<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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 MEDICAL 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] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] 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.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
[LOGO OF SUNRISE MEDICAL]
2382 FARADAY AVENUE, SUITE 200
CARLSBAD, CALIFORNIA 92008
----------------
NOTICE OF ANNUAL MEETING TO BE HELD ON NOVEMBER 7, 1995
----------------
Dear Stockholder:
On behalf of the Board of Directors, you are cordially invited to attend the
Annual Meeting of Stockholders of Sunrise Medical Inc. to be held at the La
Jolla Marriott Hotel, 4240 La Jolla Village Drive, La Jolla, California, on
Tuesday, November 7, 1995, commencing at 2:00 p.m. Pacific Standard Time. We
look forward to the opportunity of greeting personally those stockholders who
are able to attend.
At the meeting, you are being asked to:
1. Elect members of the Board of Directors;
2. Consider and act upon a proposal to adopt the Amended and Restated
1993 Stock Option Plan as described in the attached proxy materials;
and
3. Transact such other business as may properly come before the meeting
or any adjournments thereof.
During the course of the meeting, management will report on the current
activities of Sunrise and comment on its future plans. A discussion period is
planned so that stockholders will have an opportunity to ask questions and
present their comments.
The Board of Directors fixed the close of business on September 14, 1995 as
the record date for the determination of stockholders entitled to notice of
and to vote at this Annual Meeting and at any continuation or adjournment
thereof. If you plan to be present, please notify me so that identification
can be prepared for you. Thank you for your interest and consideration.
Sincerely,
/s/ STEVEN A. JAYE
Steven A. Jaye
Vice president, general counsel
and secretary
October 6, 1995
IT IS IMPORTANT THAT YOUR SHARES ARE REPRESENTED AT THE MEETING.
ACCORDINGLY, PLEASE SIGN, DATE AND MAIL THE ENCLOSED PROXY WITHOUT DELAY IN
THE ENCLOSED POSTAGE-PAID ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE
MEETING. EVEN IF YOU HAVE GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF
YOU ATTEND THE MEETING.
<PAGE>
[LOGO OF SUNRISE MEDICAL]
2382 FARADAY AVENUE, SUITE 200
CARLSBAD, CALIFORNIA 92008
------------------
PROXY STATEMENT
------------------
ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 7, 1995
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Sunrise Medical Inc., a Delaware
corporation (the "Company" or "Sunrise"), for use at the Annual Meeting of
Stockholders (the "Annual Meeting") to be held at the La Jolla Marriott Hotel,
4240 La Jolla Village Drive, La Jolla, California, on Tuesday, November 7,
1995, commencing at 2:00 p.m. Pacific Standard Time, or any postponement or
adjournment thereof. It is anticipated that this Proxy Statement, together
with the proxy and the 1995 Annual Report to Stockholders, will first be
mailed to the Company's stockholders on or about October 6, 1995.
Any stockholder of record giving a proxy has the power to revoke it at any
time before it is voted by filing with the secretary of the Company a notice
in writing revoking it, by duly executing a proxy bearing a later date, or by
attending the Annual Meeting and, prior to the voting of the proxy, indicating
to the secretary of the meeting a desire to vote his or her shares in person.
Holders whose shares are in street name should consult with their brokers
concerning procedures for revocation. Subject to such revocation, all shares
represented by a properly executed proxy will be voted as directed by the
holder on the proxy card. If no choice is specified, proxies will be voted FOR
the directors nominated by the Board of Directors and FOR approval of the
amendment and restatement of the Company's 1993 Stock Option Plan.
The election inspector will treat shares represented by properly signed and
returned proxies that reflect abstentions as shares that are present and
entitled to vote for purposes of determining the presence of a quorum and for
purposes of determining the outcome of any matter submitted to the
stockholders for a vote. Abstentions do not constitute a vote "for" or
"against" any matter and thus will be disregarded in the calculation of "votes
cast." For the purposes of determining the outcome of any matter, "broker non-
votes" (i.e., shares held by brokers or nominees that are represented at the
meeting by properly signed and returned proxies but with respect to which the
broker or nominee is not empowered to vote on a particular matter) will be
treated by the election inspector as not present and not entitled to vote with
respect to that matter (although such shares may be entitled to vote on other
matters), and will be deemed to be present and entitled to vote for quorum
purposes.
The Company will bear the entire expense of this proxy solicitation. Copies
of solicitation material may be furnished to brokerage houses, fiduciaries,
and custodians to forward to their principals, and the Company may reimburse
them for their reasonable expenses in connection therewith. Solicitation may
be made by telephone or otherwise by officers, directors or regular employees
of the Company (who will receive no compensation therefor other than their
regular compensation) and by Kissel-Blake Inc., whose services to the Company
will include the solicitation of proxies from brokers, banks and nominees
holding stock in their names for the benefit of others, for which it will
receive payment of $5,000 plus out-of-pocket expenses.
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<PAGE>
The close of business on September 14, 1995 was fixed as the record date for
determination of holders of the Company's Common Stock, $1.00 par value (the
"Common Stock"), entitled to notice of and to vote at the Annual Meeting. On
that date, there were outstanding and entitled to vote 18,823,699 shares of
Common Stock. Subject to cumulative voting rights in the election of directors
(see "Proposal 1, Election of Directors"), holders of Common Stock are
entitled to one vote per share on each matter submitted to or acted upon by
the stockholders at the Annual Meeting. The presence, either in person or by
proxy, of persons entitled to cast a majority of such votes constitutes a
quorum for the transaction of business at the Annual Meeting.
PROPOSAL 1
ELECTION OF DIRECTORS
Nine directors, comprising the entire membership of the Board of Directors
of the Company, are to be elected at the Annual Meeting. Unless otherwise
instructed, the proxy holders intend to vote the shares represented by the
proxies received by them for the nine nominees shown below for a term of one
year and until their successors are duly elected and qualified.
If at the time of the Annual Meeting any of such nominees should be unable
or decline to serve, the authority provided in the proxy to vote for the
election of directors will be exercised to vote for a substitute or
substitutes. Management has no reason to believe that any substitute nominee
or nominees will be required.
Stockholders are entitled to cumulative voting rights in the election of
directors. Under cumulative voting, each stockholder is entitled to a number
of votes equal to the number of directors to be elected multiplied by the
number of shares of Common Stock the stockholder is entitled to vote. Such
votes may be cast for one nominee or distributed among two or more candidates.
The proxy solicited by the Board of Directors confers discretionary authority
on the proxy holders to cumulate votes so as to elect the maximum number of
nominees. The affirmative vote of a plurality of the shares of the Company's
Common Stock represented in person or by proxy and entitled to vote at the
Annual Meeting will be required to elect each director.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH NAMED NOMINEE
NOMINEES FOR DIRECTORS
<TABLE>
<CAPTION>
CURRENT POSITIONS DIRECTOR OF THE
NAME AGE WITH THE COMPANY COMPANY SINCE
---- --- ----------------------------- ---------------
<S> <C> <C> <C>
Richard H. Chandler..... 52 Chairman of the board and
chief executive officer 1983
Lee A. Ault III......... 58 Director 1988
Larry C. Buckelew....... 42 Director, president and chief
operating officer 1994
Lloyd E. Cotsen......... 66 Director 1989
Babette Heimbuch........ 47 Director 1994
Murray H. Hutchison..... 56 Director 1983
William L. Pierpoint.... 56 Director 1985
Joseph Stemler.......... 64 Director 1989
John R. Woodhull........ 61 Director 1986
</TABLE>
2
<PAGE>
The business experience, principal occupations and employment of each of the
nominees for at least the past five years are as follows:
RICHARD H. CHANDLER has been chairman of the Board of Directors and chief
executive officer of the Company since July 1993, and was chairman of the
Board of Directors and president of the Company since he founded it in January
1983 until July 1993. From 1982 to 1983, he was president of the Richard H.
Chandler Company, a management consulting firm, during which period he planned
the formation of Sunrise Medical Inc. From 1977 to 1982, he was president and
chief executive officer of Abbey Medical, Inc. with the exception of six
months in 1979 when he was group vice president of Sara Lee Corporation. Mr.
Chandler participated in the leveraged buy out of Abbey Medical from Sara Lee
Corporation in June 1979 and arranged for its sale to American Hospital Supply
Corporation in April 1981.
LEE A. AULT III was elected a director of the Company on January 28, 1988.
From 1968 until January 1992, Mr. Ault was chief executive officer of
Telecredit, Inc., a payment services company, serving as its president from
1968 until 1983 and as chairman from 1983 until January 1992. Following the
acquisition of Telecredit by Equifax Inc., a New York Stock Exchange ("NYSE")-
listed information services company in December 1990, Telecredit became a
subsidiary of Equifax, and Mr. Ault was also named senior vice president and a
director of Equifax. He has since retired as an executive of Equifax, but is
still a member of the Board of Directors of Equifax as well as the Board of
Directors of Alex. Brown & Sons Incorporated and Viking Office Products, Inc.
LARRY C. BUCKELEW has been a director, president and chief operating officer
of the Company since August 1994, and was president of the Company from July
1993 until August 1994. Previously, Mr. Buckelew was president of Bio Clinic
Corporation, a Company subsidiary, from November 1986 until July 1993. From
1984 to 1986, Mr. Buckelew was vice president, marketing and business
development for the American Scientific Products Division of American Hospital
Supply Corporation. He was vice president, area manager for American
Scientific Products from 1983 to 1984 and previously held several positions of
increasing responsibility with American Hospital's Pharmaseal Division.
LLOYD E. COTSEN was elected a director of the Company on August 30, 1989.
Mr. Cotsen served as chief executive officer of Neutrogena Corporation, a
publicly-owned skin care and hair care products company from 1973 to 1995. He
also served as president and chairman of the Board of Directors of Neutrogena
for portions of this time. He retired from all positions with Neutrogena
earlier this year. Mr. Cotsen is currently a private investor and also a
director of Darwin Molecular Corporation, a privately held company.
BABETTE HEIMBUCH was elected a director of the Company on January 24, 1994.
Since 1982 Ms. Heimbuch has held positions of increasing responsibility with
First Federal Bank of California and its parent company, FirstFed Financial
Corporation, a NYSE-listed company and currently serves as president and chief
operating officer of both companies. She has been a director of FirstFed
Financial since 1987 and a director of First Federal Bank since 1986. Ms.
Heimbuch also serves on the Board of Directors of Santa Monica Hospital and
the Western League of Savings Institutions.
MURRAY H. HUTCHISON was elected a director of the Company on May 10, 1983.
Mr. Hutchison was chairman of International Technology Corporation, a NYSE-
listed environmental management company, from 1976 to 1994, and was its chief
executive officer from 1976 to 1992. Mr. Hutchison is currently a private
investor and is chairman of the Board of Directors for Advanced Access Inc.
and also serves on the Board of Directors of the Winston Tire Company and the
Olson Company.
WILLIAM L. PIERPOINT was elected a director of the Company on September 26,
1985. From 1977 to 1988, he was president and chief executive officer of
Summit Health Ltd., a publicly-owned, integrated health care company. Mr.
Pierpoint is a certified public accountant, and since 1988 has been a private
investor. In 1995 he became chairman of Strategic Partners Inc. (dba Cherokee
Uniforms), a privately held company.
JOSEPH STEMLER was elected a director of the Company on January 26, 1989.
From 1989 through July 1995, Mr. Stemler served as president, chief executive
officer and a director of La Jolla Pharmaceutical Company, a
3
<PAGE>
biotechnology and genetic engineering concern involved in the development of
drugs to treat autoimmune diseases and allergies. He currently serves as
chairman of the Board of Directors of La Jolla Pharmaceutical Company. Mr.
Stemler became president and chief executive officer of Quidel Corporation in
1985, chairman and chief executive officer in 1988, chairman in 1990 and vice
chairman in 1991. Mr. Stemler was president and chief executive officer of
Bentley Laboratories, Inc. from 1978 to 1985. Mr. Stemler also serves on the
Board of Directors of the Scholle Corporation and Safeskin Corporation, a
publicly traded company.
JOHN R. WOODHULL was elected a director of the Company on September 29,
1986. Mr. Woodhull is chairman, president and chief executive officer of
Logicon, Inc., a NYSE-listed company which provides electronic systems and
high-technology services to industry and government. Mr. Woodhull joined
Logicon in 1964, was elected to the Board of Directors a year later, and
achieved the position of president and chief executive officer in 1969. Mr.
Woodhull also serves on the Board of Directors of Adams Business Forms, Inc.,
FirstFed Financial Corporation, First Federal Bank of California and YMCA of
Metropolitan Los Angeles.
MEETINGS AND ATTENDANCE
The Board of Directors met six times during the fiscal year ended June 30,
1995. Of the four standing committees, the Executive Committee did not meet in
1995, while the Audit Committee met three times, the Compensation Committee
met three times, and the Stock Option Committee met six times. All directors
attended at least 75% of the aggregate of (i) the total number of meetings of
the Board and (ii) the total number of meetings of the committees of the Board
on which such directors served, except for Mr. Cotsen, whose attendance was
66.7% (6 out of 9 meetings).
COMMITTEES
Audit Committee. The Audit Committee, composed solely of outside directors,
meets with the Company's independent and internal auditors and makes
recommendations to the Board of Directors concerning acceptance of the reports
of such auditors and reviews and makes recommendations to the Board concerning
the accounting policies of the Company and the selection of the Company's
independent auditors. The Audit Committee chairman is Mr. Pierpoint. Other
members are Messrs. Cotsen and Stemler and Ms. Heimbuch.
Compensation and Stock Option Committees. The Compensation Committee,
consisting solely of outside directors, meets with management and makes
recommendations to the Board concerning executive officer and key employee
compensation and concerning payments to be made under the Management Incentive
Bonus Plan and the Special Bonus Plan as well as Company contributions to be
made under the Profit Sharing/Savings Plan. The Compensation Committee also
functions as the Stock Option Committee, administering the Amended and
Restated Stock Option Plan for Key Associates and the 1993 Stock Option Plan.
In addition, this committee functions as a nominating committee regarding
vacancies in the Board of Directors. Members of the Compensation Committee are
Messrs. Ault, Hutchison and Woodhull, with Mr. Hutchison serving as chairman.
Executive Committee. The Executive Committee, consisting of Messrs.
Chandler, Hutchison and Pierpoint, meets on an as-needed basis in the event it
is necessary to make Board-level decisions between regularly scheduled Board
meetings. The Executive Committee did not meet in 1995. Mr. Chandler is
chairman of this committee.
COMPENSATION
Compensation of the outside directors is determined by action of the entire
Board after receiving the recommendations of the chief executive officer.
Currently, outside directors are paid a $2,000 per year retainer and $1,000
for each Board meeting attended. In addition, committee members are paid $500
per meeting, if a separate committee meeting is held the same day as a Board
meeting, and $750 if a committee meeting is held on a day other than a
scheduled Board meeting. Committee chairmen also receive a $1,500 annual
retainer. Each outside director has been granted an option to purchase 5,000
shares of Common Stock upon his or her initial election to the Board and every
four years thereafter if still a director. The Company has no other contracts
or other arrangements pursuant to which any non-employee director was
compensated during the year.
4
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
COMPENSATION COMMITTEE REPORT TO STOCKHOLDERS
The Compensation Committee of the Board of Directors (the "Committee") is
responsible for establishing and overseeing the policies that govern Company
compensation and benefit practices. As part of these functions, the Committee
evaluates the performance of the chief executive officer, reviews with senior
management the performance of executive officers generally, and determines
their respective compensation levels in terms of salary, bonuses and related
benefits. All determinations of the Compensation Committee are subject to
Board approval, other than stock and option based compensation, which is
determined solely by the Stock Option Committee. The Committee has established
a number of objectives which serve as guidelines in making all compensation
decisions, including:
. The integration of compensation programs with the Company's strategic
focus in order to achieve its long-term competitive objectives and
strategic intent;
. The reward of annual financial performance through group bonus incentives
that treat each divisional team independently, reinforcing the Company's
unique corporate culture;
. The encouragement of consistent, long-term enhancement of stockholder
value by providing multi-year performance incentives through a contingent
long-term bonus plan and equity ownership through stock options; and
. The development and implementation of a competitive total compensation
program which enables the Company to attract and retain high-caliber
employees ("Associates") at all levels.
COMPENSATION PHILOSOPHY
The Company's compensation philosophy rewards individual and team
performance on the basis of both quantitative and qualitative factors.
Associates at all levels participate in one or more of the Company's various
incentive plans. Of the eight plans currently in effect, two apply to senior
executives; the other six are aimed more broadly at different groups,
including middle managers, engineers, sales Associates and hourly factory and
office Associates.
The Company's compensation policies can be characterized as comprehensive,
systematic and objective. They are administered with careful attention to
consistency and fairness, so that all Associates with similar responsibilities
have the same managerial titles and receive the same package of benefits and
incentives, including bonus opportunities and stock options. This system not
only pays for performance, it penalizes for non-performance using arithmetic
formulas that do not allow for excuses.
Integral to the Company's corporate culture is its divisional structure and
decentralized operating philosophy. The Company is composed of a group of
operating subsidiaries (referred to by the Company as "divisions"), each led
by its own management team. Some divisions are devoted to manufacturing a
particular product line, while others focus on distributing the Company's
products in a specific country or geographic region. Each division's
performance is measured and rewarded with year-end bonuses computed
independently of the others, while the Company's stock option program
encourages key managers at all divisions to focus on the Company's performance
as a whole.
The Company's compensation philosophy and programs require that bonuses be
based on achievement of both team financial goals (i.e., corporate or
division) and individual performance objectives. However, no bonus is paid
unless that division delivers a profit increase for the year. Similarly,
corporate office executives receive no bonus unless earnings per share have
increased over the prior year. Even if a bonus is earned based on an operating
unit's profit performance, the executive must still accomplish his or her
personal objectives for the year in order to qualify for the designated
amount.
In applying this compensation philosophy, the Committee believes that the
components of executive compensation should include base salary, annual and
long-term incentive compensation, stock option grants and other benefits. A
brief summary of each component follows.
5
<PAGE>
BASE SALARY
Base salaries are competitive with market rates and are based on an internal
evaluation of the responsibilities required for each position. The Committee
relies on outside industry surveys to assess salary competitiveness, as well
as reviewing hiring and turnover patterns within the Company. Salary increases
are based on annual supervisor reviews and are intended to reflect individual
as well as group performance. Annual increases for salaried Associates are all
awarded on the same day (the Monday closest to September 1) so as to ensure
fairness across the Company and to incorporate both the previous fiscal year's
operating results and individual performances. The Company provides
opportunities for compensation above the base salary level through its annual
and long-term incentive compensation programs.
ANNUAL INCENTIVE COMPENSATION
The Company has used throughout its history a uniquely designed Management
Incentive Bonus Plan (the "MIB Plan") pursuant to which members of management
are eligible to receive annual cash bonuses. Generally, each bonus will be
based on both the achievement of individual objectives agreed upon by the
manager and his or her immediate supervisor, and upon attainment of certain
earnings targets by the Company as a whole, in the case of corporate
management, or by the division, in the case of division management. With
regard to the Company's performance, the two primary measures used for
determining bonuses are the Company's earnings per share ("EPS") growth and
its return on equity, both of which enhance stockholder value. A division's
performance is measured against goals for earnings growth, after a capital
charge on any cash drawn, and with penalties for failure to achieve certain
levels of return on net assets. No bonus is paid at either the corporate or
divisional level unless earnings exceed prior year results. Earnings goals are
approved annually by the Board of Directors and are tied to the Company's
operating plan. The maximum payout that can currently be earned under the MIB
Plan ranges from 10% to 50% of a person's annual salary, depending upon his or
her position.
For fiscal 1995, EPS increased 16% (from $1.41 to $1.63) while return on
equity was 10.6%, which exceeded the Board-approved "on-target" performance
levels for the year, but fell short of the "maximum" performance levels.
LONG-TERM INCENTIVE COMPENSATION
The Company adopted a Special Bonus Plan (the "SBP") in 1990 for the purpose
of providing incentive cash bonuses to certain executives of the Company and
its divisions, contingent upon their unit consistently exceeding its earnings
targets over a moving three-year performance period. In such cases, the awards
are calculated based on a percentage of the amount by which actual base year
earnings exceed the target, without a ceiling. After the close of each of the
two succeeding fiscal years, cash payouts equal to 50% of the bonus previously
accrued will be made to eligible executives still employed on such dates, but
only if the earnings goals for that year has been attained. Any incentive not
so earned by an executive will be forfeited and used to help make up the
profit shortfall. The SBP supplements the yearly rewards of the MIB Plan and
is designed to encourage multi-year, sustained growth. Because the SBP is
uncapped and rewards performance over a three-year period, the SBP provides
complementary incentives to the annual MIB Plan. In practice, the SBP has
provided supplemental income of up to 27% of annual salary for executives at
units achieving over-target performance three years in a row, with the average
percentage earned being much lower than that.
STOCK OPTIONS
Certain management Associates of the Company are eligible to receive
periodic grants of qualified and non-qualified stock options, pursuant to (i)
the Company's Amended and Restated Stock Option Plan for Key Associates (the
"ASOP") which was first adopted in 1983 and amended in 1990, and (ii) the 1993
Stock Option Plan. The Stock Option Committee of the Board of Directors
establishes the terms of options granted under the ASOP and the 1993 Stock
Option Plan. Options which have been granted under the ASOP and the 1993 Stock
Option Plan become exercisable in four equal annual increments beginning on
the first anniversary date of the
6
<PAGE>
grant and ending on the fourth anniversary date. The option price, which is
determined by the Stock Option Committee, must, for incentive stock options,
be equal to at least 100% of the fair market value of the shares covered by
the option on the date of grant. Options are granted to certain management
Associates and are intended to retain them and motivate them to improve the
Company's long-term stock market performance, aligning their interests with
those of stockholders. In determining the number of options to be granted to
an Associate, the Stock Option Committee takes into account a number of
factors, including the individual's performance and the overall
competitiveness of his or her compensation package compared to outside
industry surveys.
PROFIT SHARING CONTRIBUTION
The Company contributes to a Profit Sharing/Savings Plan in which all
domestic Associates except those under certain collective bargaining
agreements may participate. It is a deferred 401(k) plan which serves as the
Company's only form of retirement plan for Associates in the United States.
Annual awards under the profit sharing portion of the plan amount to 4% to 6%
of compensation, providing the division is profitable. The percentage amount
is based upon attainment of certain earnings targets by the Company as a whole
in the case of corporate office Associates, or by the division, in the case of
division Associates. The savings portion of the plan provides Associates with
a $400 Company contribution which matches an equal amount of their voluntary
savings. Associates employed outside the United States have a defined
contribution plan in effect which mirrors the United States plan, to the
extent appropriate in view of local laws and practices.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
In establishing the fiscal 1995 compensation for the Company's chairman and
chief executive officer, Mr. Richard H. Chandler, the Committee followed its
established guidelines as outlined above. In particular, the Committee noted
the leadership of Mr. Chandler in the Company's achievements during fiscal
1995, including reporting its 8th consecutive year of record sales, net income
and EPS, sales growth of 29%, net income growth of 19% and EPS growth of 16%.
Sunrise also performed well against its peer group of medical device
manufacturers on various measures and completed five important acquisitions
during the year with which he was intimately involved. Based on these and
other objectives pre-established for the year, the Board evaluated Mr.
Chandler's personal performance and an appropriate percentage multiplier was
applied to his potential MIB bonus in determining his actual bonus. His MIB
payout totaled $124,800, or 31.2% of his base salary. In addition, $64,805
(accrued in prior years) was paid out under the SBP in 1995 for over-target
profit performance during each of the two preceding years, providing an SBP
payout of 16.2% of his base salary. His combined bonus under both plans in
fiscal 1995 was thus 47.4% of his base salary. In addition, the Company
contributed $7,300 to Mr. Chandler's 401(k) account, which was below the 4.6%
of compensation he otherwise would have earned under the plan because of the
Internal Revenue Service ceiling imposed on profit sharing plan contributions.
Under the Company's SBP, $16,700 was accrued against earnings in fiscal 1995
as Mr. Chandler's contingent award for over-plan earnings performance in that
year, of which $8,350 will be paid in either or both of the next two years,
but only if the Company achieves specified EPS goals during such year.
Based upon Mr. Chandler's achievements, the Company's increased size and
outstanding performance in the previous fiscal year, the Board increased Mr.
Chandler's base salary by $75,000 or 18.7% for the next fiscal year. This
decision was also influenced by the executive compensation study described
below, which concluded that Mr. Chandler's salary and total compensation
package were below the median level for a group of "Comparable Employers." In
addition, Mr. Chandler was granted a non-qualified stock option in August 1995
to purchase 22,000 shares of Company Common Stock at a price per share of
$28.625.
1996 CHANGES TO EXECUTIVE COMPENSATION
On August 23, 1994, the Committee commissioned a report from an independent
consulting firm regarding executive compensation paid by other companies
having similar annual revenues and businesses ("Comparable
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Employers"). In determining the group of Comparable Employers, the independent
consultant assembled market data on medical device manufacturers with similar
revenues. The Comparable Employers group is comparable to but slightly
different in its composition from the index groups included in Five Year
Cumulative Total Return Comparison graph included in this proxy statement. The
Committee believes that total cash compensation for Company executives should
be targeted within the 25th to 75th percentile of executives at Comparable
Employers when the Company meets commensurately challenging financial goals.
Where executives fall within that range will depend on their seniority and
their consistency in performance. This approach is consistent with the
Committee's responsibility to link executive compensation with the Company's
financial performance while also reflecting competitive market data.
A report was presented to the Committee on June 26, 1995 by the independent
consultant with the assistance of the vice president--human resources. The
Committee utilized recommendations from the consulting firm on various facets
of the Company's executive compensation plan. Overall, executive base salaries
were found to be within the 25th to 75th percentile range and at appropriate
levels for Comparable Employers, with a few exceptions. The opportunity for
higher compensation based on company and individual performance was not as
competitive, however. Given the strong financial performance of the company
over the past five years, the independent consultant recommended changes to
the Management Incentive Bonus Plan (the "MIB Plan"), the Special Bonus Plan
(the "SBP") and the 1993 Stock Option Plan, all of which are described below
and would take effect for the first time in fiscal 1996.
MIB Plan Changes. The independent consultant recommended amending the
Company's two executive bonus plans to bring total cash compensation up to
competitive levels. The Committee believes that payout percentages under the
MIB Plan are too low, and increases should be implemented at the corporate
officer level. Three corporate officers will have their current MIB levels
increased as a result of the consultant's recommendations. The chief executive
officer's MIB Plan payout percentages will change to a 0/40/80% (increasing
from 0/25/50%) of 1996 base salary payout range (i.e., 0% of base salary for
earnings below prior year earnings; 40% of base salary payment for achieving
"on-target" earnings; and 80% of base salary payment for achieving "maximum"
earnings as set by the board). The chief operating officer's MIB Plan payout
percentages will change to a 0/30/60% of 1996 base salary (increasing from
0/25/50%), and the chief financial officer's MIB Plan payout percentages will
change to 0/25/50% of 1996 base salary (increasing from 0/20/40%).
SBP Changes. The Committee determined that the eligibility for the program
will be broadened to include corporate officers, division presidents, division
vice presidents and country general managers. Awards under this program for
the chief executive officer, chief operating officer, chief financial officer,
senior vice president of marketing and division presidents will be calculated
at 10% of their base salary when on-target earnings are reached and 20% of
their base salary if maximum earnings are achieved. All other executives
listed above will receive awards based on a calculation of 5% of their base
salary when on-target earnings are reached and 10% of their base salary if
maximum earnings are achieved. If earnings exceed the maximum, 15% of such
earnings excess will be shared with the management team that delivered it, in
the form of an additional contingent SBP award. (The previous plan provided
for 30% of the earnings excess to be so awarded.)
Stock Option Plan Changes. The Company's policy has been to grant stock
options to a broad number of management Associates. At the present time, about
250 managers have received grants. This is consistent with the Company's
general philosophy emphasizing a democratic, team-based culture. However, the
result is that there are not sufficient shares being replenished in the 1993
Stock Option Plan each year to continue this practice, particularly in view of
the Company's acquisition strategy, which continually adds new managers to the
program without substantially increasing the available option shares.
Furthermore, the independent compensation consultant retained by the Committee
concluded that the number of stock options being granted to the Company's
divisional operating executives was below competitive levels for comparable
peer company positions. For all of these reasons, the Board voted to propose
to the stockholders an Amended and Restated 1993 Stock Option Plan which
amends the 1993 Stock Option Plan, to, among other things, increase the number
of options available for grant each year from 1.5% to 2.0% of the shares
outstanding, while at the same time reducing the portion of all options (from
60% to 45%) which can be granted to the named executive officer group
8
<PAGE>
(i.e., five highest paid) in any year. The latter change will have the effect
of ensuring that the increase in potential grants will be available for grants
to the Company's divisional operating executives, while limiting the maximum
number of additional stock options available for grant to the named executive
group each year at exactly the current percentage (i.e. 60% x 1.5% = 45% x
2.0% = 0.9%) of outstanding shares. In practice, total options granted
annually to the named executive officer group have averaged only 23% of total
annual grants since the adoption of the 1993 Plan. The Board believes that
amending the 1993 Stock Option Plan so that the Company can grant options at
competitive levels for senior managers and broadly to all managers is a key
step in achieving above average stockholder returns in the years ahead.
In addition, a number of other changes to the 1993 Stock Option Plan are
proposed. First, the termination date of the 1993 Stock Option Plan is
proposed to be shortened by approximately two years, so that the 1993 Stock
Option Plan will terminate on November 7, 2001. Second, the Board proposes to
prohibit the "re-pricing" of options (i.e. reducing the exercise price
subsequent to the grant date) without the consent of the stockholders. Third,
the Board proposes to prohibit the Company from loaning Company funds to an
option holder for the purpose of financing the consideration due the Company
upon exercise of options. (See Proposal 2 for a discussion of these and other
proposed amendments to the 1993 Stock Option Plan included in the Amended and
Restated 1993 Stock Option Plan.)
This Compensation Committee Report shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1993 or under the
Securities Exchange Act of 1934, except to the extent the Company specifically
incorporates this report by reference, and shall not otherwise be deemed filed
under such Acts.
Lee A. Ault III Murray M. Hutchison John R. Woodhull
Chairman
9
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the compensation for
services in all capacities to the Company for the fiscal years ended June 30,
1995, July 1, 1994 and July 2, 1993, of those persons who were at June 30,
1995 the Company's chief executive officer and the four other most highly-
compensated executive officers of the Company whose annual salary and bonus
for the fiscal year ended June 30, 1995 exceeded $100,000 (the "Named
Officers").
SUMMARY COMPENSATION TABLE
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------ ------ --------
OTHER STOCK LTIP ALL OTHER
NAME AND PRINCIPAL FISCAL BONUS ANNUAL OPTION PAYOUTS COMPENSATION
POSITION YEAR SALARY (1) COMPENSATION GRANTS (2) (3)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard H. Chandler..... 1995 $400,000 $124,800 -- 20,000 $ 64,805 $10,509
Chairman of the board 1994 370,000 92,593 -- 25,000 102,150 13,919
and
chief executive officer 1993 325,000 160,875 -- 20,000 84,300 17,883
(4)
Larry C. Buckelew....... 1995 300,000 93,600 -- 15,000 15,377 8,028
President and chief 1994 275,000 69,575 -- 20,000 18,650 11,054
operating officer (4) 1993 210,000 100,837 -- 40,000 26,600 14,765
Thomas H. O'Donnell..... 1995 240,000 102,538 -- 5,000 65,528 8,480
President, Quickie 1994 232,000 82,347 -- 5,000 74,998 13,946
Designs Inc. 1993 222,000 105,450 -- 10,000 47,550 16,339
Barrie Payne............ 1995 209,000 102,177 -- 5,000 38,834 9,841
Managing director, 1994 200,000 52,805 -- 5,000 41,800 13,833
Sunrise Medical Ltd. 1993 191,000 88,443 -- 10,000 5,650 17,628
Richard Kollisch (5).... 1995 212,738 104,242 -- 5,000 -- 10,637
President, Sopur 1994 184,220 15,443 -- 5,000 -- --
Medizintechnik GmbH. 1993 178,581 -- -- 10,000 -- --
</TABLE>
- -------------------------------------------------------------------------------
(1) The amounts reflect the bonuses accrued under the Management Incentive
Bonus Plan in the designated fiscal years. See the Compensation Committee
Report to Stockholders for a description of this plan.
(2) The amounts reflect contingent bonuses accrued in prior years under the
Special Bonus Plan which were earned based on performance attained in the
designated fiscal years. See the Compensation Committee Report to
Stockholders for a description of this plan.
(3) Reflects the amount of cash contributions by the Company to the Profit
Sharing/Savings Plan on behalf of the Named Officers. This amount reflects
both matching contributions and profit sharing portions. Also included are
certain life insurance premiums paid for by the Company. The Company has
no defined benefit or other actuarial plan covering the Named Officers.
(4) On July 1, 1993 Mr. Chandler became chairman of the board and chief
executive officer of the Company and Mr. Buckelew became president of the
Company. Mr. Buckelew was subsequently elected a director and chief
operating officer on August 23, 1994. Mr. Chandler was chairman of the
board and president of the Company in fiscal 1993, and Mr. Buckelew was
president of Bio Clinic Corporation, a Company subsidiary, in fiscal 1993.
(5) Mr. Kollisch's compensation is denominated in German deutsche marks. For
purposes of this table, all amounts have been converted to dollars at the
exchange rate in effect as of June 30, 1995. Mr. Kollisch and the Company
entered into an employment agreement as of March 31, 1992, pursuant to
which Mr. Kollisch is entitled, under certain circumstances, to receive a
severance payment in the event of the termination of his employment by the
Company equal to eight months of salary plus one additional month of
salary for each year he is employed by the Company after fiscal 1996.
10
<PAGE>
STOCK OPTIONS GRANTED IN LAST FISCAL YEAR
The following table sets forth information concerning options granted under
the 1993 Stock Option Plan to the Named Officers during the 1995 fiscal year.
OPTION GRANTS IN FISCAL YEAR 1995
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS
- ---------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATE OF
STOCK PRICE APPRECIATION
FOR OPTION TERM (2)
---------------------------
PERCENT
OF TOTAL
OPTIONS OPTIONS EXERCISE
GRANTED GRANTED IN PRICE EXPIRATION
NAME (1) FISCAL YEAR PER SHARE DATE 5% 10%
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Richard H. Chandler..... 20,000 7.1% $23.50 8/23/2004 $307,797 $ 768,512
Larry C. Buckelew....... 15,000 5.4 23.50 8/23/2004 230,848 576,384
Thomas H. O'Donnell..... 5,000 1.8 23.50 8/23/2004 76,949 192,128
Barrie Payne............ 5,000 1.8 23.50 8/23/2004 76,949 192,128
Richard Kollisch........ 5,000 1.8 23.50 8/23/2004 76,949 192,128
-------- ----------
Totals........................................................... $769,492 $1,921,280
Increase in Total Stock Market Capitalization of the Company
(under same assumptions) (3).................................... $364 million $922.5 million
- ----------------------------------------------------------------------------------------------
</TABLE>
(1) All grants were in the form of non-qualified stock options.
(2) Potential realizable value is calculated as the aggregate difference
between the market price of the Common Stock and the option exercise price
assuming that the stock price appreciates at the annual rate shown
(compounded annually) from the date of grant until the end of the option
term. These amounts are calculated based on the requirements promulgated
by the Securities and Exchange Commission and are not an estimate of
future stock price growth.
(3) This line is presented for comparative purposes and reflects, for all
outstanding shares as of June 30, 1995, the aggregate potential realizable
increase in value that would result if the Company's stock price were to
increase from the market price on June 30, 1995 ($31.125 per share) by the
same compound annual rates set forth in the table over a 10-year period
ending June 30, 2005. These amounts are not an estimate of future stock
price growth.
11
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information with respect to the Named
Officers concerning the exercise of options during fiscal 1995 and unexercised
options held as of the end of fiscal 1995.
OPTION EXERCISES IN FISCAL 1995 AND VALUE OF OPTIONS AT END OF FISCAL 1995
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
NUMBER OF VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED VALUE AT JUNE 30, 1995 AT JUNE 30, 1995 (2)
UPON REALIZED ------------------------- -------------------------
NAME EXERCISE (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Richard H. Chandler..... 92,500 $2,020,582 16,250 66,250 $189,663 $772,788
Larry C. Buckelew....... 22,500 566,573 55,000 60,000 781,550 628,425
Thomas H. O'Donnell..... -- -- 47,250 23,750 899,973 318,738
Barrie Payne............ 2,450 69,185 33,800 18,750 666,303 228,738
Richard Kollisch........ -- -- 21,250 18,750 364,363 234,363
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) Based on the market value of the underlying shares on the exercise date
minus the option exercise price per share.
(2) Calculated on the basis of the fair market value of the underlying shares
as of June 30, 1995 ($31.125 per share) minus the exercise price.
LONG-TERM INCENTIVE PLAN
The following table sets forth information with respect to the Named
Officers concerning the awards made under the Company's Special Bonus Plan
during fiscal 1994 and 1995. See the Compensation Committee's Report to
Stockholders for a description of this plan.
LONG-TERM INCENTIVE PLAN TABLE
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
PERFORMANCE OR UNDER
OTHER PERIOD UNTIL NON-STOCK PRICE-BASED PLANS
MATURATION OR FROM 1994 AND 1995 ACCRUALS
PAYOUT ---------------------------
NAME (FISCAL YEAR) THRESHOLD TARGET MAXIMUM(1)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard H. Chandler.............. 1996 -- -- $12,355
1997 -- -- 8,350
Larry C. Buckelew................ 1996 -- -- 9,227
1997 -- -- 6,250
Thomas H. O'Donnell.............. 1996 -- -- 14,700
1997 -- -- 3,921
Barrie Payne..................... 1996 -- -- 23,434
1997 -- -- 22,300
Richard Kollisch................. 1996 -- -- 39,880
1997 -- -- 39,880
</TABLE>
- -------------------------------------------------------------------------------
(1) Represents accruals for fiscal 1994 and 1995 that would be earned assuming
applicable financial performance goals are achieved. Under the Special
Bonus Plan, the designated amounts will be paid in full if the performance
goals for the designated fiscal year are achieved, or forfeited if
performance falls short of the goals for that fiscal year. Amounts
reflected for fiscal 1997 may increase by additional accruals in fiscal
1996 if certain fiscal 1996 performance targets are exceeded.
12
<PAGE>
STOCK PRICE PERFORMANCE GRAPH
The following graph shows a five-year comparison of cumulative total returns
for the Company, the S&P 500 Index and the S&P Medical Products and Supplies
Index. The graph assumes that the value of the investment in the Company's
Common Stock and each index was $100 at June 30, 1990, and that all dividends
were reinvested.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN (1)
AMONG SUNRISE MEDICAL INC., S&P 500 INDEX AND
S&P MEDICAL PRODUCTS & SUPPLIES INDEX
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION>
Measurement Period SUNRISE S&P S&P MEDICAL PRODUCTS
(Fiscal Year Covered) MEDICAL INC. 500 INDEX & SUPPLIES INDEX
- ------------------- ------------ --------- --------------------
<S> <C> <C> <C>
Measurement Pt- 6/30/1990 $100 $100 $100
FYE 1991 $158.73 $107.40 $132.92
FYE 1992 $182.54 $121.81 $151.78
FYE 1993 $307.94 $138.44 $124.49
FYE 1994 $277.78 $140.39 $120.01
FYE 1995 $395.24 $176.99 $184.12
</TABLE>
(1) The graph covers the period from June 30, 1990 to June 30, 1995.
13
<PAGE>
PROPOSAL 2
APPROVAL OF THE AMENDED AND RESTATED 1993 STOCK OPTION PLAN
At the annual meeting of stockholders held on November 15, 1993, the
Company's stockholders approved the 1993 Stock Option Plan of Sunrise Medical
Inc. (the "1993 Plan") previously adopted by the Company's Board of Directors.
The aggregate number of shares that may be issued upon the exercise of options
granted under the 1993 Plan cannot exceed 300,000, but the 1993 Plan provides
that on the last business day of each fiscal year, beginning with July 1, 1994
(the last business day of the Company's 1994 fiscal year), the maximum number
will be increased by a number equal to 1.5% (the "Annual Percentage Increase")
of the number of shares of the Company's Common Stock issued and outstanding
as of the close of business on that day. The aggregate number of shares that
may be issued upon exercise of options granted to "Named Officers" as a group
in any fiscal year under the 1993 Plan may not exceed 60% (the "Annual Named
Officers' Limitation Percentage") of the shares which may be issued upon the
exercise of all options granted during that fiscal year under the 1993 Plan.
As used in the 1993 Plan, the term "Named Officers" means, for a particular
fiscal year, the chief executive officer of the Company and the next four most
highly compensated officers of the Company whose total compensation is
required to be reported to the Company's stockholders under the Securities
Exchange Act of 1934.
During August 1995, the Stock Option Committee of the Board of Directors and
the Board of Directors as a whole approved, subject to stockholder approval,
an amendment to the 1993 Plan (the "Amendment") that would (i) increase the
Annual Percentage Increase from 1.5% to 2% commencing on June 30, 1995 (the
last business day of the Company's 1995 fiscal year), (ii) decrease the Annual
Named Officers' Limitation Percentage from 60% to 45% commencing with the
fiscal year beginning on July 1, 1995 (iii) shorten the termination date of
the 1993 Plan by two years, so that the 1993 Plan would terminate on November
7, 2001, (iv) prohibit the "re-pricing" of options (i.e. reducing the exercise
price following the grant date) without the consent of the stockholders, (v)
prohibit loaning Company funds to an option holder for the purpose of funding
the exercise of options, (vi) add a provision confirming that the terms of an
option may provide that the option becomes exercisable in full upon
termination of employment on account of the death of the option holder, (vii)
confirm that options held by non-employee directors will expire one year
following termination of service as a director on account of the director's
death, disability or normal retirement at age 65, (viii) make certain
technical changes to the 1993 Plan in accordance with the provisions of
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
and related rules and regulations, including the addition of a provision
limiting the number of shares that may be issued in any calendar year to any
individual upon the exercise of options granted under the 1993 Plan and a
provision to the effect that the 1993 Plan and options granted to named
officers under the 1993 Plan will be deemed to be amended to the extent
necessary to conform to Section 162(m)(4)(C) of the Code and the related rules
and regulations and (ix) reduce the minimum composition of the Stock Option
Committee to at least two non-employee Directors. At the Annual Meeting, the
holders of the Company's Common Stock will be presented with a proposal to
approve an Amended and Restated 1993 Stock Plan reflecting the Amendment.
The Company's compensation programs are, in substantial part, incentive-
based and are designed to both encourage and reward Associate and group
financial performance. The grant of stock options to Associates as a part of
the Company's compensation program has enabled the Company to align the
interests of stockholders and Associates and encourage Associate performance
designed to enhance long-term share values. The Company has made extensive use
of the 1993 Plan to grant options to a broad range of Associates. Currently,
approximately 250 managers participate in the Plan. Management believes that
this program is an important element in furthering its democratic team-based
culture. Since the Company's cash incentive programs are tied entirely to
divisional performance for all operating unit managers, stock option grants
are the primary vehicle for rewarding management Associates on the basis of
overall corporate performance.
The Company has grown substantially in size in recent years. In fiscal years
1994 and 1995, the Company completed a total of 9 business acquisitions and
added over 1,400 new Associates, approximately 100 of whom have become
additional participants in the 1993 Plan. This is adding a further strain on
the 1993 Plan, because these acquisitions have not increased proportionately
the number of shares outstanding.
14
<PAGE>
Finally, a recent executive compensation study by an outside consultant
concluded that the Company's divisional operating executives are not receiving
a competitive level of option grants. The reduction in the Named Officers'
Limitation Percentage from 60% to 45% is recommended to ensure that the
increase in potential grants under the Amended and Restated 1993 Stock Option
Plan will be available for grant to the divisional operating executives, and
will not be used to unreasonably benefit the Named Officer group. The shares
which may be granted to the Named Officer group will be subject to exactly the
same limitation as in the past (60% x 1.5% equals 45% x 2.0% which equals 0.9%
of shares outstanding). In practice, total options granted annually to the
Named Officer group have averaged only 23% of total annual grants since the
adoption of the 1993 Plan.
Annual grants of options under the 1993 Plan will continue to be an
important component of the Company's compensation program. In light of the
recent increase in the number of participants in the 1993 Plan and expected
future increases, the current 1.5% Annual Percentage Increase will not provide
an adequate number of additional options under the 1993 Plan to enable the
Company to continue to grant options as it has in the past. Consequently, the
Board of Directors is recommending that the Company's stockholders approve the
increase in the Annual Percentage Increase from 1.5% to 2%, together with the
other changes in the Amendment, by adopting the Amended and Restated 1993
Stock Plan.
The Board of Directors believes that the increase in the number of available
options resulting from adopting the Amended and Restated 1993 Stock Option
Plan will enable the Company to continue to use stock options in the most
effective manner to motivate the Company's Associates to continue building a
growing, highly competitive global business, while delivering consistently
strong financial performance with corresponding stock price appreciation.
A brief description of the material features of the Amended and Restated
1993 Stock Option Plan is attached as Appendix "A" to this Proxy Statement,
and a copy of the 1993 Plan, as it is proposed to be amended, is included as
Appendix "B" to this Proxy Statement.
GRANTS PRIOR TO STOCKHOLDER APPROVAL OF THE AMENDED AND RESTATED 1993 STOCK
OPTION PLAN. Following the contingent adoption of the Amended and Restated
1993 Stock Option Plan by the Board and the Stock Option Committee on August
22, 1995, the Stock Option Committee granted options to optionees pursuant to
the terms of the Amended and Restated 1993 Stock Option Plan as follows
(subject to stockholder approval of the Amended and Restated 1993 Stock Option
Plan):
<TABLE>
<CAPTION>
OPTIONS
--------------------
NUMBER DOLLAR
OPTIONEES OF SHARES VALUE(1)
--------- --------- ----------
<S> <C> <C>
Richard H. Chandler................................. 22,000 $ 629,750
Larry C. Buckelew................................... 16,000 $ 458,000
Thomas H. O'Donnell................................. 10,000 $ 286,250
Barrie Payne........................................ 8,000 $ 229,000
Richard Kollisch.................................... 7,000 $ 200,375
All directors and executive officers as a group (21
persons)(2)........................................ 114,000 $3,263,250
All other Associates................................ 275,050 $7,873,306
</TABLE>
- --------
(1) Reflects the number of shares granted multiplied by the exercise price
(i.e. the closing sale price for the Company's Common Stock on the day
prior to the grant).
(2) No non-employee directors were eligible for grants.
VOTE REQUIRED
The affirmative vote of holders of a majority of the shares of the Company's
Common Stock represented in person or by proxy at the Annual Meeting and
entitled to vote will be required for adoption of the Amended and Restated
1993 Stock Option Plan. For purposes of this vote, an abstention will have the
same effect as a vote against the adoption, and shares represented by "broker
non-votes" will not be considered shares entitled to vote on the matter. In
addition, the total votes cast (i.e., for, against and abstaining) must be
over 50 percent of the outstanding shares of Common Stock. For this purpose,
"broker non-votes" will not be deemed to be votes cast.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
ADOPTION OF THE AMENDED AND RESTATED 1993 STOCK OPTION PLAN.
15
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of June 30, 1995, the number and
percentage of shares of the Company's Common Stock beneficially owned,
directly or indirectly, by each of the Company's directors and Named Officers,
and by the directors and executive officers of the Company as a group. The
address for each person listed below is 2382 Faraday Avenue, Suite 200,
Carlsbad, California 92008. Management knows of no person, except for Mr.
Richard H. Chandler, who serves as the Company's chairman of the Board of
Directors and chief executive officer, who owns beneficially or of record as
much as five percent of the outstanding shares of the Company's Common Stock.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED AT JUNE 30, 1995(1)
-----------------------------
NUMBER PERCENT
NAME OF BENEFICIAL OWNER OF SHARES OF CLASS
------------------------ --------------- -------------
<S> <C> <C>
DIRECTORS
Richard H. Chandler(2).................... 1,925,958 10.4%
Lee A. Ault III........................... 23,500 *
Larry C. Buckelew......................... 78,306 *
Lloyd E. Cotsen........................... 13,250 *
Babette Heimbuch.......................... 1,650 *
Murray H. Hutchison....................... 22,500 *
William L. Pierpoint...................... 21,720 *
Joseph Stemler............................ 30,868 *
John R. Woodhull.......................... 19,500 *
NAMED OFFICERS(3)
Thomas H. O'Donnell....................... 64,986 *
Barrie Payne.............................. 56,315 *
Richard Kollisch.......................... 26,250 *
All directors & executive officers
as a group (21 persons)(1)............... 2,430,300 13.1%
</TABLE>
- --------
*Less than 1%
(1) Each director or executive officer exercises sole voting and investment
power over the shares he or she beneficially owns. Shares beneficially
owned include shares deemed to be outstanding pursuant to stock options
presently exercisable or exercisable within 60 days after June 30, 1995.
(2) Does not include 240,000 shares held in trust for the benefit of Mr.
Chandler's children, as to which Mr. Chandler disclaims beneficial
ownership. Also does not include 22,000 shares contributed to a non-profit
foundation of which Mr. Chandler and family members are directors and as
to which Mr. Chandler disclaims beneficial ownership.
(3) Excludes Richard H. Chandler and Larry C. Buckelew who are listed in the
table under Directors.
16
<PAGE>
CERTAIN TRANSACTIONS
Indebtedness from Management. To assist the Company's president and chief
operating officer in his relocation, the Company loaned $115,354 to Mr.
Buckelew in March 1994. The loan, which bears interest at 5%, is evidenced by
a promissory note secured by a second trust deed. The loan is due upon the
earlier of (i) March 11, 1996, (ii) the sale of Mr. Buckelew's residence or
(iii) Mr. Buckelew's resignation from employment with the Company.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected to serve as the Company's
independent auditors for the 1996 fiscal year. This firm has audited the
Company's financial statements since 1983. One or more representatives of KPMG
Peat Marwick will be present at the Annual Meeting to respond to appropriate
questions and will be given an opportunity to make a statement if they so
desire.
STOCKHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
Any proposals of stockholders intended to be presented at the Company's 1996
Annual Meeting of Stockholders must be received by the secretary of the
Company at the address of the Company set forth on the first page of this
Proxy Statement on or before June 9, 1996 in order to be considered for
inclusion in the Company's proxy material for that meeting.
OTHER MATTERS
At the time of the preparation of this Proxy Statement, the Board of
Directors knows of no other matter which will be acted upon at the Annual
Meeting. If any other matters are presented properly for action at the Annual
Meeting or at any adjournment thereof, it is intended that the proxies will be
voted with respect thereto in accordance with the best judgment and in the
discretion of the proxy holders, insofar as such proxies are not limited to
the contrary.
By Order of the Board of Directors,
/s/ STEVEN A. JAYE
Steven A. Jaye
Vice president, general counsel
and secretary
17
<PAGE>
APPENDIX A
DESCRIPTION OF THE AMENDED AND RESTATED 1993 STOCK OPTION PLAN(1)
GENERAL
The Company's Amended and Restated 1993 Stock Option Plan (the "Amended
Plan") authorizes the granting of "incentive stock options" (as defined in
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code")) and
non-qualified stock options. Options may be granted under the Amended Plan for
a period through November 7, 2001 unless the Amended Plan is earlier
terminated. The Amended Plan may be wholly or partially amended or otherwise
modified, suspended or terminated at any time by the Stock Option Committee of
the Board (the "Committee") appointed to administer the Amended Plan, except
that stockholder approval is required to increase the number of shares that
may be issued under the Amended Plan, to materially modify eligibility
requirements for participants, to reduce the minimum option price below the
fair market value of the shares when an option is granted, to extend the term
of the Amended Plan or to modify the Amended Plan in a manner requiring
stockholder approval under Rule 16b-3 of the Securities and Exchange
Commission. The Amended Plan is not subject to the provisions of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and is not a
qualified plan under Section 401(a) of the Code. Proceeds received by the
Company from the sale of Common Stock pursuant to the exercise of options
granted under the Amended Plan will be used for general corporate purposes.
SECURITIES SUBJECT TO THE AMENDED PLAN
The aggregate number of shares which may be issued upon exercise of options
granted under the Amended Plan may not exceed 300,000; provided, however, that
on the last business day of each fiscal year beginning with July 1, 1994 (the
last business day of the Company's 1994 fiscal year), the maximum number will
be increased by a number equal to 1.5% of the number of shares of Common Stock
issued and outstanding as of the close of business on that day and, provided
further, that commencing on June 30, 1995 (the last business day of the
Company's 1995 fiscal year), the percentage increase shall be increased to 2%
of the number of shares of Common Stock issued and outstanding as of the close
of business on that day. In no event shall the aggregate number of shares
which may be issued upon exercise of options under the Amended Plan exceed
4,000,000.
In addition, the aggregate number of such shares which may be issued upon
exercise of options granted to (i) the Company's chief executive officer (or
the individual acting in that capacity) and (ii) the four most highly
compensated officers of the Company (other than the chief executive officer)
whose total compensation is required to be reported to the Company's
stockholders (collectively, with the chief executive officer, the "Named
Officers") under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as a group in any fiscal year of the Company may not exceed
60% of the shares which may be issued upon exercise of all options granted in
that fiscal year under the Amended Plan; provided, however, that commencing
with the fiscal year beginning on July 1, 1995, the foregoing percentage
limitation will be reduced from 60% to 45%. The number of shares that may be
issued in any calendar year upon exercise of options granted to any individual
may not exceed 600,000 shares. Except for these limitations, there is no
restriction as to the number of options or as to the maximum number of shares
that may be granted to any employee under the Amended Plan.
Each new non-employee director will be granted an initial option for 5,000
shares of the Company's Common Stock (a "Non-Employee Director Option") when
elected or appointed and additional options for 5,000 shares on every fourth
anniversary thereafter occurring during the term of the Amended Plan, assuming
the person is still a non-employee director.
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(1) This summary is qualified in its entirety by the terms of the Amended and
Restated 1993 Stock Option Plan included as Appendix B to this Proxy
Statement.
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If an option expires or is canceled without having been fully exercised, the
number of shares as to which the option was not exercised prior to its
expiration or cancellation may again be optioned under the Amended Plan. In
addition, shares received or retained in payment of the exercise price of an
option or shares retained by the Company to satisfy the optionee's liability
for payroll taxes and other withholdings required by law may again be optioned
under the Amended Plan, subject only to the 4,000,000 share overall
limitation. The Amended Plan provides for appropriate adjustments in the
number and kind of shares subject to the Amended Plan and to outstanding
options in the event of a stock split, stock dividend or certain other similar
changes in the Company's Common Stock and in the event of a merger,
consolidation or certain other types of recapitalization.
ADMINISTRATION OF THE AMENDED PLAN
The Amended Plan provides for administration by the Stock Option Committee
(the "Committee"), consisting of at least two non-employee Directors,
appointed from time to time (and removable) by the Company's Board of
Directors. No person is eligible to serve on the Committee unless that person
is then a "disinterested person" within the meaning of paragraph (c)(2) of
Rule 16b-3 under the Exchange Act and an "outside director" within the meaning
of Section 162(m)(4)(C)(ii) of the Code. Options may be granted to any member
of the Committee during the term of that person's membership on the Committee
only in accordance with the provisions controlling the grant of Non-Employee
Director Options. The current members of the Committee are Messrs. Hutchison
(Chairman), Ault and Woodhull.
In addition to administering the Amended Plan, the Committee is also
authorized to interpret the Amended Plan and the Stock Option Agreements
(defined below), to adopt such rules for the administration, interpretation
and application of the Amended Plan as are consistent therewith, to interpret,
amend or revoke any rules and to establish and administer performance goals
relating to applicable options and certify that performance goals are
attained. The Board has not retained the right to exercise the rights or
duties of the Committee under the Amended Plan.
Members of the Committee will receive such compensation for their services
as may be determined by the Board. All expenses and liabilities that the
members of the Committee incur in connection with the administration of the
Amended Plan will be borne by the Company. The Committee may at any time
suspend or terminate the Amended Plan, subject to rights under options
previously granted.
ELIGIBILITY AND PARTICIPATION
Any executive or other key employee of the Company or of any corporation
which is then a subsidiary of the Company (as those terms are defined in the
Amended Plan), including the Named Officers, will be eligible to be granted
options. Directors of the Company are eligible to be granted options if they
are also employees. Non-Employee directors of the Company are eligible to
receive only Non-Employee Director Options. More than one option may be
granted to an individual.
The Committee is authorized to determine the individuals to whom options are
to be granted, to determine the number of shares to be subject to the options,
to designate whether the options will be incentive stock options or non-
qualified stock options and to establish the terms and conditions of the
options, consistent with the Amended Plan.
TERMS OF OPTIONS
EXERCISABILITY OF OPTIONS. Options are exercisable at such times and in such
installments (which may be cumulative) as the Committee may provide in the
terms of each individual option. Generally, no option will be exercisable
during the first six months after the option is granted. Subject to certain
limitations, the Committee may, on such terms and conditions as it deems
appropriate, accelerate the time at which an option or any portion of an
option may be exercised. No portion of an option that is unexercisable at
termination of employment may thereafter become exercisable, although the
option shall provide that it shall become exercisable in full upon
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termination of employment on account of the death of the optionee. To the
extent that the aggregate fair market value of stock with respect to which
"incentive stock options" (within the meaning of Section 422 of the Code, but
without regard to Section 422(d) of the Code) are exercisable for the first
time by an optionee during any calendar year (under the Amended Plan and all
other incentive stock option plans of the Company, any subsidiary and any
parent corporation) exceeds $100,000, the options will be taxed as non-
qualified options. The rule set forth in the preceding sentence will be
applied by taking options into account in the order in which they were
granted. For this purpose, the fair market value of stock will be determined
as of the time that the option with respect to such stock is granted.
Non-Employee Director Options become exercisable in four equal installments
beginning on the first anniversary of the date on which the Non-Employee
Director Option is granted. No portion of a Non-Employee Director Option that
is unexercisable at termination of the non-employee Director's service as a
director may thereafter become exercisable, although the option shall provide
that it shall become exercisable in full upon termination of employment on
account of the death of the optionee.
Options are exercisable in whole or in part by written notice to the Company
specifying the number of shares being purchased, accompanied by payment of the
purchase price for the shares. Proceeds of a loan from the Company may not be
used to pay the purchase price for shares purchased upon exercise of the
option. The option price may be paid in cash or by check. Except in the case
of a Non-Employee Director Option, payment also may be made, with the consent
of the Committee, in shares of the Company's Common Stock owned by the
optionee or in shares of the Company's Common Stock issuable to the optionee
upon exercise of the option. The Committee may, as a condition to the exercise
of any option, require that the optionee deliver such representations and
documents as it deems necessary to effect compliance with applicable federal
and state securities laws and regulations. The Committee may also take
whatever additional action it deems appropriate to effect compliance.
On the date the option price is to be paid, the optionee (or his or her
successor) must make full payment to the Company of all amounts that must be
withheld by the Company for federal, state or local tax purposes. The payment
shall be effected, in the case of a non-qualified options, by the Company's
retention of shares otherwise issuable upon exercise. The number of shares
retained will equal the minimum whole number of shares equaling or exceeding
the amount of required tax withholding. The Company will pay cash to the
optionee for any fractional share retained in excess of the required
withholding.
STOCK OPTION AGREEMENTS. The Amended Plan provides that in consideration of
the granting of an option, the optionee will agree, in the written stock
option agreement ("Stock Option Agreement"), to remain in the employ (or, in
the case of a non-employee director, as a director) of the Company or a
subsidiary of the Company for a period of at least one year after the option
is granted. Nothing in the Amended Plan or in any written Stock Option
Agreement will confer upon any optionee any right to continue in the employ of
the Company, a parent corporation or any subsidiary of the Company, or will
interfere with or restrict in any way the rights of the Company, a parent
corporation or a subsidiary of the Company, to discharge any optionee at any
time for any reason whatsoever, with or without cause.
PURCHASE PRICE OF SHARES SUBJECT TO OPTIONS. The price of the shares of
Common Stock subject to each option shall be set by the Committee and may not
be changed following grant of the option (except upon changes in the
capitalization of the Company as described below); provided, however, that the
price per share of an option may be not less than 100% of the fair market
value of the shares on the date the option is granted; provided, further,
that, in the case of a Non-Employee Director Option, the price per share must
equal 100% of the fair market value of such shares on the date that the Non-
Employee Director Option is granted; provided, further, that, in the case of
an incentive stock option, the price per share may not be less than 110% of
the fair market value of the shares on the date the option is granted in the
case of an individual then owning (within the meaning of Section 424(d) of the
Code) more than ten percent of the total combined voting power of all classes
of stock of the Company, any subsidiary or any parent corporation. For
purposes of the Amended Plan, the fair market value of a share of the
Company's Common Stock as of a given date will be the closing price of a share
of the Company's Common Stock on the principal exchange on which the shares
are then trading, if any, on the trading
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day immediately preceding that date, or, if shares are not traded on that
date, then on the next preceding trading date during which a sale occurred.
NON-ASSIGNABILITY. Options may be transferred only by will or by the laws of
descent and distribution. During a participant's lifetime, options are
exercisable only by the participant. No option or interest or right therein or
part thereof will be liable for the debts, contracts or engagements of the
optionee or the optionee's successors in interest or will be subject to
disposition by transfer, alienation, pledge, encumbrance, assignment or any
other means, whether voluntary, involuntary or by operation of law.
EXPIRATION OF OPTIONS. Options may not be exercised to any extent by anyone
after the first to occur of the following events: (1) the expiration of ten
years from the date the option was granted (whether or not the Amended Plan
has expired or been terminated) or (2) except in the case of a non-employee
director or an optionee who is disabled, the expiration of three months from
the date of the employee's termination of employment for any reason other than
optionee's death or, with respect to options that are not incentive stock
options, normal retirement at age 65, unless the optionee dies within the
three month period, in which event the option will expire one year from the
date of optionee's death or (3) the expiration of one year from the date of
the employee's termination of employment (or the non-employee director's
termination of service as a director) in the case of an employee (or non-
employee director) subject to a disability (within the meaning of Section
22(e)(3) of the Code), unless the optionee dies within that one-year period,
in which event the option will expire one year from the date of the optionee's
death, or (4) the expiration of one year from the date of the optionee's death
or, in the case of options that are not incentive stock options, one year from
the date of normal retirement at age 65 or (5) in the case of a Non-Employee
Director Option, immediately upon the non-employee director's termination of
directorship by reason of expiration of term, removal (with or without cause)
or resignation other than as a result of the non-employee director's death,
retirement at the normal retirement age of 65 or disability with the meaning
of Section 22(e)(3) of the Code or (6) in the case of an incentive stock
option, the expiration of five years from the date the option was granted in
the case of an optionee owning more than ten percent of the total combined
voting power of all classes of stock of the Company, any subsidiary or parent
corporation.
Subject to the foregoing, the Committee will provide, in the terms of each
individual option, when the option expires and becomes unexercisable; and the
Committee may provide in the terms of individual options that the options
expire immediately upon a termination of employment for any reason.
MERGER, CONSOLIDATION, ACQUISITION, LIQUIDATION OR DISSOLUTION OF THE
COMPANY. The Committee may, on such terms and conditions as it deems
appropriate, provide by the terms of any option that, upon or in connection
with the merger or consolidation of the Company with or into another
corporation, the acquisition by another corporation or person of all or
substantially all of the Company's assets or 80% or more of the Company's then
outstanding voting stock or the liquidation or dissolution of the Company, the
option will be unexercisable, and if the Committee so provides, it must also
provide that, for some period of time prior to that event, the option will be
exercisable as to all shares covered by the option.
ADJUSTMENTS UPON CHANGE IN CAPITALIZATION. If the outstanding shares of
Common Stock subject to Options are changed into or exchanged for a different
number or kind of shares of the Company or other securities of the Company by
reason of merger, consolidation, recapitalization, reclassification, stock
split-up, stock dividend or combination of shares, the Committee will make an
appropriate and equitable adjustment in the number and kind of shares as to
which all outstanding options, or portions thereof then unexercised, will be
exercisable, to the end that after that event the optionee's proportionate
interest will be maintained as before the occurrence of the event. The
adjustment will be made without change in the total price applicable to the
option except as results from rounding of share quantities or prices and with
any necessary corresponding adjustment in option price per share. Adjustments
made to incentive stock options will be made in such a manner as not to
constitute a "modification" within the meaning of Section 424(h)(3) of the
Code. Any adjustment made by the Committee will be final and binding upon all
optionees, the Company and all other interested persons.
TRANSFER RESTRICTIONS. Unless otherwise approved in writing by the
Committee, no shares acquired upon exercise of any option by any officer (as
defined in Rule 16a-1(f) of the Securities and Exchange Commission) or
director may be sold, assigned, pledged, encumbered or otherwise transferred
until at least six months have elapsed from (but excluding) the date the
option was granted. The Committee, in its discretion, may impose such other
restrictions on the transferability of the shares purchasable upon the
exercise of an option as it deems
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appropriate. Any other restriction will be set forth in the respective Stock
Option Agreement and may be referred to on the certificates evidencing the
shares issuable upon exercise of the option. The Committee may require the
employee to give the Company prompt notice of any disposition of shares of
stock acquired by exercise of an incentive stock option, within two years from
the date of grant of the option or one year after the transfer of the shares
to the employee. The Committee may direct that the certificates evidencing
shares acquired by exercise of an incentive stock option refer to the
requirement to give prompt notice of disposition.
NO RIGHTS AS A STOCKHOLDER. The holders of options will not be, nor will
they have any of the rights or privileges of, a stockholder of the Company as
to shares covered by an option until the shares are issued by the Company and
delivered to the holders.
CONFORMITY TO SECURITIES AND TAX LAWS. The Amended Plan is intended to
conform to the extent necessary with all provisions of the Securities Act of
1933, as amended ("Securities Act"), and the Exchange Act and any and all
regulations and rules promulgated by the Securities and Exchange Commission
thereunder, including without limitation Rule 16b-3. The Amended Plan will be
administered, and options will be granted and may be exercised, only in such a
manner as to conform to those laws, rules and regulations. To the extent
permitted by applicable law, the Amended Plan and options granted thereunder
will be deemed amended to the extent necessary to conform to those laws, rules
and regulations.
The Amended Plan is intended to permit the grant of options to Named
Officers so that the options will qualify as qualified performance-based
compensation under Section 162(m)(4)(C) of the Code. The Amended Plan will be
administered, and options will be granted to and may be exercised by Named
Officers, only in such a manner as to conform to Section 162(m)(4)(C) of the
Code and the rules and regulations adopted thereunder. To the extent permitted
by applicable law, the Amended Plan and options granted thereunder to
Executive Officers will be deemed amended to the extent necessary to conform
to such section, rules and regulations.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a general summary of the material federal income
tax consequences to participants in the Amended Plan. The discussion is based
on the Code, regulations thereunder, and rulings and decisions now in effect,
all of which are subject to change. The summary does not discuss all aspects
of federal income taxation that may be relevant to a particular participant in
light of that participant's personal investment circumstances. Also, state and
local income taxes are not discussed and may vary from locality to locality.
NON-QUALIFIED STOCK OPTIONS. Holders of non-qualified stock options do not
realize income as a result of the grant of the options, but normally realize
compensation income taxable at ordinary income rates upon exercise of the
options to the extent that the fair market value of the shares of Common Stock
on the date of the exercise exceeds the option exercise price paid. The
Company (or other employer corporation) will be entitled to a tax deduction in
an amount equal to the amount that the optionee is required to include in
ordinary income at the time of such inclusion, and will be required to
withhold taxes on the ordinary income. The optionee's initial tax basis for
shares acquired upon the exercise of a non-qualified stock option will be the
option exercise price paid plus the amount of ordinary income realized by the
optionee. Any appreciation in the value of such shares will qualify for
capital gains treatment, including long-term capital gains treatment if such
shares are held more than one year after acquisition.
The tax consequences resulting from the exercise of a non-qualified option
through the delivery of already-owned shares of Common Stock are not
completely certain. In published rulings, the Internal Revenue Service has
taken the position that, to the extent an equivalent value of shares is
acquired, the employee will recognize no gain and the employee's basis in the
shares acquired upon exercise is equal to the employee's basis in the
surrendered shares, that any additional shares acquired upon such exercise
will be compensation to the employee, taxable under the rules described above,
and that the employee's basis in any such additional shares will be their fair
market value.
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INCENTIVE STOCK OPTIONS. Holders of incentive stock options will not be
considered to have received taxable income upon either the grant of the option
or its exercise. Upon the sale or other taxable disposition of the shares of
the Common Stock, long-term capital gain will normally be recognized in the
full amount of the difference between the amount realized and the option
exercise price if no disposition of the shares has taken place within either
(a) two years from the date of grant of the incentive stock option or (b) one
year from the date of transfer of the shares of the Common Stock to the
optionee upon exercise (whether or not the optionee is subject to Section
16(b) of the Exchange Act). If the shares of the Common Stock are sold or
otherwise disposed of before the end of the one-year period or the two-year
period, the difference between the option exercise price and the fair market
value of the shares of the Common Stock on the date of the option's exercise
will be taxed as ordinary income; the balance of the gain, if any, will be
taxed as capital gain. If the shares are disposed of before the expiration of
the one-year period or the two-year period and the amount realized is less
than the fair market value of the shares at the date of exercise, the
optionee's ordinary income is limited to the amount realized less the option
exercise price paid. The Company (or other employer corporation) will be
entitled to a tax deduction in regard to an incentive stock option only to the
extent the optionee has ordinary income upon sale or other disposition of the
shares of the Common Stock.
The tax consequences resulting from the exercise of an incentive stock
option through delivery of already-owned shares of Common Stock are not
completely certain. In published rulings and proposed regulations, the
Internal Revenue Service has taken the position that generally the employee
will recognize no income upon a stock-for-stock exercise (subject to the
discussion above), that, to the extent an equivalent number of shares is
acquired, the employee's basis in the shares acquired upon exercise is equal
to the employee's basis in the surrendered shares increased by any
compensation income recognized by the employee, that the employee's basis in
any additional shares acquired upon such exercise is zero, and that any sale
or other disposition of the acquired shares within the one-year or two-year
periods described above will be viewed as a disposition of the shares with the
lowest basis first.
The difference between the fair market value of the shares of Common Stock
on the exercise date and the exercise price of an incentive stock option is
generally deemed to be a "tax preference" under the alternative minimum tax
rules of the Code. Since the consequences of the application of these
provisions to individual optionees may vary depending on their particular
circumstances, optionees should consult their personal tax advisors with
respect to these provisions of the Code.
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APPENDIX B
AMENDED AND RESTATED
1993 STOCK OPTION PLAN
OF
SUNRISE MEDICAL INC.
SUNRISE MEDICAL INC., a corporation organized under the laws of the State of
Delaware, hereby adopts this Amended and Restated 1993 Stock Option Plan of
Sunrise Medical Inc. The purposes of this Plan are as follows:
(1) To further the growth, development and financial success of the
Company by providing additional incentives to certain of its executive and
other key Employees who have been or will be given responsibility for the
management or administration of the Company's business affairs, by
assisting them to become owners of the Company's Common Stock and thus to
benefit directly from its growth, development and financial success.
(2) To enable the Company to obtain and retain the services of the type
of professional, technical and managerial employees considered essential to
the long-range success of the Company by providing and offering them an
opportunity to become owners of the Company's Common Stock under options,
including options that are intended to qualify as "incentive stock options"
under Section 422 of the Code.
(3) To provide for appropriate compensation for Non-Employee Directors
for service as members of the Board, by providing such Non-Employee
Directors a financial stake and interest in the Company's performance.
ARTICLE I
DEFINITIONS
Whenever the following terms are used in this Plan, they shall have the
meaning specified below unless the context clearly indicates to the contrary.
The masculine pronoun shall include the feminine and neuter and the singular
shall include the plural, where the context so indicates.
SECTION 1.1-Board
"Board" shall mean the Board of Directors of the Company.
SECTION 1.2-Code
"Code" shall mean the Internal Revenue Code of 1986, as amended.
SECTION 1.3-Committee
"Committee" shall mean the Stock Option Committee of the Board appointed as
provided in Section 6.1.
SECTION 1.4-Company
"Company" shall mean Sunrise Medical Inc. In addition, "Company" shall mean
any corporation assuming, or issuing new employee stock options in
substitution for, Incentive Stock Options, outstanding under the Plan, in a
transaction to which Section 424(a) of the Code applies.
SECTION 1.5-Director
"Director" shall mean a member of the Board.
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SECTION 1.6-Employee
"Employee" shall mean any employee (as defined in accordance with the
regulations and revenue rulings then applicable under Section 3401(c) of the
Code) of the Company, or of any corporation which is then a Parent Corporation
or a Subsidiary, whether such employee is so employed at the time this Plan is
adopted or becomes so employed subsequent to the adoption of this Plan.
SECTION 1.7-Exchange Act
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
SECTION 1.8-Executive Officers or Named Officers
"Executive Officers" or "Named Officers" shall mean in any one of the
Company's fiscal years (a) the chief executive officer of the Company (or the
individual acting in such capacity) and (b) the four most highly compensated
Officers of the Company (other than the chief executive officer) whose total
compensation is required to be reported to the Company's stockholders under
the Exchange Act.
SECTION 1.9-Incentive Stock Option
"Incentive Stock Option" shall mean an Option which qualifies under Section
422 of the Code and which is designated as an Incentive Stock Option by the
Committee.
SECTION 1.10-Non-Employee Director
"Non-Employee Director" shall mean a Director who is not an Employee.
SECTION 1.11-Non-Employee Director Option
"Non-Employee Director Option " shall mean a Non-Qualified Option which is
granted to a Non-Employee Director.
SECTION 1.12-Non-Qualified Option
"Non-Qualified Option" shall mean an Option which is not an Incentive Stock
Option and which is designated as a Non-Qualified Option by the Committee.
"Non-Qualified Options" also includes Non-Employee Director Options.
SECTION 1.13-Officer
"Officer" shall mean an officer of the Company, as defined in Rule 16a-1(f)
under the Exchange Act, as such Rule may be amended in the future.
SECTION 1.14-Option
"Option" shall mean an option to purchase Common Stock of the Company,
granted under the Plan. "Options" includes both Incentive Stock Options and
Non-Qualified Options.
SECTION 1.15-Optionee
"Optionee" shall mean an Employee or a Non-Employee Director to whom an
Option is granted under the Plan.
SECTION 1.16-Parent Corporation
"Parent Corporation" shall mean any corporation in an unbroken chain of
corporations ending with the Company if each of the corporations other than
the Company then owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
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SECTION 1.17-Plan
"Plan" shall mean this Amended and Restated 1993 Stock Option Plan of
Sunrise Medical Inc., as amended.
SECTION 1.18-Rule 16b-3
"Rule 16b-3" shall mean that certain Rule 16b-3 under the Exchange Act, as
such Rule may be amended in the future.
SECTION 1.19-Secretary
"Secretary" shall mean the Secretary of the Company.
SECTION 1.20-Securities Act
"Securities Act" shall mean the Securities Act of 1933, as amended.
SECTION 1.21-Subsidiary
"Subsidiary" shall mean any corporation in an unbroken chain of corporations
beginning with the Company if each of the corporations other than the last
corporation in the unbroken chain then owns stock possessing 50% or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain.
SECTION 1.22-Termination of Directorship
"Termination of Directorship" shall mean the time when a Director ceases to
be a member of the Board for any reason, including, but not by way of
limitation, a termination by resignation, expiration of term, removal (with or
without cause), retirement or death.
SECTION 1.23-Termination of Employment
"Termination of Employment" shall mean the time when the employee-employer
relationship between the Employee and the Company, a Parent Corporation or a
Subsidiary is terminated for any reason, with or without cause, including, but
not by way of limitation, a termination by resignation, discharge, death or
retirement, but excluding terminations where there is a simultaneous
reemployment by the Company, a Parent Corporation or a Subsidiary. The
Committee, in its absolute discretion, shall determine the effect of all other
matters and questions relating to Termination of Employment, including, but
not by way of limitation, the question of whether a Termination of Employment
resulted from a discharge for good cause, and all questions of whether
particular leaves of absence constitute Terminations of Employment; provided,
however, that, with respect to Incentive Stock Options, a leave of absence
shall constitute a Termination of Employment if, and to the extent that, such
leave of absence interrupts employment for the purposes of Section 422(a)(2)
of the Code and the then applicable regulations and revenue rulings under said
Section.
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ARTICLE II
SHARES SUBJECT TO PLAN
SECTION 2.1-Shares Subject to Plan
(a) The shares of stock subject to Options shall be shares of the Company's
$1.00 par value Common Stock. The aggregate number of such shares which may be
issued upon exercise of Options shall not exceed 300,000; provided, however,
that on the last business day of each fiscal year of the Company beginning
with July 1, 1994 such maximum number shall be increased by a number equal to
1.5% of the number of shares of Common Stock issued and outstanding as of the
close of business on such day; provided, further, however, that on the last
business day of each fiscal year of the Company beginning with June 30, 1995,
such maximum number shall be increased by a number equal to 2.0% of the number
of shares of Common Stock issued and outstanding as of the close of business
on such day; provided, further, however, that the aggregate number of shares
which may be issued upon exercise of Options granted to the Executive Officers
as a group in any fiscal year of the Company under the Plan shall not exceed
60% of the shares which may be issued upon exercise of all Options granted in
such fiscal year under the Plan; provided, further, however, that commencing
in the fiscal year beginning July 1, 1995, the aggregate number of shares
which may be issued upon exercise of Options granted to the Executive Officers
as a group in any fiscal year of the Company under the Plan shall not exceed
45% of the shares which may be issued upon exercise of all Options granted in
such fiscal year under the Plan; provided, further, however, the number of
shares that may be issued in any calendar year upon exercise of Options
granted under the Plan to any individual shall not exceed 600,000, and the
method of counting such shares shall conform to any requirements for qualified
performance-based compensation under Section 162(m) of the Code.
(b) In no event shall the aggregate number of shares which may be issued
upon exercise of Options under the Plan exceed 4,000,000.
SECTION 2.2-Unexercised Options; Retained Shares
If any Option expires or is cancelled without having been fully exercised,
the number of shares subject to such Option but as to which such Option was
not exercised prior to its expiration or cancellation may again be optioned
hereunder, subject to the limitations of Section 2.1. Shares of stock which
are received or retained by the Company upon the exercise of options pursuant
to Section 5.3(b) or Sections 5.3(c) and 5.5(d) may also again be optioned
hereunder, subject to the overall limitation of section 2.1(b) but not subject
to the limitations of Section 2.1(a).
SECTION 2.3-Changes in Company's Shares
In the event that the outstanding shares of Common Stock of the Company are
hereafter changed into or exchanged for a different number or kind of shares
or other securities of the Company, or of another corporation, by reason of
reorganization, merger, consolidation, recapitalization, reclassification,
stock splitup, stock dividend or combination of shares, appropriate
adjustments shall be made by the Committee in the number and kind of shares
for the purchase of which Options may be granted, including adjustments of the
limitations in Section 2.1 on the maximum number and kind of shares which may
be issued on exercise of Options.
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ARTICLE III
GRANTING OF OPTIONS
SECTION 3.1-Eligibility
Any executive or other key Employee of the Company or of any corporation
which is then a Parent Corporation or a Subsidiary, including the Executive
Officers, shall be eligible to be granted Options, except as provided in
Section 3.2. Non-Employee Directors shall be granted Non-Employee Director
Options as provided in Section 3.4.
SECTION 3.2-Qualification of Incentive Stock Options
No Incentive Stock Option shall be granted unless such Option, when granted,
qualifies as an "incentive stock option" under Section 422 of the Code.
Incentive Stock Options shall not be granted to Non-Employee Directors, but
may, in the discretion of the Committee, be granted to Directors who are also
Employees.
SECTION 3.3-Granting of Options to Employees
(a) In the case of Options to be granted to Employees, the Committee shall
from time to time, in its absolute discretion:
(1) Determine which Employees are executive or other key Employees and
select from among the executive or other key Employees (including the Named
Officers and those executive or other key Employees to whom Options have
been previously granted under the Plan) such of them as in its opinion
should be granted Options; and
(2) Determine the number of shares to be subject to such Options granted
to such selected executive or other key Employees or Named Officers, and
determine whether such Options are to be Incentive Stock Options or Non-
Qualified Options; and
(3) Determine the terms and conditions of such Options, consistent with
the Plan.
(b) Upon the selection of an executive or other key Employee to be granted
an Option, the Committee shall instruct the Secretary to issue such Option and
may impose such conditions on the grant of such Option as it deems
appropriate.
SECTION 3.4-Granting of Non-Employee Director Options
Each Non-Employee Director serving as a Director at the time of adoption of
the Plan by the Board shall be granted a Non-Employee Director Option for
5,000 shares of the Company's Common Stock (subject to adjustment pursuant to
Section 2.3) (a) on the fourth anniversary of the most recent grant of a
director stock option to such Non-Employee Director preceding such adoption of
the Plan and (b) on every fourth anniversary thereafter occurring during the
term of the Plan if in either case the person continues to serve as a Non-
Employee Director at the time of such later grant or grants. Each Non-Employee
Director elected or appointed as a Director following the adoption of the Plan
by the Board shall be granted a Non-Employee Director Option for 5,000 shares
of the Company's Common Stock (subject to adjustment pursuant to Section
2.3)(a) on the day of the initial election or appointment of such Non-Employee
Director as a Director and (b) on every fourth anniversary thereafter
occurring during the term of the Plan if in either case the person continues
to serve as a Non-Employee Director at the time of such later grant or grants.
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ARTICLE IV
TERMS OF OPTIONS
SECTION 4.1-Option Agreement
Each Option shall be evidenced by a written Stock Option Agreement, which
shall be executed by the Optionee and an authorized Officer of the Company and
which shall contain such terms and conditions as the Committee shall
determine, consistent with the Plan. Stock Option Agreements evidencing
Incentive Stock Options shall contain such terms and conditions as may be
necessary to qualify such Options as "incentive stock options" under Section
422 of the Code, including, but not limited to, such terms and conditions as
may be required or advisable under Section 162(m) of the Code.
SECTION 4.2-Option Price
(a) The price of the shares subject to each Option shall be set by the
Committee; provided, however, that the price per share shall be not less than
100% of the fair market value of such shares on the date that such Option is
granted; provided, further, that, in the case of a Non-Employee Director
Option, the price per share shall equal 100% of the fair market value of such
shares of the date that such Non-Employee Director Option is granted;
provided, further, that, in the case of an Incentive Stock Option, the price
per share shall not be less than 110% of the fair market value of such shares
on the date such Option is granted in the case of an individual then owning
(within the meaning of Section 424(d) of the Code) more than 10% of the total
combined voting power of all classes of stock of the Company, any Subsidiary
or any Parent Corporation. Following grant of an Option, the terms of an
Option shall not be amended to reduce the price of the shares subject to the
Option, except as provided in Section 4.6.
(b) For purposes of the Plan, the fair market value of a share of the
Company's Common Stock as of a given date shall be: (i) the closing price of a
share of the Company's Common Stock on the principal exchange on which shares
of the Company's Common Stock are then trading, if any, on the trading day
previous to such date, or, if shares were not traded on the trading day
previous to such date, then on the next preceding trading day during which a
sale occurred; or (ii) if such Common Stock is not traded on an exchange but
is quoted on NASDAQ or a successor quotation system, (1) the last sales price
(if the Company's Common Stock is then listed as a National Market Issue under
the NASD National Market System) or (2) the mean between the closing
representative bid and asked prices (in all other cases) for the Company's
Common Stock on the trading day previous to such date as reported by NASDAQ or
such successor quotation system; or (iii) if such Common Stock is not publicly
traded on an exchange and not quoted on NASDAQ or a successor quotation
system, the mean between the closing bid and asked prices for the Company's
Common Stock, on the trading day previous to such date, as determined in good
faith by the Committee; or (iv) if the Company's Common Stock is not publicly
traded, the fair market value established by the Committee acting in good
faith.
SECTION 4.3-Commencement of Exercisability
(a) Except as the Committee may otherwise provide with respect to Options
granted to Employees who are not Officers, no Option may be exercised in whole
or in part during the first six months after such Option is granted.
(b) Subject to the provisions of Sections 4.3(a), 4.3(c), 4.3(e) and 7.3,
Options shall become exercisable at such times and in such installments (which
may be cumulative) as the Committee shall provide in the terms of each
individual Option; provided, however, that by a resolution adopted after an
Option is granted the Committee may, on such terms and conditions as it may
determine to be appropriate and subject to Sections 4.3(a), 4.3(c), 4.3(e) and
7.3, accelerate the time at which such Option or any portion thereof may be
exercised.
(c) No portion of an Option which is unexercisable at Termination of
Employment (or Termination of Directorship, in the case of a Non-Employee
Director Option) shall thereafter become exercisable; provided, however, that
the terms of an Option shall provide that it shall become exercisable in full
upon the Termination of Employment on account of death of the person to whom
the Option is granted.
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(d) To the extent that the aggregate fair market value of stock with respect
to which "incentive stock options" (within the meaning of Section 422 of the
Code, but without regard to Section 422(d) of the Code) are exercisable for
the first time by an Optionee during any calendar year (under the Plan and all
other incentive stock option plans of the Company, any Subsidiary and any
Parent Corporation) exceeds $100,000, such options shall be taxed as Non-
Qualified Options. The rule set forth in the preceding sentence shall be
applied by taking options into account in the order in which they were
granted. For purposes of this Section 4.3(d), the fair market value of stock
shall be determined as of the time that the option with respect to such stock
is granted.
(e) Notwithstanding Section 4.3(b), each Non-Employee Director Option shall
become exercisable in four cumulative installments as follows:
(1) The first installment shall consist of one-fourth (1/4th) of the
shares covered by the Option and shall become exercisable on the first
anniversary of the date that the Option is granted.
(2) The second installment shall consist of one-fourth (1/4th) of the
shares covered by the Option and shall become exercisable on the second
anniversary of the date that the Option is granted.
(3) The third installment shall consist of one-fourth (1/4th) of the
shares covered by the Option and shall become exercisable of the third
anniversary of the date that the Option is granted.
(4) The fourth installment shall consist of one-fourth (1/4th) of the
shares covered by the Option and shall become exercisable on the fourth
anniversary of the date that the Option is granted.
SECTION 4.4-Expiration of Options
(a) No Option may be exercised to any extent by anyone after the first to
occur of the following events:
(1) The expiration of ten years from the date the Option was granted; or
(2) With respect to an Incentive Stock Option in the case of an Optionee
owning (within the meaning of Section 424(d) of the Code), at the time the
Incentive Stock Option was granted, more than 10% of the total combined
voting power of all classes of stock of the Company, any Subsidiary or any
Parent Corporation, the expiration of five years from the date the
Incentive Stock Option was granted; or
(3) Except in the case of any Optionee who is a Non-Employee Director or
is disabled (within the meaning of Section 22(e)(3) of the Code), the
expiration of three months from the date of the Optionee's Termination of
Employment for any reason other than (i) with respect to Non-Qualified
Options only, normal retirement at age 65 or (ii) such Optionee's death
unless the Optionee dies within said three-month period, in which event the
Option will expire one year from the date of such Optionee's death; or
(4) In the case of an Optionee who is disabled (within the meaning of
Section 22(e)(3) of the Code), the expiration of one year from the date of
the Optionee's Termination of Employment (or Termination of Directorship,
in the case of a Non-Employee Director Option) for any reason other than
such Optionee's death unless the Optionee dies within said one-year period,
in which event the Option will expire one year from the date of such
Optionee's death; or
(5) In the case of a Non-Employee Director Option, upon the Non-Employee
Director's Termination of Directorship by reason of expiration of term,
removal (with or without cause) or resignation (other than as a result of
the Non-Employee Director's death, retirement at the normal retirement age
of 65 or disability within the meaning of Section 22(e)(3) of the Code); or
(6) The expiration of one year from the date of the Optionee's death or,
in the case of Non-Qualified Options, one year from the date of Optionee's
normal retirement at age 65.
(b) Subject to the provisions of Section 4.4(a), the Committee shall
provide, in the terms of each individual Option, when such Option expires and
becomes unexercisable; and (without limiting the generality of the foregoing)
the Committee may provide in the terms of individual Options that said Options
expire immediately upon a Termination of Employment (or Termination of
Directorship, in the case of a Non-Employee Director Option) for any reason.
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SECTION 4.5-Consideration
In consideration of the granting of an Option, the Optionee shall agree, in
the written Stock Option Agreement, to remain in the employ (or, in the case
of a Non-Employee Director, as a Director) of the Company, a Parent
Corporation or a Subsidiary for a period of at least one year after the Option
is granted. Nothing in this Plan or in any Stock Option Agreement hereunder
shall confer upon any Optionee any right to continue in the employ or as a
Director of the Company, any Parent Corporation or any Subsidiary or shall
interfere with or restrict in any way the rights of the Company and its Parent
Corporation and Subsidiaries, which are hereby expressly reserved, to
discharge (or, in the case of a Non-Employee Director, to remove) any Optionee
at any time for any reason whatsoever, with or without cause.
SECTION 4.6-Adjustments in Outstanding Options
In the event that the outstanding shares of the stock subject to Options are
changed into or exchanged for a different number or kind of shares of the
Company or other securities of the Company by reason of merger, consolidation,
recapitalization, reclassification, stock split-up, stock dividend or
combination of shares, the Committee shall make an appropriate and equitable
adjustment in the number and kind of shares as to which all outstanding
Options, or portions thereof then unexercised, shall be exercisable, to the
end that after such event the Optionee's proportionate interest shall be
maintained as before the occurrence of such event. Such adjustment in an
outstanding Option shall be made without change in the total price applicable
to the Option or the unexercised portion of the Option (except for any change
in the aggregate price resulting from rounding-off of share quantities or
prices) and with any necessary corresponding adjustment in Option price per
share; provided, however, that, in the case of Incentive Stock Options, each
such adjustment shall be made in such manner as not to constitute a
"modification" within the meaning of Section 424(h)(3) of the Code. Any such
adjustment made by the Committee shall be final and binding upon all
Optionees, the Company and all other interested persons.
SECTION 4.7-Merger, Consolidation, Acquisition, Liquidation or Dissolution
Notwithstanding the provisions of Section 4.6, in its absolute discretion,
and on such terms and conditions as it deems appropriate, the Committee may
provide by the terms of any Option that such Option cannot be exercised after
the merger or consolidation of the Company with or into another corporation,
the acquisition by another corporation or person of all or substantially all
of the Company's assets or 80% or more of the Company's then outstanding
voting stock or the liquidation or dissolution of the Company; and if the
Committee so provides, it must on such terms and conditions as it deems
appropriate, also provide, either by the terms of such Option or by a
resolution adopted prior to the occurrence of such merger, consolidation,
acquisition, liquidation or dissolution, that, for some period of time prior
to such event, such Option shall be exercisable as to all shares covered
thereby, notwithstanding anything to the contrary in Section 4.3(a), Section
4.3(b) and/or any installment provisions of such Option, but subject to
Section 4.3(e).
ARTICLE V
EXERCISE OF OPTIONS
SECTION 5.1-Person Eligible to Exercise; Prohibited Loans
(a) During the lifetime of the Optionee, only the Optionee may exercise an
Option (or any portion thereof) granted to him or her. After the death of the
Optionee, any exercisable portion of an Option may, prior to the time when
such portion becomes unexercisable under the Plan or the applicable Stock
Option Agreement, be exercised by his personal representative or by any person
empowered to do so under the deceased Optionee's will or under the then
applicable laws of descent and distribution.
(b) No Optionee or other person entitled to exercise an Option may pay the
purchase price for the shares purchased upon exercise of the Option with
proceeds from a loan or loans from the Company.
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SECTION 5.2-Partial Exercise
At any time and from time to time prior to the time when any exercisable
Option or exercisable portion thereof becomes unexercisable under the Plan or
the applicable Stock Option Agreement, such Option or portion thereof may be
exercised in whole or in part; provided however, that the Company shall not be
required to issue fractional shares and the Committee may, by the terms of the
Option, require any partial exercise to be with respect to a specified minimum
number of shares.
SECTION 5.3-Manner of Exercise
An exercisable Option, or any exercisable portion thereof, may be exercised
solely by delivery to the Secretary or his office of all of the following
prior to the time when such Option or such portion becomes unexercisable under
the Plan or the applicable Stock Option Agreement:
(a) Notice in writing signed by the Optionee or other person then
entitled to exercise such Option or portion, stating that such Option or
portion is exercised, such notice complying with all applicable rules
established by the Committee; and
(b)(1) Full payment (in cash or by check) for the shares with respect to
which such Option or portion is thereby exercised; or
(2) With the consent of the Committee, but subject to the timing
requirements of Section 5.4, and except in the case of a Non-Employee
Director Option, (A) shares of the Company's Common Stock owned by the
Optionee duly endorsed for transfer to the Company or (B) shares of the
Company's Common Stock issuable to the Optionee upon exercise of the
Option, with a fair market value (as determined under Section 4.2(b)), on
the date of option exercise equal to the aggregate Option price of the
shares with respect to which such Option or portion is thereby exercised;
or
(3) With the consent of the Committee, any combination of the
consideration provided in the foregoing subsections (1) and (2) except in
the case of a Non-Employee Director Option; and
(c) The payment to the Company (or other employer corporation) of all
amounts which it is required to withhold under federal, state or local law
in connection with the exercise of the Option. In the case of a Non-
Qualified Option, the payment of such withholding shall be effected by the
retention by the Company, from the shares of the Company's Common Stock
otherwise issuable upon exercise of the Option, of shares with a fair
market value (as determined under Section 4.2(b)) on the date of Option
exercise equal to the amount of such required withholdings, rounded up to
the next whole number of shares. The Company shall pay to the Optionee or
other person then entitled to exercise the Option an amount in cash equal
to the fair market value (as determined under Section 4.2(b)) of any
fractional share retained in excess of the shares representing, in value,
the amount of such required withholdings; and
(d) Such representations and documents as the Committee, in its absolute
discretion, deems necessary or advisable to effect compliance with all
applicable provisions of the Securities Act and any other federal or state
securities laws or regulations. The Committee may, in its absolute
discretion, also take whatever additional actions it deems appropriate to
effect such compliance including, without limitation, placing legends on
share certificates and issuing stop-transfer orders to transfer agents and
registrars; and
(e) In the event that the Option or portion thereof shall be exercised
pursuant to Section 5.1 by any person or persons other than the Optionee,
appropriate proof of the right of such person or persons to exercise the
Option or portion thereof.
SECTION 5.4-Certain Timing Requirements
In the case of a director, an officer or other optionee subject to Section
16 of the Exchange Act, shares of the Company's Common Stock, whether or not
issuable to the Optionee upon exercise of the Option, may be used to satisfy
the Option price of such exercise only (i) during the period beginning on the
third business day
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following the date of release of the quarterly or annual summary statement of
sales and earnings of the Company and ending on the twelfth business day
following such date or (ii) pursuant to an irrevocable written election by the
Optionee to use shares of the Company's Common Stock to pay all or part of the
Option price (subject to the approval of the Committee) made at least six
months prior to the payment of such Option price. Shares of the Company's
Common Stock may, however, not be used to satisfy the Option price in respect
of any Non-Employee Director Option.
SECTION 5.5-Conditions to Issuance of Stock Certificates
The shares of the Company's Common Stock issuable and deliverable upon the
exercise of an Option, or any portion thereof, may be either previously
authorized but unissued shares or issued shares which have then been
reacquired by the Company. The Company shall not be required to issue or
deliver any certificate or certificates for shares of stock purchased upon the
exercise of any Option or portion thereof prior to fulfillment of all of the
following conditions:
(a) The admission of such shares to listing on all stock exchanges on
which such series or class of stock is then listed; and
(b) The completion of any registration or other qualification of such
shares under any state or federal law or under the rulings or regulations
of the Securities and Exchange Commission or any other governmental
regulatory body, which the Committee shall, in its absolute discretion,
deem necessary or advisable; and
(c) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Committee shall, in its absolute
discretion, determine to be necessary or advisable; and
(d) The payment to the Company (or other employer corporation) of all
amounts which it is required to withhold under federal, state or local law
in connection with the exercise of the Option. In the case of a Non-
Qualified Option, the payment of such withholding shall be effected by the
retention by the Company, from the shares of the Company's Common Stock
otherwise issuable upon exercise of the Option, of shares with a fair
market value (as determined under Section 4.2(b)) on the date of Option
exercise equal to the amount of such required withholdings, rounded up to
the next whole number of shares. The Company shall pay to the Optionee or
other person then entitled to exercise the option an amount in cash equal
to the fair market value (as determined under Section 4.2(b)) of any
fractional share retained in excess of the shares representing, in value,
the amount of such required withholdings; and
(e) The lapse of such reasonable period of time following the exercise of
the Option as the Committee may establish from time to time for reasons of
administrative convenience.
SECTION 5.6-Rights as Stockholders
The holders of Options shall not be, nor have any of the rights or
privileges of, stockholders of the Company in respect of any shares
purchasable upon the exercise of any part of an Option unless and until
certificates representing such shares have been issued by the Company to such
holders.
SECTION 5.7-Transfer Restrictions
Unless otherwise approved in writing by the Committee, no shares acquired
upon exercise of any Option by any Officer, Director (including, but not
limited to, any Non-Employee Director) or other Optionee subject to Section 16
of the Exchange Act may be sold, assigned, pledged, encumbered or otherwise
transferred until at least six months have elapsed from (but excluding) the
date that such Option was granted. The Committee, in its absolute discretion,
may impose such other restrictions on the transferability of the shares
purchasable upon the exercise of an Option, other than a Non-Employee Director
Option, as it deems appropriate. Any such other restriction shall be set forth
in the respective Stock Option Agreement and may be referred to on the
certificates
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evidencing such shares. The Committee may require an Employee to give the
Company prompt notice of any disposition of shares of stock, acquired by
exercise of an Incentive Stock Option, within two years from the date of
granting such Option or one year after the transfer of such shares to such
Employee. The Committee may direct that the certificates evidencing shares
acquired by exercise of an Incentive Stock Option refer to such requirement to
give prompt notice of disposition.
ARTICLE VI
ADMINISTRATION
SECTION 6.1-Stock Option Committee
The Committee shall consist of two or more Non-Employee Directors, appointed
by and holding office at the pleasure of the Board, each of whom is both (a) a
"disinterested person" as defined by Rule 16b-3 and (b) an "outside director"
within the meaning of Section 162(m)(4)(C)(ii) of the Code. Appointment of
Committee members shall be effective upon acceptance of appointment. Committee
members may resign at any time by delivering written notice to the Board.
Vacancies in the Committee shall be filled by the Board.
SECTION 6.2-Duties and Powers of Committee
It shall be the duty of the Committee to conduct the general administration
of the Plan in accordance with its provisions. The Committee shall have the
power to interpret the Plan and the Options and to adopt such rules for the
administration, interpretation and application of the Plan as are consistent
therewith and to interpret, amend or revoke any such rules. Any such
interpretations and rules in regard to (a) Incentive Stock Options shall be
consistent with the basic purpose of the Plan to grant "incentive stock
options" within the meaning of Section 422 of the Code and (b) Non-Employee
Director Options shall be consistent with the rules regarding "formula awards"
set forth in Rule 16b-3(c)(2)(ii). The Board shall have no right to exercise
any of the rights or duties of the Committee under the Plan. The powers of the
Committee shall include the power to establish and administer performance
goals and to certify that performance goals are attained, as contemplated
under Section 162(m)(4)(C) of the Code.
SECTION 6.3-Majority Rule
The Committee shall act by a majority of its members in office. The
Committee may act either by vote at a meeting or by a memorandum or other
written instrument signed by a majority of the Committee.
SECTION 6.4-Compensation; Professional Assistance; Good Faith Actions
Members of the Committee shall receive such compensation for their services
as members as may be determined by the Board. All expenses and liabilities
incurred by members of the Committee in connection with the administration of
the Plan shall be borne by the Company. The Committee may employ attorneys,
consultants, accountants, appraisers, brokers or other persons. The Committee,
the Company and its Officers and Directors shall be entitled to rely upon the
advice, opinions or valuations of any such persons. All actions taken and all
interpretations and determinations made by the Committee in good faith shall
be final and binding upon all Optionees, the Company and all other interested
persons. No member of the Committee shall be personally liable for any action,
determination or interpretation made in good faith with respect to the Plan or
the Options, and all members of the Committee shall be fully protected by the
Company in respect to any such action, determination or interpretation.
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ARTICLE VII
OTHER PROVISIONS
SECTION 7.1-Options Not Transferable
No Option or interest or right therein or part thereof shall be liable for
the debts, contracts or engagements of the Optionee or his successors in
interest or shall be subject to disposition by transfer, alienation,
anticipation, pledge, encumbrance, assignment or any other means whether such
disposition be voluntary or involuntary or by operation of law, by judgment,
levy, attachment, garnishment or any other legal or equitable proceedings
(including bankruptcy), and any attempted disposition thereof shall be null
and void and of no effect, provided, however, that nothing in this Section 7.1
shall prevent transfers by will or by the applicable laws of descent and
distribution.
SECTION 7.2-Amendment, Suspension or Termination of the Plan
The Plan may be wholly or partially amended or otherwise modified, suspended
or terminated at any time or from time to time by the Committee. However,
without approval of the Company's stockholders given within 12 months before
or after the action by the Committee, no action of the Committee may, except
as provided in Section 2.3, increase any limit imposed in Section 2.1 on the
maximum number of shares which may be issued on exercise of Options,
materially modify the eligibility requirements of Section 3.1, reduce the
minimum Option price requirements of Section 4.2(a), extend the limit imposed
in this Section 7.2 on the period during which Options may be granted or amend
or modify the Plan in a manner requiring stockholder approval under Rule 16b-
3. The provisions of Sections 3.4 and 4.3(e) and elsewhere in this Plan
relating to Non-Employee Director Options, necessary to qualify for the
"formula award" rules of Rule 16b-3(c)(2)(ii)(A), may not be amended more than
once every six months, other than to comply with changes in the Code, the
Employee Retirement Income Security Act of 1974, as amended, or the rules
thereunder. Neither the amendment, suspension nor termination of the Plan
shall, without the consent of the holder of the Option, impair any rights or
obligations under any Option theretofore granted. No Option may be granted
during any period of suspension nor after termination of the Plan, and in no
event may any Option be granted under this Plan after November 7, 2001.
SECTION 7.3-Approval of Plan by Stockholders
This Plan will be submitted for the approval of the Company's stockholders
within 12 months after the date of the Board's initial adoption of the Plan.
Options may be granted prior to such stockholder approval; provided, however,
that such Options shall not be exercisable prior to the time when the Plan is
approved by the stockholders; provided, further, that if such approval has not
been obtained at the end of said 12-month period, all Options previously
granted under the Plan shall thereupon be cancelled and become null and void.
The Company shall take such actions with respect to the Plan as may be
necessary to satisfy the requirements of Rule 16b-3(b).
SECTION 7.4-Effect of Plan Upon Other Option and Compensation Plans
The adoption of this Plan shall not affect any other compensation or
incentive plans in effect for the Company, any Parent Corporation or any
Subsidiary. Nothing in this Plan shall be construed to limit the right of the
Company, any Parent Corporation or any Subsidiary (a) to establish any other
forms of incentives or compensation for employees of the Company, any Parent
Corporation or any Subsidiary or (b) to grant or assume options otherwise than
under this Plan in connection with any proper corporate purpose, including,
but not by way of limitation, the grant or assumption of options in connection
with the acquisition by purchase, lease, merger, consolidation or otherwise,
of the business, stock or assets of any corporation, firm or association.
SECTION 7.5-Titles
Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of the Plan.
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SECTION 7.6-Conformity to Securities Laws and Tax Laws
(a) The Plan is intended to conform to the extent necessary with all
provisions of the Securities Act and the Exchange Act and any and all
regulations and rules promulgated by the Securities and Exchange Commission
thereunder, including without limitation Rule 16b-3. Notwithstanding anything
herein to the contrary, the Plan shall be administered, and Options shall be
granted and may be exercised, only in such a manner as to conform to such
laws, rules and regulations. To the extent permitted by applicable law, the
Plan and Options granted hereunder shall be deemed amended to the extent
necessary to conform to such laws, rules and regulations.
(b) The Plan is also intended to permit the grant of Options to Executive
Officers so that such Options will qualify as qualified performance-based
compensation under Section 162(m)(4)(C) of the Code. Notwithstanding anything
herein to the contrary, the Plan shall be administered, and Options shall be
granted to and may be exercised by Executive Officers, only in such a manner
as to conform to Section 162(m)(4)(C) of the Code and the rules and
regulations adopted thereunder. To the extent permitted by applicable law, the
Plan and Options granted hereunder to Executive Officers shall be deemed
amended to the extent necessary to conform to such section, rules and
regulations.
B-13
<PAGE>
PROXY
SUNRISE MEDICAL INC.
The undersigned holder of Common Stock acknowledges receipt of a copy of the
Annual Report and the Proxy Statement dated October 6, 1995, and, revoking any
proxy heretofore given, hereby constitutes and appoints Mr. Richard H. Chandler
and Mr. Ted N. Tarbet, and each of them, as proxies, each of them with the
power to appoint his substitute, and hereby authorizes each of them to
represent and to vote, cumulatively or otherwise as designated on the reverse
side, all the shares of Common Stock held of record by the undersigned on
September 14, 1995 at the Annual Meeting of Stockholders to be held on November
7, 1995, or any adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND MAY BE
REVOKED PRIOR TO ITS EXERCISE. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE
VOTED AS DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS
INDICATED, IT WILL BE VOTED FOR THE NOMINEES FOR DIRECTORS LISTED IN THE PROXY
STATEMENT AS WELL AS FOR AMENDMENT OF THE 1993 STOCK OPTION PLAN AND FOR
ADOPTION OF THE COMPANY'S AMENDED AND RESTATED 1993 STOCK OPTION PLAN.
PLEASE DATE, SIGN ON REVERSE SIDE AND RETURN IN THE ACCOMPANYING ENVELOPE.
<PAGE>
I plan to attend
the meeting
[_]
1. ELECTION OF DIRECTORS:
NOMINEES: Richard H. Chandler, Lee A. Ault III, Larry C. Buckelew, Lloyd E.
Cotsen, Babette Heimbuch, Murray H. Hutchison, William L. Pierpoint,
Joseph Stemler, John R. Woodhull
(Instruction: To withhold authority to vote for any nominee, write that
nominee's name in the space provided below.)
--------------------------------------------------------------------------
FOR the WITHHOLD
nominees listed AUTHORITY
(except as to vote for ALL
indicated to the nominees listed:
contrary): [_]
[_]
2. Adoption of the Amended and Restated 1993 Stock Option Plan of the Company.
For Against Abstain
[_] [_] [_]
3. Approval of the proxies to vote in their discretion upon such other business
as may properly come before the meeting, or any adjournment thereof.
For Against Abstain
[_] [_] [_]
Dated: , 1995
-----------------------------------------------
- -----------------------------------------------------------
(Signature of Stockholder)
- -----------------------------------------------------------
(Signature of Stockholder)
Please date and sign exactly as your name appears on this
proxy. Joint owners should each sign. If the signer is a
corporation, please sign full corporate name and title
by duly authorized officer. Executors, trustees, guardians
and the like should give full title as such.
- --------------------------------------------------------------------------------
"PLEASE MARK INSIDE BLUE BOXES SO THAT DATA PROCESSING
EQUIPMENT WILL RECORD YOUR VOTES"
