Klaassen under a 99-year ground lease
entered into in June 1986. The ground lease provides for monthly rent of
$21,272, as adjusted annually based on the consumer price index. Annual rent
expense for 1998 was $262,000. Sunrise 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
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 Sunrise for use of office facilities and support services.
Reimbursements for 1998 were $84,000. Sunrise believes that the terms of the
lease and sublease were no less favorable to Sunrise than those which it could
have obtained from an unaffiliated third party.
The Klaassens also lease real property located in Fairfax County,
Virginia from Sunrise for use as a residence under a 99-year ground lease
entered into in June 1994. The rent is $1.00 per month. This property is part of
a parcel, which includes Sunrise's Oakton facility, that was previously
transferred by the Klaassens to Sunrise in connection with a financing
transaction. Rather than attempting to subdivide the parcel, which would have
caused a significant delay in completing the financing transaction, Sunrise
agreed to lease back the residence to the Klaassens as a condition to the
transfer of the property.
For a description of certain other transactions involving Sunrise and its
directors, see "Compensation Committee Interlocks and Insider Participation."
- 18 -
<PAGE> 22
APPROVAL OF
1999 STOCK OPTION PLAN
(PROPOSAL 2)
On March 26, 1999, the board of directors adopted the 1999 stock option
plan, subject to approval of stockholders at the annual meeting. As of that
date, there were approximately 1,441 directors, officers and employees of
Sunrise and its subsidiaries who are eligible to participate in the 1999 stock
option plan.
The principal provisions of the 1999 stock option plan are summarized
below. This summary is not complete and is qualified in its entirety by the
terms of the 1999 stock option plan, a copy of which is attached to this proxy
statement as Exhibit A.
DESCRIPTION OF 1999 STOCK OPTION PLAN
The 1999 stock option plan will be administered by the stock option
committee. A total of 1,000,000 shares of common stock will be reserved for
issuance under the 1999 stock option plan. All directors, officers and employees
of Sunrise or any subsidiary, and any consultant or adviser providing bona fide
services to Sunrise or any subsidiary, whose participation in the 1999 stock
option plan is determined by the stock option committee to be in the best
interests of Sunrise will be eligible to receive option grants under the plan.
The 1999 stock option plan does not have a termination date, but the grant of a
qualified stock option within the meaning of Section 422 of the Internal Revenue
Code may not occur more than ten years after March 26, 1999, the effective date
of the plan.
The option exercise price of options granted under the 1999 stock option
plan will be fixed by the stock option committee when the option is granted.
However, the per share option exercise price may not be less than the fair
market value of Sunrise common stock on the date of grant, as determined under
the plan. Options to purchase no more than 500,000 shares of common stock may be
granted to any one eligible individual during the first ten years after the
effective date of the 1999 stock option plan and 200,000 shares per year
thereafter. The stock option committee may modify or waive any limitation or
condition imposed at the time of grant on the vesting or exercise of an option,
including to accelerate or extend the period during which an option may be
exercised.
No person may receive a qualified stock option if, at the time of grant,
the person owns directly or indirectly more than 10% of the total combined
voting power of Sunrise unless the option price is at least 110% of the fair
market value of the common stock and the exercise period of the qualified stock
option is by its terms limited to five years. There is also a $100,000 limit on
the value of common stock, determined at the time of grant, covered by qualified
stock options that first become
- 19 -
<PAGE> 23
exercisable by an optionee in any calendar year. No option granted to a
reporting person under Section 16 of the Securities Exchange Act may be
exercisable during the first six months after the date of grant.
Payment for shares purchased under the 1999 stock option plan may be
made: (a) in cash; (b) 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; (c) if permitted by the option
agreement, by delivery of a promissory note of the person exercising the option;
(d) if permitted by the option agreement, by causing Sunrise to withhold shares
of common stock otherwise issuable upon the exercise of the option; or (e) by a
combination of the foregoing. Payment in full of the option price need not
accompany the written notice of exercise if the notice directs that the stock
certificate for the shares for which the option is exercised are to be delivered
to a licensed broker acceptable to Sunrise as the agent for the individual
exercising the option and, at the time the stock certificate is delivered, the
broker pays to Sunrise the option price.
In the event of stock splits, stock dividends, recapitalizations,
combinations of shares and similar events, the 1999 stock option plan provides
for adjustment of the number of shares available for grant and the number of
shares and the per share exercise price for shares subject to unexercised
options. Upon any dissolution or liquidation of Sunrise, the sale of
substantially all of Sunrise's assets, a merger, reorganization or consolidation
in which Sunrise is not the surviving corporation or any other transaction
approved by the board of directors which results in any person or entity owning
80% or more of the total combined voting power of all classes of stock of
Sunrise, the 1999 stock option plan and the options granted under the plan will
terminate, unless provision is made for the continuation of the plan, the
assumption of outstanding options or the substitution of new options of the
successor corporation or a parent or subsidiary. Only employees may be granted
qualified stock options.
Options granted under the 1999 stock 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 1999 stock option plan
at any time. However, any plan amendment, which, if not approved by Sunrise's
stockholders, would cause the plan not to comply with Sections 162(m) or 422 of
the Internal Revenue Code must be approved by stockholders by the affirmative
vote of stockholders who hold more than 50% of the combined voting power of the
outstanding shares of voting stock of Sunrise present or represented, and
entitled to vote thereon, at a duly constituted stockholders' meeting.
Based on the closing price of $42.9375 per share on March 15, 1999, the
aggregate market value of the 1,000,000 shares of common stock reserved for
- 20 -
<PAGE> 24
issuance under the 1999 stock option plan is $42.9 million. In addition to the
1999 stock option plan, Sunrise maintains five other stock options plans,
including the 1996 directors' stock option plan. A total of 5,723,065 shares are
reserved for issuance under these plans, of which 4,367,966 shares have been
granted, net of forfeitures, as of March 15, 1999. In January 1995, Sunrise also
made a non-plan option grant to Mr. Faeder for 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
Sunrise.
Qualified Stock Options. An optionee will not recognize taxable income
upon exercise of a qualified stock option, except that the alternative minimum
tax may apply and any gain realized upon a disposition of shares of stock
received upon the exercise of a qualified stock option 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. Sunrise
will not be entitled to any business expense deduction with respect to the
exercise of a qualified stock option, 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 Sunrise 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
qualified stock options after termination of employment and the holding period
for stock received through 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 Internal
Revenue Code summarized below.
If an optionee exercises a qualified stock option 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 upon the exercise of a qualified stock option 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
- 21 -
<PAGE> 25
exercise, other than minimum taxable income as discussed above, and the tax
basis of the shares exchanged would be treated as the substituted basis for the
shares received. If the optionee used shares received upon the exercise of a
qualified stock option 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, as required under an option agreement, Sunrise withholds shares in
payment of the option price for qualified 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 a qualified
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 a qualified stock option where the option exercise price is paid
with withheld shares.
Non-Qualified Options. Upon exercising a non-qualified stock option, 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 upon the exercise of a
non-qualified stock option, 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. The tax basis of the shares generally would equal
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 Internal Revenue
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 Internal Revenue Code, if the optionee is the chief
executive officer or one of the four other most highly compensated officers,
then, unless specified 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 the 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 non-qualified options, no gain or loss will be
recognized with respect to the shares surrendered regardless of whether the
shares were acquired upon the exercise of a qualified option, and the optionee
will be treated as receiving
- 22 -
<PAGE> 26
an equivalent number of shares upon 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
following 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.
If, as required by an option agreement, Sunrise withholds shares in
payment of the option price for non-qualified options 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 of directors has approved the 1999 stock option plan subject to
stockholder approval at the annual meeting. Sunrise is submitting the 1999 stock
option plan for stockholder approval at the annual meeting because stockholder
approval is required to (a) qualify the 1999 stock option plan under Section 422
of the Internal Revenue Code relating to the grant of qualified stock options
and (b) obtain a federal income tax deduction under Section 162(m) of the
Internal Revenue Code for compensation recognized by optionees in connection
with the exercise of options granted under the 1999 stock option plan.
Section 422 of the Internal Revenue Code and applicable Treasury
regulations condition qualified stock option treatment for option grants on
stockholder approval of the stock option plan under which the qualified stock
options are granted. Under Section 162(m) of the Internal Revenue 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: (a) the
compensation must be paid solely on account of the attainment of one or more
pre-established, objective performance goals; (b) 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; (c) 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 (d) 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 (a)
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<PAGE> 27
above, and the stockholder approval requirement, summarized in (c) above, are
deemed satisfied, and the certification requirement, summarized in (d) above, is
inapplicable, if: (a) the grant or award is made by a compensation committee
satisfying the above requirements; (b) 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; (c) the option exercise
price equals or exceeds the fair market value of the stock on the date of grant;
and (d) the stock option plan is approved by stockholders.
Sunrise 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.
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 1999 stock option plan. Abstentions will have
the same effect as a negative vote. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
APPROVAL OF THE 1999 STOCK OPTION PLAN.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed Ernst & Young LLP to act as
Sunrise's independent public accountants for 1999. 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 Sunrise's independent public accountants in November 1994.
- 24 -
<PAGE> 28
STOCK OWNED BY MANAGEMENT
The following table sets forth certain information with respect to
beneficial ownership of the Common Stock as of March 15, 1999 by (a) each
director and nominee for director of Sunrise; (b) each named executive officer
of Sunrise; and (c) all executive officers and directors of Sunrise as a group.
<TABLE>
<CAPTION>
NAME AND POSITION(s) AMOUNT AND NATURE OF PERCENT OF COMMON
WITH SUNRISE BENEFICIAL OWNERSHIP(1) STOCK OUTSTANDING
- ------------ ----------------------- -----------------
<S> <C> <C>
Paul J. Klaassen(2) 2,800,780 14.4%
Chairman of the Board
and Chief Executive Officer
Teresa M. Klaassen(2) 2,800,780 14.4
Executive Vice President and
Secretary
David W. Faeder(3) 159,418 *
President and
Chief Financial Officer
Thomas B. Newell(3) 120,000 *
Executive Vice President and
General Counsel of Sunrise
and President of Sunrise
Development, Inc.
Brian C. Swinton(3) 86,250 *
Executive Vice President, Sales
and Marketing
Tiffany Tomasso(3) 36,000 *
Executive Vice President, Operations
Ronald V. Aprahamian(4) 95,000 *
Director
David G. Bradley 15,000 *
Director
Thomas J. Donohue(5) 85,800 *
Director
Richard A. Doppelt 10,000 *
Director
Scott F. Meadow 369 *
Director
Executive officers and directors as a 3,408,617 17.0
group (11 persons)(6)
</TABLE>
- ----------------------
* Less than one percent.
- 25 -
<PAGE> 29
(1) Under Rule 13d-3 under the Securities 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 2,800,780 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 15, 1999.
(4) Represents 55,000 shares issuable upon the exercise of stock options that
are exercisable within 60 days of March 15, 1999 and 40,000 shares of
common stock held directly.
(5) Represents 40,000 shares issuable upon the exercise of stock options
that are exercisable within 60 days of March 15, 1999 and 45,800 shares
of common stock held directly.
(6) Includes 516,668 shares issuable upon the exercise of stock options that
are exercisable within 60 days of March 15, 1999, and the 2,800,780
shares beneficially owned jointly by Paul J. and Teresa M. Klaassen.
PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table sets forth information as of March 15, 1999 with
respect to the ownership of shares of Sunrise common stock by each person
believed by management to be the beneficial owner of more than five percent of
Sunrise'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 Sunrise. 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) 2,800,780 14.4%
9401 Lee Highway, Suite 300
Fairfax, VA 22031
Putnum Investments, Inc.(2) 1,389,179 7.1
One Post Office Square
Boston, MA 02109
American Express Company(3) 1,243,200 6.4
American Express Tower
200 Vesey Street
New York, NY 10285
</TABLE>
- ----------------------
(1) See "Stock Owned by Management."
- 26 -
<PAGE> 30
(2) The Schedule 13G dated January 26, 1999 of Putnam Investments, Inc., a
wholly-owned subsidiary of Marsh & McLennan Companies, Inc., states that
it wholly owns two registered investment advisers: Putnam Investment
Management, Inc. and The Putnam Advisory Company, Inc. The Schedule 13G
states that: (a) Putnam Investments has shared power to vote 183,900
shares and shared power to dispose of 1,389,179 shares; (b) Putnam
Investment Management has shared power to dispose of 1,135,479 shares;
and (c) Putnam Advisory Company has shared power to vote 183,900 shares
and shared power to dispose of 253,700 shares. Both Putnam Investments
and Marsh & McLennan declare in the Schedule 13G that the filing of the
Schedule 13G shall not be deemed an admission by either or both of them
that they are the beneficial owner of any securities covered by the
Schedule 13G, and that neither of them have any power to vote or dispose
of, or direct the voting or disposition of, any of the securities covered
by the Schedule 13G.
(3) The Schedule 13G dated December 31, 1998 of American Express Financial
Corporation states that American Express Financial, a registered
investment adviser, has shared power to vote 479,800 shares and shares
power to dispose of 1,243,200 shares. The Schedule 13G also states that
American Express Company, a parent holding company, has shared power to
vote 479,800 shares and shares power to dispose of 1,243,200 shares.
American Express Financial disclaims beneficial ownership of the
securities referred to in the Schedule 13G.
DATE FOR SUBMISSION OF STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 2000 annual
meeting must be received by Sunrise no later than December 7, 1999 under the
proxy soliciting rules of the SEC in order to be considered for inclusion in
Sunrise's proxy statement and form of proxy relating to the 2000 annual meeting.
Nothing in this paragraph shall be deemed to require Sunrise to include in its
proxy statement and proxy relating to the 2000 annual meeting any stockholder
proposal which may be omitted from Sunrise's proxy materials under applicable
regulations of the SEC in effect at the time such proposal is received. Under
Sunrise's bylaws, any stockholder of Sunrise who intends to present a proposal
for action at the 2000 annual meeting also must file a copy of the proposal with
the secretary of Sunrise 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.
- 27 -
<PAGE> 31
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 the manner determined by
a majority of Sunrise'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 6, 1999
- 28 -
<PAGE> 32
EXHIBIT A
SUNRISE ASSISTED LIVING, INC.
1999 STOCK OPTION PLAN
SUNRISE ASSISTED LIVING, INC., a Delaware corporation (the
"Corporation"), sets forth herein the terms of this 1999 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 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
- 29 -
<PAGE> 33
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.
4. ELIGIBILITY
(a) DESIGNATED RECIPIENTS
Subject to the next sentence, Options may be granted under the Plan to
(i) any director, officer or employee 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
A-2
<PAGE> 34
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
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.
A-3
<PAGE> 35
(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 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
A-4
<PAGE> 36
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.
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
A-5
<PAGE> 37
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.
(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
A-6
<PAGE> 38
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.
(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).
A-7
<PAGE> 39
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 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
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<PAGE> 40
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 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
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<PAGE> 41
such event. Any such adjustment in outstanding Options shall not change the
aggregate Option Price payable with respect to shares that are subject to the
unexercised portion of the Option outstanding but shall include a corresponding
proportionate adjustment in the Option Price per share.
(b) REORGANIZATION IN WHICH THE CORPORATION IS THE SURVIVING
CORPORATION
Subject to SUBSECTION (c)(iv) hereof, if the Corporation shall be the
surviving corporation in any reorganization, merger, or consolidation of the
Corporation with one or more other corporations, any Option theretofore granted
pursuant to the Plan shall pertain to and apply to the securities to which a
holder of the number of shares of Stock subject to such Option would have been
entitled immediately following such reorganization, merger, or consolidation,
with a corresponding proportionate adjustment of the Option Price per share so
that the aggregate Option Price thereafter shall be the same as the aggregate
Option Price of the shares remaining subject to the Option immediately prior to
such reorganization, merger, or consolidation.
(c) DISSOLUTION, LIQUIDATION, SALE OF ASSETS, REORGANIZATION IN WHICH
THE CORPORATION IS NOT THE SURVIVING CORPORATION, ETC.
The Plan and all Options outstanding hereunder shall terminate (i) upon
the dissolution or liquidation of the Corporation, or (ii) upon a merger,
consolidation, or reorganization of the Corporation with one or more other
corporations in which the Corporation is not the surviving corporation, or (iii)
upon a sale of substantially all of the assets of the Corporation to another
person or entity, or (iv) upon a merger, consolidation or reorganization (or
other transaction if so determined by the Board in its sole discretion) in which
the Corporation is the surviving corporation, that is approved by the Board and
that results in any person or entity (other than persons who are holders of
Stock of the Corporation at the time the Plan is approved by the stockholders
and other than an Affiliate) owning 80 percent or more of the combined voting
power of all classes of stock of the Corporation, except to the extent provision
is made in writing in connection with any such transaction covered by clauses
(i) through (iv) for the continuation of the Plan or the assumption of such
Options theretofore granted, or for the substitution for such Options of new
options covering the stock of a successor corporation, or a parent or subsidiary
thereof, with appropriate adjustments as to the number and kind of shares and
exercise prices, in which event the Plan and Options theretofore granted shall
continue 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
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<PAGE> 42
Options not later than the time at which the Corporation gives notice thereof to
its stockholders.
(d) ADJUSTMENTS
Adjustments under this SECTION 16 related to stock or securities of the
Corporation shall be made by the Board, whose determination in that respect
shall be final, binding, and conclusive. No fractional shares of Stock or units
of other securities shall be issued pursuant to any such adjustment, and any
fractions resulting from any such adjustment shall be eliminated in each case by
rounding downward to the nearest whole share or unit.
(e) NO LIMITATIONS ON CORPORATION
The grant of an Option pursuant to the Plan shall not affect or limit in
any way the right or power of the Corporation to make adjustments,
reclassifications, reorganizations, or changes of its capital or business
structure or to merge, consolidate, dissolve, or liquidate, or to sell or
transfer all or any part of its business or assets.
17. DISCLAIMER OF RIGHTS
No provision in the Plan or in any Option granted or Option Agreement
entered into pursuant to the Plan shall be construed to confer upon any
individual the right to remain in the employ or service of or to maintain a
relationship with the Corporation or any Subsidiary, or to interfere in any way
with any contractual or other right or authority of the Corporation or any
Subsidiary either to increase or decrease the compensation or other payments to
any individual at any time, or to terminate any employment or other relationship
between any individual and the Corporation or any Subsidiary. The obligation of
the Corporation to pay any benefits pursuant to this Plan shall be interpreted
as a contractual obligation to pay only those amounts described herein, in the
manner and under the conditions prescribed herein. The Plan shall in no way be
interpreted to require the Corporation to transfer 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.
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<PAGE> 43
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
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.
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<PAGE> 44
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> 45
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TABLE OF CONTENTS
Page
Solicitation, Voting and
Revocability of Proxies............... 1
Election of Directors.................... 2
Executive Compensation and
Other Information..................... 9
Approval of 1999 Stock
Option Plan........................... 19
Independent Public Accountants........... 24
Stock Owned by Management................ 25
Principal Holders of
Voting Securities..................... 26
Date for Submission of
Stockholder Proposals................. 27
Other Business to be Transacted.......... 28
Exhibit A -- 1999 Stock
Option Plan........................... A-1
=================================================================
=================================================================
PROXY STATEMENT
SUNRISE ASSISTED LIVING, INC.
APRIL 6, 1999
=================================================================
<PAGE> 46
SUNRISE ASSISTED LIVING, INC.
9401 LEE HIGHWAY, SUITE 300, FAIRFAX, VA 22031
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS - APRIL 26, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Sunrise Assisted Living, Inc. hereby
appoints Paul J. 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 1999 annual meeting of
stockholders to be held on April 26, 1999 at 9:00 a.m., local time, at The
Ritz-Carlton -- Tysons Corner, 1700 Tysons Boulevard, McLean, Virginia, and at
any adjournments or postponements, upon the following matters:
1. To elect three directors each for a three-year term.
FOR all nominees listed WITHHOLD AUTHORITY
(except as marked to the to vote for all nominees listed
contrary below)
[ ] [ ]
Nominees: Ronald v. Aprahamian
David G. Bradley
Teresa M. Klaassen
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME ON THE SPACE PROVIDED BELOW.)
- --------------------------------------------------------------------------------
2. To approve the 1999 Stock Option Plan.
[ ] [ ] [ ]
FOR AGAINST ABSTAIN
(Continued and to be signed and dated on reverse side)
<PAGE> 47
(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 THE MANNER RECOMMENDED
BY 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.)
