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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED JULY 3, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from _____________to
_____________
Commission File No. 0-12744
SUNRISE MEDICAL INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-3836867
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2382 FARADAY AVENUE, SUITE 200
CARLSBAD, CA 92008
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (760) 930-1500
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Securities registered pursuant to Section 12(b) of the Act:
TITLE OF CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock, par value $1.00 New York Stock Exchange
Common Stock Purchase Rights New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 91 days. YES /X/ NO / /
State the aggregate market value of the voting stock held by
non-affiliates of the registrant: $125,500,000 as of September 4, 1998.
On September 4, 1998, the registrant had 22,172,483 outstanding shares of
$1 par value common stock.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENTS FORM 10-K REFERENCES
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Portions of the company's Definitive Proxy Part III, Items 10-13 (Page 55)
Statement for its Annual Meeting of
Stockholders to be held on November 20, 1998
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SUNRISE MEDICAL INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED JULY 3, 1998
INDEX
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Page
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PART I
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Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . 13
-- Executive Officers of the Company . . . . . . . . . . . . . . . . . . . . . 14
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters . . . 16
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 8. Financial Statements and Supplementary Data. . . . . . . . . . . . . . . 31
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
PART III
Item 10. Directors and Executive Officers of the Registrant. . . . . . . . . . . . 55
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Item 12. Security Ownership of Certain Beneficial Owners and Management. . . . . . . 55
Item 13. Certain Relationships and Related Transactions. . . . . . . . . . . . . . 55
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . 56
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
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PART I
ITEM 1. BUSINESS
Sunrise Medical Inc. ("Sunrise" or the "company") is a worldwide leader
in the design and manufacture of medical products used in three attractive
growth markets -- home healthcare, extended care and assistive technology.
Sunrise maintains number one or number two global market share positions for
many of its products. The company's core product lines include custom manual
and power wheelchairs and related seating systems; ambulatory, bathing and
lifting products; home respiratory devices; healthcare beds and furniture;
therapeutic mattresses and other patient support surfaces; and augmentative
communication devices. Headquartered in Carlsbad, California, the company is
publicly traded on the New York Stock Exchange under the ticker symbol "SMD".
The company manufactures products in the United States, Mexico, the
United Kingdom, Germany, France and Spain and distributes them through
company-owned sales and distribution organizations in those countries, as
well as in most of the rest of Europe, Canada and Australia. It also
distributes through independent importers/distributors in more than 80 other
countries. International sales accounted for 39% of total company revenues in
the fiscal year ended July 3, 1998.
Sunrise was founded in 1983 to take advantage of the shift in patients
from hospitals to alternate site settings. The company believes that a number
of factors will contribute to continued worldwide growth in the homecare and
extended care markets, including: (i) the aging of the population; (ii)
greater utilization of lower-cost, alternate-site treatment; (iii) patient
preference for home healthcare; (iv) advances in technology facilitating
improved outpatient care; (v) greater emphasis on integrating the disabled
into the workplace and the community; and (vi) the increasing popularity of
wheelchair sports and recreational activities among the disabled.
The company's long-term strategic objective, which it calls its
"strategic intent," is to achieve global market leadership positions in
homecare, extended care and assistive technology products. Sunrise is already
one of the largest firms in its industry internationally and is a leader in
most of its U.S. product markets as measured by industry sales. The company
seeks to achieve global market leadership through five growth strategies:
- - NEW PRODUCT DEVELOPMENT. Maintain leadership in product innovation by
applying the latest technologies to solve patient problems associated with
disabilities, respiratory ailments and alternate site care. Continue to
invest in high potential, long-range new product development, but give
increased attention to the value end of the price spectrum in each product
market.
- - CUSTOMER SERVICE LEADERSHIP. Offer a full range of products and services to
target customer groups--home care providers and extended care
institutions--thereby leveraging the company's strong salesforces and
distribution networks. Provide an exceptional level of
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customer service, including fast delivery, convenient financing plans,
user friendly electronic commerce and educational support programs.
- - GROWTH MARKET INITIATIVES. Leverage Sunrise's well known brands into
complementary adjacent markets such as retail drugstores, assisted living
facilities and acute care markets.
- - GLOBAL EXPANSION. Extend domestic market leadership internationally through
an aggressive export sales function. Lead the industry in global
consolidation, establishing company owned sales/distribution companies in
major countries around the world. Leverage competitive advantages in
product technology, manufacturing capacity, distribution coverage and
management systems to capitalize on worldwide market growth trends.
- - STRATEGIC ACQUISITIONS. Enhance core businesses by acquiring proprietary
technologies and product lines that yield immediate synergy or help enter
fast growing market niches.
RE-ENGINEERING PROGRAM
In recent years government budgetary pressures and the rise of managed care
organizations have dramatically changed the U.S. healthcare marketplace, causing
homecare products to be viewed more generically and imposing downward pressure
on prices. Further, home medical equipment providers have been consolidating
into national chains and buying groups, which have used their new purchasing
power to intensify this pressure.
Through the early 1990's, Sunrise operated with a decentralized
structure, built around product-specific operating divisions with their own
salesforces and management teams. As the new industry reality emerged, the
company implemented a progression of re-engineering steps that included the
consolidation of five U.S. homecare divisions into one; consolidation of
divisions within each major European market; consolidation of U.S.
salesforces; implementation of common computer software and hardware systems;
and headcount reductions across all Sunrise divisions. This re-engineering
program, which is substantially complete, has spanned the past three fiscal
years.
As a result of the most recent trends in the healthcare business
environment, Sunrise has realigned its group structure around distribution
channels rather than the end markets where the products are used, a strategy
designed to better focus on its customers and maximize the effectiveness of its
salesforces. Effective in July 1998, all product lines sold primarily through
dealers or distributors shifted to the Home Healthcare Group, while the
Continuing Care Group assumed responsibility for representing all Sunrise
products sold direct to nursing homes and other healthcare institutions
internationally, as well as in the U.S. As a result of this change, Bio Clinic
patient support surfaces and Hoyer lifter products were transferred from the
Continuing Care Group to the Home Healthcare Group. Included in the new global
Continuing Care Group are the Joerns (U.S.) and Corona (France) patient room bed
and furnishings businesses and the Parker (U.K.) bathing equipment division.
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HOME HEALTHCARE GROUP
The Home Healthcare Group ("HHG") was consolidated into a single
business in fiscal 1997. Headquartered in Longmont, Colorado, HHG focuses on
the outpatient equipment needs of the elderly and the disabled. Headquarters
functions include sales, marketing, finance, information systems, customer
service, distribution and human resources. Also located at HHG are SunMed
Finance, the company's dealer installment financing division, and Sunrise
Consulting, the company's new Medicare reimbursement consulting business.
Product development and manufacturing activities are assigned to three
product divisions, each with a global market perspective. The three divisions
are as follows: Mobility Products (wheelchairs, including custom, power,
pediatric and standard wheelchairs, and seating and positioning systems);
Personal Care Products (standardized medical products designed to assist in
walking, bathing, toileting, patient care lifting, patient transport and
wound prevention); and Respiratory Products (aerosol, oxygen and sleep
therapy products). The products of the three divisions are sold through a
single nationwide salesforce that calls on a network of home medical
equipment ("HME") providers, and drug wholesalers. Included within HHG are
the company's distribution organizations in Canada and Australia and its
export sales activities throughout the Americas and the Pacific Rim. Sales of
the Home Healthcare Group were $344 million, and accounted for 53% of the
company's total sales in 1998.
MOBILITY PRODUCTS DIVISION
The Mobility Products Division's primary product lines are QUICKIE
custom wheelchairs and JAY seating systems. The QUICKIE range includes manual
ultralight rigid and folding chairs, standard lightweight chairs, pediatric
positioning chairs, power chairs, and wheelchairs designed for racing,
basketball, tennis, and other disabled sports. U.S. wheelchair plants are
located in Fresno, California and Avon Lake, Ohio. QUICKIE brand products are
also manufactured by the company's U.K. subsidiary for European customers.
JAY wheelchair cushions and modular positioning systems provide flexible,
cost-effective solutions to the seating and postural needs of wheelchair
users. The cushions and pads are filled with JAY FLOW, a patented fluid
material designed and manufactured at the company's facility in Longmont,
Colorado. JAY products are designed to fit all major brands of wheelchairs.
Mobility also designs, manufactures and markets strollers, push wheelchairs,
positioning systems, and other adaptive medical equipment for the pediatric
rehabilitation market, including units designed to be transportable by bus.
These products are sold under the KID-KART brand name.
In November 1997, Sunrise enhanced its seating product line with the
acquisition of Mechanical Applications Designs, Inc. ("MADI") located in
Katy, Texas, near Houston. MADI designs, manufactures and markets a line of
power tilt/recline seating systems ("TILTMASTER") for use on various
manufacturers' manual and power wheelchairs. The TILTMASTER system maintains
the user's center of gravity throughout the tilt range by the use of a
sliding mechanism which effectively eliminates many of the performance issues
inherent in the more traditional tilt systems on the market.
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PERSONAL CARE PRODUCTS DIVISION
The Personal Care Products Division features the professional line of
GUARDIAN brand patient aids, marketed through HME providers. The GUARDIAN
brand includes crutches, walkers, standard wheelchairs, bedside commodes and
bath safety products. A number of these same products have been packaged as a
line of consumer personal care products under the CAREMATE brand name, which
is distributed through drug stores, home centers, department stores and
specialty retailers.
In May 1998, Sunrise introduced the BREEZY 100, a new standard
wheelchair. The BREEZY 100 is the first in the market to offer options that
can reduce a dealer's parts inventory by up to 50% with leg and foot rests
that fit either the right or left side and are fully interchangeable with the
market leader's standard wheelchair. This chair represents Sunrise's in-house
designed and manufactured product to address the approximately $165 million
standard wheelchair market. Shipments of the BREEZY 100 are expected to begin
in September 1998.
The Personal Care Products division markets support surfaces products
under the BIO CLINIC brand name. These products cover a range of
cost-effective solutions addressing the prevention and treatment of pressure
sores--dermal wounds that can afflict immobilized patients. This broad
product line includes: portable low air loss mattress systems; specialty
mattresses; foam overlays; and foam positioners for use in the operating
room. BIO CLINIC disposable products are sold through medical/surgical
distributors, who supply them to their hospital and nursing home customers.
HOYER patient lifters and slings, used in institutional and home settings to
lift and transfer disabled patients between bed, bathtub, wheelchair and
automobile, are also manufactured and sold through this division.
During 1998, the division completed the move of its patient aids and
standard wheelchair production from its main plant in Simi Valley, California
to a leased facility in Tijuana, Mexico. Product development and management
activities were relocated to a small leased facility in Chula Vista,
California just across the U.S./Mexico border from the manufacturing plant in
Tijuana. The company has sub-leased its Simi Valley facility for the
remainder of its lease term. The BIO CLINIC foam products and HOYER lift
products continue to be manufactured in Mississippi and Wisconsin,
respectively.
RESPIRATORY PRODUCTS DIVISION
The Respiratory Products Division, located in Somerset, Pennsylvania,
manufactures a broad range of respiratory products for use in the home.
Product categories include a broad range of aerosol, oxygen and sleep therapy
home respiratory products under the DEVILBISS brand name. Aerosol devices
convert liquid medicine into airborne particles to treat breathing disorders
such as asthma and cystic fibrosis. Oxygen concentrators are
electro-mechanical devices that enrich normal room air up to 93% purity for
patients suffering from chronic obstructive lung diseases such as emphysema
and bronchitis. Portable liquid and gas oxygen systems allow oxygen users to
leave their homes and resume normal activities for up to eight hours at a
time. The PULSEDOSE line of proprietary oxygen conservers can triple the
range of an ambulatory patient using a given measured supply of liquid or
gaseous oxygen. Sunrise also manufactures the DEVILBISS HORIZON line of sleep
products, which alleviate adult obstructive sleep apnea by supplying
continuous
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positive airway pressure ("CPAP") while patients are sleeping. DEVILBISS
products are distributed globally through company-owned distribution
organizations in Europe, Australia and Canada and independent distributors
elsewhere.
SUNRISE CONSULTING
During 1998, HHG established a Medicare reimbursement consulting
business with the addition of three persons who provide, for a fee,
assistance to home medical equipment providers in securing payment from
Medicare for custom wheelchairs and other homecare products. Sunrise
Consulting will offer mock-Medicare audits to help suppliers ensure their
compliance with recordkeeping requirements and post-audit recovery programs
for suppliers with denied Medicare claims.
SUNMED FINANCE
Sunrise offers competitive, market-rate financing to its dealers through
its SunMed Finance division.
CONTINUING CARE GROUP
The global Continuing Care Group ("CCG"), with headquarters in Stevens
Point, Wisconsin, manufactures and markets products that foster ease of care
for recovering patients and long term residents in nursing homes, sub-acute
facilities, hospitals and assisted living centers. Product lines include
healthcare beds, overbed tables, nursing home furniture, and specialized
institutional bathing systems. CCG's products are sold through a salesforce
focused on extended care and assisted living facilities. In addition,
homecare beds and therapeutic mattresses are sold through the HHG salesforce
to homecare dealers. Foreign sales of institutional products are made through
Sunrise's international export sales and distribution network. CCG sales were
$80 million in 1998, and represented 12% of total company sales.
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The JOERNS product line consists of healthcare beds, patient room
furniture, overbed tables, dining room and commons area furnishings. PARKER
bathing systems, manufactured in the U.K., are specialized bathtubs that
recline or elevate with lifters designed specifically for a nursing home.
In Tours, France, Sunrise manufactures nursing home beds and furniture
under the CORONA brand. CORONA products are marketed to French nursing homes
and hospitals through a direct salesforce.
DYNAVOX
In April 1998, Sunrise completed the acquisition of Sentient Systems
Technology, Inc., which has been renamed DynaVox Systems, Inc. ("DynaVox"),
located in Pittsburgh, Pennsylvania. DynaVox designs, manufactures and
markets hardware and software products for persons with speech, language and
cognitive disabilities, and is a global market leader in the field of
augmentative communication. Its DYNAVOX and DYNAMYTE products communicate in
a computer-synthesized voice for those that cannot speak due to conditions
such as cerebral palsy, traumatic brain injury, degenerative neuromuscular
diseases and stroke. DynaVox sales were $15 million in 1998, and represented
2% of total company sales.
In May of 1998, DynaVox launched its new generation of communication
devices, the DYNAVOX 3100 and DYNAMYTE 3100, along with new DSS software for
both Windows and MacIntosh system environments. This new hardware provides
users with more speed, faster vocabulary access, more customizable features,
longer battery life, and an improved touchscreen.
EUROPEAN HOMECARE
Sunrise manufactures homecare products in four European countries
(United Kingdom, Germany, France and Spain) and also owns distribution
companies in France, the Netherlands, Norway, Sweden, Italy and Switzerland
that distribute the company's products into these and surrounding countries.
European Homecare sales were $218 million, accounting for 33% of total
company sales in 1998.
In 1997 Sunrise announced a series of consolidations of its European
operations within each major country in order to eliminate administrative
redundancies, capitalize on economies of scale, and enhance cost
efficiencies. In Germany, the distribution and manufacturing activities were
integrated into the SOPUR business in Malsch. In the U.K., Sunrise purchased
an existing 370,000 square-foot manufacturing facility in Stourbridge
(Birmingham area) England, refurbished it, and relocated four factories to
the new site (wheelchairs, patient lifters, personal care products and
respiratory products). These factory moves, involving approximately 1,150
jobs, were completed in October 1997.
In the United Kingdom, Sunrise manufactures and markets five major
product lines: wheelchairs, personal care products, patient lifters,
respiratory products and bathing systems. The wheelchair product line
includes QUICKIE custom manual wheelchairs, POWERTEC power wheelchairs,
STERLING electric scooters and MINIVATOR home stairlifts. COOPERS canes,
walkers, bath safety products and aids for daily living are sold through
homecare dealers and retail drugstores. DEVILBISS oxygen concentrators are
rented through the U.K. National Health Service and exported throughout
Europe. The OXFORD line of Sunrise lifting systems for patient transfers
covers a broad range of applications in both institutional and home care
uses. In recent years exports have increased steadily to more than 50
countries, including, most importantly, the company's European distribution
network.
During fiscal 1998, the company's two German subsidiaries, Sopur and
DeVilbiss GmbH were merged and all operations were consolidated to become
Sunrise Germany. Sunrise Germany manufactures and markets the SOPUR line of
custom lightweight manual, power, and pediatric and performance wheelchairs.
In 1998 Sopur introduced several new products: STABILANCE 120/140U - a joint
venture with Procon, for construction of wheelchair seats; CLASSIC 140 - a
modular constructed wheelchair and Power 140 - a battery-operated wheelchair.
Other Sunrise homecare products such as JAY seating systems, DEVILBISS oxygen
concentrators and Spanish manufactured standard wheelchairs are also
distributed by this organization to homecare dealers throughout Germany and
Austria.
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The company's Spanish subsidiary, located in Bilbao, manufactures
URIBARRI standard wheelchairs and patient aids, providing Sunrise with a
low-cost European manufacturing base. URIBARRI wheelchairs and patient aids
are sold throughout Spain and exported to many countries, including Sunrise
divisions in Europe and Australia. During fiscal 1998, Sunrise launched the
new BREEZY 300 aluminum/composite wheelchair that has received excellent
response in Europe and Australia.
In France, homecare products are sold through a nationwide network of
home medical equipment dealers. Sunrise France also distributes QUICKIE and
SOPUR brand wheelchairs, and the DEVILBISS line of respiratory products.
SALES AND DISTRIBUTION
Home Healthcare Group products are sold through a nationwide salesforce
that calls on a network of 12,000 HME providers, rehabilitation technology
suppliers and drug wholesalers. Special attention has been directed to larger
regional and national accounts, including the deployment of incentive
programs that benefit customers who purchase from multiple Sunrise divisions.
HHG offers consolidated customer service, order entry, distribution and
credit functions for all products sold to the domestic HME market. Order
processing centers are maintained in Colorado and Pennsylvania, and seven
regional distribution centers are located throughout the United States. Large
national accounts and independent homecare providers are able to purchase
standard products across all Sunrise divisions by placing a single order;
products are shipped the next day from one of the regional distribution
centers. However, customized products, such as most QUICKIE wheelchairs and
many JAY cushion products, continue to be manufactured to order directly and
shipped from those factories within 3 days to 3 weeks.
The Continuing Care Group generally sells its products directly to
nursing homes and other healthcare institutions through its own nationwide
salesforce. Company account representatives demonstrate and sell products
directly to nursing homes and other continuing care institutions where
clinicians such as directors of nursing play a key role in product
evaluations and ultimate decision making. In connection with the realignment
around distribution channels in July 1998, certain products manufactured by
CCG that are sold primarily through dealers or distributors will now be
handled by the HHG salesforce.
Sunrise products are marketed in Europe through distribution channels
that resemble U.S. patterns. Home medical equipment products are distributed
through independent medical equipment dealers in most countries, although,
under Scandinavia's state-controlled healthcare systems, the local technical
aid centers perform a similar function. The company has its own salesforces
calling on these distribution channels in all major countries of Western
Europe.
Two separate export sales teams represent all Sunrise product lines in
their respective global regions. They are responsible for developing import
distributor relationships in all countries where Sunrise products are sold.
One team, part of HHG, covers the Americas and Pacific Rim, while the second
team, part of Sunrise U.K., covers Europe, the Middle East, Africa and
Central Asia.
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COMPETITION
Sunrise encounters significant domestic and foreign competition from a
number of established manufacturers in each of its product lines. Sunrise's
primary competitors in the U.S. are Invacare Corporation, Graham-Field,
Mallinckrodt, Respironics and Hillenbrand Industries. Invacare competes with
Sunrise in almost every product line and market. In the European homecare
market, Meyra Ortopedia (Germany) and Scandinavian Mobility (Denmark) are the
largest competitors.
Sunrise competes primarily on the basis of the competitiveness of its
prices, its product features and performance, the range of products offered,
the quality of its customer service and delivery, the technical expertise of
its salesforces, and the strength of its distribution operations and
independent dealer network. In certain countries and product markets,
including the United States, the company faces competition from other
manufacturers that have larger market shares, more extensive financial
resources or other competitive advantages.
MANUFACTURING
The company operates 16 manufacturing plants in the U.S., Mexico and
Western Europe. Manufacturing processes include metal fabrication,
welding/brazing, injection molding, circuit board assembly, powder coating,
final assembly, life testing and quality assurance. Certain components used
in the company's products, such as small motors and electronic controls, are
manufactured by third parties. Although the company purchases most of its raw
materials, components and supplies from a number of different vendors, it
does procure a few components and materials on a single-source basis. If one
of these single-source vendors failed to deliver components as planned, the
company would be temporarily unable to ship certain of its products.
Historically, prices paid by the company for certain raw materials, such as
aluminum, foam and wood, have fluctuated widely. When prices have increased,
the company has not always been able to pass along the full effect of such
increases to its customers. In addition, its manufacturing margins have
recently been hurt by the strengthening of the British pound, since a major
portion of Sunrise Europe sales come from products manufactured in the U.K.
and sold on the European Continent.
The company has utilized a variety of operational tools such as
"just-in-time" manufacturing, demand flow technology, value engineering,
total quality management, target costing, and its Associate suggestion system
to reduce product costs, increase quality, shorten delivery cycles and
improve asset turnover. These complementary techniques are all part of the
company's Pursuit of Excellence program. All Sunrise factories have earned
or are in the process of earning ISO 9001 certification, the international
standard for quality assurance in design and manufacturing.
RESEARCH AND DEVELOPMENT
Sunrise conducts research and development at each of its manufacturing
divisions. For the year ended July 3, 1998, the company spent $17.9 million on
research and development, or
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2.7% of sales, compared to $17.5 million, or 2.6% of sales, in the prior
year. Each operating unit establishes annual objectives for introducing new
products, and the company tracks progress against those objectives on a
regular basis. The company introduced more than 100 new products in each of
the last two fiscal years.
PATENTS AND TRADEMARKS
Sunrise currently holds patents associated with certain existing
products and has filed applications for additional patents covering certain
of its newer products. Although some of these patents can provide a
meaningful competitive advantage in a particular product market, overall,
management does not consider the ownership of patents essential to its
current or future market position. The company relies primarily on product
quality and features, strong marketing and distribution networks, competitive
prices, and responsive customer service to protect and improve its
competitive positions.
This annual report discusses many of the brands and trademarks owned and
used by Sunrise and its subsidiaries. For ease of reading, these brands have
been italicized, and trademark and registration designations have been
omitted.
WARRANTY
The company's products are generally sold with limited warranties for
periods of up to five years. Customers may also purchase extended warranties
on certain products. Some components of the company's wheelchair products
have a lifetime warranty. The expected warranty expense associated with each
product sold is recorded at the time of sale, and the adequacy of those
warranty reserves is reviewed regularly.
GOVERNMENT FUNDING AND REGULATION
The healthcare industry is affected by extensive government funding and
regulation at the federal and state levels.
MEDICARE AND MEDICAID. Medicare is a federally funded health insurance
program administered by private insurance companies providing health
insurance coverage for persons 65 or older and certain persons with
disabilities. Medicaid is a federally and state-funded health insurance
program administered by state governments that provides reimbursement for
healthcare related expenses for certain financially and medically needy
persons regardless of age. These programs provide reimbursement to homecare
providers for rentals and sales of medical equipment and related supplies.
Medicare generally pays 80% of the allowable rate of reimbursement for home
medical equipment items, while Medicaid generally pays 100%.
The company estimates that approximately 23% of its 1998 sales were
ultimately funded by these U.S. government programs. The company is a
provider under Medicaid through its DynaVox division. While the company
itself is not a provider under Medicare, its products are sold to homecare
dealers, nursing homes and hospitals that are providers under these programs
and do depend upon Medicare and Medicaid reimbursement for a portion of their
revenue. Changes in Medicare/Medicaid regulations can adversely impact the
company's revenues and
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collections indirectly by reducing the reimbursement rate received by HME
providers, thus making it less profitable for them to sell or rent products
to the end-user. This, in turn, can put downward pressure on prices charged
for the company's products sold through this channel.
Management believes that intensified healthcare cost containment efforts
through managed care continue to favor lower cost alternatives such as home
healthcare and nursing home care, as has been the case historically.
Increasingly, government funded programs are relying on managed care programs
to provide healthcare insurance to their beneficiaries. The company has made
special efforts in recent years to allocate more of its new product
engineering dollars to lower cost, more generic products favored by managed
care and Medicare/Medicaid programs.
The Balanced Budget Act of 1997 reduced reimbursement for oxygen
concentrator rentals by 30% over two years, beginning January 1, 1998.
Domestic sales of oxygen concentrators accounted for approximately 3% of the
company's sales in 1998, and a lesser percentage of gross profit.
FDA REGULATION. Medical products manufactured by the company in the U.S.
are subject to regulation by the U.S. Food and Drug Administration ("FDA").
Most such medical devices must be the subject of device listings filed with
the FDA, and medical device manufacturers must be registered. Certain
products require clearance by the FDA prior to marketing and distribution in
the United States. Delays in receiving such approval can adversely affect the
company's ability to introduce new products on a timely basis and impact the
company's results of operations and financial condition. During the last two
years, such delays have slowed a number of new product introductions and, in
some cases, have led to their initial marketing overseas in advance of the
United States.
EMPLOYEES (ASSOCIATES)
The company employed approximately 4,400 full-time Associates worldwide
as of July 3, 1998. Approximately 400 Associates at two factories in the
United States are covered by collective bargaining agreements that expire in
2002. In Europe, approximately 300 Associates in the United Kingdom and 150
in Germany are covered by national union arrangements. The company has not
experienced a strike, work stoppage or labor disturbance during its 15-year
history. The company believes that its labor relations are good. Sunrise
refers to its employees as Associates.
BACKLOG
Sunrise's backlog of firm orders at July 3, 1998 was approximately $43
million compared to $39 million at June 27, 1997. Approximately $13 million
in 1998 and $16 million in 1997 represented orders for patient room beds and
furnishings, the one portion of Sunrise's business for which backlog is
believed to be a meaningful predictive factor because of the long order lead
times in this market. Generally, Sunrise manufactures the balance of its
products to its forecast of near-term demand, shipping immediately from
stock, or else produces customized products based on actual orders received
and ships within a short period thereafter. As a result, Sunrise
11
<PAGE>
does not have a substantial backlog for these products. Management does not
believe that its overall backlog at any particular time is a meaningful
indicator of future sales levels.
WORKING CAPITAL REQUIREMENTS
The company does not maintain inventory of its products for a
significant period of time (see "Backlog"). Many of the company's products
are manufactured in connection with specific orders which are shipped in less
than 30 days, and in many cases less than 72 hours, from receipt of the
order. Patient room bed and furnishing products also are manufactured in
connection with specific orders, but may take from one to three months until
products are ready to ship. The company maintains a larger stock of those
component parts that require longer lead times to obtain from suppliers to
minimize the risk of extending time periods to fulfill product orders. Most
of the company's sales are made on standard terms requiring payment by the
customer within 30-60 days of delivery. Some sales are made on extended terms
on a selective basis. Certain customers elect to finance their purchases with
installment note contracts offered by the company's captive finance
subsidiary. The company occasionally accepts products for replacement upon
customer request. However, returns for credit or refund have not been a
material aspect of the company's business.
FOREIGN OPERATIONS
Sunrise has foreign subsidiaries with manufacturing and distribution
operations in the United Kingdom, France, Germany, Spain and Mexico. In
addition, company-owned sales/distribution companies are located in Canada,
Australia, the Netherlands, Norway, Sweden, Switzerland and Italy. All of
Sunrise's manufacturing and distribution facilities are located in
industrially developed areas where qualified labor and material supply have
been readily available at economic rates.
ITEM 2. PROPERTIES
Sunrise's corporate headquarters office is located in Carlsbad,
California, and comprises approximately 21,000 square feet of leased space
that Sunrise occupies under a lease expiring in 2004. Sunrise conducts its
U.S. operations from 12 leased facilities, including a facility in Tijuana,
Mexico that supports the U.S. operations, totaling approximately 562,000
square feet under leases with expiration dates ranging from 1998 through
2008, and also operates factories using five company-owned facilities
totaling approximately 713,000 square feet.
For its international operations, Sunrise leases 28 facilities in
Europe, Canada and Australia (totaling approximately 256,000 square feet)
under leases with expiration dates extending through 2017, together with six
company-owned facilities in Europe with approximately 675,000 square feet.
Sunrise's facilities are used primarily for manufacturing, distribution
and administration. Sunrise has options to renew a number of its leases.
Management believes that its facilities are adequate for Sunrise's current
needs.
12
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The company is a party to various legal proceedings arising in the
ordinary course of business. Management does not believe that the outcome of
any of these actions will have a material adverse effect upon the financial
position or results of operations of the company.
The Securities and Exchange Commission ("SEC") has entered a formal
order of private investigation into the circumstances underlying the
restatement of the company's 1995 and 1994 financial statements. The company
is cooperating fully with the SEC in its investigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the company's stockholders during
the fourth quarter of fiscal 1998.
13
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
Pursuant to General Instruction G(3) of Form 10-K, the following information is
included as an unnumbered Item in Part I of this Report.
The following is a list of names and ages of the executive officers (within the
meaning of Item 401 of Regulation S-K) of the company, indicating all positions
and offices with the company held by each such person and each such person's
principal occupation or employment during the past five years. Executive
officers serve at the discretion of the Board of Directors. No person other than
those listed below has been chosen to be an executive officer of the company.
Name Age Position
- ---- --- ---------
Richard H. Chandler 55 Chairman of the board, chief executive officer and
president
Ben Anderson-Ray 43 Senior vice president operations and group president
- Continuing Care Group
Steven A. Jaye 42 Senior vice president, general counsel and secretary
Thomas H. O'Donnell 55 Senior vice president operations and group president
- Home Healthcare Group
Barrie Payne 61 Senior vice president operations, group president
and managing director - Sunrise Medical Ltd.
John M. Radak 38 Vice president and controller
Ted N. Tarbet 45 Senior vice president and chief financial officer
Richard H. Chandler has served as chairman of the Board of Directors and
chief executive officer of the company since its inception in January 1983
through the present. In January 1996 he also became president, a position he
previously held from January 1983 until July 1993. From 1982 to 1983, he was
president of Richard H. Chandler company, a management consulting firm,
during which period he planned the formation of the company. From 1979 to
1982, he was president and chief executive officer of Abbey Medical, Inc. 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. From 1974 to 1979, he held senior
management positions with Sara Lee Corporation, ending as a group vice
president and including two years when he was president of its Abbey
Rents/Abbey Medical division.
Ben Anderson-Ray was elected group president in July 1998 of the newly
defined Sunrise Medical global Continuing Care Group, which manufactures
Joerns and Corona beds and furniture and Parker Bath bathing equipment for
nursing homes and other healthcare institutions. From November 1996 to this
new election, Mr. Anderson-Ray was president of the Mobility Products
Division. From 1994 to 1996 he served as vice president of marketing and
business development for the Rubbermaid Home Products Division. Prior to
this, he was general manager of cooking, cleaning and beverage products for
Black & Decker Corporation. From 1984 to 1993
14
<PAGE>
Mr. Anderson-Ray held positions at General Electric including manager of
Asia-Pacific marketing and sales, manager of international automotive
products and product manager of lighting products.
Steven A. Jaye was elected senior vice president, general counsel and
secretary of the company in August 1996 after joining the company as vice
president and general counsel in August 1995. From 1991 through 1995, Mr.
Jaye served as the vice president - legal affairs for Magma Power company, a
publicly traded international power producer. From 1984 through 1991, he
served as a business attorney with the law firm of Latham & Watkins. Prior to
receiving his legal degree, Mr. Jaye served as a design, production and
quality assurance engineer for a subsidiary of Hughes Aircraft company. In
addition to his legal duties, Mr. Jaye manages the worldwide purchasing,
quality, risk management and real estate matters for Sunrise.
Thomas H. O'Donnell was elected president of the Home Healthcare Group in
June 1997. He served as executive vice president - operations of the company
from January 1987 until August 1988, when he was elected president of Quickie
Designs Inc. (a Sunrise subsidiary). In January 1996 he was named senior vice
president - North America. In 1986 Mr. O'Donnell was president and chief
operating officer of General Computer company, a manufacturer and distributor
of personal computer peripherals. From 1984 to 1985, he was chief executive
officer of Connecting Point of America, Inc., a chain of computer retail
stores. From 1967 to 1984, he was with IBM Corporation in a variety of
management positions, most recently as vice president - product management
for the Entry Systems Division.
Barrie Payne was elected managing director of Sunrise Medical Ltd. (U.K.) and
a corporate senior vice president as of February 1, 1998. Previously, he had
been senior vice president - Europe since January 1996, after serving as
managing director of Sunrise Medical Ltd. (a Sunrise subsidiary) since June
1983. Previously, Mr. Payne was president of A-BEC Mobility Inc., a
distributor of electric wheelchairs and other power mobility products that
was founded by him in 1972 and was purchased by Sunrise Medical in 1983.
John M. Radak was elected vice president and controller in January 1995. From
1992 to 1995, Mr. Radak was vice president, finance for the respiratory care
subsidiary of Bird Medical Technologies Inc., a medical device manufacturer.
Prior to joining Bird, he held various financial management positions with
Calcomp Inc., a Lockheed/Martin subsidiary that manufactures printers and
plotters for computer graphics applications. Mr. Radak is a certified public
accountant.
Ted N. Tarbet was elected senior vice president and chief financial officer
in August 1993. Mr. Tarbet joined Sunrise in 1986 as corporate controller. In
1988 he was made a vice president of the company and in 1989 he was elected
to the position of vice president, chief financial officer and secretary.
From 1981 to 1986, Mr. Tarbet served as controller and then as vice president
and chief financial officer of Anadex Inc., a manufacturer of personal
computer products. Mr. Tarbet is a certified public accountant.
15
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The company's common stock, $1 par value, trades on the New York Stock Exchange
under the symbol "SMD." The highest and lowest daily closing price for each
quarterly period during the last two fiscal years was as follows:
<TABLE>
<CAPTION>
Fiscal Year 1998 Fiscal Year 1997
------------------- -------------------
High Low High Low
---- --- ---- ---
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter 16 1/2 14 1/16 18 1/8 15 1/8
Second Quarter 16 9/16 14 3/4 15 7/8 13 5/8
Third Quarter 16 3/8 13 9/16 16 1/2 12 5/8
Fourth Quarter 16 3/16 14 1/8 15 10 1/8
Year 16 9/16 13 9/16 18 1/8 10 1/8
- --------------------------------------------------------------------------------------------------
</TABLE>
The number of holders of record of Sunrise common stock as of September 4,
1998 was 540. The company estimates it has approximately 6,100 beneficial
holders of its common stock. The closing price of the common stock on
September 4, 1998 was 8 3/8.
The company has not paid cash dividends to holders of its common stock and
has no plans to do so in the foreseeable future. Provisions of the company's
credit facility and senior notes restrict the payment of dividends.
16
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended
- ----------------------------------------------------------------------------------------------------------
July 3, June 27, June 28, June 30, July 1,
CONSOLIDATED RESULTS OF OPERATIONS DATA (1): 1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $ 657,169 $ 670,545 $ 675,417 $ 609,086 $ 474,284
Gross profit 205,538 222,739 225,788 210,154 171,744
Marketing, selling and administrative
expenses 155,998 162,504 172,847 145,148 111,159
Research and development expenses 17,919 17,483 16,265 14,587 11,555
Amortization of intangibles 8,440 8,273 8,686 6,823 5,435
Re-engineering expenses, merger
costs and unusual items 29,016 - 65,152 - -
Corporate operating (loss) income (5,835) 34,479 (37,162) 43,596 43,595
Interest expense 15,222 14,774 16,687 10,366 6,105
(Loss) income before taxes (11,802) 23,477 (51,749) 34,584 37,487
Net (loss) income $ (12,010) $ 12,114 $ (40,378) $ 19,956 $ 22,673
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Basic net (loss) income per share $ (0.55) $ 0.56 $ (1.89) $ 0.93 $ 1.08
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average shares outstanding 22,001 21,656 21,391 21,400 20,898
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Diluted net (loss) income per share $ (0.55) $ 0.55 $ (1.89) $ 0.93 $ 1.08
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average shares outstanding 22,001 21,933 21,391 21,556 21,054
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
CONSOLIDATED BALANCE SHEET DATA (1):
Working capital $ 107,579 $ 103,087 $ 107,193 $ 121,381 $ 103,035
Total assets 616,305 615,731 624,578 607,320 474,375
Long-term debt (2) 188,029 188,061 207,456 182,054 118,743
Stockholder's equity (3) $ 272,660 $ 283,692 $ 263,281 $ 301,731 $ 261,292
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
- ------------------------
(1) All financial data has been restated to reflect the 1998 acquisition
Sentient Systems, Inc., accounted for as a pooling-of-interests.
(2) Excludes current installments of long-term debt.
(3) The company did not declare cash dividends for the years 1994 through 1998.
17
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sunrise closed its fiscal year ended July 3, 1998 with worldwide revenues of
$657 million, a decrease of 2% from 1997. The company's fiscal year ends on
the Friday closest to June 30, resulting in years of either 52 or 53 weeks.
The year ended July 3, 1998 contained 53 weeks, while the years ended June
27, 1997 and June 28, 1996 each contained 52 weeks. Net sales grew 2% in 1998
after adjusting for the effects of foreign currency translation, divestitures
and acquisitions. The company reported a net loss of $12 million, after
re-engineering expense, compared to net income of $12.1 million in 1997. The
loss per share was $0.55 for 1998 compared to diluted net income per share of
$0.55 in 1997. Excluding re-engineering expenses and merger costs, the
company earned $5.4 million or $0.24 per share in 1998. All financial data
has been restated to reflect the 1998 acquisition of Sentient Systems, Inc.,
which has been accounted for as a pooling of interests.
In the fourth quarter of 1998, the company completed its multi-year,
company-wide re-engineering program and also concluded its merger with
Sentient Systems, Inc., now renamed DynaVox Systems (DynaVox). Approximately
$29 million in re-engineering expenses and merger costs were incurred during
1998 to complete these activities. The re-engineering expenses were
principally related to the implementation of computer system conversions, the
relocation of production activities and personnel and the disposition of
facilities and equipment. In addition, the company realigned certain
divisions at year end into three distribution channel focused operating
groups: the Home Healthcare Group (HHG), the global Continuing Care Group
(CCG) and European Homecare. The primary impact is that all product lines
sold through dealers or distributors in the U.S. will be handled by HHG,
while CCG will assume responsibility for representing all Sunrise products
sold directly to nursing homes and other healthcare institutions in the U.S.
and internationally. This re-alignment has been reflected in the following
tables and the related discussion of sales and expenses.
NET SALES ANALYSIS
Sales decreased 2% in 1998 to $657 million from sales of $671 in 1997,
following a decrease of 1% from sales of $675 million recorded in 1996. The
sale of the company's Comfort Clinic division in October 1996, marking the
company's exit from the consumer products market, reduced sales by 5% in
1997. The merger with DynaVox in April 1998 contributed $15 million or 2% of
net sales in 1998, 2% in 1997 and 1% in 1996. International sales accounted
for 39% of worldwide net sales, compared with 44% in 1997 and 42% in 1996.
The acquisition of Kid-Kart, Inc. in December 1996 increased sales by 1% in
1997. The acquisition of three European-based businesses between April and
October 1995 added 11% to the company's sales in 1996. Sunrise used
acquisitions during these periods to enhance existing businesses and expand
internationally.
Fluctuations of foreign currency rates decreased overall net sales by 3% in 1998
and 1% in 1997 while increasing net sales by approximately 1% in 1996. The
impact of foreign currency
18
<PAGE>
fluctuations on net sales is not necessarily indicative of the impact on
operating results due to the offsetting foreign currency impact on costs and
expenses and the company's hedging activities. (See Note 1 to the
consolidated financial statements for the company's accounting policies for
foreign currency instruments.)
Internal sales growth of 2% from 1997 to 1998 was primarily the result of
continued unit sales increases partially offset by generally declining prices
due to pricing pressures and to a change in the product mix to lower-priced
products. Internal growth of 5% from 1996 to 1997 was primarily the result of
unit sales increases. Average selling prices in a number of major product
lines declined in 1997, primarily due to healthcare cost containment
pressures.
Healthcare cost reduction continues to be pursued in the United States and
Europe, causing downward pressure on the company's prices. Management
believes that it is appropriately reducing its cost structure through a
strategic re-alignment and by consolidating business units, factories and
salesforces.
A summary of sales by business group as a percentage of total
net sales follows:
ANALYSIS OF PRODUCT LINE SALES CONTRIBUTION ($ in millions)
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Home Healthcare Group $ 344 53% $ 329 49% $ 315 47%
Continuing Care Group 80 12% 84 13% 90 13%
DynaVox 15 2% 14 2% 8 1%
European Homecare 218 33% 230 34% 218 32%
Comfort Clinic (1) - - 14 2% 44 7%
------ ------ ------ ----- ------ ------
Total $ 657 100% $ 671 100% $ 675 100%
------ ------ ------ ----- ------ ------
------ ------ ------ ----- ------ ------
</TABLE>
(1) Divested in October 1996
Net sales of the Home Healthcare Group (HHG) reached record levels in each of
the last three years, growing 5% to $344 million in 1998, after an increase
of 4% to $329 million in 1997 from sales of $315 million in 1996. Strong
sales of mobility products led the increase in 1998, while respiratory and
personal care products advanced only modestly. Respiratory sales were
negatively impacted by the Balanced Budget Act of 1997, which reduced
reimbursement for oxygen concentrator rentals beginning January 1, 1998,
causing respiratory dealers to delay their purchases of equipment for their
rental fleets. Growth in custom wheelchair sales was attributed primarily to
strong sales of standard lightweight manual wheelchairs. Sales of respiratory
products led the increase in 1997, followed by custom wheelchairs and
personal care products. Average selling prices decreased primarily as a
result of the increase in discounts to large national accounts and to a
change in the product mix to lower priced products.
19
<PAGE>
Continuing Care Group (CCG) sales decreased 5% in 1998 to $80 million. This
followed a decline of 7% in 1997 to $84 million. Although 1998 unit volume
increased in sales of beds, patient room furniture and bathing systems, these
were partially offset by a decline in unit sales of accessories. Generally,
in 1998, average selling prices declined as a result of a change in mix to
lower-priced products, while the decrease in unit sales of accessories was
attributed to customers' purchasing fewer of them with their new bed orders.
The decline in sales in 1997 was attributed to the decline of average selling
prices as a result of growth in large national contracts, while the decrease
in unit sales of patient furniture was attributed to the shift in new
construction funding from nursing homes to assisted living centers. Unit
volume sales of bathing systems also declined in 1997, primarily due to the
discontinuation of several products. In order to address the decline in sales
at CCG, the company has taken a number of steps, including implementing
management changes, introducing new products and aggressively seeking new
business such as a supply contract, won from a competitor, to serve all
public healthcare institutions in Paris, France.
The acquisition of DynaVox contributed $15 million to net sales in 1998, an
increase of 11% from 1997. Sales grew 75% to $14 million in 1997. The
increases each year were primarily the result of the introduction of new
products. DynaVox introduced eight new products in the fourth quarter of 1998
that led to a build-up in backlog at year-end.
Sales in Europe decreased by 5% in 1998 to $218 million following an increase
of 5% in 1997 to $230 million from $218 million in 1996. In 1998, overall
European unit sales volumes were up on relatively flat prices, partially
offset by a shift in product mix to lower-priced products. Sales were also
negatively impacted by disruptions related to the consolidation of four
factories in the U.K. and unfavorable foreign currency exchange rates. The
impact on European sales of these unfavorable rates was 6% in 1998 and 4% in
1997 while in 1996 the rates had a favorable impact of 1%. Excluding the
impact of acquisitions and foreign currency exchange movements, sales grew by
1% in 1998 after growth of 5% in 1997. In 1998 sales growth within Europe was
strongest in France, Spain, and the company's country distribution
organizations. Overall, during 1997, European unit sales volumes increased
from their 1996 levels, while average selling prices were lower than prior
years' in several markets due to increasing discounts to dealers. Product
sales growth was led by custom wheelchairs, which remained the largest
European product line and demonstrated modest volume increases. Personal care
products and beds also contributed to the total growth in sales in 1997,
while respiratory sales declined, primarily due to the termination of a
distribution agreement Sunrise had with another manufacturer.
EXPENSE AND PROFIT ANALYSIS
In 1998, gross margin (gross profit as a percentage of net sales) decreased
1.9% to 31.3% and .2% to 33.2% in 1997. Gross margin in a number of domestic
product lines was adversely affected by market pricing pressures and product
mix shifts indirectly driven by the growth of managed healthcare and
consolidation of the company's customer base. In Europe, gross margins were
adversely affected by unfavorable foreign exchange rates, the disruptive
impact of factory consolidations and the growth of buying groups.
20
<PAGE>
Marketing, selling and administrative expenses decreased .5% as a percentage
of net sales in 1998, after a decrease of 1.4% in 1997. Marketing, selling
and administrative expenses for 1998 include costs estimated to be
approximately $2.3 million for positions duplicated temporarily during the
consolidation of divisions. In 1997 one-time costs of $1.4 million were
included in this category for the company's sponsorship of the 1996 Atlanta
Paralympic Games. Excluding these costs, marketing, selling and
administrative expenses decreased to 23.4% of net sales in 1998, from 24.0%
of net sales in 1997 and 25.6% in 1996.
Research and development (R&D) expenses increased 2% to $17.9 million in 1998
following an increase of 7% in 1997. The growth in R&D spending has been
slightly ahead of sales growth and continues to reflect the company's focus
on applying new technologies to address unmet user needs, lower product costs
and enhance existing products. Management believes that investing significant
resources in R&D will result in future revenue growth and market share gains.
The following is a summary of expenses and profits as a percentage of net
sales:
<TABLE>
<CAPTION>
% Increase
(Decrease)
-----------------------
($ in millions) 1998 1997 1996 1998/97 1997/96
- -------------------------------------------------------------------------------------------------------------------------
Net sales $ 657.2 $ 670.5 $ 675.4 (2)% (1)%
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gross profit 205.5 222.7 225.8 (8)% (1)%
% of net sales 31.3% 33.2% 33.4%
Marketing, selling and
administrative expenses 156.0 162.5 172.8 (4)% (6)%
% of net sales 23.7% 24.2% 25.6%
Research and development expenses 17.9 17.5 16.3 2% 7%
% of net sales 2.7% 2.6% 2.4%
Amortization of goodwill
and other intangibles 8.4 8.3 8.7 2% (5)%
% of net sales 1.3% 1.2% 1.3%
Re-engineering expenses,
merger costs and unusual items 29.0 - 65.2 * *
% of net sales 4.4% 9.6% - -
- -------------------------------------------------------------------------------------------------------------------------
Corporate operating (loss) income (5.8) 34.5 (37.2) * *
% of net sales (0.9)% 5.1% (5.5)%
Interest expense 15.2 14.8 16.7 3% (11)%
% of net sales 2.3% 2.2% 2.5%
Interest income and other, net 9.3 3.8 2.1 145% 81%
% of net sales 1.4% 0.6% 0.3%
- -------------------------------------------------------------------------------------------------------------------------
(Loss) income before income taxes (11.8) 23.5 (51.8) * *
% of net sales (1.8)% 3.5% (7.7)%
Income tax expense (benefit) 0.2 11.4 (11.4) * *
% of (loss) income before taxes 1.8% 48.4% (22.0)%
- -------------------------------------------------------------------------------------------------------------------------
Net (loss) income $ (12.0) $ 12.1 $ (40.4) * *
% of net sales (1.8)% 1.8% (6.0)%
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Percentage not meaningful
21
<PAGE>
In January 1997, the company announced the consolidation of its five U.S.
homecare divisions into the Home Healthcare Group based in Longmont,
Colorado, and also initiated a series of consolidations of European
operations. These actions were designed to improve manufacturing and
marketing efficiencies while reducing operating costs. Pre-tax charges of
$4.7 million were incurred in 1997 in connection with these consolidations.
Approximately $27 million in non-recurring costs were incurred during 1998 to
complete these activities. In addition, the company merged with DynaVox in
April 1998. Merger related expenses incurred were approximately $2 million.
Of the total charges of $29 million incurred in 1998, approximately $23
million required cash payments and $6 million represented non-cash charges.
In 1996, after an intensive review of the company's businesses, settlement of
stockholder litigation related to the announcement of the investigation of
accounting practices in its support surfaces business, subsequent
restatement of the company's 1995 and 1994 financial statements, and the
initiation of a major plan of reorganization, the company recorded pre-tax
charges from unusual items of $65.2 million. These charges included: $18.6
million for costs of the internal investigation, restatement, and reissuance
of historical financial statements and the settlement of related litigation,
including attorneys' fees; $27.6 million for the write-down of assets at Bio
Clinic and Comfort Clinic to reflect revised estimates of net asset
realizations, including goodwill; and $19.0 million related to the company's
reorganization and cost reduction program (including severance costs of $3.2
million). Of the total charges of $65.2 million, approximately $36.2 million
required cash payments and $29.0 million represented non-cash charges. During
1997, these reserves were adjusted downward by $4.6 million because of lower
than expected costs to relocate operations and to write down assets to be
sold.
Corporate operating income (excluding re-engineering expenses, merger costs
and unusual items) decreased to 3.5% of sales in 1998, compared to 5.1% in
1997, primarily due to the decline in the gross margin to 31.3% from 33.2% in
1997. The improvement to 5.1% in 1997 was primarily due to the decrease in
marketing, selling and administrative expenses and the improvement in the
support surfaces business.
Interest expense increased by 3% in 1998 to $15.2 million following a
decrease of 11% to $14.8 million in 1997. Higher interest rates caused by
less favorable terms in the company's credit agreement and higher interest
rates for the new senior notes, which fixed interest rates for seven to 10
years, contributed to the increase in interest expense in 1998. The 1997
reduction resulted from lower average borrowings during 1997, as well as
lower average interest rates.
Interest income increased 8.5% in 1998 to $3.7 million after an increase of
17.2% in 1997, reflecting the growth in installment receivables in 1997 and
interest resulting from an income tax refund. Management believes that the
wide range of installment financing plans offered by its SunMed Finance
subsidiary is an important contributor to its market position in the U.S.
home healthcare market.
22
<PAGE>
Other income (expense), net increased to $5.6 million in 1998 from $.4
million in 1997 primarily as a result of the receipt of a legal settlement
payment of $4.4 million and approximately $.5 million from the sale of a
facility.
In 1998, the company's tax expense was $208,000 compared to tax expense of
$11.4 million in 1997 and a tax benefit of $11.4 million in 1996. The
effective tax rates of 1.8%, 48.4% and (22.0)% differ from the U.S. corporate
tax rate of 35% primarily because of non-deductible goodwill amortization. In
addition to the goodwill impact, the effective tax rate of 1.8% in 1998 on a
loss of $12.0 million was also driven by tax expense recorded on pre-tax
income in certain foreign jurisdictions with high tax rates.
The net loss in 1998 was $12.0 million or (1.8)% of net sales compared to net
income in 1997 of $12.1 million. Excluding the after-tax impact of
re-engineering expenses and costs associated with the DynaVox merger in 1998,
net income was $5.4 million or 0.8% of net sales. In 1996, as a result of the
unusual item charges, the company incurred a net loss of $40.4 million.
The company attempts to minimize or offset the impact of inflationary
pressures on labor and raw material costs through increased sales volume,
improved productivity, active cost control measures, and, to a lesser extent,
increases in product pricing. The company believes that inflationary material
cost increases may continue and that the markets in which it sells its
products will remain price-sensitive, thereby limiting its ability to offset
higher costs with pricing actions.
FINANCIAL POSITION, CAPITAL RESOURCES AND LIQUIDITY
CASH FLOW
Primarily as a result of re-engineering expenditures, cash flows provided by
operations decreased to $8 million in 1998 from $40 million in 1997. Cash
flows provided by operations were $21 million in 1996.
Cash generation (defined as net income plus non-cash charges) has
historically been an important source of funding for capital spending,
working capital and acquisitions. Cash generation was $10 million in 1998,
reflecting the impact of re-engineering expenses and merger costs. This
compares to $44 million (366% of net income) in 1997 and $3 million in 1996.
The company also evaluates the results of operations of the business using
EBITDA, defined by the company as earnings (loss) before interest, taxes,
depreciation and amortization. Excluding re-engineering expenses, merger
costs and unusual items, EBITDA was $56 million, $65 million and $58 million
in 1998, 1997 and 1996, respectively.
As noted above, the unusual item charges in 1996 included $36.2 million
requiring the payment of cash, of which $4.1 million was paid in 1998, $9.9
million in 1997 and $18.8 million in 1996. Management estimates that the
remaining liability of $3.4 million will be paid out in 1999 of the total
charges of $29 million incurred in 1998 approximately $23 million was paid in
cash, and the remaining $6 million is expected to be paid in 1999.
23
<PAGE>
CAPITAL EXPENDITURES
Capital spending in 1998 was $15.6 million, approximately equal to
depreciation expense, compared to $29.5 million, in 1997, or 164% of
depreciation expense and $19 million in 1996, which was approximately equal
to depreciation expense. Significant investments made in 1998 include
leasehold improvements, enhancements in machinery and equipment and new
product tooling, and computer hardware and software for the conversions
taking place throughout the company. The company expects capital expenditures
in 1999 to be higher than in 1998.
ACQUISITIONS
On April 13, 1998, the company exchanged approximately 2.7 million shares of
common stock valued at approximately $40 million for all of the outstanding
common stock of Sentient Systems Technology, Inc., now named DynaVox Systems,
a manufacturer of augmentative communication devices and software for persons
affected by speech disabilities. The transaction was accounted for as a
pooling of interests.
On November 20, 1997, the company completed the acquisition of Mechanical
Application Designs, Inc. (MADI), a manufacturer of tilt/recline seating
systems, for approximately 100,000 shares valued at $1.6 million and cash of
$.4 million. The transaction was accounted for as a purchase. Pro forma
results of operations giving effect to the acquisition as though it had
occurred on June 28, 1997 would not differ materially from amounts reported.
On December 27, 1996, the company acquired Kid-Kart, Inc., a manufacturer of
pediatric positioning strollers and other dependent mobility products, for
416,000 shares of common stock valued at $6.5 million and cash of $.5
million. The transaction was accounted for as a purchase. Pro forma results
of operations giving effect to the acquisition as though it had occurred on
July 1, 1995 would not differ materially from amounts reported.
CAPITAL STRUCTURE AND LEVERAGE
The company's capital structure consists of two primary components:
stockholders' equity and long-term debt. Stockholders' equity was $272.7
million at the end of 1998, a decrease of $11.0 million from the prior
year-end primarily from the net loss of $12.0 million incurred during the
year.
24
<PAGE>
<TABLE>
<CAPTION>
ANALYSIS OF LONG-TERM DEBT
1998 1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed-rate debt as a percentage of total debt
at year-end 93% 69% 66%
Foreign denominated debt as a percentage
of total debt at year-end 36% 58% 56%
Weighted average annual interest rate 7.8% 7.4% 7.8%
Interest coverage (before unusual items) 1.5 x 2.2x 1.6x
- --------------------------------------------------------------------------------------------------
</TABLE>
Long-term debt, excluding current installments, of $188 million at July 3,
1998, was approximately equal to long-term debt at June 27, 1997. The ratio
of debt to total capitalization increased to 41% at year-end, compared to 40%
at the end of 1997.
Sunrise attempts to minimize interest expense while also managing exposure to
variable interest rates by employing interest rate exchange agreements, or
swaps, to convert its bank borrowings from floating rate into the equivalent
of fixed rate debt. However, as a policy Sunrise does not use interest rate
swaps or any other derivatives that have a level of complexity or risk which,
in the judgment of Sunrise's management, is higher than the exposure to be
hedged. The company does not hold or issue such instruments for trading
purposes.
Sunrise has used foreign-denominated borrowings from its multi-currency
credit facility to hedge against foreign currency balance sheet exposures
that would otherwise result from changes in currency values. Total
foreign-denominated debt at year-end was $68 million in 1998 compared to $112
million and $119 million in 1997 and 1996, respectively.
On October 28, 1997, the company completed a private placement of $100
million of senior notes, $50 million maturing after seven years and bearing
interest at 7.09%, with the remaining $50 million maturing after 10 years at
an interest rate of 7.25%. The proceeds of this debt issuance were used to
reduce the outstanding debt on the company's unsecured multi-currency credit
facility.
The company's multi-currency credit facility, amended as of July 3, 1998,
provides for maximum borrowings of $120 million, declining to $115 million in
January 2000, and maturing in January 2001. The company must comply with
certain covenants, such as the maintenance of leverage ratio and interest
coverage, minimum levels of tangible net worth, and certain restrictions on
acquisitions. As of July 3, 1998 the company had approximately $46 million of
funds available from the credit facility.
25
<PAGE>
FOREIGN CURRENCY RISK MANAGEMENT
Operating on a global basis requires a posture of active currency risk
management. To finance imports and exports, the company utilizes a variety of
foreign currencies that are constantly shifting in relative value. The
company engages in hedging activities to reduce potential transaction losses
on net cash flows and balances denominated in these currencies. These amounts
can arise from cross-border trade flows or intercompany financing
transactions. The company's financial statements are also affected by foreign
currency translation fluctuations. These distort the comparative results of
foreign operations when they are translated into U.S. dollars using
dissimilar rates.
In contrast to transaction gains or losses, translation adjustments are not
the result of a cash exchange of currencies and, therefore, do not give rise
to a direct economic gain or loss. In these cases the costs to execute hedges
would exceed any consistently realizable tangible benefits. Consequently,
Sunrise does not commit economic resources to hedge against the potential
effect of foreign currency translation fluctuations. It believes that the
best long-term protection of stockholder value is to do business in a broad
number of currencies.
DIVIDEND POLICY
While provisions of the company's credit facility and senior notes restrict
the payment of dividends, the company's present policy is to use available
cash flow for reinvestment in its core businesses, for future acquisitions
and for debt reduction rather than to pay a cash dividend. This policy
reflects an appraisal by management and the Board of Directors, which
includes the company's largest stockholder, of the attractiveness of the
company's investment opportunities and their confidence in its ability to
increase economic value for its stockholders through cash retention and
reinvestment. This policy is reviewed periodically as industry conditions
change. Provisions of the company's credit facility and senior notes
currently restricts the payment of dividends.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products in use around
the world today are coded to accept only two digit entries in the date code
field. These date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. This could result in
system failures or miscalculations causing disruptions of operations
including, among other things, a temporary inability to process transactions,
send invoices or engage in similar normal business activities. As a result,
many companies' software and computer systems may need to be upgraded or
replaced in order to comply with such "Year 2000" requirements.
A corporate oversight task force is in operation at Sunrise to address Year
2000 issues. Milestones have been established and detailed plans are actively
being implemented so that Sunrise research programs, products and internal
computer, financial, manufacturing and other infrastructure systems are
reviewed, and the necessary changes are addressed. Corporate and divisional
staff, including the company's internal auditors, are performing independent
reviews and evaluations of equipment and systems to verify compliance.
Additionally, Sunrise customer and supplier relationships are being reviewed
to assess and address Year 2000 issues. The company has undertaken internal
reviews to assess Year 2000 issues related to Sunrise products.
26
<PAGE>
During 1998, all Sunrise information processing operations in the U.S. were
consolidated onto two system platforms from 10 original legacy systems. In
Europe, the conversion of Sunrise operations to a common Year 2000 compliant
system is complete in the U.K. and France, with the conversions for Germany,
Spain and the outlying distribution companies scheduled to be completed by
mid-calendar 1999.
Due to the mechanical nature and the absence of date-dependent functions in
most products manufactured and sold by Sunrise, Year 2000 compliance is
virtually assured. Those products with date functions will be analyzed and
tested by the company's engineering and quality assurance staff by
mid-calendar 1999 to determine whether they will be in any way affected by
the Year 2000 situation. While the company is taking numerous steps to ensure
that all products are Year 2000 compliant and to make information on the Year
2000 readiness of Sunrise products available to its customers, there is no
way to fully guarantee that the company will be completely successful in
either case.
Also, Sunrise is requesting assurances from its major suppliers that they are
addressing this issue and that products procured by Sunrise will function
properly in the Year 2000. Year 2000 compliance is a requisite for achieving
and maintaining Approved Supplier status. Certain critical suppliers have
been unwilling to provide such assurances and do not expect to provide such
assurances prior to the Year 2000. Other critical suppliers do not expect to
be able to provide such assurances until 1999. In both instances, this is
particularly the case outside of the United States where Sunrise has
significant operations. This could result in manufacturing delays and
backlogs. In addition, many governmental agencies (including agencies which
directly or indirectly provide funding for the purchase of products sold by
Sunrise) and other third parties (such as telephone, electricity and other
utility companies) may not be Year 2000 compliant. As a result, it is
difficult for the company to assess the likelihood, or the impact on its
business, of such entities' failure to be Year 2000 compliant.
The company anticipates that its systems, equipment and processes will be
substantially Year 2000 compliant by the end of June 1999. Although a budget
has been established, the cost to the company of achieving Year 2000
compliance is evolving; however, it is not expected to have a material effect
on the company's financial condition or results of operations. The company
currently expects that the Year 2000 issue will not pose significant
operational problems. However, delays in the company's remediation efforts,
or a failure to timely identify all Year 2000 dependencies in the systems,
equipment or processes of the company, its vendors, customers, financial
institutions or other third parties could have material adverse consequences,
including delays in the manufacture, delivery or sale of products. The
company is in the process of developing contingency plans along with its
remediation efforts for continuing operations in the event such problems
arise, but no assurances can be given that the company will be fully
successful in this regard.
27
<PAGE>
RECENT ACCOUNTING DEVELOPMENTS
The company intends to adopt Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" (SFAS 130), and Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise
and Related Information" (SFAS 131), in 1999. Both standards will require
additional disclosure, but will not have a material effect on the company's
financial position or results of operations. SFAS 130 establishes standards
for the reporting and display of comprehensive income and is expected to
first be reflected in the company's first quarter of 1999 interim financial
statements. Components of comprehensive income include items such as net
earnings, foreign currency translation adjustments and changes in value of
available-for-sale securities. SFAS 131 changes the way companies report
segment information and requires segments to be determined and reported based
on how management measures performance and makes decisions about allocating
resources. SFAS 131 will first be reflected in the company's 1999 Annual
Report.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging Activities", which establishes accounting and
reporting standards for derivative instruments and hedging activities. SFAS
133 requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. The Statement is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. Earlier application of the
Statement is permitted. Adoption of SFAS 133 is not expected to have a
material effect on the company's financial position or results of operations.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
The company has made forward-looking statements in this report, including the
estimated benefits to be realized from the consolidation of various Sunrise
divisions worldwide, timing of the completion of the conversion of European
computer systems and the level of future capital expenditures. These
statements are only predictions. Actual events or results may differ
materially as a result of risks and uncertainties facing the company
including:
COMPETITION - The company encounters significant competition domestically
from a number of well-established manufacturers in each of its product lines,
and from foreign sources for some products. In certain countries and product
markets, including the United States, the company may face competition from
other manufacturers that have larger market shares or other competitive
advantages.
PRICING PRESSURES - The growth in national chains and buying groups among
home medical equipment providers has caused manufacturers, including the
company, to reduce their effective prices by offering increased volume
discounts. The increasing penetration of managed care into the home medical
equipment industry is exacerbating this trend. If the company is unable to
achieve sufficient manufacturing and technological efficiencies to offset any
future price reductions, its profit margins will be adversely affected.
RE-ENGINEERING PROGRAM - The company has completed its three-year corporate
re-engineering program that has consolidated its domestic and European
divisions and its U.S. salesforces. In
28
<PAGE>
1998, the company invested approximately $27 million in this program, including
the costs of new and upgraded management information systems necessary to
support the newly consolidated operations. These investments are expected to
result in future cost reductions and operating efficiencies. However, there is
no assurance that the anticipated re-engineering savings and efficiencies will
in fact be achieved.
RAW MATERIAL COSTS - Historically, prices paid for certain raw materials,
such as aluminum, steel and foam, have fluctuated. When prices have
increased, the company has not always been able to pass along the full effect
of such increases to its customers in order to maintain or enhance its market
position.
NEW PRODUCTS - The company's future results will depend in part on its
ability to enhance existing products and to introduce new products on a
timely and cost-effective basis that meet evolving customer requirements.
Delays in introduction or a disappointing market acceptance could have an
adverse effect on the company's business.
MEDICARE/MEDICAID FUNDING - The U.S. healthcare industry is heavily reliant
upon extensive government regulation and funding at the federal and state
levels. The company is a provider under Medicaid through our DynaVox
division. The company is not a provider under Medicare or Medicaid for its
homecare or extended care products. However, such products are sold to home
medical equipment ("HME") providers, nursing homes and hospitals that are
providers under these programs and do depend upon Medicare and/or Medicaid
reimbursement for a portion of their revenue. Changes in Medicare/Medicaid
regulations could adversely impact the company's revenues and collections
indirectly by reducing the reimbursement rate received by providers and thus
make it less profitable for them to sell or rent products to the end-user.
This, in turn, can put downward pressure on prices charged for the company's
products sold through this channel. (See "Business-Government Funding and
Regulation.")
GOVERNMENT REGULATION - Medical equipment manufactured or sold by the company
in the U.S. is subject to regulation by the U.S. Food and Drug Administration
("FDA"). All such medical devices must be the subject of device listings
filed with the FDA, and medical device manufacturers must be registered.
Certain products require clearance by the FDA prior to marketing and
distribution in the United States. Delays in receiving such approval could
adversely affect the company's ability to introduce new products on a timely
basis, and could impact the company's results of operations and financial
condition. In addition, the company and its products are subject to similar
regulation in other countries.
INTERNATIONAL OPERATIONS - A significant portion of the company's sales in
recent years has been derived from its international operations. The
company's international financial results could be significantly affected by
such factors as: government budgetary pressures and payment policies for
healthcare products, difficulties in staffing and managing foreign
operations, the conversion of certain European countries to the Euro currency
and other risks associated with international activities.
YEAR 2000 - The information about the Year 2000 status of Sunrise Medical
Inc. and its subsidiaries included in this report under the heading "Year
2000 Compliance" is believed to be accurate, but is presented for information
purposes only, and is not a contractual commitment or modification of any
contract that may exist between Sunrise and any third party.
29
<PAGE>
The company disclaims any obligation to update any of the above factors that
may affect future operating results to announce publicly the result of any
revisions to any of the forward-looking statements contained in this report
or to make corrections to reflect future events or developments.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN CURRENCY FORWARD CONTRACTS Although the majority of the company's
transactions are in U.S. dollars, some transactions are based in various
foreign currencies. The company purchases forward exchange contracts to hedge
the impact of foreign currency fluctuations on certain underlying assets,
liabilities and commitments for operating costs denominated in foreign
currencies. The purpose of entering into these hedge transactions is to
minimize the impact of foreign currency fluctuations on the results of
operations. A majority of the increases or decreases in the company's local
currency operating costs are offset by gains and losses on the hedges. The
contracts have maturity dates that do not normally exceed 12 months. The
unrealized gains and losses on these contracts are deferred and recognized in
the results of operations in the period in which the hedged transaction is
consummated. The company does not purchase short-term forward exchange
contracts for trading purposes.
As of July 3, 1998, the company had outstanding the following purchased
foreign currency forward contracts (in millions, except average contract
rate):
<TABLE>
<CAPTION>
Contract Weighted Average Unrealized
Amount Rate Against Sterling Gain (loss)
--------------------------------------------------------------
U.S. Dollar Equivalent Amounts -- Except Contract Rates
(in millions)
<S> <C> <C> <C>
Foreign currency forward contracts:
European Currency Unit $11.0 1.45 $0.3
Belgian Franc 0.3 58.41 -
U.S. Dollar 1.0 1.62 -
French Franc 2.1 9.54 0.1
Italian Lira 0.4 2,825.95 -
Norwegian Krone 1.1 12.10 0.1
Dutch Guilder 10.8 3.21 0.3
Swiss Franc 0.4 2.36 -
Swedish Krona 0.8 12.52 -
German Deutsche Mark 1.8 2.85 0.1
Spanish Peseta 2.1 242.65 -
---- ----
$31.8 $0.9
---- ----
---- ----
</TABLE>
All foreign currency forward contracts were for the purchase of British
Pounds Sterling.
INTEREST RATE SWAPS The company is exposed to interest rate risk through its
variable interest rate borrowing activities. The company uses interest rate
swap agreements to minimize the impact of interest rate fluctuations on
interest expense.
As of July 3, 1998, the company has the following interest rate swaps
outstanding:
<TABLE>
<CAPTION>
Contract Weighted Average Unrealized
Amount Interest Rate Gain (loss)
--------------------------------------------------------------
U.S. Dollar Equivalent Amounts (in millions)
<S> <C> <C> <C>
U.S. Dollar $30.0 5.63% $ -
French Franc 58.1 5.78% (1.5)
German Deutsche Mark 45.6 4.93% (0.4)
------ -----
$133.7 $(1.9)
------ -----
------ -----
</TABLE>
The interest rate swaps mature at varying dates from April 1999 through April
2001.
30
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following are included herein:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Management 32
Independent Auditors' Report 33
Consolidated balance sheets as of July 3, 1998 and June 27, 1997 34
Consolidated statements of operations for the years ended
July 3, 1998, June 27, 1997 and June 28, 1996 35
Consolidated statements of cash flows for the years ended
July 3, 1998, June 27, 1997 and June 28, 1996 36
Consolidated statements of stockholders' equity for the years ended
July 3, 1998, June 27, 1997 and June 28, 1996 37
Notes to consolidated financial statements 38
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
31
<PAGE>
REPORT OF MANAGEMENT
The management of Sunrise Medical Inc. is responsible for the preparation,
integrity and accuracy of the accompanying financial statements and related
information. The consolidated financial statements have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis and include amounts based on our best estimates and informed
judgments, as required.
Management maintains a comprehensive system of internal controls supported by
formal policies and procedures, a written code of business conduct, periodic
internal audits and management reviews. Although no cost-effective system
will preclude all errors and irregularities, we believe Sunrise Medical has
in place a system of internal controls which provides reasonable assurance
that assets are safeguarded against material loss from unauthorized use or
disposition, transactions are recorded in accordance with our policies, and
the financial information presented to our stockholders is reliable.
The Audit Committee of the Board of Directors is comprised solely of outside
directors. The Audit Committee meets periodically with the independent
auditors, our internal auditors and financial management to ensure that each
is carrying out its responsibilities. Both the independent auditors and the
internal auditors have free and direct access to the Audit Committee.
The company's independent auditors are recommended by the Audit Committee and
selected by the Board of Directors. The consolidated financial statements
have been audited by KPMG Peat Marwick LLP, who have expressed their opinion
elsewhere herein with respect to the fairness of the statements. Their audits
included a review of the system of internal control and tests of transactions
to the extent they considered necessary to render their opinion.
Richard H. Chandler
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Ted N. Tarbet
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
John M. Radak
VICE PRESIDENT AND CONTROLLER
32
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Sunrise Medical Inc.:
We have audited the accompanying consolidated balance sheets of Sunrise
Medical Inc. and Subsidiaries as of July 3, 1998 and June 27, 1997, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended July 3, 1998. In
connection with our audits of the consolidated financial statements, we have
also audited the financial statement schedule as listed in Item 14.a (2).
These consolidated financial statements and financial statement schedule are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Sunrise
Medical Inc. and Subsidiaries as of July 3, 1998 and June 27, 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended July 3, 1998 in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
/s/ KPMG Peat Marwick LLP
Los Angeles, California
August 19, 1998
33
<PAGE>
SUNRISE MEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
July 3, June 27,
ASSETS 1998 1997
- ------ -------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 931 $ 4,223
Trade receivables, net of allowance for doubtful
accounts of $8,155 and $5,075, respectively 121,967 115,986
Installment receivables, net 12,329 13,351
Income tax refunds receivable 4,013 3,794
Inventories 94,589 90,034
Deferred income taxes 19,288 11,343
Other current assets 3,622 3,729
---------- ----------
Total current assets 256,739 242,460
Property and equipment, net of accumulated
depreciation and amortization of $81,753 and $84,009,
respectively 85,804 91,534
Goodwill and other intangible assets, less accumulated
amortization of $50,691 and $39,440, respectively 266,815 274,435
Other assets, net 6,947 7,302
---------- ----------
Total assets $ 616,305 $ 615,731
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 3,753 $ 5,751
Trade accounts payable 48,723 48,107
Accrued compensation and other liabilities 93,890 83,308
Accrued income taxes 2,794 2,207
---------- ----------
Total current liabilities 149,160 139,373
Long-term debt, less current installments 188,029 188,061
Deferred income taxes 6,456 4,605
Stockholders' equity:
Preferred stock, $1 par. Authorized 5,000 shares; none issued - -
Common stock, $1 par. Authorized 40,000 shares; 22,151 and
21,885 shares, respectively, issued and outstanding 22,151 21,885
Additional paid-in capital 203,346 201,044
Retained earnings 46,994 59,004
Cumulative foreign currency translation adjustment 169 1,759
---------- ----------
Total stockholders' equity 272,660 283,692
---------- ----------
Total liabilities and stockholders' equity $616,305 $615,731
---------- ----------
---------- ----------
</TABLE>
(See accompanying notes to consolidated financial statements)
34
<PAGE>
SUNRISE MEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amount)
<TABLE>
<CAPTION>
Years Ended
---------------------------------------
July 3, June 27, June 28,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales $ 657,169 $ 670,545 $ 675,417
Cost of sales 451,631 447,806 449,629
--------- --------- ---------
Gross profit 205,538 222,739 225,788
Marketing, selling and administrative expenses 155,998 162,504 172,847
Research and development expenses 17,919 17,483 16,265
Amortization of goodwill and other intangibles 8,440 8,273 8,686
Re-engineering expenses, merger costs and
unusual items 29,016 - 65,152
--------- --------- ---------
Corporate operating (loss) income (5,835) 34,479 (37,162)
--------- --------- ---------
Other (expense) income:
Interest expense (15,222) (14,774) (16,687)
Interest income 3,659 3,372 2,878
Other income and expense, net 5,596 400 (778)
--------- --------- ---------
(5,967) (11,002) (14,587)
--------- --------- ---------
(Loss) income before income taxes (11,802) 23,477 (51,749)
Income tax expense (benefit) 208 11,363 (11,371)
--------- --------- ---------
Net (loss) income $ (12,010) $ 12,114 $ (40,378)
--------- --------- ---------
--------- --------- ---------
Basic (loss) earnings per share ($0.55) $0.56 ($1.89)
--------- --------- ---------
--------- --------- ---------
Weighted average number of shares outstanding 22,001 21,656 21,391
--------- --------- ---------
--------- --------- ---------
Diluted (loss) earnings per share ($0.55) $0.55 ($1.89)
--------- --------- ---------
--------- --------- ---------
Weighted average number of shares outstanding 22,001 21,933 21,391
--------- --------- ---------
--------- --------- ---------
</TABLE>
(See accompanying notes to consolidated financial statements)
35
<PAGE>
SUNRISE MEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except per share amount)
<TABLE>
<CAPTION>
Years Ended
-------------------------------------
July 3, June 27, June 28,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $(12,010) $ 12,114 $ (40,378)
Depreciation and amortization 15,510 17,987 19,219
Amortization of goodwill and other intangibles 8,440 8,273 8,686
Deferred income taxes (1,537) 5,983 (13,116)
Other non-cash items (508) - 28,978
Changes in asset and liabilities, net of effect
of acquisitions:
Trade receivables, net (4,526) 1,423 3,348
Installment receivables, net 474 (3,468) 2,476
Inventories (4,338) (8,398) 2,354
Other assets (5,581) 5,539 2,851
Accrued income taxes 587 135 (2,858)
Trade accounts payable and other liabilities 11,089 432 9,180
-------- -------- ---------
Net cash provided by operating activities 7,600 40,020 20,740
-------- -------- ---------
Cash flows from investing activities:
Purchase of property and equipment, net (15,571) (29,544) (19,173)
Proceeds from sale of property 6,363 - -
Proceeds from sales of businesses - 14,000 6,004
Net cash invested in acquisition of businesses (418) (856) (23,072)
-------- -------- ---------
Net cash used for investing activities (9,626) (16,400) (36,241)
-------- -------- ---------
Cash flows from financing activities:
Borrowings of long-term debt 235,393 125,185 192,134
Repayments of long-term debt (237,982) (146,986) (177,433)
Proceeds from issuance of common stock 1,012 458 284
-------- -------- ---------
Net cash (used for) provided by financing activities (1,577) (21,343) 14,985
-------- -------- ---------
Effect of exchange rate changes on cash 311 (11) (60)
-------- -------- ---------
Net (decrease) increase in cash and cash equivalents (3,292) 2,266 (576)
Cash and cash equivalents at beginning of year 4,223 1,957 2,533
-------- -------- ---------
Cash and cash equivalents at end of year $931 $4,223 $1,957
-------- -------- ---------
-------- -------- ---------
</TABLE>
(See accompanying notes to consolidated financial statements)
36
<PAGE>
SUNRISE MEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Cumulative
Common Stock Foreign Total
--------------------- Additional Currency Stock-
Number Paid-in Retained Translation holders'
of Shares Amount Capital Earnings Adjustment Equity
--------- --------- --------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1995 21,178 $ 21,178 $ 188,620 $ 87,268 $ 4,665 $ 301,731
-------- --------- --------- --------- ---------- ---------
Exercise of stock options, including
associated tax benefits, net 27 27 246 - - 273
Issuance of stock for acquisitions 223 223 5,705 - - 5,928
Net loss - - - (40,378) - (40,378)
Foreign currency translation
adjustment - - - - (4,273) (4,273)
-------- --------- --------- --------- ---------- ---------
Balance at June 28, 1996 21,428 21,428 194,571 46,890 392 263,281
-------- --------- --------- --------- ---------- ---------
Exercise of stock options, including
associated tax benefits 41 41 405 - - 446
Issuance of stock for acquisition 416 416 6,068 - - 6,484
Net income - - - 12,114 - 12,114
Foreign currency translation
adjustment - - - - 1,367 1,367
-------- --------- --------- --------- ---------- ---------
Balance at June 27, 1997 21,885 21,885 201,044 59,004 1,759 283,692
-------- --------- --------- --------- ---------- ---------
Exercise of stock options, including
associated tax benefits, net 166 166 846 - - 1,012
Issuance of stock for acquisitions 100 100 1,456 - - 1,556
Net loss - - - (12,010) - (12,010)
Foreign currency translation
adjustment - - - - (1,590) (1,590)
-------- --------- --------- --------- ---------- ---------
Balance at July 3, 1998 22,151 $ 22,151 $203,346 $ 46,994 $ 169 $272,660
-------- --------- --------- --------- ---------- ---------
-------- --------- --------- --------- ---------- ---------
</TABLE>
(See accompanying notes to consolidated financial statements)
37
<PAGE>
SUNRISE MEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY Sunrise Medical Inc. (the "company") designs, manufactures and
markets medical products used in homecare and extended care settings that
address the recovery, rehabilitation, and respiratory needs of the patient.
Products include custom, manual and electric wheelchairs, wheelchair seating
systems, ambulatory and bath safety aids, home respiratory devices,
patient-room beds and furnishings, and therapeutic mattresses and support
surfaces and assistive technology products. The company's products are
designed to meet the special needs of four groups of people: the elderly, the
disabled, the recovering patient, and the respiratory sufferer.
BASIS OF PRESENTATION The consolidated financial statements include domestic
and foreign subsidiaries. All material intercompany profits, balances and
transactions have been eliminated. Accounts denominated in foreign currencies
have been translated using year-end exchange rates for assets and
liabilities, while revenues and expense are translated at exchange rates
prevailing during the year. Adjustments for foreign currency translation
fluctuations are deferred as a separate element of consolidated stockholders'
equity. As described more fully in Note 4, on April 13, 1998 the company
merged with Sentient Systems, Inc. , now renamed DynaVox Systems, Inc.
(DynaVox). The merger was accounted for as a pooling-of-interests and,
accordingly, the consolidated financial statements reflect the combined
financial position and operating results of the company and DynaVox for all
periods presented.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management estimates and assumptions that
affect amounts reported in the financial statements and accompanying notes.
Actual results could differ from management's estimates.
FISCAL YEAR END The company's fiscal year ends on the Friday closest to June
30, resulting in years of either 52 or 53 weeks. The year ended July 3, 1998
included 53 weeks, while the years ended June 27, 1997 and June 28, 1996 each
contained 52 weeks.
INVENTORIES Certain inventories are stated at the lower of last-in, first-out
(LIFO) cost or market value. All other inventories are stated at the lower of
first-in, first-out (FIFO) cost or market value.
PROPERTY AND EQUIPMENT Property and equipment are stated at cost and
depreciated over estimated useful lives by the straight-line or declining
balance methods. Assets recorded under capital leases and leasehold
improvements are amortized over the shorter of their useful lives or the
related lease terms by the straight-line method. The estimated useful lives
are five to 40 years for buildings and improvements and two to 10 years for
machinery and equipment.
38
<PAGE>
GOODWILL The excess of purchase price over the fair value of net assets of
acquired businesses (goodwill) is amortized on a straight-line basis over
periods of 20 to 40 years, depending on the nature and type of business
acquired.
LONG-LIVED ASSETS Effective with the first quarter of 1997, the company
adopted Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." The statement requires that impairment losses be recorded on long-lived
assets used in operations, such as property and equipment and intangible
assets, when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the carrying
amount of the assets. This loss is measured by the difference between
carrying amounts and estimated fair values.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK In the ordinary course of
business and as part of the company's asset and liability management, the
company enters into various types of transactions that involve contracts and
financial instruments with off-balance-sheet risk. These transactions are
entered into in order to manage financial market risk, primarily interest
rate and foreign exchange risk. The company enters into these transactions
with major international financial institutions utilizing over-the-counter as
opposed to exchange traded instruments. These transactions are entered into
only for purposes of risk management.
Sunrise attempts to minimize interest expense while also managing its
exposure to variable interest rates by employing interest rate agreements, or
swaps, to convert bank borrowings from floating rate into the equivalent of
fixed rate debt. Sunrise has used foreign-denominated borrowings from its
multi-currency credit facility to hedge against foreign currency balance
sheet exposures that would otherwise result from changes in currency values.
The company enters into foreign exchange forward and option contracts with
financial institutions primarily to protect against currency exchange risks
associated with existing assets and liabilities, and certain firmly committed
transactions, as well as probable but not firmly committed transactions. In
addition, the company has entered into foreign exchange forward contracts to
hedge certain intercompany loan transactions between European divisions. The
company's foreign exchange risk management policy calls for it to hedge
substantially all of its existing material foreign exchange transaction
exposures. However, the company may not hedge certain foreign exchange
transaction exposures that are immaterial either in terms of their minimal
U.S. dollar value or in terms of their historically high correlation with the
U.S. dollar.
Probable but not firmly committed transactions comprise sales of the
company's products in currencies other than the U.S. dollar. A majority of
these non-U.S. dollar-based sales are made through the company's subsidiaries
in the U.K. and Europe. The duration of foreign exchange hedging instruments,
whether for firmly committed transactions or for probable but not firmly
committed transactions, currently does not exceed one year.
Interest rate and foreign exchange instruments generally qualify as
accounting hedges if their maturity dates are the same as the hedged
transactions and if the hedged transactions meet certain
39
<PAGE>
requirements. Sold interest rate and foreign exchange instruments do not
qualify as accounting hedges. Gains and losses on accounting hedges of
existing assets or liabilities are generally recorded currently in income or
stockholders' equity against the losses and gains on the hedged transactions.
Gains and losses related to qualifying accounting hedges of firmly committed
or probable but not firmly committed transactions are deferred and recognized
in income in the same period as the hedged transactions. Gains and losses on
interest rate and foreign exchange contracts that do not qualify as
accounting hedges are recorded currently in income. Gains and losses on
accounting hedges realized before the settlement date of the related hedged
transaction are also generally deferred and recognized in income in the same
period as the hedged transactions.
The company monitors interest rate and foreign exchange positions based on
applicable and commonly used pricing models. The correlation between the
changes in the fair value of hedging instruments and the changes in the
underlying hedged items is assessed periodically over the life of the hedged
instrument. In the event that it is determined that a hedge is ineffective,
including if and when the hedged transactions no longer exists, the company
recognizes in income the change in market value of the instrument beginning
on the date it was no longer an effective hedge.
Further information regarding the company's accounting treatment of its
financial instruments may be found in Note 8 - "Derivatives."
REVENUE RECOGNITION The company recognizes revenue from product sales upon
shipment and provides an appropriate allowance for estimated returns and
adjustments.
WARRANTY COSTS Certain products are covered by warranties against defects in
material and workmanship for periods of up to five years. Components of
certain products carry a lifetime warranty. The estimated warranty cost is
recorded at the time of sale and is adjusted periodically to reflect actual
experience.
RESEARCH AND DEVELOPMENT COSTS Research and development costs relate to both
present and future products and are expensed in the year incurred.
STOCK-BASED COMPENSATION Statement of Financial Accounting Standards No. 123
(SFAS 123), "Accounting for Stock-Based Compensation," encourages but does
not require companies to record compensation cost for stock-based employee
compensation plans at fair value. The company has chosen to present required
disclosures and to continue to account for stock-based employee compensation
using the method prescribed in Accounting Principles Board Opinion No. 25
(APB 25), "Accounting for Stock Issued to Employees." Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
quoted market price of the company's stock at the date of grant over the
amount an employee must pay to acquire the stock.
NET INCOME (LOSS) PER SHARE The company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" (SFAS 128) in 1998. SFAS
128 simplifies the computation of earnings per share ("EPS") previously
required in Accounting Principles Board (APB) Opinion No. 15, "Earnings Per
Share," by replacing primary and fully diluted EPS with basic and diluted
EPS. Under SFAS 128, basic EPS is calculated by dividing net earnings (loss)
by the weighted-average common shares outstanding during the period. Diluted
EPS reflects the
40
<PAGE>
potential dilution to basic EPS that could occur upon conversion or exercise
of securities, options, or other such items, to common shares using the
treasury stock method based upon the weighted-average fair value of the
company's common shares during the period. Earnings per share for prior
periods have been restated in accordance with SFAS 128. See Note 13 "Net
Income (Loss) Per Share" for computation of EPS.
CASH FLOW INFORMATION Cash payments for interest in 1998, 1997 and 1996 were
$14,380, $14,200, and $16,079, respectively. Cash payments of $5,696, $11,740
and $8,842 were made for income taxes in 1998, 1997 and 1996, respectively.
The company received income tax refunds of $6,131 in 1998, $9,680 in 1997 and
$7,002 in 1996.
RECLASSIFICATION Certain reclassifications have been made to the 1997 and
1996 amounts to conform to the 1998 presentation.
2. FINANCIAL INSTRUMENTS
CASH AND CASH EQUIVALENTS Cash and cash equivalents include all cash balances
and highly liquid investments with original maturities of three months or
less. The carrying amount of cash and cash equivalents approximates their
fair value.
INSTALLMENT RECEIVABLES
Installment receivables consist of the following:
<TABLE>
<CAPTION>
July 3, June 27,
1998 1997
---- ----
<S> <C> <C>
Current portion $ 16,198 $ 17,994
Less:
Unearned interest (2,185) (2,409)
Allowance for doubtful accounts (1,684) (2,234)
-------- --------
Net current portion 12,329 13,351
Due after one year (included in other assets) 5,716 6,190
-------- --------
Total installment receivables, net $ 18,045 $ 19,541
-------- --------
</TABLE>
The carrying amount of installment receivables approximates their fair value.
The majority of these receivables are due in less than one year, and the
related interest rates have not varied significantly over the past two years.
LONG-TERM DEBT Based on borrowing rates currently available to the company
for bank loans with similar terms and average maturities, the carrying amount
of long-term debt at July 3, 1998 and June 27, 1997 approximated its fair
value.
FOREIGN CURRENCY FORWARD EXCHANGE CONTRACTS The company transacts business in
various foreign currencies, primarily European currencies. The company uses
currency forward contracts and currency options to protect against reductions
in value and volatility of future cash flows caused by changes in foreign
exchange rates. The maturities of these instruments are generally less than
one year. Deferred gains or losses attributable to foreign currency
instruments are not material.
41
<PAGE>
SWAP AGREEMENTS The fair market value of interest rate swap agreements (Note
8) is the amount the company would be required to pay to terminate them,
which is estimated to be $1.9 million at July 3, 1998 ($1.6 million at June
27, 1997). Net receipts or payments under all swap agreements are included in
interest expense. The company is exposed to credit loss in the event of
nonperformance by the other party to the interest rate swap agreements.
However, the company considers the risk of nonperformance by the other party
to be minimal because the party to each swap agreement is a member of the
company's bank group.
3. BALANCE SHEET ITEMS
Inventories consist of the following:
<TABLE>
<CAPTION>
July 3, June 27,
1998 1997
---- ----
<S> <C> <C>
Raw material $ 42,634 $ 35,167
Work-in-progress 12,588 11,946
Finished goods 39,367 42,921
--------- ---------
Total inventories $ 94,589 $ 90,034
--------- ---------
--------- ---------
</TABLE>
If all inventories had been valued at FIFO cost, inventories would have been
approximately $95,817 and $91,455 for 1998 and 1997, respectively.
The components of property and equipment are as follows:
<TABLE>
<CAPTION>
July 3, June 27,
1998 1997
---- ----
<S> <C> <C>
Land $ 4,611 $ 5,194
Buildings, machinery and equipment 150,806 160,759
Leasehold improvements 12,140 9,590
-------- --------
167,557 175,543
Less accumulated depreciation and
amortization (81,753) (84,009)
-------- --------
Property and equipment, net $ 85,804 $ 91,534
-------- --------
-------- --------
</TABLE>
4. ACQUISITIONS AND MERGERS
On April 13, 1998 the company issued 2.7 million shares of its common stock
for all outstanding common stock of DynaVox, a manufacturer of speech
augmentation devices. This business combination has been accounted for as a
pooling-of-interests and, accordingly, the consolidated financial statements
for periods prior to the combination have been restated to include the
accounts and results of operations of DynaVox.
The results of operations previously reported by the separate enterprises and
the combined amounts presented in the accompanying consolidated financial
statements are summarized below.
42
<PAGE>
<TABLE>
<CAPTION>
Years Ended
June 27, 1997 June 28, 1996
------------- -------------
<S> <C> <C>
Net sales:
Sunrise, as previously
reported $ 656,742 $ 667,130
DynaVox 13,803 8,287
--------- ---------
Combined $ 670,545 $ 675,417
--------- ---------
--------- ---------
Net income (loss):
Sunrise, as previously
reported $ 10,569 $ (40,867)
DynaVox 1,545 489
--------- ---------
Combined $ 12,114 $ (40,378)
--------- ---------
--------- ---------
</TABLE>
On November 20, 1997 the company acquired the assets and liabilities of
Mechanical Design Applications, Inc. for 100,000 shares of common stock
valued at $1.6 million and cash of $.4 million. The transaction was accounted
for as a purchase. Pro forma results of operations giving effect to the
acquisition as though it had occurred on June 28, 1997 would not differ
materially from amounts reported.
On December 27, 1996 the company acquired Kid-Kart, Inc., a manufacturer of
pediatric positioning strollers and other dependent mobility products, for
416,000 shares of common stock valued at $6.5 million and cash of $.5
million. The transaction was accounted for as a purchase. Pro forma results
of operations giving effect to the acquisition as though it had occurred on
July 1, 1995 would not differ materially from amounts reported.
In July 1995, the company acquired Coopers Healthcare Plc, a United
Kingdom-based manufacturer of patient aids, for 222,266 shares of common
stock (valued at $5.9 million) and cash of $2.5 million. In October 1995 the
company acquired Parker Bath Group, a U.K. manufacturer and distributor of
bathing systems and patient lifters, for cash and notes amounting to $30.0
million.
With the exception of DynaVox, all of these acquisitions were accounted for
by the purchase method of accounting. The excess of the aggregate purchase
price over the fair market value of net assets acquired of approximately $2
million in 1998 and $6 million in 1997 was recognized as goodwill and is
being amortized over periods ranging from 20 to 40 years. The operating
results of all acquisitions are included in the consolidated results of
operations from the respective dates of acquisition.
5. RE-ENGINEERING EXPENSES, MERGER COSTS AND UNUSUAL ITEMS
In December 1995, the company completed an intensive review of its operations
and businesses and initiated Operation Rebound, a corporate-wide profit
improvement plan. This plan involved four major elements: the consolidation
of the company's U.S. salesforces from twelve to six; the
43
<PAGE>
integration of a number of the company's smaller divisions operating within
the same country or market; establishment of profit improvement programs at
all divisions; and the sale of the Bio Clinic division's air therapy rental
business because of declining margins and high administrative costs.
Approximately 250 positions were eliminated (including 83 positions in the
air therapy rental business transferred as of January 31, 1996 to the buyer
of that business), or 6% of the company total. The air therapy rental
business had net sales of $7.6 million in 1996 through the date of sale.
In June 1996 the company reached a settlement of stockholder litigation
initiated in October and November 1995 following the announcement of an
internal investigation of financial reporting at the Bio Clinic division.
Also in June 1996, following a strategic review of its businesses, the
company decided to sell its Comfort Clinic division in order to concentrate
on its core healthcare products business, necessitating a write-down of its
investment to estimated net realizable value which was recorded in the fourth
quarter of 1996. The Comfort Clinic division was sold in October 1996 for
cash of $14 million. Sales through the date of sale were $13.9 million, while
the division's sales in 1996 were $44 million.
As a result of these actions, the company in 1996 recorded pretax charges
from unusual items of $65.2 million. These charges included: $18.6 million
for costs of the internal investigation and settlement of related litigation,
including attorneys' fees; $27.6 million related to Bio Clinic and Comfort
Clinic, consisting of loss on the sale of businesses of $5.8 million,
goodwill write-downs of $13.8 million and other asset adjustments of $8.0
million to reflect revised estimates of net asset realizations; and $19.0
million related to the company's reorganization and cost reduction program.
During 1997, these reserves were adjusted downward by $4.6 million because of
lower than expected costs to relocate operations and to write down assets to
be sold.
Of the original charges of $65.2 million, approximately $36.2 million require
cash payments and $29.0 million represent non-cash charges. Cash payments of
$4.1 million were made in 1998, $9.9 million in 1997 and $18.8 million in
1996. Management estimates that the remaining liability at July 3, 1998 of
$3.4 million will be paid out in 1999.
In 1997 the company announced the consolidation of its four U.S. homecare
divisions into the Home Healthcare Group based in Longmont, Colorado, and a
series of consolidations in its European operations. These actions were
designed to reduce operating costs and improve manufacturing and marketing
efficiencies. Pre-tax charges of $4.7 million were incurred in 1997 in
connection with these consolidations.
Approximately $27 million in non-recurring costs were incurred during 1998 to
complete these activities, principally to complete its factory consolidations
and to implement related information system conversions. In addition, the
company completed its merger with DynaVox in April 1998. Merger related
expenses incurred were approximately $2 million. Of the total charges of $29
million incurred in 1998, approximately $23 million required cash payments
and $6 million represented non-cash charges.
44
<PAGE>
6. LEASES
The company leases office and operating facilities, machinery and equipment
and automobiles under operating leases that expire over the next 20 years.
Rent expense for operating leases amounted to $11,200, $10,600 and $9,800 for
1998, 1997 and 1996, respectively.
Minimum lease payments under operating leases expiring subsequent to July 3,
1998 are:
Year Ended Amount
---------- ------
1999 $ 10,900
2000 9,300
2001 6,600
2002 5,100
2003 3,500
--------
Thereafter 13,300
--------
Total minimum lease payments $ 48,700
--------
--------
7. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
July 3, June 27,
1998 1997
---- ----
<S> <C> <C>
Borrowings under multi-currency credit agreement $ 73,970 $ 170,581
Senior notes 100,000 -
Unsecured subordinated notes maturing from 1998 to 2003,
payable in installments with interest rates from 7% to 9.1%
(7% to 10% in 1997) 9,460 13,860
Unsecured European Coal and Steel Community
job creation loan due 2002; interest at Libor +1%
payable semiannually 4,148 4,161
Mortgages payable in monthly installments with interest at
various rates from 6.65% to 9.1%, maturing from 1998
through 2004, secured by property 3,134 3,473
Obligations under capital leases with lease periods expiring
at various dates through 2005; interest at various rates from
6.25% to 14.8% 1,070 1,737
--------- ---------
Total long-term debt 191,782 193,812
Less current installments (3,753) (5,751)
--------- ---------
Long-term debt, net of current installments $ 188,029 $ 188,061
--------- ---------
--------- ---------
</TABLE>
45
<PAGE>
As of July 3, 1998, aggregate debt maturities were as follows: 1999--$3,753;
2000--$4,880; 2001--$75,937; 2002--$4,457; 2003--$321; and
thereafter--$102,434.
On October 28, 1997, the company completed a private placement of $100
million of unsecured senior notes, $50 million maturing after seven years,
bearing interest at 7.09% and the remaining $50 million maturing after ten
years at an interest rate of 7.25%. The proceeds of this debt issuance were
used to reduce the outstanding debt on the company's unsecured multi-currency
credit facility. The senior notes require the company to comply with certain
covenants such as limitations on indebtedness, liens, asset sales and the
maintenance of net worth.
The company's unsecured multi-currency bank credit facility provides for
maximum borrowings of $120 million, decreasing to $115 million in January
2000. The maturity date is January 2001 and interest is at the prime rate
plus 1.25%. The company has the option of using interbank offered rates as a
basis for interest and can fix the interest rate on the outstanding portion
for up to six months. A commitment fee of .20% to .50% per year, depending
upon the company's leverage ratio, is payable on the unused portion of the
line. The credit facility requires the company to comply with certain
covenants such as maintenance of leverage ratio, tangible net worth, and
interest coverage, and places certain restrictions on acquisitions and
payments of dividends. At July 3, 1998, the amount of funds available from
the credit facility was approximately $46 million.
8. DERIVATIVES
The company manufactures its products in the United States and Europe, but
generated approximately 39% of 1998 revenues from sales made outside the U.S.
Sales generated by the company's distribution subsidiaries generally utilize
the subsidiary's local currency, thereby exposing the company to the risk of
foreign currency fluctuations when the subsidiary imports Sunrise
manufactured products. Also, as the company is a net borrower, it is exposed
to the risk of fluctuating interest rates. The company utilizes derivative
instruments in an effort to mitigate these risks. The company's policy is not
to speculate in derivative instruments to profit on the foreign currency
exchange or interest rate price fluctuation, nor to enter trades for which
there are no underlying exposures, nor enter into trades to intentionally
increase the underlying exposure. Instruments used as hedges must be
effective at reducing the risk associated with the exposure being hedged and
are designated as a hedge at the inception of the contract. Accordingly,
changes in market values of hedge instruments are highly correlated with
changes in market values of underlying hedged items both at the inception of
the hedge and over the life of the hedge contract.
Various foreign currency contracts are used to hedge anticipated transactions
denominated in foreign currencies and to mitigate the impact of changes in
foreign currency exchange rates on the company's operations. The company uses
forward contracts to hedge transactions between its foreign subsidiaries. The
hedge instruments mature at various dates with resulting gains or losses
recognized at the maturity date, which approximates the transaction date. The
notional values of forward contracts afforded hedge accounting treatment at
July 3, 1998 was 19.1 million pounds or $31.8 million ( No such contracts
existed at June 27, 1997.)
46
<PAGE>
When the company uses foreign currency contracts and the hedged currency
strengthens against foreign currencies, the decline in the value of future
foreign currency cash flows is partially offset by the recognition of gains
in the value of the foreign currency contracts designated as hedges of the
transactions. Conversely, when the hedged currency weakens, the increase in
the value of future foreign currency cash flows is reduced by the recognition
of any loss in the value of the forward contracts designated as hedges. Gains
and losses on these contracts are recognized in income in the same period
that the underlying transactions are settled and generally offset the losses
and gains on the underlying transactions.
SWAP AGREEMENTS The company has entered into eight interest rate swap
agreements with U.S. money center banks in order to minimize the impact of
interest rate fluctuations on the company's interest expense. Each swap
agreement is denominated in the currency of the related borrowings. Under the
terms of each agreement the company receives compensation when the
three-month interbank offered rate of the respective currency exceeds the
swap rate and pays compensation when it falls below the swap rate. At July 3,
1998 the three-month interbank offered rates were: French francs--3.53%; U.S.
dollars--5.63%; and German marks--3.53%.
The following table summarizes the company's interest rate swap agreements.
The U.S. dollar equivalent is based on exchange rates in effect at July 3,
1998.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
U.S.
Notional Dollar Swap
Amount Currency Amount Rate Effective Period
- ------ -------- ------ ---- ----------------
<S> <C> <C> <C> <C>
100,000 French francs $ 16,380 7.59% April 1997 - April 2000
85,000 French francs $ 13,923 4.15% April 1998 - April 1999
85,000 French francs $ 13,923 5.09% April 1999 - April 2000
85,000 French francs $ 13,923 5.95% April 2000 - April 2001
33,000 German marks $ 18,134 4.09% February 1998 - February 1999
25,000 German marks $ 13,738 5.01% February 1999 - February 2000
25,000 German marks $ 13,738 5.97% February 2000 - February 2001
30,000 U.S. dollars $ 30,000 5.63% September 1995 - September 2000
</TABLE>
The company is exposed to credit risk in the event of non-performance of the
counterparties to its foreign currency and interest rate contracts, which the
company believes is remote. Nevertheless, the company monitors its
counterparty credit risk and utilizes internal policies to mitigate its risk.
The disclosed derivatives are indicative of the volume and types of
instruments used throughout the year.
9. BUSINESS AND CREDIT CONCENTRATIONS
The company manufactures and distributes durable medical equipment and
supplies primarily to the home healthcare and extended care markets. A
significant portion of the company's receivables are due from home healthcare
and medical equipment dealers located throughout the United States, Canada
and Europe. Many of these product sales to dealers are ultimately funded
47
<PAGE>
through government reimbursement programs such as Medicare and Medicaid. Any
changes in these programs could affect dealer liquidity and profitability.
This, in turn, could put pressure on prices charged and credit terms offered
for the company's products sold through this channel of distribution.
The company estimates an allowance for doubtful accounts based on the
creditworthiness of its customers as well as general economic conditions.
10. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
Years Ended
-------------------------------------
July 3, June 27, June 28,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $(1,470) $ 700 $ (5,740)
State 118 217 23
Foreign 3,097 4,463 7,486
------- -------- --------
1,745 5,380 1,769
Deferred:
Federal 2,589 5,935 (12,060)
State (74) 533 (238)
Foreign (4,052) (485) (842)
------- -------- --------
(1,537) 5,983 (13,140)
------- -------- --------
Total $ 208 $ 11,363 $(11,371)
------- -------- --------
------- -------- --------
</TABLE>
Foreign income taxes are based upon $(8,308), $8,768 and $16,126 of foreign
earnings (or losses) before income taxes during 1998, 1997 and 1996,
respectively. No U.S. income taxes have been provided for cumulative
unrepatriated foreign earnings of approximately $57 million as the company
has no plans or intentions to repatriate foreign earnings or liquidate the
related foreign assets. At July 3, 1998, the company had foreign tax loss
carryforwards of approximately $15,174, consisting of $534 which expires in
2000 through 2001, $5,685 which expires in 2002 through 2004, and $8,955
which does not expire.
48
<PAGE>
A reconciliation between the federal statutory tax rate and the effective income
tax rate follows:
<TABLE>
<CAPTION>
Years Ended
-------------------------------------
July 3, June 27, June 28,
1998 1997 1996
---- ---- ----
<C> <C> <C> <C>
Statutory federal income tax rate (35.0)% 35.0% (35.0)%
Amortization of goodwill 15.0 6.8 10.8
State income taxes, net of federal taxes 2.1 2.9 0.2
Taxation of foreign operations 18.7 4.6 2.0
Other, net 1.0 (0.9) -
----- ---- -----
Effective income tax rate 1.8% 48.4% (22.0)%
----- ---- -----
----- ---- -----
</TABLE>
Significant components of deferred income tax assets and liabilities are shown
below:
<TABLE>
<CAPTION>
July 3, June 27,
1998 1997
---- ----
<S> <C> <C>
Deferred income tax assets:
Allowance for doubtful accounts $ (730) $ 3,563
Inventory reserves 4,393 4,295
Other reserves and accrued expenses 13,111 5,030
Net operating losses 5,638 2,700
State and local taxes 116 (1,545)
-------- --------
Total deferred income tax assets 22,528 14,043
-------- --------
Deferred income tax liabilities:
Depreciation and amortization and other 9,696 7,305
-------- --------
Net deferred income taxes $ 12,832 $ 6,738
-------- --------
-------- --------
</TABLE>
Management believes that realization of the tax benefit of net deferred income
tax assets is more likely than not.
11. PROFIT SHARING/SAVINGS PLAN
The company has 401(k) profit sharing/savings plans covering most U.S. employees
("Associates"). Under the profit sharing portion of the plan, the company will
contribute to Associates' accounts a percentage of their salary for the fiscal
year ranging from 4 to 6 percent. 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 subsidiary where the Associate
49
<PAGE>
works. The plan is discretionary with the amounts determined by the Board of
Directors. During 1998, 1997 and 1996, $2,534, $2,533, $2,518, respectively,
were accrued for this plan. Under the savings feature of the plan, individual
Associates may make contributions to the plan, which are matched by the
company in an amount determined by the Board of Directors. During 1998, 1997
and 1996, $655, $767 and $790, respectively, of Associate contributions were
matched by the company.
12. STOCKHOLDERS' EQUITY
COMMON STOCK PURCHASE RIGHTS In April 1990 the company's Board of Directors
declared a dividend of one common share purchase right ("Right") for each
outstanding share of common stock. Pursuant to the stockholder Rights
Agreement as amended in May 1997, an exercisable Right will, under certain
conditions, entitle its holder to purchase from the company one-half of one
share of common stock at the exercise price of $60.00 per whole share,
subject to adjustment, until May 16, 2007. The Rights will become exercisable
ten days after a person (an "Acquiring Person") acquires 15% or more of the
common stock, or ten days after a person announces a tender offer which would
result in such person acquiring 15% or more of the common stock. The Rights
may be redeemed by the Board of Directors for $.01 per Right at any time
until ten days following the public announcement that a person has become an
Acquiring Person. Under certain circumstances after a person becomes an
Acquiring Person, or after a merger or other business combination involving
the company, an exercisable Right will entitle its holder (other than the
Acquiring Person) to purchase shares of common stock (or shares of an
acquiring company) having a market value of two times the exercise price of
one Right.
STOCK OPTION PLANS The 1983 Stock Option Plan as amended ("the 83 Plan")
provided for the grant of up to 1,800,000 shares of common stock to officers,
key Associates and outside directors in the form of incentive stock options
or non-qualified stock options. The 83 Plan expired in August 1995.
In August 1993 the company adopted the 1993 Stock Option Plan ("the 93 Plan")
providing for the grant of up to 4,000,000 shares of common stock to
officers, outside directors and key Associates in the form of incentive stock
options or non-qualified stock options. At the time of adoption, 300,000
unissued shares of common stock were reserved for future grants under the 93
Plan. The number of unissued shares of common stock reserved for future
grants under the 93 Plan increases annually by a number equal to 1.5% of the
number of shares of common stock issued and outstanding as of the last day of
each fiscal year. The 93 Plan expires in August 2003.
As a result of the DynaVox merger in April 1998, Sunrise acquired another
stock option plan. This stock option plan was originally adopted by DynaVox
on March 12, 1993. The plan originally covered 100,000 shares. On April 28,
1998, the plan was amended and restated by the Board of Directors. As a
result the number of shares and options that were outstanding under the plan
and options that are granted in the future will now be exercised for shares
of Sunrise stock in the merger ratio of 2.27 to 1. The total number of
options available for grant under this plan are 227,000.
50
<PAGE>
Under all plans, the option price (exercise price) is equal to the closing
market price on the day prior to the grant date. Options become exercisable
in four equal annual amounts, beginning one year after the grant date. Option
exercisability is cumulative. Unexercised options expire up to ten years and
one day after the date of grant. As of July 3, 1998 there were 268,038
unissued shares of common stock reserved for future grants under the 93 Plan.
Shares subject to option under both plans are summarized as follows:
<TABLE>
<CAPTION>
Years ended
------------------------------------------------------------------------------------
July 3, 1998 June 27, 1997 June 28, 1996
------------ ------------- -------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 1,665,545 $ 15.48 1,465,275 $ 16.23 1,342,280 $ 17.37
Granted 504,860 13.94 440,145 12.44 346,695 6.72
Exercised (166,373) 4.25 (41,850) 10.05 (27,200) 8.36
Canceled (306,836) 18.38 (198,025) 18.80 (196,500) 20.90
--------- --------- --------- --------- --------- ---------
Outstanding at end of year 1,697,196 $ 15.60 1,665,545 $ 15.48 1,465,275 $ 16.23
--------- --------- ---------
--------- --------- ---------
Exercisable at end of year 917,305 $ 16.13 944,074 $ 14.38 789,572
--------- --------- ---------
--------- --------- --------- $ 13.60
Weighted average fair value of
options granted during the year $ 6.14 $ 6.29 $ 6.72
--------- --------- ---------
--------- --------- ---------
</TABLE>
The following table summarizes information about stock options outstanding at
July 3, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ---------------------------------------------------------------- ---------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
------ ----------- ---- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$ 0.70 to $12.00 241,470 4.7 $ 6.74 196,995 $ 5.97
$ 12.38 to $15.88 972,901 7.9 $ 14.47 298,242 $ 14.06
$ 17.25 to $21.88 275,975 4.7 $ 19.73 254,675 $ 19.90
$ 23.50 to $34.50 206,850 6.0 $ 25.78 167,393 $ 26.03
--------- --- ------- ------- -------
1,697,196 6.7 $ 15.60 917,305 $ 16.13
--------- -------
--------- -------
</TABLE>
The company applies APB 25 and related interpretations in accounting for grants
to employees under its stock option plans. Because the exercise price of the
options equals the market price of the underlying stock on the date of grant, no
compensation cost has been recognized in the company's financial statements. Pro
forma disclosures assuming compensation cost had been
51
<PAGE>
determined based on the fair value of stock options at the grant dates
consistent with the method of SFAS 123 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) As reported $(12,010) $ 12,114 $(40,378)
Pro forma $(13,594) $ 11,232 $(40,805)
Earnings (loss) per share As reported $ (0.55) $ 0.55 $ (1.89)
Pro forma $ (0.62) $ 0.51 $ (1.91)
</TABLE>
The fair value of options granted has been estimated using the Black-Scholes
option-pricing model with the following weighted-average assumptions for
grants in 1998, 1997 and 1996, respectively: expected volatility of 43% for
1998 and 1997 and 46% for 1996 (based on daily closing stock prices for the
preceding four years); risk-free interest rates of 5.5%, 6.4% and 6.7%
respectively; expected lives of 4.8 years; and no dividend yield. For
purposes of the pro forma disclosures, the estimated fair value of the
options has been amortized to expense over the vesting period of the options.
Because SFAS 123 is applicable only to options granted subsequent to June 28,
1995, the pro forma effect will not be fully reflected until 1999.
13. NET INCOME (LOSS) PER SHARE
In accordance with SFAS 128, the following is a reconciliation of the
numerators and denominators of the basic and diluted EPS computations.
<TABLE>
<CAPTION>
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Basic 1998 EPS
Net (loss) $(12,010) 22,001 $ (0.55)
Effect of dilutive stock options -- -- --
-------- ------ --------
Diluted EPS (1) $(12,010) 22,001 $ (0.55)
-------- ------ --------
-------- ------ --------
Basic 1997 EPS
Net income $ 12,114 21,656 $ 0.56
Effect of dilutive stock options -- 277 (0.01)
-------- ------ --------
Diluted EPS $ 12,114 21,933 $ 0.55
-------- ------ --------
-------- ------ --------
Basic 1996 EPS
Net (loss) $(40,378) 21,391 $ (1.89)
Effect of dilutive stock options -- -- --
-------- ------ --------
Diluted EPS (1) $(40,378) 21,391 $ (1.89)
-------- ------ --------
-------- ------ --------
</TABLE>
(1) The company was in a net loss position in 1998 and 1996, and under
generally accepted accounting principles, 275,000 and 249,000 common share
equivalents were not used to compute diluted loss per share, as the effect
was antidilutive.
52
<PAGE>
14. GEOGRAPHIC SEGMENT INFORMATION
Selected geographic information is summarized as follows:
<TABLE>
<CAPTION>
Years Ended
--------------------------------------
July 3, June 27, June 28,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales:
United States $ 404,749 $ 402,154 $ 420,648
Europe 252,420 268,391 254,769
--------- --------- ---------
Total $ 657,169 $ 670,545 $ 675,417
--------- --------- ---------
--------- --------- ---------
Corporate operating (loss) income:
United States $ (7,576) $ 13,201 $ (59,512)
Europe 1,741 21,278 22,350
--------- --------- ---------
Total (5,835) 34,479 (37,162)
--------- --------- ---------
Interest expense 15,222 14,774 16,687
Interest income 3,659 3,372 2,878
Other income and expense, net 5,596 400 (778)
--------- --------- ---------
Loss (income) before income taxes $ (11,802) $ 23,477 $ (51,749)
--------- --------- ---------
--------- --------- ---------
Identifiable assets at end of year
United States $ 301,408 $ 276,632 $ 311,673
Europe 314,897 339,099 312,905
--------- --------- ---------
Total $ 616,305 $ 615,731 $ 624,578
--------- --------- ---------
--------- --------- ---------
</TABLE>
Amounts reported for United States include results from subsidiaries in
Canada and Australia. Eliminated from net sales shown above for 1998, 1997
and 1996 were $6,168, $4,261 and $1,270, respectively, of sales by European
subsidiaries to North American subsidiaries, and $14,679, $17,496 and $18,146
of sales, respectively, by North American subsidiaries to European
subsidiaries. Sales between geographic locations are based upon manufacturing
costs plus a reasonable profit element.
15. LITIGATION
The company is a party to various legal proceedings arising in the ordinary
course of business. Management does not believe that the outcome of any of
these actions will have a material adverse effect upon the financial position
or results of operations of the company.
The Securities and Exchange Commission ("SEC") has entered a formal order of
private investigation into the circumstances underlying the restatement of
the company's 1995 and 1994 financial statements. The company is cooperating
fully with the SEC in its investigation.
53
<PAGE>
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(in thousands, except per share data)
<TABLE>
<CAPTION>
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ----
1998
<S> <C> <C> <C> <C> <C>
Net sales $ 155,032 $ 169,089 $ 164,415 $ 168,633 $ 657,169
Gross profit 50,959 53,127 52,313 49,139 205,538
Re-engineering expenses
and merger costs 4,635 7,043 5,307 12,031 29,016
Net (loss) income 869 928 (98) (13,709)(1) (12,010)
(Loss) income per share
(Basic) $ 0.04 $ 0.04 $ 0.00 $ (0.62)(1) $ (0.55)
(Loss) income per share
(Diluted) $ 0.04 $ 0.04 $ 0.00 $ (0.62)(1) $ (0.55)
1997
Net sales $ 169,388 $ 173,450 $ 161,192 $ 166,515 $ 670,545
Gross profit 57,069 57,037 52,557 56,076 222,739
Net income 3,574 2,952 1,291 4,297 12,114
Income per share
(Basic) $ 0.17 $ 0.14 $ 0.06 $ 0.20 $ 0.56
Income per share
(Diluted) $ 0.16 $ 0.14 $ 0.06 $ 0.19 $ 0.55
</TABLE>
(1) Included in the company's results for the fourth quarter was an
additional tax expense of $5.5 million to adjust the company's year-to-date
effective tax rate to 1.8% from 65.7% at the end of the third quarter.
54
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the directors of the company will be included under the
caption "Election of Directors" in the company's Definitive Proxy Statement
for its Annual Meeting of Stockholders to be held on November 20, 1998 and is
incorporated herein by reference. Information regarding the executive
officers of the company is included under a separate caption in Part I
hereof, and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Certain information regarding executive compensation will be set forth under
the caption "Compensation of Executive Officers" in the company's Definitive
Proxy Statement for its Annual Meeting of Stockholders to be held on November
20, 1998 and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership will be set forth under the caption
"Security Ownership of Certain Beneficial Owners and Management" in the
company's Definitive Proxy Statement for its Annual Meeting of Stockholders
to be held on November 20, 1998 and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding related transactions will be set forth under the
caption "Certain Transactions" in the company's Definitive Proxy Statement
for its Annual Meeting of Stockholders to be held on November 20, 1998 and is
incorporated herein by reference.
55
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
(1) FINANCIAL STATEMENTS: PAGE
----
<S> <C>
Report of Management 32
Independent Auditors' Report 33
Consolidated Balance Sheets as of July 3, 1998 and June 27, 1997 34
Consolidated Statements of Operations for the years ended July 3, 1998,
June 27, 1997 and June 28, 1996 35
Consolidated Statements of Cash Flows for the years ended July 3, 1998,
June 27, 1997 and June 28, 1996 36
Consolidated Statements of Stockholders' Equity for the years ended July
3, 1998, June 27, 1997 and June 28, 1996 37
Notes to Consolidated Financial Statements 38
(2) FINANCIAL STATEMENT SCHEDULES:
Schedule II -- Valuation and Qualifying Accounts for the years ended
July 3, 1998, June 27, 1997 and June 28, 1996 57
</TABLE>
All other financial statement schedules have been omitted because they
are not required or are not applicable, or the information is otherwise
included.
(b) REPORTS ON FORM 8-K
A report on Form 8-K dated April 13, 1998, was filed in connection the
company's acquisition of Sentient Systems Inc.
(c) EXHIBITS
Reference is made to the Index of Exhibits immediately preceding the
exhibits hereto, which index is incorporated herein by reference.
56
<PAGE>
SCHEDULE II
SUNRISE MEDICAL INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Fiscal Years Ended July 3, 1998, June 27,
1997 and June 28, 1996 (in
thousands)
<TABLE>
<CAPTION>
Additions
------------------------
Balance at Charged to Charged to Balance at
beginning costs and other end
Description of period expenses accounts Deductions of period
- ----------- --------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
1996
- ----
Allowance for doubtful
receivables $5,904 9,421 167 (1) (3,969)(2) $11,523
Reserve for installment
receivables $ 954 980 1(1) ( 179)(2) $ 1,756
Reserve for inventory
obsolescence $7,474 8,683 1,249(1) (3,742)(3) $13,664
1997
- ----
Allowance for doubtful
receivables $11,523 1,954 (3,302)(1) (5,100)(2) $ 5,075
Reserve for installment
receivables $ 1,756 1,586 125(1) (1,233)(2) $ 2,234
Reserve for inventory
obsolescence $13,664 4,598 (1,033)(1) (3,486)(3) $13,743
1998
- ----
Allowance for doubtful
receivables $ 5,075 5,342 (52)(1) (2,210) (2) $ 8,155
Reserve for installment
receivables $ 2,234 898 0 (1,448) (2) $ 1,684
Reserve for inventory
obsolescence $13,743 3,106 514 (2,384) (3) $14,979
</TABLE>
(1) Represents foreign currency translation adjustment, amounts recorded on
books of acquired subsidiaries at dates of acquisition, and reserves
related to businesses sold.
(2) Includes write-off of uncollectible accounts.
(3) Disposition of items previously reserved.
57
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SUNRISE MEDICAL INC.
By:
-------------------------
Senior vice president and
chief financial officer
Date: September ____, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on September ____, 1998.
SIGNATURE TITLE
- ---------------------- Chairman, president and chief executive
Richard H. Chandler officer (principal executive officer)
- ---------------------- Senior vice president and chief financial
Ted N. Tarbet officer (principal financial officer)
- ---------------------- Vice president and controller
John M. Radak (principal accounting officer)
- ---------------------- Director
J. R. Woodhull
- ---------------------- Director
Joseph Stemler
- ---------------------- Director
Lee A. Ault III
- ---------------------- Director
Michael Hammes
- ---------------------- Director
Murray H. Hutchison
- ---------------------- Director
William L. Pierpoint
58
<PAGE>
INDEX OF EXHIBITS
Exhibit
Number Description
- ------ -----------
3.1 Certificate of Incorporation of the company and amendments
thereto. (a)
3.2 Amendment to Certificate of Incorporation of the company as set
forth under the caption "Article III - Liability of Director to
the Corporation." (b)
3.3 Bylaws of the company. (a)
3.4 Amendment to Article II, Section 2, of the company's Bylaws. (c)
3.5 Amendment to Certificate of Incorporation of the company as to the
number of authorized shares. (d)
3.6 Amendment of Bylaws to increase the number of directors to eight.
(c)
3.7 Amendment of Bylaws to increase the number of directors to nine.
(f)
3.8 Amendment of Bylaws to reduce the number of directors to eight.
(g)
3.9 Amended and Restated Bylaws as of April 29, 1997. (r)
4.1 Shareholders' Rights Agreement dated April 24, 1990. (h)
4.2 Amended and Restated Shareholders' Rights Agreement dated May 16,
1997. (q)
10.6 Amended and Restated Stock Option Plan for Key Associates. (i)
10.7 1993 Stock Option Plan. (j)
10.8 Management Incentive Bonus Plan. (a)
10.9 Special Bonus Plan. (a)
10.10 Agreement for the Purchase of Certain Stock of Homecare Holdings,
Inc. dated as of June 29, 1993 among Sunrise Medical Inc.,
Homecare Holdings, Inc., and the selling shareholders listed
therein. (l)
10.11 Asset Purchase Agreement for the Purchase of Certain Assets of Jay
Medical, Ltd. (m)
10.12 Agreement for the Purchase of Shares of S.E.P.A.C., Corona S.A.,
Tecktona Bois S.A., Tecktona Sante S.A., and Sci La Planche by
Homecare Holdings France S.A. (n)
59
<PAGE>
INDEX OF EXHIBITS--CONTINUED
Number Description
- ------ -----------
10.13 Second Amended and Restated Credit Agreement dated as of September
29, 1995 among Sunrise Medical Inc. and certain subsidiary
borrowers and guarantors, Bank of America as agent and other
lenders. (o)
10.14 First Amendment to Second Amended and Restated Credit Agreement
and Waiver dated as of May 2, 1996 among Sunrise Medical Inc. and
certain subsidiary borrowers and guarantors, Bank of America as
agent and other lenders. (g)
10.15 Second Amendment to Second Amended and Restated Credit Agreement
and Waiver dated as of August 22, 1996 among Sunrise Medical Inc.
and certain subsidiary borrowers and guarantors, Bank of America
as agent and other lenders.(p)
10.16 Form of Change in Control Agreements dated June 27, 1997 between
Sunrise Medical Inc. and certain employees. (r)
10.17 Third Amended and Restated Credit Agreement and Waiver dated as of
August 28, 1997 among Sunrise Medical Inc. and certain subsidiary
borrowers and guarantors, Bank of America as agent and other
lenders. (s)
10.18 Note Purchase Agreement dated as of October 1, 1997 for $50 million
7.09% Series A Senior Notes Due October 28, 2004 and for $50 million
7.25% Series B Senior Notes Due October 28, 2007. (s)
10.19 1998 Management Incentive Bonus Plan.
10.20 Amended and Restated Sentient/Sunrise Stock Option Plan.
10.21 Supplemental Executive Retirement Plan.
21 List of Subsidiaries.
23 Consent of Independent Auditors.
27 1998 Financial Data Schedule.
27.1 1997 Financial Data Schedule.
27.2 1996 Financial Data Schedule.
27.3 1st, 2nd and 3rd Quarter 1998 Financial Data Schedule.
27.4 1st, 2nd and 3rd Quarter 1997 Financial Data Schedule.
- ---------------------------
(a) Incorporated herein by reference to the company's Registration Statement
No. 2-86314.
(b) Incorporated herein by reference to the company's 1987 Definitive Proxy
Statement.
(c) Incorporated herein by reference to the company's Form 10-Q for the quarter
ended December 28, 1990.
(d) Incorporated herein by reference to the company's Form 10-Q for the quarter
ended January 1, 1993.
(e) Incorporated herein by reference to the company's Form 10-Q for the quarter
ended December 31, 1993.
(f) Incorporated herein by reference to the company's Form 10-K for the fiscal
year ended July 1, 1994.
(g) Incorporated herein by reference to the company's Form 10-Q for the quarter
ended March 29, 1996.
(h) Incorporated herein by reference to the company's Form 10-Q for the quarter
ended March 30, 1990.
(i) Incorporated herein by reference to the company's 1990 Definitive Proxy
Statement.
(j) Incorporated herein by reference to the company's 1993 Definitive Proxy
Statement.
(k) Incorporated herein by reference to the company's Form 10-K
for the fiscal year ended July 3, 1992.
(l) Incorporated herein by reference to the company's Form 8-K dated June 29,
1993.
(m) Incorporated herein by reference to the company's Form 8-K dated September
16, 1994.
(n) Incorporated herein by reference to the company's Form 8-K
dated April 7, 1995.
(o) Incorporated herein by reference to the company's
Form 10-K/A for the fiscal year ended June 30, 1995.
(p) Incorporated herein by reference to the company's Form 10-K for the year
ended June 28, 1996.
(q) Incorporated herein by reference to the company's Form 8-K dated May 16,
1997.
(r) Incorporated herein by reference to the company's Form 10-K for the year
ended June 27, 1997.
(s) Incorporated herein by reference to the company's Form 10-Q dated
November 10, 1997.
60
<PAGE>
SUNRISE MEDICAL
MANAGEMENT INCENTIVE BONUS PLAN - FY1998
("MIB 98")
The Sunrise Medical Management Incentive Bonus Plan is an annual cash bonus
program which shares with key members of management the rewards for successful
operating unit ("Unit") and Corporate performance. For the operating unit,
successful performance for the year is defined as achieving or exceeding the
Corporate approved targets for Unit operating profit growth and return on net
assets (RONA). For the Corporation, performance is measured by earnings per
share growth and return on equity.
The MIB Plan represents one component of an integrated compensation program
designed to attract and retain high-caliber managers. The company's incentive
programs aim to align the Associate's interests with those of our stockholders
and to support Sunrise Medical's achievement of its strategic intent and growth
objectives.
Sunrise's compensation philosophy rewards individual and team performance on the
basis of both quantitative and qualitative factors. Besides the attainment of
Unit earnings targets, each manager's bonus is also based on the achievement of
individual objectives agreed upon by the manager and his or her immediate
supervisor. Even if a bonus is earned based on the team's profit performance,
managers must still accomplish their personal objectives for the year in order
to qualify for their designated amount.
The MIB Plan is designed to pay for performance, not excuses. No bonus is paid
at either the Corporate or Unit level unless earnings (as defined) exceed prior
year results. The MIB payment represents a sharing of profits when the Unit
contributes to Corporate earnings per share growth. Each manager's salary is
the basic compensation for doing his or her job well during a year when the
shareholders do not receive the benefit of earnings improvement from that Unit.
A. PLAN ADMINISTRATION
The MIB Plan will be co-administered by Sunrise Medical's chief financial
officer and its vice president corporate human resources ("Plan
Administrators"). They will be supported by each Unit's financial and human
resource officers, who will administer the MIB Plan at the Unit level. All
annual targets and awards must be approved by the CEO of Sunrise Medical and by
the compensation committee of the board of directors. Awards will be made
annually within 90 days after the end of the fiscal year, generally, on or about
September 1.
For purposes of this plan description, a Unit can consist of the corporation as
a whole in the case of Corporate Office executives, an operating group, a free
standing division, or a wholly owned subsidiary such as a country distribution
organization. In cases where there is ambiguity, managers will be told at the
beginning of the year to which Unit's profit performance and bonus pool they
will be assigned. If managers are contributing at two different levels or wear
multiple hats, their MIB awards may be split between two or more
- --------------------------------------------------------------------------------
SUNRISE MEDICAL INC. FY 1998 REVISION
January 16, 1998 PAGE 1 of 18
<PAGE>
Units based on the performance of each, calculated independently but applied to
only a portion of his/her award salary (e.g., 50/50, or 80/20).
In dividing administrative responsibilities, financial officers at the Corporate
and Unit level will be responsible for calculating targets and determining the
Unit's financial performance against the approved targets. The HR officers at
the Corporate and Unit level will determine who is eligible for MIB
participation at what level, and they will administer the Management by
Objectives (MBO) system and the calculation of individual performances against
those objectives. The Corporate HR department will also be responsible for
maintaining records of all MIB awards earned and for liaison with the
compensation committee of the board of directors.
It will be up to the Unit presidents to maintain equity between the different
department managers as they develop their MBOs and subsequently calculate their
performance ratings. Likewise, it will be up to the Plan Administrators at
Corporate to make sure the plan is being administered equitably across all
Units. In cases where the rules promulgated here do not adequately address
specific issues, the corporate plan administrators will make the ultimate
decision in balancing the interests of management participants against those of
the stockholders.
B. INDIVIDUAL BONUS CALCULATION
The annual MIB award to each plan participant will be based on a MULTIPLICATION
of operating Unit, corporate, and individual performance factors applied to the
Associate's On-target bonus level and base salary. The exact formula is shown
below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
A = U x T x C x I x S
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
Individual Unit On-target Corporate Individual Annual
Bonus Performance Bonus Performance Performance Base
Award = Rating X Participation X Factor X Rating X Salary
($ or local Level ($ or local
currency) (0-200%) (5-40%) (75-125%) (0-100%) currency)
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Each of these factors will be explained in more detail below.
C. OPERATING UNIT BPE PERFORMANCE RATING
Awards under the MIB Plan are determined primarily by each operating unit's
"Bonus Purpose Earnings" - or BPE, which is equivalent to operating profit after
adjustments for interest on cash flow. Specifically, extra interest income is
earned whenever cash upstreamed to Corporate exceeds plan, and conversely, an
interest penalty and surcharge reduce operating income whenever cash is borrowed
or cash flows fall below plan.
Early in the year, after the prior year's audited figures are available, MIB
benchmarks are set for three different levels of BPE performance for each Unit:
- --------------------------------------------------------------------------------
SUNRISE MEDICAL INC. FY 1998 REVISION
January 16, 1998 PAGE 2 of 18
<PAGE>
- - Minimum ("Min") - The beginning threshold that must be exceeded for any
bonus to be earned. Usually, but not always, this is based on the prior
year's actual earnings level.
- - On-target - The level associated with a solid, above average performance.
This is usually, but not necessarily, the same as the Unit's annual profit
plan.
- - Maximum ("Max") - The performance goal that must be achieved for a maximum
bonus to be awarded. This figure is set by the Corporate Office and
approved by the board of directors each year so as to provide an aggressive
but attainable stretch goal.
At year end, based on its BPE versus these three benchmarks, the Unit will be
given a performance rating from 0 to 200%:
- - A Unit's BPE figure below Min will automatically earn a 0% rating.
- - Achieving On-target performance will earn a 100% rating.
- - Hitting the Max goal will earn a 200% rating.
- - If the Unit's BPE performance for the year falls somewhere between two
benchmarks, the percentage rating will be interpolated to the nearest tenth
of a percent (e.g., 138.7%).
- - The Unit's BPE rating may then be adjusted upward or downward to give
weight to its RONA performance, if this exceeds or falls short of plan by a
material margin. (See Appendix I for details)
D. BONUS PARTICIPATION LEVELS
Members of the management team will be assigned to a bonus participation level
for each fiscal year based on his or her level of responsibility in the
organization. The bonus participation level is a percentage of the manager's
annual base salary. The Max payout level is always twice the On-target level,
and at the Min level, the payout is always zero. For higher level managers, 20%
of the bonus is deferred and paid out, if earned, in two equal installments over
the following two years.
Participation of each Associate must be formally requested by the Unit
presidents through the submission of an Associate Action Form and approved by
the Corporate Office in accordance with the HR Approval Authority Matrix, Policy
6.20 (see Corporate Policy Manual, section six). Standard participation levels
and deferral percentages are shown in the table below, based on the most common
positions or titles. The Corporate Performance Factor (CPF) mechanism is
explained in the next section.
- --------------------------------------------------------------------------------
SUNRISE MEDICAL INC. FY 1998 REVISION
January 16, 1998 PAGE 3 of 18
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
BONUS PARTICIPATION LEVELS (% of salary)
- --------------------------------------------------------------------------------
On-target Max Max % with % of Bonus
Generic Titles % % CPF Award Deferred
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Managers - I 5% 10% 12.5% 0
Managers - II 10 20 25 0
Directors 18 36 45 20%
Vice Presidents 22 44 55 20%
Division Presidents and Sr. Vps 28 56 70 20%
Group Presidents & Corporate CFO 32 64 80 20%
Chairman & CEO 40 80 100 20%
- --------------------------------------------------------------------------------
</TABLE>
DEFERRED BONUS CRITERIA. As the table indicates, 20% of the bonus earned by
executives at the director level or above, will be deferred. This deferred
amount will be paid out in two installments over the two succeeding years,
providing two criteria are met each year: (1) the executive is still employed
as of the end of the fiscal year; and (2) the executive's Unit achieves minimal
earnings growth over the two preceding years. Specifically, in year two, the
Unit must achieve at least a 5% earnings increase over the year one level, and
in year three, the Unit must achieve at least a 5% increase over the year two
level or if year two is a down year at least On-target in year three. No MBO or
RONA modifier is applied to these subsequent year payouts. If an executive
transfers between two Units, the deferred amount will be tied to his or her new
Unit's performance, not the old one's.
The overall affect of this deferred feature is to reward sustained, steady
profit growth over a three year period. If the Unit achieves consistent
earnings growth, its senior management team will be working to earn THREE MIB
layers in any given year, 80% being paid out of current year earnings and 10%
from an accrual made in each of the two preceding years. A hypothetical example
tracking the 20% deferred bonus over a four year period is illustrated in
Exhibit A.
E. CORPORATE PERFORMANCE FACTOR
The Corporate Performance Factor (CPF) is designed to modify Unit payouts by up
to 25% upward or downward, based on corporate earnings per share (EPS)
performance. The purpose of this provision is to incorporate a shareholder
perspective more strongly into the calculation of operating unit bonuses and
management bonuses in all Units at all levels. The CPF is applied as part of
the bonus calculation process by modifying in certain cases the Unit performance
rating, as shown below:
- - Each Unit's bonus is first calculated based on its own earnings
performance, yielding a figure of 0-200%, with 100% being On-target. Then
the CPF is applied.
- --------------------------------------------------------------------------------
SUNRISE MEDICAL INC. FY 1998 REVISION
January 16, 1998 PAGE 4 of 18
<PAGE>
- - If the Corporation exceeds its Max earnings per share benchmark, the CPF
modifies each Unit's performance factor UPWARD by 25%. If the Unit is
already at Max or 200%, this would raise its performance rating to 250%.
- - If Corporate EPS is below On-target, the Unit bonus calculations are
modified DOWNWARD by up to 25%. This could reduce a division's rating, if
it hits On-target exactly, from 100% to 75%. If the Unit is at 40%, the
CPF in this case would reduce its rating to 30%.
- - If Corporate EPS is between On-target and Max there is no change to Unit
MIB performance calculations at the division or group level.
At the margin, if EPS is just slightly below target, only part of the Unit's CPF
penalty may be necessary to make up the shortfall. In those cases a partial
penalty between 0 and 25% will be applied equally across all Units. At the
other end, if the EPS excess over Max is not sufficient to fund a full 25% boost
to the Unit's bonus calculations, a partial uplift between 0 and 25% will be
applied across all Units.
Note: the Corporate Performance Factor will not be applied to bonuses at the
Manager I (5/10) or Manager II (10/20) levels until FY1999.
F. INDIVIDUAL PERFORMANCE RATINGS
Each Sunrise manager will annually be given an individual performance rating
based on his or her achievement of specific objectives identified at the
beginning of the year. This incorporates "management by objectives" into the
bonus plan, and thus we use the term "MBOs" for the individual objectives.
MIB participants must prepare their individual MBOs at the beginning of the
fiscal year and get them approved by their manager, by the Unit president, and
by the appropriate Corporate executive, in the case of finance, HR, purchasing
and RA/QA. All MBOs are then submitted to the Corporate HR department. Unit
president and vice-president MBOs must be approved by the Corporate CEO. No MIB
award may be paid to a manager unless MBOs have been submitted and approved
prior to September 30th each fiscal year.
MBOs should be 6-12 in number a total of 1-2 pages in length. They should be
weighted as to importance with points that total 100, including 10 points for a
"discretionary" rating by the participant's manager or Corporate office
counterpart. The discretionary evaluation by one's manager will weight such
factors as creativity, initiative, and resourcefulness. It may also be used to
address lack of performance on issues that surfaced during the year.
Objectives should be specific, concrete, quantified if possible, and with target
dates where appropriate. They should emphasize new programs or creative
contributions which generate improvements rather than simply maintaining the
routine aspects of each job. A sample set of calculations is shown in Exhibit
B.
In the case of the divisional/group officers responsible for finance, HR,
purchasing, and RA/QA, their Corporate Office counterparts will be responsible
for evaluating a predetermined
- --------------------------------------------------------------------------------
SUNRISE MEDICAL INC. FY 1998 REVISION
January 16, 1998 PAGE 5 of 18
<PAGE>
percentage of their MBOs for the year. This percentage may vary from year to
year but will be agreed upon at the time the MBOs are prepared. It will
generally range from 15 to 35 points, including up to 5 points out of the
discretionary award.
At year end, managers will first grade themselves on all their MBOs (except
discretionary), summing the total to yield an overall MBO rating between 0 and
90%. They will then discuss this self-rating with their immediate supervisor
and determine a joint evaluation, including the discretionary portion. Finally,
this rating must be reviewed by the Unit president and by the applicable
Corporate manager, in the case of finance, HR, purchasing and RA/QA. For the
Unit president and vice-presidents, this rating will also be approved by the CEO
of Sunrise Medical and subject to review by the board of directors. This
individual performance rating of 0-100% (with the possibility of overachievement
points) is then applied to the manager's potential bonus payout to yield the
actual bonus earned.
OVERACHIEVEMENT POINTS Where appropriate, each MIB participant may also
identify one primary objective or "gorilla goal" for the year which is eligible
for overachievement points. This primary objective must have at least 20, but
no greater than 40 points assigned to it (e.g., refer to scaling points in goal
1 of Exhibit C). It must also be tied to a quantitative scale with important
profit implications, such as sales, gross profit, operating profit, BPE, OFIs,
cost savings, ITO or DSO. This objective will have the possibility of an
additional 50% boost to its score if it is overachieved by a specified amount
established at the same time the objective is set. For example, the primary
objective if scored at 40 points could be awarded as much as 60 overachievement
points, making it possible for an Associate to have a final MBO score in excess
of 100 points. The Associate will develop with his or her manager an
appropriate linear scale for measuring this objective which establishes
benchmarks for the base, on-target, and overachievement max levels. These
should be included as part of the MBO and approved in the normal manner. An
example of bonus calculation with over achievement is shown in Exhibit B, while
an MBO with a primary objective can be found in Exhibit C.
G. DISCRETIONARY PROGRAM
This MIB plan is not a contractual obligation of any kind, except to the extent
as may apply under local law outside the U.S. It is a discretionary program,
the criteria for which can be changed or eliminated at any time by the CEO and
board of directors of Sunrise Medical.
H. FINANCIAL ADMINISTRATION
The specific financial guidelines for setting targets and calculating Unit BPE
are specified in Appendix I.
I. HUMAN RESOURCES ADMINISTRATION
The human resources guidelines for applying this program to individual
Associates are specified in Appendix II.
- --------------------------------------------------------------------------------
SUNRISE MEDICAL INC. FY 1998 REVISION
January 16, 1998 PAGE 6 of 18
<PAGE>
EXHIBIT A
DEFERRED BONUS EXAMPLE
Assume a division VP earned bonuses over a 4 year period of $20,000, $30,000,
zero, and $10,000. Each year 20% was deferred according to the provisions of
the Plan. Now suppose his/her division achieved the minimum 5% earnings growth
required in years 2 and 4, but not in year 3. Shown below is a table tracking
these deferred bonus amounts over the 4 years and indicating payouts and
forfeitures. In year 3, you can see that deferrals of $5,000 were forfeited and
the accrual reversed to help make up the shortfall in corporate earnings.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Year 1 (FY98) Year 2 (FY99) Year 3 (FY00) Year 4 (FY01)
- -------------------------------------------------------------------------------------------------------------------
Fiscal Total Paid Paid Paid Paid
Year Bonus Deferred (Forfeited) Deferred (Forfeited) Deferred (Forfeited) Deferred (Forfeited)
Earned
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998 20,000 - 16,000 2,000 2,000 2,000 (2,000)
1999 30,000 - - - 24,000 3,000 (3,000) 3,000 3,000
2000 0 - - - - - - - -
2001 10,000 - - - - - - - 8,000
- -------------------------------------------------------------------------------------------------------------------
Total 16,000 2,000 26,000 5,000 (5,000) 3,000 11,000
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
SUNRISE MEDICAL INC. FY 1998 REVISION
January 16, 1998 PAGE 7 of 18
<PAGE>
EXHIBIT B
SAMPLE MIB AWARD CALCULATIONS
Listed below are three MIB calculation examples for Associates at the Manager I
and Manager II levels. For simplicity we've assumed the CPF does not affect
Unit bonuses earned in any of these three cases:
EXAMPLE 1:
Assume a Manager I making $30,000/year falls short on a number of MBOs (80
points) and that the Unit is midway between its On-target and Maximum
performance levels (150%).
Earned Bonus Award = 150% X 80 pts X 5% (On-target) = 6.0% bonus X $30,000
annual salary = $1,800.
EXAMPLE 2:
Assume that a Manager II making $50,000/year does an excellent job on her MBOs
(95 points) and the Unit hits its Maximum target (200%).
Earned Bonus Award = 200% X 95 pts X 10% (On-target) = 19.0% bonus X $50,000
annual salary = $9,500.
EXAMPLE 3:
Assume a Manager II earning $40,000 performs at above average level (90 points)
but the Unit falls midway between Minimum and On-target performance (50%).
Earned Bonus Award = 50% X 90 pts X 10% (On-target) = 4.5% bonus X $40,000
annual salary = $1,800.
For directors and above, the MIB calculation includes the deferral of 20% of the
bonus amount until the following two years. In the next three examples, we've
also incorporated the Corporate Performance Factor (CPF).
EXAMPLE 4:
Assume that a director earning $60,000 does an excellent job (95 points) and the
Unit hits its Maximum target (200%). The corporation as a whole also exceeded
its Max.
Earned Bonus Award = 200% X 95 pts X 18% (On-target) = 34.2% bonus X $60,000
annual salary = $20,520. CPF factor of 125% raises bonus total to $25,650.
- - $20,520 will be paid out in year 1 (80% X $25,650)
- - $2,565 will be deferred and paid out, if earned in each of years 2 and 3
EXAMPLE 5:
- --------------------------------------------------------------------------------
SUNRISE MEDICAL INC. FY 1998 REVISION
January 16, 1998 PAGE 8 of 18
<PAGE>
Assume that a VP's performance is average (80 points) and that the Unit is
midway between its On-target and Maximum performance levels (150%). Corporate
EPS also exceeds On-target, but does not reach Max.
Earned Bonus Award = 150% X 80 pts X 18% (On-target) = 21.6% bonus X $100,000
annual salary = $21,600. No CPF adjustment.
- - year 1 payout = 80% of $21,600 or $17,288
- - $2,160 is accrued and paid out, if earned, in each of years 2 and 3.
Below is an example of the bonus calculation with overachievement points and the
CPF included.
EXAMPLE 6:
Assume that the VP of sales overachieves his sales target, earning 55 points
instead of 40. This gives him an MBO score of 110 points, but the Unit falls
midway between Minimum and On-target performance, and the corporation as a whole
falls well below its EPS target.
- - Earned Bonus Award = 50% X 110 pts X 18% (On-target) = 9.9% bonus X
$100,000 = $9,900. CPF reduces this by 25% to $7,425
- - Year 1 payout is 80% of $7,425, or $5,940
- - $742.50 is accrued and paid out, if earned, in each of years 2 and 3.
- --------------------------------------------------------------------------------
SUNRISE MEDICAL INC. FY 1998 REVISION
January 16, 1998 PAGE 9 of 18
<PAGE>
EXHIBIT C
SUNRISE MEDICAL INC.
MBOS
UNIT CHIEF FINANCIAL OFFICER
<TABLE>
<CAPTION>
WEIGHT RESULTS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
30 1. PRIMARY OBJECTIVE: Achieve budgeted receivables days sales
outstanding (DSO) of 60 days from year-end figure of 66 days.
57 days 150% 45 pts
60 days 100% 30 pts
63 days 50% 15 pts
66 days 0% 0 pts
_____
20 2. Negative or positive adjustments to profit and loss, either individually or
in the aggregate should not exceed 1% of operating income.
- At year end, for audit adjustments 10 pts
- As a result of any physical
inventory, net of shrinkage reserves 10 pts _____
10 3. Develop and maintain a good system of internal controls.
- Ensure division complies with the Sunrise Medical
Internal Control Standards Guide in all material respects 2 pts
- Ensure all management responses to internal
control improvement recommendations from internal
and external audit reports are implemented on schedule 3 pts
- Ensure all material balance sheet accounts (including
all cash accounts) are reconciled as part of each month's
final closing 5 pts _____
10 4. Maintain G&A departmental expenses at or below $2,680 budget for the
year. _____
10 5. Achieve budgeted payables days purchases outstanding (DPO) of 45 days and
$50,000 in cash discounts or equivalent combination. _____
5 6. Establish a professional costing function and install an effective activity
based accounting system which measures and reduces operational costs
drivers. Target savings: $100,000 annualized. _____
5 7. Develop professional skills of all exempt people in department, providing
or sponsoring at least 50 hours of classroom/seminar training for each in
both technical disciplines and personal development. _____
10 8. Discretionary. (5 points by Unit president, 5 points by Corporate CFO.) _____
- --------
- --------
100% Total _____
</TABLE>
- --------------------------------------------------------------------------------
SUNRISE MEDICAL INC. FY 1998 REVISION
January 16, 1998 PAGE 10 of 18
<PAGE>
APPENDIX I: FINANCIAL ADMINISTRATION
The following rules and guidelines will be used by the Corporate CFO in
administering the financial aspects of the MIB plan. All Unit financial
officers are responsible for explaining these rules to their respective
management teams. For example, it is critical that operating management
understand the way in which poor asset management, negative cash flow, or R&D
underspending can penalize their earnings performance.
A. OPERATING UNIT BPE PERFORMANCE
The primary determinant of company performance is profit in the form of "Bonus
Purpose Earnings" - or BPE. BPE is defined as operating profit plus or minus
any interest charges (both internal and external), but before "other income and
expense" or income taxes. BPE is budgeted each fiscal year at the time that
Unit operating profit budget is approved. This BPE plan is then modified as
necessary after the prior year's audited figures are available to take into
consideration material differences between the actual finish and the assumption
at the time of the budget approval.
B. OPERATING UNIT RONA PERFORMANCE
The Unit's RONA will be factored into its BPE performance by using a RONA
Multiplier to increase or reduce the Unit's bonus pool in cases where its
average RONA for the year has either dramatically improved or significantly
slipped. The Corporate office will establish RONA threshold levels for all
Units based on their budgeted RONA levels. Where applicable, the appropriate
RONA Multiplier will be multiplied times the Unit's BPE performance to yield an
adjusted Unit performance percentage. (see Section F below)
Positive RONA adjustments may increase the Unit performance percentage up to but
not higher than 200%. (250% with maximum CPF.)
C. 30-25% LIMITATION RULE
1. 30% LIMITATION (BELOW ON-TARGET) The Unit's total On-target "Bonus
Pool", i.e., the aggregate of the On-target payout to all plan participants,
will be budgeted in advance of the year, accrued in accordance with corporate
policy, and subtracted at year end from earnings before that earnings figure
is used in calculating the Unit's performance level. (In other words, the
calculation of earnings and bonus level is a circular, iterative process.)
However, under no circumstances may the total of the Bonus Pool being paid to
management exceed 30% of the actual profit increase before bonuses, compared
to profit as reported (i.e., after bonuses) the prior year. If the pool is
so limited, each participant's earned share shall be reduced pro rata, based
on his or her percentage of the Unit's total On-target Bonus Pool.
2. 25% LIMITATION (ABOVE ON-TARGET) The increment between On-target and
Maximum performance goals will be set each year such that no more than 25% of
any profit increase above On-target (before bonuses) will go toward the Bonus
Pool and be shared with Unit
- --------------------------------------------------------------------------------
SUNRISE MEDICAL INC. FY 1998 REVISION
January 16, 1998 PAGE 11 of 18
<PAGE>
management. Furthermore, as a general guideline, the less ambitious a company's
profit budget (i.e., On-target) is, the more ambitious its maximum will be set,
and vice versa. A very aggressive budget will be rewarded with a more moderate
maximum goal, providing the 25% limitation has not been exceeded.
Note: To determine the minimum BPE increase (i.e., after deduction of
applicable bonus) required to support a full bonus payout, multiply the
On-target bonus pool by 2.33 X for a 30% sharing ratio and by 3.0 X for a 25%
sharing ratio.
Example (all dollar figures in thousands):
Suppose an On-target BPE goal is $2,000 and its On-target Bonus Pool amounts to
$100. The Unit would have to earn at least $2,300 after bonus to qualify for a
Maximum payout. The $2,300 (25% sharing ratio) is derived by calculating what
number $100 is 25% of ($400), adding that to the On-target level ($2,000), and
then subtracting the additional bonus payout ($100) to get the reported earnings
after bonuses ($2,300). The exact Maximum will be set by the Corporate Office
and approved by the board of directors, and in general will fall somewhere
between a 20% and 25% sharing ratio on profit improvement (pre-bonus) above last
year's actual reported earnings.
D. INTEREST CHARGES
1. INTEREST RATES: The inter-company interest rate charged on cash transfers
to or from Corporate will be set by the chief financial officer at the beginning
of the year and budgeted accordingly. This rate will remain constant for
purposes of calculating Bonus Purpose Earnings, except in the event of major
swings (i.e., more than 100 basis points) in the corporation's borrowing rate,
in which case this will be passed on to the Unit in order to better reflect the
true cost of money in their asset management decisions. Any change in the
inter-company rate will be published at least 30 days in advance by the CFO. An
interest surcharge of 100% will be added in any shortfall in cash transfers to
Corporate below budget or on any unplanned cash borrowings. This severe penalty
is intentionally designed to incentivize good asset management and accurate cash
flow budgeting, both of which are extremely important to the corporation.
2. CASH UPSTREAM STANDARD: The corporate operating standard requires that 75%
of operating profit in any year be "upstreamed" to the Corporate Office (or used
to retire local debt) except in years when a major capital expenditure program
has been approved, such as a new factory. Normally such cash transfers should
be made ratably during the year. If a Unit budget does not meet the standard,
causing its budgeted interest income to appear low, the Corporate CFO may
arbitrarily raise the required interest component to at or near the corporate
standard in calculating the three BPE targets. In that case the Unit will
either have to upstream more cash sooner than budgeted or raise its operating
profit to compensate for the interest shortfall if it is to achieve its BPE
goal.
3. MAJOR CASH FLOW DISCREPANCIES: Large cash transfers in either direction
which were planned for late one fiscal year but spilled over into early the
following fiscal year, and thus were not properly budgeted, will be reviewed on
an individual basis for the fairness of the
- --------------------------------------------------------------------------------
SUNRISE MEDICAL INC. FY 1998 REVISION
January 16, 1998 PAGE 12 of 18
<PAGE>
inclusion or exclusion of their interest effect on Bonus Purpose Earnings.
Cash transfers may not be intentionally delayed beyond a fiscal year end and
still receive interest credit the following year. To avoid windfall interest
expense savings due to delays in or cancellation of budgeted capital
expenditures, a Unit's BPE will be charged for 80% of the interest savings to
budget in any such cases. Conversely, unplanned interest expense due to
major unbudgeted capital expenditures approved during the year will be
granted 80% relief for BPE purposes. Under no circumstances will any such
interest adjustments be made for less than $5,000. The intent of the program
is to reward asset management efficiency rather than to reward inaccurate
budgeting. On the other hand, the interest charges are not intended to cause
any Unit to forego a particularly attractive capital expenditure opportunity
simply because it was not budgeted in advance of the year.
4. FOREIGN INTEREST RATES: In the case of foreign subsidiaries, gains or
losses from unbudgeted fluctuations in local interest rates may be excluded, at
the Corporate CFO's discretion, when they significantly distort BPE.
E. FINANCIAL RULES & GUIDELINES
1. FOREIGN CURRENCY FLUCTUATIONS: Each Unit's BPE will be calculated in its
local currency. Gains and losses which derive from translating its results into
U.S. dollars will be excluded from measurement of BPE, as will profits or losses
arising from hedging contracts at rates different than Plan. Unbudgeted profits
or losses on sales to third parties resulting from fluctuations in foreign
currencies are included in BPE.
2. BONUS RELIEF: There are two categories of bonus relief which are
automatically added back to operating profit each month to determine Bonus
Purpose Earnings:
- - LIFO CHARGES: All LIFO charges to earnings are added back below the
operating profit line to determine BPE, both in calculating actual earnings
each period and in determining the three BPE target levels. In other
words, BPE is always adjusted--historically and prospectively--as if LIFO
didn't exist.
- - STRATEGIC INVESTMENT PROGRAMS (SIP): Once corporate funded Strategic
Investment Programs (for high potential R&D or marketing projects) are
approved, they are then added back below the line as an adjustment to
determine both planned and actual BPE. On multi-year development projects,
once a SIP spending program has reached a steady state level, it can be
eliminated as a BPE adjustment as long as it can be documented that
spending does not decrease. Once a project reaches fruition and revenues
are being generated (or expenses curtailed), a return on the corporation's
investment will be required in the form of higher earnings targets, but
this will no longer require a BPE adjustment.
Any other requests for BPE relief or for other modifications in this plan as it
is written must be submitted to the Corporate CFO in writing prior to June 30 of
the fiscal year in question. They are not to be considered accepted until
approved by the Corporate CFO and CEO and confirmed in writing back to the Unit
CFO.
- --------------------------------------------------------------------------------
SUNRISE MEDICAL INC. FY 1998 REVISION
January 16, 1998 PAGE 13 of 18
<PAGE>
3. RESEARCH AND DEVELOPMENT EXPENDITURES: Although the MIB program has a one
year horizon, building profitable, sustainable longer term earnings growth is
management's primary responsibility. With that goal in mind, any reduction in
actual R&D expenditures over the prior year will be added back as an adjustment
to year-end Bonus Purpose Earnings. No bonus dollars will be paid on profits so
derived. R&D expenditures which fall below budget may also result in a
reduction in BPE, at the discretion of the Corporate CFO and CEO, even if
increased over the prior year. The corporation never wants to incentivize short
term earnings performance at the expense of longer term growth.
4. TRANSFER PRICING: The effect on earnings and therefore BPE of intercompany
pricing negotiations or transfer price policy changes are to be reflected in
each division's fiscal year financial budget. In the event a mid-year change in
intercompany pricing policies, foreign exchange rates or other significant
changes affecting transfer prices takes place which was not contemplated in
setting BPE, earnings targets will be adjusted where appropriate. The objective
is to eliminate paying bonus dollars on earnings increases which do not benefit
corporate earnings per share but simply represent a transfer of profit from one
division to another. The converse is also true on earnings penalties derived
from transfer price changes which take place in mid-year and hurt one Unit while
benefiting another.
F. UNIT BONUS AND RONA CALCULATION EXAMPLE ($000)
This section presents examples of how BPE and RONA calculations interact to
determine operating unit performance. Assume that a Unit delivered BPE of
$1,700 last year and had a budget this year of $2,000. Its BPE targets were set
as follows:
<TABLE>
<S> <C>
- -------------------------------------------------
Maximum $2,400
On-target $2,000
Minimum $1,700
- -------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
SUNRISE MEDICAL INC. FY 1998 REVISION
January 16, 1998 PAGE 14 of 18
<PAGE>
The Unit's RONA reached 27% last year and was budgeted for 30% this year. It
was assigned the following RONA threshold levels by the Corporate Office:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
THRESHOLD LEVEL AVERAGE RONA FOR YEAR RONA MULTIPLIER
FACTOR
- ------------------------------------------------------------------------------
<S> <C> <C>
A 40% 1.10X
B 39% 1.09X
C 38% 1.08X
D 37% 1.07X
E 36% 1.06X
F 25% to 35.9% 1.0X
G 24% 0.9X
H 23% 0.8X
I 22% 0.7X
J 21% 0.6X
K 20% 0.5X
L Under 19% 0.0X
- ------------------------------------------------------------------------------
</TABLE>
This means that, as long as the Unit RONA comes in somewhere between 25% and
36%, there will be no RONA penalty or multiplier applied to BPE.
Now let's look at how the Unit's bonus pool is calculated assuming a variety of
BPE and RONA performances:
CASE 1:
Suppose actual performance exceeds budget as follows:
BPE = $2,200
RONA = 24.4%
BPE of $2,200 is 50% of the way between $2,000 (On-target) and $2,400 (Maximum),
which yields a BPE performance of 150%.
RONA of 24.4% is above the G threshold but below F, for a 0.9 X multiplier.
(The RONA Multiplier is NOT interpolated.)
Unit performance = 0.9 x 150% = 135%
- --------------------------------------------------------------------------------
SUNRISE MEDICAL INC. FY 1998 REVISION
January 16, 1998 PAGE 15 of 18
<PAGE>
CASE 2:
Suppose actual performance falls short of budget on both earnings and RONA as
follows:
BPE = $1,900
RONA = 22.0%
BPE of $1,900 is 67% of the way between $1,700 (Minimum) and $2,000 (On-target),
calculated as 200 DIVIDED BY 300 = 67%
RONA of 22% right at the D threshold, for a 0.7 X RONA Multiplier.
Unit performance = 0.7 X 67% = 46.9%
CASE 3:
Suppose actual BPE performance exceeds budget and RONA performance is very
strong:
BPE = $2,327
RONA = 40%
BPE of $2,327 is 81.8% of the way between $2,000 (On-target) and $2,400
(Maximum), which yields a BPE performance of 181.8%.
RONA of 40% is above the A threshold, for a 1.10 X multiplier.
Unit performance = 1.10 X 181.8% = 200%
- --------------------------------------------------------------------------------
SUNRISE MEDICAL INC. FY 1998 REVISION
January 16, 1998 PAGE 16 of 18
<PAGE>
APPENDIX II: HUMAN RESOURCES ADMINISTRATION
The Corporate human resources department will be responsible for the overall
administration of the MIB Plan, supported by the operating unit HR officers and
working closely with the Corporate finance department. Corporate HR will
prepare annually the summary sheets of all MIB awards, meet with the
compensation committee of the board of directors, and coordinate the payment of
bonuses with the payroll department.
In administering the MIB Plan, the HR department will follow these general rules
and guidelines:
1. BASE SALARY/BONUS LEVEL: Each Associate's gross or pre-adjusted (i.e.,
before pre-tax deductions or contributions) base salary compensation,
exclusive of bonus payments and international or expatriate living
allowances, will be the basis for calculating his or her bonus earned.
Mid-year increases in base salary, if any, will be prorated to reflect length
of time at each salary level. For purposes of prorating, the "salary year" is
September 1 - August 31.
2. MID YEAR TERMINATIONS: No awards will be paid to any Associate whose
active employment has been terminated prior to the fiscal year end unless the
separation occurred due to retirement, death, or an approved medical leave of
absence. In those cases, pro-rata payments will be made after the completion
of the fiscal year at the normal payout time for all Associates (i.e.,
September 1). An Associate who is laid off after fiscal year end but before
the plan's payment date will be paid the full amount due. Associates who
resign voluntarily or are terminated for cause during this period will
receive the amount due less an automatic 25% penalty.
3. NEW HIRES AND PROMOTIONS: A newly hired Associate may qualify for
participation after the commencement of a plan year (July 1 to June 30). In
such a case, the participant shall be eligible to receive a bonus award on
only his or her base pay earned during the time of participation in the plan
prior to the fiscal year end. New hires starting May 1, or later, will not
be eligible to participate in the bonus plan until July 1. Associates
promoted to a higher bonus level ANYTIME during the fiscal year will get the
benefit of that MIB percentage applied to their actual salaried earnings
during the salary year.
4. MBO ADMINISTRATION: In order to participate in the MIB program, each
manager must have a list of objectives, approved by his or her immediate
supervisor and Unit president, on the file at the Sunrise Medical Corporate
HR Department no later than September 30 of each fiscal year. MBOs for new
hires and transfers should be submitted within 60 days of the hire/transfer
date. The MBOs must also be approved by the appropriate Corporate function
head where required (finance, HR, purchasing and RA/QA) and by the Sunrise
Medical CEO for Unit vice presidents and above.
- --------------------------------------------------------------------------------
SUNRISE MEDICAL INC. FY 1998 REVISION
January 16, 1998 PAGE 17 of 18
<PAGE>
5. PERFORMANCE REVIEWS: In addition to discussing their MBO performance
immediately after fiscal year end, MIB participants will also be given a more
general performance review by their immediate supervisors. This evaluation will
form the basis for the annual salary review.
6. SALES MANAGERS: Regional or market segment sales managers will not
participate in the MIB plan but instead will participate in a Sales
Commission Plan developed at the Unit level, with earnings potential
comparable to the appropriate MIB bonus level. Their incentive payments will
be tied specifically to sales performance targets in their regions or market
segments, based on specific programs to be designed by each operating unit.
All sales managers should submit MBOs and go through a performance review
similar to MIB participants. Regional sales manager bonuses will NOT be
included in the MIB pool for purposes of calculating the 30 - 25% limitation
rules.
7. PROJECT ENGINEERS: Product development engineers who are not in
managerial positions, but whose salary and responsibility levels are
comparable to those who are, will participate in the Project Engineering
Bonus (PEB) Plan rather than the MIB Plan. PEB participants will have
potential bonus payouts equal to the on-target and Max levels of their
product management counterparts. In the case of project engineers, however,
payouts will be tied to successful completion of a major development project
rather than to their Unit's results. Timing of payouts will be at successful
project completion, however defined, rather than tied to a fiscal year end.
The PEB Plan will be administered at the Unit level. It may also be applied
to other technology professionals assigned to focus on a single major
project, such as manufacturing engineers in the case of a new plant or
automated assembly line, or systems engineers or IT specialists in the case
of a major computer system conversion. (See separate PEB Plan description.)
8. NEWLY ACQUIRED BUSINESSES: Business Units acquired during the year may
participate in the MIB program on a partial basis providing: (a) they were
acquired prior to January 1; (b) a budget for the remainder of the fiscal
year has been submitted and approved; and (c) MBOs have been prepared and
submitted for each participant within 60 days of the acquisition. Where
these criteria are not met, participation in the plan will commence on the
following July 1. Any bonuses paid for the partial year will be on a
completely discretionary basis tied to the earnings assumptions made at the
time of acquisition.
- --------------------------------------------------------------------------------
SUNRISE MEDICAL INC. FY 1998 REVISION
January 16, 1998 PAGE 18 of 18
<PAGE>
AMENDED AND RESTATED
SENTIENT / SUNRISE
STOCK OPTION PLAN
This Stock Option Plan was originally adopted by the Sentient Systems
Technology Inc., a corporation organized under the laws of the State of
Pennsylvania, Board of Directors on March 12, 1993. The Plan originally covered
100,000 shares. On April 13, 1998, Sentient Systems Technology Inc. was
acquired by Sunrise Medical Inc. in a merger. Each share of Sentient Systems
Technology Inc. was exchanged for 2.27 shares of Sunrise Medical Inc. common
stock. This Stock Option Plan was amended and restated by the Sunrise Medical
Inc. Board of Directors as of April 28, 1998. Accordingly, the total number of
shares and options that were outstanding under the Plan and options that are
granted in the future will now be exercised for shares of Sunrise Medical Inc.
stock in the merger ratio of 2.27 to 1. The total number of options available
for grant under this Plan are 227,000. 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 Associates 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 Associates 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-Associate Directors
for service as members of the Board, by providing such Non-Associate 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.
<PAGE>
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 Associate 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.
SECTION 1.6 - ASSOCIATE
"ASSOCIATE" shall mean any Associate (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 Associate 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
"EXECUTIVE 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.
2
<PAGE>
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-ASSOCIATE DIRECTOR
"NON-ASSOCIATE DIRECTOR" shall mean a Director who is not an Associate.
SECTION 1.11 - NON-ASSOCIATE DIRECTOR OPTION
"NON-ASSOCIATE DIRECTOR OPTION" shall mean a Non-Qualified Option which is
granted to a Non-Associate 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-Associate 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 Associate or a Non-Associate 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.
SECTION 1.17 - PLAN
"PLAN" shall mean this Amended and Restated Sentient / Sunrise Stock Option
Plan.
3
<PAGE>
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 Associate 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.
4
<PAGE>
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 227,000.
SECTION 2.2 - UNEXERCISED OPTIONS; RETAINED SHARES
If any Option expires or is canceled 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
split-up, 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.
ARTICLE III
GRANTING OF OPTIONS
SECTION 3.1 - ELIGIBILITY
Any executive or other key Associate 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-Associate Directors shall be granted Non-Associate 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-Associate Directors, but
may, in the discretion of the Committee, be granted to Directors who are also
Associates.
5
<PAGE>
SECTION 3.3 - GRANTING OF OPTIONS
(a) In the case of Options to be granted hereunder, the Committee shall
from time to time, in its absolute discretion:
(1) Determine which Associates or Directors should be granted Options; and
(2) Determine the number of shares to be subject to such Options, 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 Associate or Director 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.
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.
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-Associate Director
Option, the price per share shall equal 100% of the fair market value of such
shares of the date that such Non-Associate 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.
(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
6
<PAGE>
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 Associates 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) 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, accelerate the time at which such Option or any
portion thereof may be exercised.
(c) Except as provided in the applicable Stock Option Agreement executed
hereunder, no portion of an Option which is unexercisable at Termination of
Employment (or Termination of Directorship, in the case of a Non-Associate
Director Option) shall thereafter become exercisable.
(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.
SECTION 4.4 - EXPIRATION OF OPTIONS
(a) Except as provided in the applicable Stock Option Agreement executed
hereunder, 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,
7
<PAGE>
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 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 (or Termination of
Directorship, in the case of a Non-Associate Director Option) for any
reason other than normal retirement at age 65 or such Optionee's death
unless the Optionee dies within said three-month period; 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-Associate Director Option) for any reason other than
such Optionee's death unless the Optionee dies within said one-year period;
or
(5) In the case of a Non-Associate Director Option, three (3) months
following the Non-Associate Director's Termination of Directorship by
reason of expiration of term, removal (with or without cause) or
resignation; or
(6) The expiration of one year from the date of the Optionee's death.
(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-Associate Director Option) for any reason.
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-Associate 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-Associate Director, to remove) any Optionee at any time for any reason
whatsoever, with or without cause.
SECTION 4.6 - ADJUSTMENTS IN OUTSTANDING OPTIONS
Except as provided in the applicable Stock Option Agreement executed
hereunder, 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
8
<PAGE>
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). Not withstanding the
foregoing, the Board may, in it's absolute discretion, provide in the
Agreement(s) (or otherwise evidence their determination) that such option(s)
vest fully and automatically upon a change in control of the Company.
ARTICLE V
EXERCISE OF OPTIONS
SECTION 5.1 - PERSON ELIGIBLE TO EXERCISE
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.
9
<PAGE>
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, and except in the case of a
Non-Associate 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-Associate 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
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(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 - 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
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(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 5.5 - 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 5.6 - 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-Associate 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-Associate 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 evidencing
such shares. The Committee may require an Associate 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 Associate. 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-Associate Directors,
appointed by and holding office at the pleasure of the Board, each of whom is
both (a) a Non-Associate Director 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.
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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. The Board shall have the right
to exercise all of the rights or duties of the Committee under the Plan.
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.
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.
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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 or amend
or modify the Plan in a manner requiring stockholder approval under Section 422
of the Code. 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 the first to occur of the
following events:
(a) The expiration of ten years from the date the Plan is adopted by the
Board; or
(b) The expiration of ten years from the date the Plan is approved by the
Company's stockholders.
SECTION 7.3 - 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 Associates 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 7.4 - TITLES
Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of the Plan.
SECTION 7.5 - CONFORMITY TO SECURITIES LAWS
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.
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* * * *
I hereby certify that this Amended and Restated Sentient / Sunrise Stock
Option Plan was adopted by the Board of Directors of Sunrise Medical Inc. on
April 28, 1998.
Executed on this ____ day of ____________, 1998.
------------------------------------------
Secretary
* * * *
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AMENDED AND RESTATED SENTIENT / SUNRISE STOCK OPTION PLAN
ASSOCIATE STOCK OPTION AGREEMENT
TERMS AND CONDITIONS
(4/98)
These Terms and Conditions constitute a part of the Amended and Restated
Sentient / Sunrise Stock Option Agreement, dated as of the date set forth on the
Stock Option Agreement Signature Page, applying to Options (other than
Non-Associate Director Options) granted under the Amended and Restated Sentient
/ Sunrise Stock Option Plan (the "PLAN") (the applicable terms of which are
hereby incorporated by reference and made a part hereof). These Terms and
Conditions and the Stock Option Agreement Signature Page are together referred
to collectively as the "Agreement".
ARTICLE I
DEFINITIONS AND RULES OF CONSTRUCTION
Whenever capitalized terms are used herein, they shall have the meaning
specified (i) in the Plan or (ii) in this Agreement unless the context clearly
indicates to the contrary. The masculine pronoun shall include the feminine and
neuter, and the singular the plural, where the context so indicates. As
necessary for purposes of this Agreement, the "FAIR MARKET VALUE" of a share of
the Company's Common Stock shall be determined in accordance with Section 4.2(b)
of the Plan.
This Agreement shall NOT apply to Non-Associate Director Options.
ARTICLE II
GRANT OF OPTION
SECTION 2.1 - GRANT OF OPTION
The number of shares of the Company's $1.00 par value Common Stock covered
by the Option granted are set forth on the signature page hereto.
SECTION 2.2 - PURCHASE PRICE
The purchase price of the shares of stock covered by the Option is set
forth on the signature page hereto and shall not be subject to commission or
other charge.
SECTION 2.3 - CONSIDERATION TO COMPANY
In consideration of the granting of the Option by the Company, the Associate
agrees to render faithful and efficient services to the Company, a Parent
Corporation or a Subsidiary, with such duties and responsibilities as the
Company shall from time to time prescribe, subject in each case to Associate's
status as an "At-Will" employee (See Section 5.11).
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SECTION 2.4 - ADJUSTMENTS IN OPTION
In the event that the outstanding shares of the stock subject to the Option
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, reorganization,
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 the Option, or
portions thereof then unexercised, shall be exercisable, to the end that after
such event the Associate's proportionate interest shall be maintained as before
the occurrence of such event. Such adjustment in the Option shall be made
without change in the total price applicable to 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 the Option price per share; PROVIDED, HOWEVER, that, if the Option is an
Incentive Stock Option, 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
the Associate, the Company and all other interested persons.
ARTICLE III
PERIOD OF EXERCISABILITY
SECTION 3.1 - COMMENCEMENT OF EXERCISABILITY
(a) The Option shall become exercisable in the time and manner determined
by the Board as shown on each Stock Option Agreement Signature Page.
(b) No portion of the Option which is unexercisable at Termination of
Employment shall thereafter become exercisable PROVIDED THAT upon the death of
the Associate, the Option will immediately become fully vested and exercisable
in full.
SECTION 3.2 - DURATION OF EXERCISABILITY
The installments provided for in Section 3.1 of this Agreement are
cumulative. Each such installment which becomes exercisable pursuant to this
Agreement shall remain exercisable until it becomes unexercisable under Section
3.3.
SECTION 3.3 - EXPIRATION OF OPTION
The Option may not be exercised to any extent by anyone after the first to
occur of the following events:
(a) The expiration of ten (10) years from the date that the Option
was granted; or
(b) The expiration of 5 years from the date that the Option was
granted if the Option is an Incentive Stock Option and the Associate
owned (within the meaning of Section 424(d) of the Code), at the time
the Option was granted, more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company, any
Subsidiary or any Parent Corporation; or
(c) The expiration of 3 months following the date of the
Associate's Termination of Employment unless such Termination of
Employment results from his or her death, his or her retirement at or
after age 65, or his or her disability (within the meaning of Section
22(e)(3) of the Code); or
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(d) The expiration of one (1) year from the date of the
Associate's Termination of Employment by reason of his or her
disability (within the meaning of Section 22(e)(3) of the Code); or
(e) The expiration of one (1) year from the date of the
Associate's death or the Associate's Termination of Employment by
reason of retirement on or after age 65; or
(f) The effective date of either the merger or consolidation of
the Company with or into another corporation, or the acquisition by
another corporation or person of all or substantially all of the
Company's assets or eighty percent (80%) or more of the Company's then
outstanding voting stock, or the liquidation or dissolution of the
Company, unless the Committee waives this provision in connection with
such transaction. At least twenty (20) days prior to the effective
date of such merger, consolidation, acquisition, liquidation or
dissolution, the Committee shall give the Associate notice of such
event if the Option has then neither been fully exercised nor become
unexercisable under this Section 3.3.
If the Associate should exercise any portion of an Incentive Stock Option more
than three (3) months following the date of the Associate's retirement on or
after age 65 as provided in Section 3.3(e), he or she will be taxed, as to such
portion of the Option so exercised, as if such portion of the Option did not
qualify as an "INCENTIVE STOCK OPTION" (within the meaning of Section 422 of the
Code) but rather as if such portion was a non-qualified option.
SECTION 3.4 - MERGER, CONSOLIDATION, ACQUISITION
OR DISSOLUTION OF THE COMPANY
Except as expressly referenced in the Stock Option Agreement Signature
Page, in the event of the merger or consolidation of the Company with or into
another corporation, or the acquisition by another corporation or person of all
or substantially all of the Company's assets or eighty percent (80%) or more of
the Company's then outstanding voting stock, or the liquidation or dissolution
of the Company, either:
(a) The Option shall be assumed or an equivalent option substituted
by any successor corporation to the Company. The Company undertakes to
make reasonable and adequate provision for such assumption or substitution
of the Option upon or in connection with such merger, consolidation,
acquisition, liquidation or dissolution; or
(b) The Committee shall provide that the Option shall become
exercisable, for a minimum of fifteen (15) days prior to such event, as to
all the shares covered hereby, notwithstanding that this Option may not yet
have become fully exercisable under Section 3.1(a), but subject to Section
3.5.
SECTION 3.5 - SPECIAL TAX CONSEQUENCES
To the extent that the aggregate fair market value (as determined pursuant
to the Code) 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), including the Option if it is an Incentive Stock Option, are
exercisable for the first time by the Associate 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
treated as not qualifying under Section 422 of the Code but rather shall be
taxed as non-qualified options. The rule set forth in the preceding sentence
shall be applied by taking
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options into account in the order in which they were granted. For purposes of
these rules, the fair market value of stock shall be determined as of the time
that the option with respect to such stock is granted.
ARTICLE IV
EXERCISE OF OPTION
SECTION 4.1 - PERSON ELIGIBLE TO EXERCISE
During the lifetime of the Associate, only he or she may exercise the
Option or any portion thereof. After the death of the Associate, any
exercisable portion of the Option may, prior to the time when the Option becomes
unexercisable under Section 3.3, be exercised by his or her personal
representative or by any person empowered to do so under the Associate's will or
under the then applicable laws of descent and distribution.
SECTION 4.2 - PARTIAL EXERCISE
Any exercisable portion of the Option or the entire Option, if then wholly
exercisable, may be exercised in whole or in part at any time prior to the time
when the Option or portion thereof becomes unexercisable under Section 3.3;
PROVIDED, HOWEVER, that each partial exercise shall be for not less than 100
shares (or the annual installment set forth in Section 3.1, if a smaller number
of shares) and shall be for whole shares only.
SECTION 4.3 - MANNER OF EXERCISE
The Option, or any exercisable portion thereof, may be exercised solely by
delivery to the Secretary or his or her office of all of the following prior to
the time when the Option or such portion becomes unexercisable under
Section 3.3:
(a) Notice in writing signed by the Associate or the other
person then entitled to exercise the Option or portion, stating that
the Option or portion is thereby 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 exercised; or
(2) With the consent of the Committee, (A) shares of
the Company's Common Stock owned by the Associate duly
endorsed for transfer to the Company or (B) shares of the
Company's Common Stock issuable to the Associate upon
exercise of the Option, with a fair market value 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
subparagraphs (1) and (2); and
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(c) A BONA FIDE written representation and agreement, in a form
satisfactory to the Committee, signed by the Associate or other person
then entitled to exercise such Option or portion, stating that the
shares of stock are being acquired for his or her own account, for
investment and without any present intention of distributing or
reselling said shares or any of them except as may be permitted under
the Securities Act and the applicable rules and regulations
thereunder, and that the Associate or other person then entitled to
exercise such Option or portion will indemnify the Company against and
hold it free and harmless from any loss, damage, expense or liability
resulting to the Company if any sale or distribution of the shares by
such person is contrary to the representation and agreement referred
to above. The Committee may, in its absolute discretion, take
whatever additional actions it deems appropriate to insure the
observance and performance of such representation and agreement and to
effect compliance with the Securities Act and any other federal or
state securities laws or regulations. Without limiting the generality
of the foregoing, the Committee may require an opinion of counsel
acceptable to it to the effect that any subsequent transfer of shares
acquired on an Option exercise does not violate the Securities Act,
and may issue stop-transfer orders covering such shares. Share
certificates evidencing stock issued on exercise of the Option shall
bear an appropriate legend referring to the provisions of this
subsection (c) and the agreements herein. The written representation
and agreement referred to in the first sentence of this subsection (c)
shall, however, not be required if the shares to be issued pursuant to
such exercise have been registered under the Securities Act, and such
registration is then effective in respect of such shares; and
(d) Full payment to the Company (or other employer corporation)
of all amounts which, under federal, state or local tax law, it is
required to withhold upon exercise of the Option. If the Option is a
Non-Qualified Option, the payment of such withholding shall be
effected by 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 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 Associate or other
person then entitled to exercise the Option an amount in cash equal to
the fair market value of any fractional share retained in excess of
the shares representing, in value, the amount of such required
withholdings; and
(e) In the event the Option or portion shall be exercised
pursuant to Section 4.1 by any person or persons other than the
Associate, appropriate proof of the right of such person or persons to
exercise the Option.
SECTION 4.4 - CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES
The shares of stock deliverable upon the exercise of the Option, or any
portion thereof, may be either previously authorized but unissued shares or
issued shares which have then been reacquired by the Company. Such shares shall
be fully paid and nonassessable. The Company shall not be required to issue or
deliver any certificate or certificates for shares of stock purchased upon the
exercise of the 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 class of stock is then listed; and
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(b) The completion of any registration or other qualification of
such shares under any state or federal law or under rulings or
regulations of the Securities and Exchange Commission or of 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 lapse of such reasonable period of time following the
exercise of the Option as the Committee may from time to time
establish for reasons of administrative convenience.
SECTION 4.5 - NO RIGHTS AS STOCKHOLDER
The holder of the Option shall not be, nor have any of the rights or
privileges of, a stockholder of the Company in respect of any shares purchasable
upon the exercise of any part of the Option unless and until certificates
representing such shares shall have been issued by the Company to such holder.
ARTICLE V
OTHER PROVISIONS
SECTION 5.1 - ADMINISTRATION
The Committee shall have the power to interpret the Plan and this Agreement
and to adopt such rules for the administration, interpretation and application
of the Plan as are consistent therewith and to interpret or revoke any such
rules. All actions taken and all interpretations and determinations made by the
Committee in good faith shall be final and binding upon the Associate, 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 Option. The Board shall have the right to
exercise all of the rights or duties of the Committee under the Plan and this
Agreement.
SECTION 5.2 - OPTION NOT TRANSFERABLE
Neither the Option nor any interest or right therein or part thereof shall
be liable for the debts, contracts or engagements of the Associate or his or her
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 this Section 5.2
shall not prevent transfers by will or by the applicable laws of descent and
distribution.
SECTION 5.3 - SHARES TO BE RESERVED
The Company shall at all times during the term of the Option reserve and
keep available such number of shares of stock as will be sufficient to satisfy
the requirements of this Agreement.
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SECTION 5.4 - NOTICES
Any notice to be given under the terms of this Agreement to the Company
shall be addressed to the Company in care of its Secretary, and any notice to be
given to the Associate shall be addressed to him at the address given beneath
his or her signature hereto. By a notice given pursuant to this Section 5.4,
either party may hereafter designate a different address for notices to be given
to him. Any notice which is required to be given to the Associate shall, if the
Associate is then deceased, be given to the Associate's personal representative
if such representative has previously informed the Company of his or her status
and address by written notice under this Section 5.4. Any notice shall be
deemed duly given when enclosed in a properly sealed envelope or wrapper
addressed as aforesaid, deposited (with postage prepaid) in a post office or
branch post office regularly maintained by the United States Postal Service.
SECTION 5.5 - TITLES
Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of this Agreement.
SECTION 5.6 - NOTIFICATION OF DISPOSITION
In the case of an Incentive Stock Option, the Associate shall give prompt
notice to the Company of any disposition or other transfer of any shares of
stock acquired under the Agreement if such disposition or transfer is made (a)
within two (2) years from the date of granting the Option with respect to such
shares or (b) within one (1) year after the transfer of such shares to him.
Such notice shall specify the date of such disposition or other transfer and the
amount realized, in cash, other property, assumption of indebtedness or other
consideration, by the Associate in such disposition or other transfer.
SECTION 5.7 - CONSTRUCTION
The Agreement has been negotiated and executed in, and shall be
administered, interpreted and enforced under the laws of, the State of
California.
SECTION 5.8 - CONFORMITY TO SECURITIES LAWS
The Associate acknowledges that 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 the Option
is 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 this Agreement shall be deemed amended to the extent necessary to
conform to such laws, rules and regulations.
SECTION 5.9 - AMENDMENT
The Committee and the Company expressly reserve the right to amend, modify,
suspend or terminate this Agreement; PROVIDED, HOWEVER, that no such amendment,
modification, suspension or termination shall impair or diminish any rights or
increase any obligations of the holder of the Option without such holder's
consent.
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SECTION 5.10 - ALTERNATIVE DISPUTE RESOLUTION
ALL DISPUTES BETWEEN ASSOCIATE AND THE COMPANY OR ONE OF ITS SUBSIDIARIES,
AFFILIATES, OFFICERS, ASSOCIATES OR DIRECTORS ARISING FROM OR IN ANY WAY
CONNECTED TO, CONCERNING, OR RELATED TO (i) ASSOCIATE'S EMPLOYMENT WITH THE
COMPANY (OR A SUBSIDIARY), AND/OR (ii) THE TERMINATION OF SUCH EMPLOYMENT,
AND/OR (iii) THIS AGREEMENT SHALL BE RESOLVED IF POSSIBLE BY NON-BINDING
MEDIATION BY A MUTUALLY ACCEPTABLE MEDIATOR. IF EITHER PARTY DETERMINES THAT
MEDIATION IS NOT SUCCESSFULLY RESOLVING THE DISPUTE, THE DISPUTE SHALL BE
RESOLVED BY FINAL AND BINDING ARBITRATION before a single arbitrator under the
Employment Dispute Resolution Rules of the American Arbitration Association. The
mediation and/or arbitration referenced above shall be sited in the headquarters
city of the division which employs Associate (currently San Diego for Corporate
office Associates, Fresno for Quickie Associates, etc.). The company shall pay
the mediation and arbitration fees but not attorney fees. The results of the
arbitration shall be final and binding upon the parties and may be enforced by
any court of competent jurisdiction. In the case of arbitration, the Arbitrator
shall have the power to award costs (but not attorney fees) to the prevailing
party. The Associate understands and agrees that by signing the signature page,
both Associate and the Company are giving up their respective rights to a jury
trial. THIS DISPUTE RESOLUTION PROCESS COVERS ANY DISPUTES (NOT JUST DISPUTES
RELATING TO THIS AGREEMENT) INCLUDING BUT NOT LIMITED TO: EMPLOYMENT
DISCRIMINATION, SEXUAL HARASSMENT, DEFAMATION AND WRONGFUL TERMINATION AND SHALL
SURVIVE THE TERMINATION OF YOUR EMPLOYMENT.
SECTION 5.11 - "AT-WILL" STATUS & INTEGRATION & MODIFICATION CLAUSE
ASSOCIATE HEREBY AGREES THAT IN ACCORDANCE WITH THE POLICIES OF THE
COMPANY, ASSOCIATE IS AN "AT-WILL" EMPLOYEE OF THE COMPANY OR ONE OF ITS
SUBSIDIARIES. This means that Associate can resign employment at any time, and
may be terminated or demoted at any time. The parties agree that nothing shall
interfere with or restrict in any way the rights of such employer (which rights
are hereby expressly reserved), to discharge, demote or change compensation or
the conditions of employment of Associate at any time for any (or no) reason
whatsoever, and with or without good cause, all in employer's sole, absolute and
unfettered discretion. The Company's agreement to provide Associates the stock
options described in this Agreement is given in exchange for Associate's
acknowledgment or agreement that his/her employment is, and will be, at-will.
THIS AGREEMENT CONTAINS THE SOLE AND ENTIRE AGREEMENT OF THE PARTIES AND
SUPERSEDES ALL PRIOR AND CONTEMPORANEOUS NEGOTIATIONS, AGREEMENTS,
UNDERSTANDINGS AND THE LIKE BETWEEN ASSOCIATE AND THE COMPANY (OR SUCH
SUBSIDIARY). No modification, waiver, amendment, discharge or change of (i)
this Agreement or (ii) Associate's status as an "at-will" employee shall be
valid unless the same is in writing and signed by the party against whom the
enforcement of such modification, waiver, amendment, discharge or change is or
may be sought, which writing expressly states an intention to modify this
Agreement.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties identified on the signature page of this Agreement.
(Amended and Restated Sentient / Sunrise Stock Option Plan Rev. 1 4/98)
8
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THE SUNRISE MEDICAL INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
<PAGE>
THE SUNRISE MEDICAL INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
TABLE OF CONTENTS
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ARTICLE I. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Section 1.1. - General. . . . . . . . . . . . . . . . . . . . . . . . .2
Section 1.2. - Active Participant . . . . . . . . . . . . . . . . . . .2
Section 1.3. - Administrator. . . . . . . . . . . . . . . . . . . . . .2
Section 1.4. - Base Compensation. . . . . . . . . . . . . . . . . . . .2
Section 1.5. - Board. . . . . . . . . . . . . . . . . . . . . . . . . .2
Section 1.6. - Bonus Compensation . . . . . . . . . . . . . . . . . . .2
Section 1.7. - Bonus Payday . . . . . . . . . . . . . . . . . . . . . .3
Section 1.8. - Change in Control; Continuing Directors. . . . . . . . .3
Section 1.9. - Code . . . . . . . . . . . . . . . . . . . . . . . . . .4
Section 1.10. - Committee . . . . . . . . . . . . . . . . . . . . . . .4
Section 1.11. - Companies; Company; Company Affiliate . . . . . . . . .4
Section 1.12. - Compensation. . . . . . . . . . . . . . . . . . . . . .4
Section 1.13. - Disability Retirement . . . . . . . . . . . . . . . . .5
Section 1.14. - Disability Retirement Date. . . . . . . . . . . . . . .5
Section 1.15. - Eligible Employee . . . . . . . . . . . . . . . . . . .5
Section 1.16. - Employee. . . . . . . . . . . . . . . . . . . . . . . .5
Section 1.17. - Employer Contributions Account. . . . . . . . . . . . .5
Section 1.18. - ERISA . . . . . . . . . . . . . . . . . . . . . . . . .5
Section 1.19. - Exchange Act. . . . . . . . . . . . . . . . . . . . . .5
Section 1.20. - Investment Fund . . . . . . . . . . . . . . . . . . . .5
Section 1.21. - Nonqualified Accounts . . . . . . . . . . . . . . . . .5
Section 1.22. - Nonqualified Deferred Compensation Account. . . . . . .6
Section 1.23. - Nonqualified Employer Contributions Account . . . . . .6
Section 1.24. - Normal Retirement . . . . . . . . . . . . . . . . . . .6
Section 1.25. - Normal Retirement Date. . . . . . . . . . . . . . . . .6
Section 1.26. - Participant . . . . . . . . . . . . . . . . . . . . . .6
Section 1.27. - Plan. . . . . . . . . . . . . . . . . . . . . . . . . .6
Section 1.28. - Plan Year . . . . . . . . . . . . . . . . . . . . . . .6
Section 1.29. - Qualified Participant . . . . . . . . . . . . . . . . .6
Section 1.30. - Qualified Plan. . . . . . . . . . . . . . . . . . . . .6
Section 1.31. - Separation from the Service . . . . . . . . . . . . . .7
Section 1.32. - Subsidiary Company. . . . . . . . . . . . . . . . . . .7
</TABLE>
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THE SUNRISE MEDICAL INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
TABLE OF CONTENTS
<TABLE>
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Section 1.33. - Unforeseeable Emergency . . . . . . . . . . . . . . . .7
Section 1.34. - Vested. . . . . . . . . . . . . . . . . . . . . . . . .7
ARTICLE II. ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Section 2.1. - Requirements for Participation . . . . . . . . . . . . .8
Section 2.2. - Deferral Election Procedure. . . . . . . . . . . . . . .8
Section 2.3. - Content of Deferral Election Form. . . . . . . . . . . .8
Section 2.4. - Distribution Election Changes. . . . . . . . . . . . . .9
ARTICLE III. PARTICIPANT DEFERRALS. . . . . . . . . . . . . . . . . . . . . 10
Section 3.1. - Deferral of Bonus Compensation . . . . . . . . . . . . 10
Section 3.2. - Reduction or Discontinuance of Bonus Compensation
Deferral . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE IV. DEFERRED COMPENSATION AND EMPLOYER CONTRIBUTION CREDITS . . . . 11
Section 4.1. - Nonqualified Deferred Compensation Credits . . . . . . 11
Section 4.2. - Nonqualified Profit Sharing Restoration Credits. . . . 11
Section 4.3. - Nonqualified Supplemental Contribution Credits . . . . 12
ARTICLE V. NONQUALIFIED ACCOUNTS. . . . . . . . . . . . . . . . . . . . . . 12
Section 5.1. - Nonqualified Deferred Compensation Account . . . . . . 12
Section 5.2. - Nonqualified Employer Contributions Account. . . . . . 13
Section 5.3. - Assignments, etc. Prohibited; Distributions
Pursuant to Qualified Domestic Relations Orders. . . . 13
ARTICLE VI. INVESTMENT FUNDS; VALUATION OF INVESTMENT
FUNDS AND NONQUALIFIED ACCOUNTS . . . . . . . . . . . . . . . . . . . . 14
Section 6.1. - Investment Funds . . . . . . . . . . . . . . . . . . . 14
Section 6.2. - Investment Fund Elections. . . . . . . . . . . . . . . 15
Section 6.3. - Determination of Values. . . . . . . . . . . . . . . . 15
Section 6.4. - Allocation of Values . . . . . . . . . . . . . . . . . 16
Section 6.5. - Applicability of Nonqualified Account Values . . . . . 16
ARTICLE VII. VESTING OF NONQUALIFIED ACCOUNTS . . . . . . . . . . . . . . . 16
Section 7.1. - Vesting of Nonqualified Accounts . . . . . . . . . . . 16
</TABLE>
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THE SUNRISE MEDICAL INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
TABLE OF CONTENTS
<TABLE>
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Section 7.2. - Additional Vesting of Nonqualified Accounts. . . . . . 16
ARTICLE VIII. BENEFITS UPON SEPARATION FROM THE SERVICE . . . . . . . . . . 17
Section 8.1. - Distributions upon Normal Retirement . . . . . . . . . 17
Section 8.2. - Distributions upon Disability Retirement . . . . . . . 17
Section 8.3. - Distributions on Separation from the Service
prior to Retirement. . . . . . . . . . . . . . . . . . 18
Section 8.4. - Commencement of Distributions. . . . . . . . . . . . . 18
Section 8.5. - Effect of Delay or Failure to Ascertain Amount
Distributable or to Locate Distributee . . . . . . . . 18
Section 8.6. - Forfeitures. . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE IX. BENEFITS UPON DEATH . . . . . . . . . . . . . . . . . . . . . . 19
Section 9.1. - Distributions upon Separation from the Service
by Reason of Death . . . . . . . . . . . . . . . . . . 19
Section 9.2. - Distributions upon Death After Retirement. . . . . . . 19
ARTICLE X. WITHDRAWALS PRIOR TO SEPARATION FROM THE SERVICE . . . . . . . . 20
Section 10.1. - Hardship Withdrawals. . . . . . . . . . . . . . . . . .20
Section 10.2. - Early Withdrawals . . . . . . . . . . . . . . . . . . .20
ARTICLE XI. ADMINISTRATIVE PROVISIONS . . . . . . . . . . . . . . . . . . . .21
Section 11.1. - Duties and Powers of the Administrator. . . . . . . . .21
Section 11.2. - Committee . . . . . . . . . . . . . . . . . . . . . . .22
Section 11.3. - Limitations upon Powers of the Administrator. . . . . .22
Section 11.4. - Compensation and Indemnification of
Administrator; Expenses of Administration . . . . . . .23
Section 11.5. - Effect of Administrator Action. . . . . . . . . . . . .23
Section 11.6. - Recordkeeping . . . . . . . . . . . . . . . . . . . . .23
Section 11.7. - Statement to Participants . . . . . . . . . . . . . . .24
Section 11.8. - Inspection of Records . . . . . . . . . . . . . . . . .24
Section 11.9. - Identification of Fiduciaries . . . . . . . . . . . . .24
Section 11.10. - Procedure for Allocation of Administrative
Responsibilities . . . . . . . . . . . . . . . . . . . 24
Section 11.11. - Claims Procedure . . . . . . . . . . . . . . . . . . . 24
Section 11.12. - Conflicting Claims . . . . . . . . . . . . . . . . . . 26
Section 11.13. - Service of Process . . . . . . . . . . . . . . . . . . 26
</TABLE>
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THE SUNRISE MEDICAL INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
TABLE OF CONTENTS
<TABLE>
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ARTICLE XII. MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . .26
Section 12.1. - Termination of the Plan . . . . . . . . . . . . . . . .26
Section 12.2. - Limitation on Rights of Employees . . . . . . . . . . .27
Section 12.3. - Unfunded Obligations of Sunrise Medical Inc.. . . . . .27
Section 12.4. - Grantor Trust . . . . . . . . . . . . . . . . . . . . .27
Section 12.5. - Tax Withholding . . . . . . . . . . . . . . . . . . . .28
Section 12.6. - Errors and Misstatements. . . . . . . . . . . . . . . .28
Section 12.7. - Payment on Behalf of Minor, etc.. . . . . . . . . . . .29
Section 12.8. - Amendment of Plan . . . . . . . . . . . . . . . . . . .29
Section 12.9. - Governing Law . . . . . . . . . . . . . . . . . . . . .29
Section 12.10. - Pronouns and Plurality . . . . . . . . . . . . . . . .29
Section 12.11. - Titles . . . . . . . . . . . . . . . . . . . . . . . .29
Section 12.12. - References . . . . . . . . . . . . . . . . . . . . . .30
</TABLE>
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<PAGE>
THE SUNRISE MEDICAL INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Sunrise Medical Inc., a Delaware corporation, by resolution of
its Board of Directors adopted The Sunrise Medical Inc. Supplemental Executive
Retirement Plan (the "Plan"), effective as of June 30, 1998, for the benefit of
its eligible Employees and the benefit of the eligible Employees of its
Subsidiary Companies.
The Plan is comprised of three features: (i) a nonqualified
deferred compensation feature, (ii) a nonqualified profit sharing restoration
feature, and (iii) a nonqualified supplemental contribution feature. The
nonqualified deferred compensation feature provides that an eligible Employee
may elect to defer Bonus Compensation (as defined below) otherwise payable to
such Employee. An eligible Employee may defer Bonus Compensation in accordance
with Article III of the Plan, and amounts so deferred are credited to such
Employee's Nonqualified Deferred Compensation Account under Section 4.1 of the
Plan.
The nonqualified profit sharing restoration feature of the Plan
provides that an eligible Employee may be credited with nonqualified profit
sharing restoration credits based on the additional Company contributions that
would have been allocated to the eligible Employee under the Qualified Plan (as
defined below) if the Qualified Plan were not subject to Sections 401(a)(17) and
415 of the Internal Revenue Code of 1986, as amended (the "Code"). An eligible
Employee's nonqualified profit sharing restoration credits are subject to the
limitation under Section 4.2 of the Plan. An eligible Employee's credits under
the nonqualified profit sharing restoration feature are credited to such
Employee's Nonqualified Employer Contributions Account under Section 4.2 of the
Plan
Finally, the nonqualified supplemental contributions feature of
the Plan provides that an eligible Employee may be credited with nonqualified
supplemental contribution credits determined in the discretion of the Board of
Directors of Sunrise Medical Inc. An eligible Employee's credits under the
nonqualified supplemental contribution feature are credited to such Employee's
Nonqualified Employer Contributions Account under Section 4.3 of the Plan.
The plan is unfunded and is maintained primarily for the
purpose of providing deferred compensation for a select group of management or
highly compensated employees, within the meaning of Sections 201(2), 301(a)(3)
and 401(a)(1) of the Employee Retirement Income Security Act of 1974, as
amended.
<PAGE>
ARTICLE I.
DEFINITIONS
SECTION 1.1. - GENERAL
Whenever the following terms are used in the Plan with the
first letter capitalized, they shall have the meanings specified below unless
the context clearly indicates to the contrary.
SECTION 1.2. - ACTIVE PARTICIPANT
"Active Participant" shall mean any Employee who is eligible to
participate in the Plan during the Plan Year in question as provided in
Article II.
SECTION 1.3. - ADMINISTRATOR
"Administrator" shall mean Sunrise Medical Inc., acting through
the Board or its delegates, except that if the Board appoints a Committee under
Section 11.2, the term "Administrator" shall mean the Committee as to those
duties, powers and responsibilities specifically conferred upon the Committee.
Sunrise Medical Inc. shall have all duties and responsibilities imposed by
ERISA, except as specifically assigned to, delegated to or reserved to the Board
or the Committee under the Plan.
SECTION 1.4. - BASE COMPENSATION
"Base Compensation" of an Employee, determined on any date,
shall mean the annual rate of such Employee's total salary from the Companies,
and shall exclude such Employee's Bonus Compensation, other bonuses,
commissions, incentive compensation, fringe benefits, expense reimbursements and
other similar amounts.
SECTION 1.5. - BOARD
"Board" shall mean the Board of Directors of Sunrise Medical
Inc. The Board may delegate any power or duty otherwise allocated to the
Administrator to any other person or persons, including a Committee appointed
under Section 11.2.
SECTION 1.6. - BONUS COMPENSATION
(a) Except as provided in subsection (b), "Bonus Compensation"
of an Active Participant for any Plan Year shall mean his bonus or bonuses,
earned during the fiscal year of Sunrise Medical Inc. ending on the last day of
such Plan Year, under The Sunrise Medical Inc. Management Incentive Bonus
Program (the "MIB Program") (including any bonus awarded in a previous year
under the MIB Program and subsequently earned during such fiscal year), whether
such bonus or bonuses would otherwise be paid during such Plan Year or the next
following Plan Year. (Currently, cash bonus payments under the MIB Program are
made on or around September 1 of the following fiscal year of Sunrise Medical
Inc.)
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<PAGE>
(b) "Bonus Compensation" of an Active Participant for a Plan
Year shall exclude any portion of a bonus or bonuses that is awarded in respect
of the fiscal year of Sunrise Medical Inc. ending on the last day of such Plan
Year, to the extent such bonus is required to be deferred until earned in a
future fiscal year of Sunrise Medical Inc. under the provisions of the MIB
Program.
SECTION 1.7. - BONUS PAYDAY
"Bonus Payday" of a Participant with respect to Bonus
Compensation shall mean the day established for the payment of such Bonus
Compensation to such Participant.
SECTION 1.8. - CHANGE IN CONTROL; CONTINUING DIRECTORS
(a) "Change in Control" shall mean the occurrence of any of
the following events:
(i) any person (within the meaning of Section 13(a) of
the Exchange Act), other than Sunrise Medical Inc., any trustee or other
fiduciary holding securities under an employee benefit plan of Sunrise
Medical Inc., or any subsidiary of Sunrise Medical Inc., is or becomes
the beneficial owner within the meaning of Rule 13d-3 under the Exchange
Act, directly or indirectly, of securities of Sunrise Medical Inc.
representing fifteen percent (15%) or more of the combined voting power
of the then outstanding securities of Sunrise Medical Inc.;
(ii) Continuing Directors cease for any reason to
constitute at least a majority of the members of the Board;
(iii) the stockholders of Sunrise Medical Inc. approve a
merger or consolidation of Sunrise Medical Inc. with any other
corporation (or other entity), other than a merger or consolidation
which would result in the voting securities of Sunrise Medical Inc.
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of
the surviving entity) more than eighty percent (80%) of the combined
voting power of the voting securities of Sunrise Medical Inc. or such
surviving entity outstanding immediately after such merger or
consolidation; or
(iv) the stockholders of Sunrise Medical Inc. approve a
plan of complete liquidation of Sunrise Medical Inc. or an agreement for
the sale, disposition, exchange, lease or other transfer by Sunrise
Medical Inc., in one transaction or a series of related transactions, of
all or substantially all of the assets of Sunrise Medical Inc.
(b) For purposes of paragraph (a)(ii), "Continuing Directors"
shall mean
(i) persons who were members of the Board on June 1,
1997, and
3
<PAGE>
(ii) any new member of the Board (other than a director
designated by a person who has entered into an agreement with Sunrise
Medical Inc. to effect a transaction described in paragraph (i), (iii)
or (iv) of the definition of "Change in Control" in subsection (a))
whose election by the Board or nomination for election by the
stockholders of Sunrise Medical Inc. was approved by a vote of at least
two-thirds (2/3) of the members of the Board then in office who were
either members of the Board on June 1, 1997 or whose election or
nomination for election was previously approved as provided in this
paragraph (ii).
SECTION 1.9. - CODE
"Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
SECTION 1.10. - COMMITTEE
"Committee" shall mean the Committee, if any, appointed in
accordance with Section 11.2.
SECTION 1.11. - COMPANIES; COMPANY; COMPANY AFFILIATE
(a) "Companies" shall mean Sunrise Medical Inc. and each
Subsidiary Company.
(b) "Company" shall mean one of the Companies.
(c) "Company Affiliate" shall mean any employer which, at the
time of reference, was, with a Company, a member of a controlled group of
corporations or trades or businesses under common control, or a member of an
affiliated service group, as determined under regulations issued by the
Secretary of the Treasury or his delegate under Code Sections 414(b), (c), (m)
and any other entity required to be aggregated with the Company pursuant to
regulations issued under Code Section 414(o).
SECTION 1.12. - COMPENSATION
"Compensation" of an Active Participant for any "Plan Year" (as
defined in the Qualified Plan) of the Qualified Plan shall mean that portion of
his "Compensation" (as defined in the Qualified Plan), that would be taken into
account in allocating the discretionary Company contribution to such Active
Participant under Section 6.3(c) of the Qualified Plan for such "Plan Year" of
the Qualified Plan, determined without regard to the limitation under Code
Section 401(a)(17) and determined by including such Active Participant's Bonus
Compensation deferred under Section 3.1(a) on any Bonus Payday occurring during
such "Plan Year" of the Qualified Plan.
4
<PAGE>
SECTION 1.13. - DISABILITY RETIREMENT
"Disability Retirement" of a Participant shall mean his
Separation from the Service authorized by the Administrator upon its finding,
certified by a licensed physician approved by the Administrator, of the
Participant's permanent and total incapacity of engaging in any employment for a
Company for physical or mental reasons. In the event any such Participant meets
the requirements for disability benefits under the Social Security law then in
effect, he shall therefore be deemed to be disabled for purposes of this
definition.
SECTION 1.14. - DISABILITY RETIREMENT DATE
"Disability Retirement Date" of a Participant shall mean the
date (prior to his Normal Retirement Date) fixed by the Administrator for his
Disability Retirement.
SECTION 1.15. - ELIGIBLE EMPLOYEE
"Eligible Employee" shall mean an Employee who is a Qualified
Participant.
SECTION 1.16. - EMPLOYEE
"Employee" shall mean any person who renders services to a
Company in the status of an employee as that term is defined in Code Section
3121(d).
SECTION 1.17. - EMPLOYER CONTRIBUTIONS ACCOUNT
"Employer Contributions Account" of a Participant shall mean
his "Employer Contributions Account", as defined in the Qualified Plan.
SECTION 1.18. - ERISA
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time.
SECTION 1.19. - EXCHANGE ACT
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
SECTION 1.20. - INVESTMENT FUND
"Investment Fund" shall mean one of the Investment Funds which
are designated by the Administrator at the time of reference.
SECTION 1.21. - NONQUALIFIED ACCOUNTS
"Nonqualified Accounts" of a Participant shall mean, as the
context indicates, either or both of his Nonqualified Deferred Compensation
Account and his Nonqualified Employer Contributions Account.
5
<PAGE>
SECTION 1.22. - NONQUALIFIED DEFERRED COMPENSATION ACCOUNT
"Nonqualified Deferred Compensation Account" of a Participant
shall mean his individual account, if any, in the Plan established in accordance
with Section 5.1.
SECTION 1.23. - NONQUALIFIED EMPLOYER CONTRIBUTIONS ACCOUNT
"Nonqualified Employer Contributions Account" of a Participant
shall mean his individual account, if any, in the Plan established in accordance
with Section 5.2.
SECTION 1.24. - NORMAL RETIREMENT
"Normal Retirement" of a Participant shall mean his Separation
from the Service upon his Normal Retirement Date, or after such date (except by
death).
SECTION 1.25. - NORMAL RETIREMENT DATE
"Normal Retirement Date" of a Participant shall mean his
fifty-fifth birthday.
SECTION 1.26. - PARTICIPANT
"Participant" shall mean an Employee (or an employee of a
Company Affiliate) who is an Active Participant during the Plan Year in
question, or who was an Active Participant during a prior Plan Year.
SECTION 1.27. - PLAN
"Plan" shall mean The Sunrise Medical Inc. Supplemental
Executive Retirement Plan.
SECTION 1.28. - PLAN YEAR
"Plan Year" shall mean the fiscal year of Sunrise Medical Inc.
The first "Plan Year" shall be the fiscal year of Sunrise Medical Inc. ending on
July 3, 1998.
SECTION 1.29. - QUALIFIED PARTICIPANT
"Qualified Participant" shall mean an Employee who is a
"Participant", as defined in the Qualified Plan.
SECTION 1.30. - QUALIFIED PLAN
"Qualified Plan" shall mean The Sunrise Medical Inc. Profit
Sharing/Savings Plan, as amended from time to time.
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<PAGE>
SECTION 1.31. - SEPARATION FROM THE SERVICE
(a) "Separation from the Service" of an Employee (or an
employee of a Company Affiliate) shall mean his resignation from or discharge by
a Company or a Company Affiliate, or his Disability Retirement, death or Normal
Retirement, but shall not include his transfer among the Companies and Company
Affiliates.
(b) "Separation from the Service" of an Employee employed by a
Subsidiary Company (or an employee of a Company Affiliate) shall also mean any
merger, reorganization, consolidation, sale of stock or other transaction which
results in such Subsidiary Company or Company Affiliate ceasing to be a
Subsidiary Company or Company Affiliate, except to the extent such Employee (or
employee of a Company Affiliate) transfers employment to a Company or Company
Affiliate upon such merger, reorganization, consolidation, sale of stock or
other transaction.
(c) A leave of absence or sick leave authorized by a Company
or a Company Affiliate in accordance with established policies, a vacation
period, a temporary layoff for lack of work or a military leave shall not
constitute a Separation from the Service, except as so provided under the
Qualified Plan.
SECTION 1.32. - SUBSIDIARY COMPANY
"Subsidiary Company" shall mean any corporation in an unbroken
chain of corporations beginning with Sunrise Medical Inc. if each of the
corporations (other than the last corporation in the unbroken chain) owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in the chain.
SECTION 1.33. - UNFORESEEABLE EMERGENCY
"Unforeseeable Emergency" of a Participant, as determined by
the Administrator, shall mean a severe financial hardship resulting from
extraordinary and unforeseeable circumstances arising as a result of one or more
events beyond the control of the Participant.
SECTION 1.34. - VESTED
"Vested," when used with reference to a Participant's
Nonqualified Accounts, shall mean nonforfeitable, except as provided in the
Plan.
7
<PAGE>
ARTICLE II.
ELIGIBILITY
SECTION 2.1. - REQUIREMENTS FOR PARTICIPATION
(a) Any Employee who on the first day of a Plan Year or, in
the case of the first Plan Year with respect to which such Employee satisfies
the requirements of paragraphs (i) and (ii), the first day of a calendar month
of such Plan Year
(i) is an Eligible Employee, and
(ii) has Base Compensation greater than $140,000 (or,
if greater, the dollar amount under Code Section 401(a)(17) that is
applicable to the Qualified Plan with respect to the "Plan Year" (as
defined in the Qualified Plan) of the Qualified Plan ending nearest to
the last day of the Plan Year in question, less $20,000)
shall become an Active Participant as of the first day of such Plan Year, or the
first day of such calendar month, as the case may be, and shall be an Active
Participant until the last day of such Plan Year. Notwithstanding the
foregoing, any Employee who on June 30, 1998 is an Eligible Employee, and has
Base Compensation greater than $140,000, shall become an Active Participant on
June 30, 1998.
(b) An Employee who is an Active Participant during any Plan
Year shall not be an Active Participant for any subsequent Plan Year unless such
Employee satisfies the requirements of subsection (a) with respect to such Plan
Year.
SECTION 2.2. - DEFERRAL ELECTION PROCEDURE
The Administrator shall provide each Active Participant for a
Plan Year with a Bonus Compensation deferral election form on which the Active
Participant may elect to defer his Bonus Compensation under Article III prior to
the first day of such Plan Year (or the date on which he first becomes an Active
Participant). Each Active Participant electing to defer Bonus Compensation
under Article III for a Plan Year shall complete and execute the Bonus
Compensation Deferral Election form and return it to the Administrator in
accordance with the Rules of the Plan.
SECTION 2.3. - CONTENT OF DEFERRAL ELECTION FORM
(a) Each Active Participant for a Plan Year shall set forth on
his Bonus Compensation Deferral Election form for such Plan Year
(i) his consent that he, his successors in interest
and assigns and all persons claiming under him shall be bound, to the
extent authorized by law, by the statements contained therein and by the
provisions of the Plan as they now exist, and as they may be amended
from time to time,
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(ii) the percentage of his Bonus Compensation for such
Plan Year to be deferred under Article III and, in such case, his
authorization to the Company employing him to reduce his Bonus
Compensation in accordance with Section 3.1(a),
(iii) the allocation of his nonqualified deferred
compensation credits, his nonqualified profit sharing restoration
credits and his nonqualified supplemental contribution credits under
Sections 4.1, 4.2 and 4.3 among the Investment Funds elected in
accordance with Section 6.2, and
(iv) such other information as may be required for the
administration of the Plan.
(b) In addition, upon first becoming an Active Participant, an
Active Participant shall set forth on his Bonus Compensation Deferral Election
form his elections regarding the form of distribution of his Nonqualified
Accounts in the event of a Separation from the Service by reason of Normal
Retirement, Disability Retirement and death. Such an Active Participant shall
make a separate distribution election for distributions under Sections 8.1
(Distributions upon Normal Retirement), 8.2 (Distributions upon Disability
Retirement) and 9.1 (Distributions upon Separation from the Service by Reason of
Death). Each distribution election shall provide for
(i) his election to receive the distribution of his
Nonqualified Accounts in the event of the Separation from the Service
designated by such election in the form of a lump sum payment or
installment payments, and
(ii) in the event he elects to receive the distribution
of his Nonqualified Accounts in the form of installment payments, the
number of years (not exceeding 10 years) during which such installments
shall be paid and whether such installments shall be paid annually or
quarterly.
SECTION 2.4. - DISTRIBUTION ELECTION CHANGES
(a) A Participant may change a distribution election made by
such Participant in accordance with subsection 2.3(b) or this Section, subject
to the requirements and limitations of this Section. A Participant electing
under this Section to change a distribution election must complete and execute a
Distribution Election Change form and return it to the Administrator in
accordance with the Rules of the Plan. For purposes of this Section, a
Participant shall be considered to have elected to change a distribution
election on the date that the Administrator receives such form.
(b) A Participant may elect to change his election regarding
the distribution of his or her Nonqualified Accounts in the event of a
Separation from the Service by reason of Normal Retirement, Disability
Retirement or death. A Participant's election to change a distribution election
shall set forth
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(i) the Separation from the Service event to which the
election applies,
(ii) his election to receive the distribution of his
Nonqualified Accounts in the event of the Separation from the Service
designated under paragraph (i) in the form of a lump sum payment or
installment payments, and
(iii) in the event he elects to receive the distribution
of his Nonqualified Accounts in the form of installment payments, the
number of years (not exceeding 10 years) during which such installments
shall be paid and whether such installments shall be paid annually or
quarterly.
(c) A Participant's election under this Section to change a
distribution election shall not be effective until the first day of the second
calendar year following the calendar year in which the election under this
Section is made. An election under this Section shall not become effective if
such Participant incurs a Separation from the Service before such election
becomes effective.
ARTICLE III.
PARTICIPANT DEFERRALS
SECTION 3.1. - DEFERRAL OF BONUS COMPENSATION
(a) An Active Participant for a Plan Year may elect, in
accordance with the Rules of the Plan, to defer to his Nonqualified Deferred
Compensation Account an amount equal to any whole number percentage, which is
not greater than 25%, of his Bonus Compensation for such Plan Year. The Bonus
Compensation for such Plan Year paid to such Active Participant shall be reduced
by the amount deferred under this subsection (a).
(b) Such Bonus Compensation deferral election shall be made on
the form described in Section 2.3 and shall be delivered to the Administrator
before the first day of the Plan Year or, in the case of an Active Participant
who first becomes an Active Participant during such Plan Year, prior to the date
on which he becomes an Active Participant and, in each case, shall remain in
effect for such Plan Year, except as provided in Section 3.2(b).
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SECTION 3.2. - REDUCTION OR DISCONTINUANCE OF BONUS COMPENSATION DEFERRAL
(a) Except as provided in subsection (b), an Active
Participant may not reduce or discontinue his Bonus Compensation deferral
election for any Plan Year made pursuant to Section 3.1(a).
(b) An Active Participant may reduce or discontinue his Bonus
Compensation deferral election for any Plan Year made pursuant to Section 3.1(a)
on account of his Unforeseeable Emergency, subject to the following
requirements:
(i) the Active Participant's reduction or
discontinuance shall not exceed the amount which is necessary to satisfy
the Unforeseeable Emergency, less the amount which can be satisfied from
other resources which are reasonably available to the Active
Participant, and
(ii) the reduction or discontinuance shall apply only
to the portion of such Active Participant's Bonus Compensation for such
Plan Year that is payable after such reduction or discontinuance.
An Active Participant may request a reduction or discontinuance of his Bonus
Compensation deferral election on the form specified by the Administrator in
accordance with the Rules of the Plan. In the event that an Active Participant
discontinues his Bonus Compensation deferral election in accordance with this
subsection, the agreement described in Section 2.3(a)(ii) for such Plan Year
with respect to such Active Participant shall terminate and such Participant
shall not defer Bonus Compensation under Section 3.1(a) with respect to the Plan
Year next following the Plan Year during which such agreement terminates.
ARTICLE IV.
DEFERRED COMPENSATION AND EMPLOYER CONTRIBUTION CREDITS
SECTION 4.1. - NONQUALIFIED DEFERRED COMPENSATION CREDITS
For each Plan Year, each Active Participant's Nonqualified
Deferred Compensation Account shall be credited with a nonqualified deferred
compensation credit in an amount equal to the amount of any Bonus Compensation
elected for deferral by such Active Participant under Section 3.1. The amount
deferred shall be credited to such Active Participant's Nonqualified Deferred
Compensation Account as of the Bonus Payday of such Bonus Compensation.
SECTION 4.2. - NONQUALIFIED PROFIT SHARING RESTORATION CREDITS
(a) For each Plan Year, each Active Participant's Nonqualified
Employer Contributions Account shall be credited with a nonqualified profit
sharing restoration credit in an amount, if any, determined based on the
discretionary Company contribution provisions of Section 6.3(c) of the Qualified
Plan applicable to the Active Participant, which shall be equal to:
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(i) the sum of the amounts that would be determined
under subparagraphs 6.3(c)(i)a and b of the Qualified Plan for the "Plan
Year" (as defined in Qualified Plan) of the Qualified Plan ending
nearest to the last day of such Plan Year, determined as if such Active
Participant's Compensation were substituted for such Active
Participant's "Compensation" (as defined in the Qualified Plan) for such
"Plan Year" thereunder, less
(ii) the amount credited to such Active Participant's
"Employer Contributions Account" (as defined in the Qualified Plan)
under Section 6.3(c) of the Qualified Plan for such "Plan Year" of the
Qualified Plan;
provided, however, that, for purposes of this subsection (a), the amount
determined under paragraph (i) shall not exceed 10% of such Active Participant's
Compensation. An Active Participant shall be credited with a nonqualified
profit sharing restoration credit for a Plan Year only if discretionary Company
contributions are allocated to his "Employer Contributions Account" (as defined
in the Qualified Plan) under Section 6.3(c) of the Qualified Plan for the "Plan
Year" (as defined in the Qualified Plan) of the Qualified Plan ending nearest to
the last day of such Plan Year.
(b) The amount allocated to an Active Participant under
subsection (a) shall be credited to such Active Participant's Nonqualified
Employer Contributions Account on the date on which the discretionary Company
contributions under the Qualified Plan for the "Plan Year" of the Qualified Plan
are actually contributed to the Qualified Plan.
SECTION 4.3. - NONQUALIFIED SUPPLEMENTAL CONTRIBUTION CREDITS
For each Plan Year, the Board may, in its discretion, allocate
nonqualified supplemental contribution credits to one or more Active
Participants. The amount of any nonqualified supplemental contribution credit
allocated to an Active Participant shall be determined by the Board. Any
nonqualified supplemental contribution credit allocated to an Active Participant
under this Section shall be credited to such Participant's Nonqualified Employer
Contributions Account as of the date determined by the Board.
ARTICLE V.
NONQUALIFIED ACCOUNTS
SECTION 5.1. - NONQUALIFIED DEFERRED COMPENSATION ACCOUNT
The Administrator shall establish and maintain for each
Participant a Nonqualified Deferred Compensation Account to which shall be:
(a) credited the amounts allocated thereto under Section 4.1,
(b) debited his withdrawals and forfeitures under Article X,
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(c) debited the distributions under Articles VIII and IX, and
(d) debited and credited the amounts determined under Article
VI.
SECTION 5.2. - NONQUALIFIED EMPLOYER CONTRIBUTIONS ACCOUNT
The Administrator shall establish and maintain for each
Participant a Nonqualified Employer Contributions Account to which shall be:
(a) credited the amounts allocated thereto under Sections 4.2
and 4.3,
(b) debited his withdrawals and forfeitures under Article X,
(c) debited the distributions and forfeitures under
Articles VIII and IX, and
(d) debited and credited the amounts determined under
Article VI.
SECTION 5.3. - ASSIGNMENTS, ETC. PROHIBITED; DISTRIBUTIONS
PURSUANT TO QUALIFIED DOMESTIC RELATIONS ORDERS
(a) Except as provided in subsection (b), no part of the
Nonqualified Accounts of a Participant shall be liable for the debts, contracts
or engagements of such Participant, his "Beneficiary" or "Beneficiaries" under
the Qualified Plan or his successors in interest, or be taken in execution by
levy, attachment or garnishment or by any other legal or equitable proceeding,
nor shall any such person have any right to alienate, anticipate, commute,
pledge, encumber or assign any benefits or payments hereunder in any manner
whatsoever, except to designate a "Beneficiary" or "Beneficiaries" as provided
in the Qualified Plan.
(b) Subsection (a) shall not apply to the creation, assignment
or recognition of a right of an "alternate payee," as defined in ERISA Section
206(d)(3)(K) (the "Alternate Payee"), to all or any portion of the Nonqualified
Accounts of a Participant pursuant to a "qualified domestic relations order," as
defined in ERISA Section 206(d)(3)(B)(i) (a "QDRO"), and all or such portion of
such Participant's Nonqualified Accounts shall be distributed to such Alternate
Payee in accordance with this subsection (b), Articles VIII, IX and X and the
terms of such QDRO. For purposes of this subsection, and notwithstanding any
other provision of the Plan to the contrary, a "qualified domestic relations
order" may provide for the distribution of all or a portion of Vested interest
in a Participant's Nonqualified Accounts to such Alternate Payee prior to such
Participant's Separation from the Service and without regard to such
Participant's age. Such Alternate Payee shall be treated as a Participant for
purposes of Articles VI, VIII, IX and X with respect to the amounts that are to
be distributed to such Alternate Payee under the terms of the QDRO. Except as
provided under the terms of the QDRO, all or such portion of a Participant's
Nonqualified Accounts that is to be distributed to the Alternate Payee under
Section 8.1, 8.2 or 9.1 shall be distributed in accordance with the
Participant's distribution election, made under Article II with respect to the
applicable Separation from the Service event, that is in effect on the date of
the creation, assignment or recognition of such Alternate Payee's right to all
or
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such portion of such Nonqualified Accounts under the terms of the QDRO. To the
extent provided under the terms of the QDRO:
(i) The Administrator shall establish Nonqualified
Accounts for the Alternate Payee, to which shall be credited the amounts
allocated thereto under the terms of the QDRO. The amounts so credited
shall be debited from the Participant's Nonqualified Accounts.
(ii) The Alternate Payee's Vested interest in the
amounts credited to an Alternate Payee's Nonqualified Accounts shall be
determined based on the Participant's Vested interest in his
Nonqualified Accounts.
(iii) The Alternate Payee may elect, as permitted under
the Rules of the Plan, to have amounts credited to such Alternate
Payee's Nonqualified Accounts, as such Accounts are then stated,
reallocated among any one or more of the Investment Funds available to
the Nonqualified Accounts in accordance with Section 6.2.
(iv) The Alternate Payee may designate a beneficiary or
beneficiaries to receive the amount credited to the Alternate Payee's
Nonqualified Accounts in the event of the death of the Alternate Payee.
Designation or redesignation of a beneficiary or beneficiaries must be
made in writing on a form provided by the Administrator and shall become
effective upon delivery to the Administrator. If the Alternate Payee
dies having failed to designate a beneficiary, or if no such beneficiary
complies with the Rules of the Plan or survives the Alternate Payee, or
survives to the date of any payment in question, the amount otherwise
payable to such beneficiary shall be paid in one lump sum, less any
amounts required to be withheld by law, to the Alternate Payee's estate.
An Alternate Payee's beneficiary or beneficiaries (or estate) shall
receive the amount credited to the Alternate Payee's Nonqualified
Accounts, less any amounts required to be withheld by law, in a one lump
sum payment. Such payment shall be made not later than 60 days after
the end of the calendar quarter in which the Alternate Payee's death
occurs.
ARTICLE VI.
INVESTMENT FUNDS; VALUATION
OF INVESTMENT FUNDS AND NONQUALIFIED ACCOUNTS
SECTION 6.1. - INVESTMENT FUNDS
The Administrator shall designate one or more Investment Funds
for purposes of valuing the Nonqualified Accounts of Participants as provided in
Sections 6.2, 6.3 and 6.4. Each Participant's Nonqualified Accounts shall be
credited or debited with the amount of interest, earnings, gains or losses of
the Investment Fund that would have accrued to the amounts allocated to such
Investment Fund under Section 6.2 had such amounts been invested in such
Investment Fund during the relevant period.
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SECTION 6.2. - INVESTMENT FUND ELECTIONS
(a) A Participant (or a "Beneficiary" of a deceased
Participant) may elect in accordance with the Rules of the Plan adopted by the
Administrator
(i) effective upon becoming an Active Participant, or
as permitted thereafter under the Rules of the Plan, to have such
Participant's nonqualified deferred compensation credits, nonqualified
profit sharing restoration credits and nonqualified supplemental
contribution credits for each Plan Year to his Nonqualified Accounts
allocated to any one or more of the Investment Funds in such proportions
as are permitted by the Administrator under the Rules of the Plan, or to
change any prior such election, and
(ii) effective as permitted under the Rules of the
Plan, to have amounts credited to such Participant's Nonqualified
Accounts, as such Accounts are then stated, reallocated among any one or
more of the Investment Funds available to the Nonqualified Accounts
under paragraph (i).
(b) Any such election under paragraph (a)(i) shall remain in
effect until revoked or modified by the Active Participant. In the case that
amounts credited to an Active Participant's Nonqualified Accounts are allocated
to more than one Investment Fund, changes in proportions due to investment
results shall not require any reallocation among Investment Funds, unless the
Active Participant so elects under paragraph (a)(ii).
(c) In making any election under this Section, a Participant
shall acknowledge receipt from the Administrator of a description of the
Investment Funds and the investment objectives thereof.
(d) If a Participant fails or declines to make an election
under this paragraph (a)(i), the nonqualified deferred compensation credits,
nonqualified profit sharing restoration credits and the nonqualified
supplemental contribution credits credited to the Participant's Nonqualified
Accounts shall be allocated to one or more Investment Funds as directed by the
Administrator.
SECTION 6.3. - DETERMINATION OF VALUES
As of each business day, the Administrator shall determine the
fair market value of each Investment Fund based upon the information reasonably
available to the Administrator including the data from, but not limited to,
newspapers and financial publications of general circulation, statistical and
valuation services, records of securities exchanges, appraisals by qualified
persons, transactions and bona fide offers in assets of the type in question and
other information customarily used in the valuation of property for the purposes
of the Code. With respect to securities for which there is a generally
recognized market, the published selling prices on or nearest to such valuation
date shall establish fair market value of such security. Fair market value so
determined shall be conclusive for all purposes of the Plan.
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SECTION 6.4. - ALLOCATION OF VALUES
The difference between the total value of the amounts allocated
to each Investment Fund (determined as if such amounts had been invested in the
investment or investments that comprise such Investment Fund during the relevant
period), as determined under Section 6.3, and the total of the portions of the
Nonqualified Accounts allocated thereto, as valued hereunder as of the next
preceding business day of the valuation period and as increased by credits under
Sections 4.1, 4.2 and 4.3, and decreased by debits under Articles VIII, IX and
X, during the current valuation period, shall be allocated among the
Nonqualified Accounts allocated to such Investment Fund in proportion to the
respective values of the Nonqualified Accounts allocated to such Investment Fund
as of such next preceding business day.
SECTION 6.5. - APPLICABILITY OF NONQUALIFIED ACCOUNT VALUES
The value of a Nonqualified Account as determined as of a given
date under this Article, plus any amounts subsequently allocated thereto under
Sections 4.1, 4.2 or 4.3, and less any amounts withdrawn, distributed or
forfeited under Articles VIII, IX and X, shall remain the value thereof for all
purposes of the Plan until revalued hereunder.
ARTICLE VII.
VESTING OF NONQUALIFIED ACCOUNTS
SECTION 7.1. - VESTING OF NONQUALIFIED ACCOUNTS
(a) Except as provided in Section 8.5(b) and 10.2, each
Participant's interest in his Nonqualified Deferred Compensation Account shall
be Vested at all times.
(b) Except as provided in Sections 7.2, 8.5(b) and 10.2, each
Participant's Vested interest in his Nonqualified Employer Contributions Account
shall be the Vested percentage of such Participant's "Employer Contributions
Account" under the Qualified Plan.
SECTION 7.2. - ADDITIONAL VESTING OF NONQUALIFIED ACCOUNTS
In addition to the conditions to a fully Vested interest
described in 7.1(b) above, and except as provided in Sections 8.5(b) and 10.2,
the interest of a Participant in his Nonqualified Employer Contributions Account
shall become fully Vested upon the earliest to occur of
(a) his death,
(b) his Normal Retirement Date,
(c) his Disability Retirement Date, or
(d) a Change in Control.
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ARTICLE VIII.
BENEFITS UPON SEPARATION FROM THE SERVICE
SECTION 8.1. - DISTRIBUTIONS UPON NORMAL RETIREMENT
A Participant who has a Separation from the Service by reason
of Normal Retirement shall receive the amount credited to his Nonqualified
Accounts, less any amounts required to be withheld by law, in one of the
following methods, as elected by the Participant pursuant to Article II:
(a) payment of such amount in one lump sum, or
(b) payment of such amount in any fixed number of annual or
quarterly installments of at least $100 during such period (not exceeding 10
years) as is designated by such Participant pursuant to Article II, the amount
of each such installment to be determined by dividing
(i) the amount of his Nonqualified Accounts (as
adjusted for debits and credits under Article VI and prior withdrawals
and distributions) as of the last day of the immediately preceding
calendar quarter, by
(ii) the remaining number of installments to be paid.
SECTION 8.2. - DISTRIBUTIONS UPON DISABILITY RETIREMENT
A Participant who has a Separation from the Service by reason
of Disability Retirement shall receive the amount credited to his Nonqualified
Accounts, less any amounts required to be withheld by law, in one of the
following methods, as elected by the Participant pursuant to Article II:
(a) payment of such amount in one lump sum, or
(b) payment of such amount in any fixed number of annual or
quarterly installments of at least $100 during such period (not exceeding 10
years) as is designated by such Participant pursuant to Article II, the amount
of each such installment to be determined by dividing
(i) the amount of his Nonqualified Accounts (as
adjusted for debits and credits under Article VI and prior withdrawals
and distributions) as of the last day of the immediately preceding
calendar quarter, by
(ii) the remaining number of installments to be paid.
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SECTION 8.3. - DISTRIBUTIONS ON SEPARATION FROM THE SERVICE PRIOR TO
RETIREMENT
A Participant who has a Separation from the Service (other than
by reason of his death, Disability Retirement, Normal Retirement) shall receive
the Vested amount credited to his Nonqualified Accounts, less any amounts
required to be withheld by law, in one lump sum payment.
SECTION 8.4. - COMMENCEMENT OF DISTRIBUTIONS
A Participant shall receive or commence distribution of his
Nonqualified Accounts under Section 8.1, 8.2 or 8.3 not later than 60 days after
the last day of the calendar quarter in which his Separation from the Service
occurs. In the event that such Participant receives installments, such
Participant shall receive subsequent annual or quarterly installments from his
Nonqualified Accounts not later than 60 days after each anniversary of the last
day of the calendar quarter in which his Separation from the Service occurs, or
the last day of each calendar quarter, as the case may be.
SECTION 8.5. - EFFECT OF DELAY OR FAILURE TO ASCERTAIN
AMOUNT DISTRIBUTABLE OR TO LOCATE DISTRIBUTEE
(a) If an amount payable under Article VIII or IX cannot be
ascertained or the person to whom it is payable has not been ascertained or
located within the stated time limits and reasonable efforts to do so have been
made, then distribution shall be made not later than 60 days after such amount
is determined or such person is ascertained or located, or as prescribed in
subsection (b).
(b) If, within one year after a Participant has a Separation
from the Service, the Administrator, in the exercise of due diligence, has
failed to locate him (or if such Separation from the Service is by reason of his
death, has failed to locate the person entitled to the amount in his
Nonqualified Accounts under Article IX), his entire distributable interest in
the Plan shall be forfeited; provided, however, that if the Participant (or in
the case of his death, the person entitled thereto under Article IX) makes
proper claim therefor under Section 11.11, the amount so forfeited shall be paid
to such Participant or such person in a lump sum not later than 60 days after
such claim is made.
SECTION 8.6. - FORFEITURES
If a Participant has a Separation from the Service, the portion
of his Nonqualified Employer Contributions Account which is not Vested shall be
forfeited immediately and Sunrise Medical Inc. shall cease to be obligated under
Articles VIII, IX, and X with respect to the portion of such Nonqualified
Account that is forfeited.
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ARTICLE IX.
BENEFITS UPON DEATH
SECTION 9.1. - DISTRIBUTIONS UPON SEPARATION FROM THE SERVICE BY REASON OF
DEATH
(a) If a Participant has a Separation from the Service by
reason of death, such Participant's "Beneficiary" or "Beneficiaries" under the
Qualified Plan shall receive the amount credited to his Nonqualified Accounts,
less any amounts required to be withheld by law, in one of the following
methods, as elected by the Participant pursuant to Article II:
(i) payment of such amount in one lump sum, or
(ii) payment of such amount in any fixed number of
annual or quarterly installments of at least $100 during such period
(not exceeding 10 years) as is designated by such Participant pursuant
to Article II, the amount of each such installment to be determined by
dividing
a the amount of his Nonqualified Accounts (as
adjusted for debits or credits under Article VI and prior
withdrawals and distributions) as of the last day of the
immediately preceding calendar quarter, by
b the remaining number of installments to be
paid.
A "Beneficiary" shall receive or commence distribution of his portion of the
Participant's Nonqualified Accounts under this Section not later than 60 days
after the last day of the calendar quarter in which the Participant's death
occurs. If a "Beneficiary" receives installments, the "Beneficiary" shall
receive subsequent annual or quarterly installments from the Participant's
Nonqualified Accounts not later than 60 days after each anniversary of the last
day of the calendar quarter in which the Participant's death occurs, or the last
day of each calendar quarter, as the case may be.
(b) If a "Beneficiary" receives installments under subsection
(a), upon the death of such "Beneficiary", the portion of the amount credited to
the Participant's Nonqualified Accounts to which such "Beneficiary" was
entitled, less any amounts required to be withheld by law, shall be paid in one
lump sum to the estate of such "Beneficiary."
SECTION 9.2. - DISTRIBUTIONS UPON DEATH AFTER RETIREMENT
(a) If a Participant has a Separation from the Service by
reason of Normal Retirement or Disability Retirement, and receives the amount
credited to his Nonqualified Accounts in installments in accordance with Section
8.1 or 8.2, upon the death of such Participant, such Participant's "Beneficiary"
or "Beneficiaries" under the Qualified Plan shall receive the amount credited to
such Participant's Nonqualified Accounts, less any amounts required to be
withheld by law, in the form of the remaining installments that would otherwise
have been paid to such Participant under Section 8.1 or 8.2, as applicable.
Each "Beneficiary"
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shall receive such annual or quarterly installments from the Participant's
Nonqualified Accounts not later than 60 days after each anniversary of the last
day of the calendar quarter in which the Participant's Separation from the
Service occurred, or the last day of each calendar quarter, as the case may be.
(b) If a "Beneficiary" receives installments under subsection
(a), upon the death of such "Beneficiary", the portion of the amount credited to
the Participant's Nonqualified Accounts to which such "Beneficiary" was
entitled, less any amounts required to be withheld by law, shall be paid in one
lump sum to the estate of such "Beneficiary".
ARTICLE X.
WITHDRAWALS PRIOR TO SEPARATION FROM THE SERVICE
SECTION 10.1. - HARDSHIP WITHDRAWALS
(a) A Participant may make a withdrawal from his Nonqualified
Deferred Compensation Account and the Vested portion of his Nonqualified
Employer Contributions Account on account of his Unforeseeable Emergency under
this Section, subject to the following requirements:
(i) the Participant's withdrawal shall not exceed the
amount which is necessary to satisfy the Unforeseeable Emergency, less
the amount which can be satisfied from other resources which are
reasonably available to the Participant and from a discontinuance of
such Participant's Bonus Compensation deferral election, if any, for the
Plan Year in question under Section 3.2(b), and
(ii) the denial of the Participant's withdrawal would
result in severe financial hardship to the Participant.
A Participant may request a withdrawal on account of Unforeseeable Emergency on
the form specified by the Administrator and in accordance with the Rules of the
Plan.
(b) A Participant's withdrawal under this Section, less any
amounts required to be withheld by law, shall be paid in one lump sum to the
Participant not later than 60 days after the approval by the Administrator of
such Participant's withdrawal request.
(c) In the event that a Participant makes a withdrawal under
this Section, such Participant shall not defer Bonus Compensation under Section
3.1(a) with respect to the Plan Year beginning on or after the date of such
withdrawal.
SECTION 10.2. - EARLY WITHDRAWALS
(a) A Participant may make a withdrawal from his Nonqualified
Deferred Compensation Account and the Vested portion of his Nonqualified
Employer Contributions Account, subject to the following requirements:
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(i) the Participant shall designate the portion of the
Vested amount credited to his Nonqualified Accounts that is subject to
withdrawal and forfeiture under this Section,
(ii) the Participant's withdrawal shall be in an amount
equal to 85% of the amount designated in paragraph (i), and
(iii) upon such withdrawal, the amount equal to 15% of
the amount designated in paragraph (i) shall be forfeited.
A Participant may request a withdrawal under this Section on the form specified
by the Administrator and in accordance with the Rules of the Plan.
(b) A Participant's withdrawal under this Section, less any
amounts required to be withheld by law, shall be paid in one lump sum to the
Participant not later than 60 days after the receipt by the Administrator of
such Participant's withdrawal request. In the event that a Participant makes a
withdrawal under this Section, such Participant shall not defer Bonus
Compensation under Section 3.1(a) with respect to the Plan Year beginning on or
after the date of such withdrawal.
ARTICLE XI.
ADMINISTRATIVE PROVISIONS
SECTION 11.1. - DUTIES AND POWERS OF THE ADMINISTRATOR
(a) The Administrator shall administer the Plan in accordance
with the Plan and ERISA and shall have full discretionary power and authority:
(i) to engage actuaries, attorneys, accountants,
appraisers, brokers, consultants, administrators, physicians or other
firms or persons and (with its officers, directors and Employees) to
rely upon the reports, advice, opinions or valuations of any such
persons except as required by law;
(ii) to adopt Rules of the Plan that are not
inconsistent with the Plan or applicable law and to amend or revoke any
such rules;
(iii) to construe the Plan and the Rules of the Plan;
(iv) to determine questions of eligibility and vesting
of Participants;
(v) to determine entitlement to a benefit and to
distributions of Participants, Beneficiaries, and all other persons;
(vi) to make findings of fact as necessary to make any
determinations and decisions in the exercise of such discretionary power
and authority;
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(vii) to appoint claims and review officials to conduct
claims procedures as provided in Section 11.11; and
(viii) to delegate any duty, power or responsibility to
the Committee, to any firm or person engaged under paragraph (i) or to
any other person or persons.
(b) Every finding, decision, and determination made by the
Administrator (or its delegate) shall, to the full extent permitted by law, be
final and binding upon all parties, except to the extent found by a court of
competent jurisdiction to constitute an abuse of discretion.
SECTION 11.2. - COMMITTEE
(a) The Board may establish a Committee consisting of three or
more members to hold office at the pleasure of the Board. Each remaining member
shall be appointed by the Board.
(b) The Committee shall have such powers, duties and
responsibilities as are delegated to it by the Board. The Board may amend,
modify or terminate the delegation of powers, duties and responsibilities to the
Committee from time to time. Any power, duty or responsibility no longer
delegated to the Committee shall become a power, duty or responsibility of the
Board, and may be delegated by the Board to such person or persons as the Board
determines appropriate. Committee members shall not receive payment for their
services as such.
(c) Appointment of Committee members shall be effective upon
filing of written acceptance of appointment with the Board. A Committee member
may resign at any time by delivery of written notice to the Board.
(d) Vacancies in the Committee shall be filled in accordance
with subsection (a).
(e) The Committee shall act by a majority of its members in
office, either by meeting or by a written instrument executed by a majority of
the Committee members. The Committee may, by a written instrument executed by
all of the Committee members then in office, authorize one of its members to
execute any instrument required to be executed by the Committee.
(f) The Chairperson of the Committee shall appoint a Secretary
to keep the minutes of its meetings.
SECTION 11.3. - LIMITATIONS UPON POWERS OF THE ADMINISTRATOR
The Plan shall be uniformly and consistently interpreted and
applied with regard to all Participants in similar circumstances. The Plan
shall be administered, interpreted and applied fairly and equitably and in
accordance with the specified purposes of the Plan.
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SECTION 11.4. - COMPENSATION AND INDEMNIFICATION OF
ADMINISTRATOR; EXPENSES OF ADMINISTRATION
(a) The Companies shall pay or reimburse each Committee member
and each Employee functioning under Section 11.1(a)(viii) for all expenses
(including reasonable attorneys' fees) properly incurred by him in the
administration of the Plan.
(b) The Companies shall indemnify and hold each such Employee
and Committee member harmless from all claims, liabilities and costs (including
reasonable attorneys' fees) arising out of the good faith performance of his
functions hereunder.
(c) The Companies shall obtain and provide for any Employee
and Committee member, at the expense of the Companies, liability insurance
against liabilities imposed on him by law.
(d) Legal fees incurred in the preparation and amendment of
documents shall be paid by the Companies.
(e) Except as provided in subsection (a), fees and expenses of
persons rendering services to the Plan shall not be paid or reimbursed by the
Companies, except as agreed upon by the Companies.
SECTION 11.5. - EFFECT OF ADMINISTRATOR ACTION
Except as provided in Section 11.3, all actions taken and all
determinations made by the Administrator (or its delegate) in good faith shall
be final and binding upon all Participants, their "Beneficiaries" and any other
person.
SECTION 11.6. - RECORDKEEPING
(a) The Administrator shall maintain suitable records as
follows:
(i) records of each Participant's Nonqualified
Accounts which, among other things, shall show separately all debits and
credits thereto, and
(ii) records of its deliberations and decisions.
(b) The Administrator shall appoint a secretary, and at its
discretion, an assistant secretary, to keep the record of proceedings, to
transmit its decisions, instructions, consents or directions to any interested
party, to execute and file, on behalf of the Administrator, such documents,
reports or other matters as may be necessary or appropriate under ERISA and to
perform ministerial acts.
(c) The Administrator shall not be required to maintain any
records or accounts which duplicate any records or accounts maintained by the
Companies.
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SECTION 11.7. - STATEMENT TO PARTICIPANTS
Within 60 days after the last day of each calendar quarter of
the Plan Year, the Administrator shall furnish to each Participant a statement
setting forth the value of his Nonqualified Accounts and such other information
as the Administrator shall deem advisable to furnish.
SECTION 11.8. - INSPECTION OF RECORDS
Copies of the Plan and the records of a Participant's
Nonqualified Accounts shall be open to inspection by him or his duly authorized
representatives at the office of the Administrator at any reasonable business
hour.
SECTION 11.9. - IDENTIFICATION OF FIDUCIARIES
(a) The Administrator shall be the named fiduciary of the Plan
and, as permitted or required by law, shall have exclusive authority and
discretion to operate and administer the Plan.
(b) The named fiduciary, the Board, the Companies, and every
person who exercises any discretionary authority or discretionary control
respecting the Plan or who has any discretionary authority or discretionary
responsibility in the administration of the Plan, including any person
designated by the named fiduciary to carry out fiduciary responsibilities under
the Plan, shall be a fiduciary and as such shall be subject to provisions of
ERISA and other applicable laws governing fiduciaries.
SECTION 11.10. - PROCEDURE FOR ALLOCATION OF ADMINISTRATIVE RESPONSIBILITIES
(a) Administrative responsibilities under the Plan shall be
allocated as follows:
(i) the sole duties, responsibilities and powers
allocated to the Board, any Company, the Committee and any other person
shall be those expressly provided in the relevant Sections of the Plan,
and
(ii) all administrative responsibilities not allocated
to the Board, or the Companies, are allocated to the Administrator,
subject to delegation.
(b) Administrative responsibilities under the Plan may be
reallocated among fiduciaries by amending the Plan in the manner prescribed in
Section 12.7, followed by the fiduciaries' acceptance of, or operation under,
such amended Plan.
SECTION 11.11. - CLAIMS PROCEDURE
(a) A claim by a Participant, "Beneficiary" or any other
person shall be presented to the claims official appointed by the Administrator
(or its delegate) in writing within
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the maximum time permitted by law or under the regulations of the Secretary of
Labor or his delegate pertaining to claims procedures.
(b) The claims official shall, within a reasonable time,
consider the claim and shall issue his determination thereon in writing.
(c) If the claim is granted, the appropriate distribution or
payment shall be made by the Companies.
(d) If the claim is wholly or partially denied, the claims
official shall, within 90 days (or such longer period as may be reasonably
necessary), provide the claimant with written notice of such denial, setting
forth, in a manner calculated to be understood by the claimant
(i) the specific reason or reasons for such denial;
(ii) specific reference to pertinent Plan provisions on
which the denial is based;
(iii) a description of any additional material or
information necessary for the claimant to perfect the claim and an
explanation of why such material or information is necessary; and
(iv) an explanation of the Plan's claims review
procedure.
(e) The Administrator (or its delegate) shall provide each
claimant with a reasonable opportunity to appeal the claim official's denial of
a claim to a review official (appointed by the Administrator (or its delegate)
in writing) for a full and fair review. The claimant or his duly authorized
representative
(i) may request a review upon written application to
the review official (which shall be filed with it),
(ii) may review pertinent documents, and
(iii) may submit issues and comments in writing.
(f) The review official may establish such time limits within
which a claimant may request review of a denied claim as are reasonable in
relation to the nature of the benefit which is the subject of the claim and to
other attendant circumstances but which, in no event, shall be less than 60 days
after receipt by the claimant of written notice of denial of his claim.
(g) The decision by the review official upon review of a claim
shall be made not later than 60 days after his receipt of the request for
review, unless special circumstances require an extension of time for
processing, in which case a decision shall be rendered as soon as possible, but
not later than 120 days after receipt of such request for review.
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(h) The decision on review shall be in writing and shall
include specific reasons for the decision written in a manner calculated to be
understood by the claimant with specific references to the pertinent Plan
provisions on which the decision is based.
(i) In considering claims under this claims procedure, the
claims official and the review official shall have fiduciary and discretionary
authority to make findings of fact and to construe the terms of the Plan and, to
the full extent permitted by law, the determination of the claims official (if
no review is properly requested or the decision of the review official on
review, if review has been properly requested) shall be final and binding on all
parties unless held by a court of competent jurisdiction to constitute an abuse
of discretion.
SECTION 11.12. - CONFLICTING CLAIMS
If the Administrator is confronted with conflicting claims
concerning a Participant's (or an Alternate Payee's) Nonqualified Accounts, the
Administrator may interplead the claimants in an action at law, or in an
arbitration conducted in accordance with the rules of the American Arbitration
Association, as the Administrator shall elect in its sole discretion, and in
either case, the attorneys' fees, expenses and costs reasonably incurred by the
Administrator in such proceeding shall be paid from the Participant's (or an
Alternate Payee's) Nonqualified Accounts.
SECTION 11.13. - SERVICE OF PROCESS
The Secretary of Sunrise Medical Inc. is hereby designated as
agent of the Plan for the service of legal process.
ARTICLE XII.
MISCELLANEOUS PROVISIONS
SECTION 12.1. - TERMINATION OF THE PLAN
(a) While the Plan is intended as a permanent program, the
Board shall have the right at any time to declare the Plan terminated completely
as to the Companies or as to any Company or any division, facility or other
operational unit thereof; provided, however, that the termination of the Plan
shall not decrease the Vested percentage or amount of interest any Participant
or any other person entitled to payment under the Plan has in the Participant's
(or an Alternate Payee's) Nonqualified Accounts, and the termination of the Plan
shall not amend or modify any requirement of Sunrise Medical Inc. to make
contributions to the Trust with respect to the amounts credited to the
Nonqualified Accounts of Participants as of the date of termination. In the
event of a termination of the Plan, the Plan may be amended by the Board to
provide for immediate lump sum distributions of the Nonqualified Accounts of
Participants (and Alternate Payees) upon such termination.
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(b) Discharge or layoff of Employees of a Company or any unit
thereof without such a declaration shall not result in a termination of the
Plan.
(c) Except as provided in subsection (a), in the event of any
termination of the Plan, the Administrator shall continue to maintain
Participants' (and Alternate Payees') Nonqualified Accounts and payment of such
Nonqualified Accounts shall be made in accordance with Articles VIII, IX and X.
SECTION 12.2. - LIMITATION ON RIGHTS OF EMPLOYEES
The Plan is strictly a voluntary undertaking on the part of
Sunrise Medical Inc. and shall not constitute a contract between a Company and
any Employee with respect to, or consideration for, or an inducement or
condition of, the employment of an Employee. Nothing contained in the Plan
shall give any Employee the right to be retained in the service of a Company or
to interfere with or restrict the rights of the Companies, which are hereby
expressly reserved, to discharge or retire any Employee, except as provided by
law, at any time without notice and with or without cause. Inclusion under the
Plan will not give any Employee any right or claim to any benefit hereunder
except to the extent such right has specifically become fixed under the terms of
the Plan. The doctrine of substantial performance shall have no application to
Employees, Participants, "Beneficiaries", Alternate Payees or any other persons
entitled to payments under the Plan. Each condition and provision, including
numerical items, has been carefully considered and constitutes the minimum limit
on performance which will give rise to the applicable right.
SECTION 12.3. - UNFUNDED OBLIGATIONS OF SUNRISE MEDICAL INC.
Sunrise Medical Inc. shall be obligated to make all payments
under the Plan. The obligations of Sunrise Medical Inc. under the Plan shall be
unfunded and unsecured, and nothing contained herein shall be construed as
providing for assets to be held in trust or escrow or any other form of
segregation of the assets of Sunrise Medical Inc. or the other Companies for the
benefit of any Participant or any other person or persons to whom benefits are
to be paid pursuant to the terms of the Plan. The interest of any Participant
or any other person hereunder shall be limited to the right to receive the
benefits as set forth herein. To the extent that a Participant or any other
person acquires a right to receive benefits under the Plan, such rights shall be
no greater than the right of an unsecured general creditor of Sunrise Medical
Inc.
SECTION 12.4. - GRANTOR TRUST
(a) Sunrise Medical Inc. shall establish a grantor trust (the
"Trust") in connection with the Plan, and shall make irrevocable contributions
to the Trust in accordance with the terms of the trust agreement (the "Trust
Agreement") establishing the Trust. Sunrise Medical Inc. shall designate the
trustee of the Trust. The Trust Agreement shall provide that the Trust assets
shall be subject to the claims of the creditors of Sunrise Medical Inc. in the
event of the "Insolvency" (as defined in the Trust Agreement) of Sunrise Medical
Inc., and that the Trust shall constitute an unfunded arrangement and shall not
affect the status of the Plan as an
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unfunded plan. The Trust Agreement shall provide that Sunrise Medical Inc.
shall make contributions to the Trust in amounts equal to the nonqualified
deferred compensation credits, nonqualified profit sharing restoration credits
and nonqualified supplemental contribution credits that are credited to each
Active Participant's Nonqualified Accounts under Sections 4.1, 4.2 and 4.3 not
later than 30 days after such amounts are credited to such Active Participant's
Nonqualified Accounts.
(b) The Trust Agreement shall provide that the trustee of the
Trust shall invest the assets in the Trust as directed by Sunrise Medical Inc.
Sunrise Medical Inc. may, but shall not be obligated to, direct the trustee to
invest the assets of the Trust in the investment or investments that comprise
the Investment Fund or Funds to which a Participant's Nonqualified Accounts are
allocated in accordance with Article VI.
(c) Sunrise Medical Inc. may cause the payment of benefits
under the Plan to be made, in whole or in part, by the Trust in accordance with
the terms of the Trust Agreement. The Trust Agreement shall provide that, in
the event of a Change in Control, the Trustee shall cause the Trust to make all
payments of benefits under the Plan, except to the extent the payment of
benefits is made by Sunrise Medical Inc. or prohibited by the terms of the Trust
Agreement.
(d) Any payment of benefits by the Trust shall be in
satisfaction of the obligations of Sunrise Medical Inc. under the Plan.
Notwithstanding the establishment of the Trust, and any contributions made by
Sunrise Medical Inc. to the Trust, Sunrise Medical Inc. shall remain obligated
to make all payments of benefits under the Plan, except to the extent such
payments are made by the Trust in accordance with the Trust Agreement.
SECTION 12.5. - TAX WITHHOLDING
The Company shall have the right to deduct from any payment to
a Participant or any other person or persons to whom benefits are to be paid
under the Plan, or from any payment of other compensation to a Participant, any
federal, state or local taxes required by law to be withheld with respect to
payments to be made under the Plan.
SECTION 12.6. - ERRORS AND MISSTATEMENTS
In the event of any misstatement or omission of fact by a
Participant to the Administrator or any clerical error resulting in payment of
benefits in an incorrect amount, the Administrator shall promptly cause the
amount of future payments to be corrected upon discovery of the facts and the
Companies shall pay the Participant or any other person entitled to payment
under the Plan any underpayment in cash in a lump sum or to recoup any
overpayment from future payments to the Participant or any other person entitled
to payment under the Plan in such amounts as the Administrator shall direct or
to proceed against the Participant or any other person entitled to payment under
the Plan for recovery of any such overpayment.
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SECTION 12.7. - PAYMENT ON BEHALF OF MINOR, ETC.
In the event any amount becomes payable under the Plan to a
minor or a person who, in the sole judgment of the Administrator is considered
by reason of physical or mental condition to be unable to give a valid receipt
therefor, the Administrator may direct that such payment be made to any person
found by the Administrator in its sole judgment, to have assumed the care of
such minor or other person. Any payment made pursuant to such determination
shall constitute a full release and discharge of the Companies, the Board, the
Administrator, the Committee and their officers, directors and Employees.
SECTION 12.8. - AMENDMENT OF PLAN
As limited by any applicable law, the Plan may be wholly or
partially amended by the Board in any manner from time to time, including
retroactive amendments necessary to conform to the provisions and requirements
of ERISA or the Code or regulations pursuant thereto; provided, however, that no
amendment shall decrease the Vested percentage or amount of interest any
Participant or any other person entitled to payment under the Plan has in the
Participant's Nonqualified Accounts, and no amendment relating to any
requirement of Sunrise Medical Inc. to make contributions to the Trust shall be
effective with respect to the amounts credited to the Nonqualified Accounts of
Participants as of the date of adoption of such amendment.
SECTION 12.9. - GOVERNING LAW
This Plan shall be construed, administered and governed in all
respects under and by applicable federal laws and, where state law is
applicable, the laws of the State of California.
SECTION 12.10. - PRONOUNS AND PLURALITY
The masculine pronoun shall include the feminine pronoun, and
the singular the plural where the context so indicates.
SECTION 12.11. - 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 12.12. - REFERENCES
Unless the context clearly indicates to the contrary, a
reference to a statute, regulation or document shall be construed as referring
to any subsequently enacted, adopted or executed statute, regulation or
document.
Executed at Carlsbad, California this ______ day of __________,
1998.
SUNRISE MEDICAL INC.
By:___________________________________
Title:_________________________________
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SUMMARY OF
THE SUNRISE MEDICAL INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
JUNE, 1998
<PAGE>
SUMMARY OF
THE SUNRISE MEDICAL INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Sunrise Medical Inc. Supplemental Executive Retirement Plan (the "Executive
Plan") is a supplemental executive retirement plan which is maintained by
Sunrise Medical Inc. ("Sunrise") for the purpose of providing deferred
compensation, profit sharing restoration benefits and supplemental benefits to a
group of highly compensated Associates of Sunrise and its subsidiaries. The
Executive Plan is effective as of June 30, 1998.
The Executive Plan provides an eligible Associate with an opportunity to defer
up to 25% of the Associate's bonus under The Sunrise Medical Inc. Management
Incentive Bonus Program (the "MIB Program") on a pre-tax basis.
In addition, the Executive Plan provides an eligible Associate with tax-deferred
profit sharing restoration credits that are determined based on the
discretionary profit sharing contributions that are made to The Sunrise Medical
Inc. Profit Sharing/Savings Plan (the "Savings Plan"). The Executive Plan may
also provide an eligible Associate with tax-deferred supplemental contribution
credits in amounts that are determined in the discretion of the Sunrise Board of
Directors.
This following set of questions and answers should help you understand how the
Executive Plan works. If you have any questions about the Executive Plan, you
should review the Executive Plan document (and the trust agreement establishing
the Trust under the Executive Plan), or you should contact the Administrator of
the Executive Plan.
ELIGIBILITY AND PARTICIPATION
WHO IS ELIGIBLE TO PARTICIPATE IN THE EXECUTIVE PLAN?
You must be a participant in the Savings Plan in order to be eligible to
participate in the Executive Plan. However, you are not required to defer
compensation under the Savings Plan in order to participate.
In addition, your "Base Compensation" must be greater than $140,000 (or such
greater dollar amount as is established under the terms of the Executive Plan)
in order to be eligible to participate in the Executive Plan.
Your "Base Compensation" is the annual rate of your salary, excluding bonuses,
commissions, incentive compensation, fringe benefits, expense reimbursements and
other similar amounts.
<PAGE>
WHEN DO I BECOME AN "ACTIVE PARTICIPANT" IN THE EXECUTIVE PLAN?
You become an "Active Participant" on the first day of the calendar month on
which you first satisfy the eligibility requirements described above. You will
remain an "Active Participant" until the end of that plan year. (The plan year
of the Executive Plan is the fiscal year of Sunrise.)
You will be an "Active Participant" for each subsequent plan year only if you
meet the eligibility requirements on the first day of that plan year.
You will become an "Active Participant" on June 30, 1998 if you are a
participant in the Savings Plan and if your "Base Compensation" is greater than
$140,000 on that date. In that case, you may participate in the Executive Plan
for the plan year ending on July 3, 1998.
HOW DO I ELECT TO DEFER MY BONUS UNDER THE EXECUTIVE PLAN?
The Administrator of the Executive Plan will provide you with a Bonus
Compensation Deferral Election form. You will need to complete and execute the
Bonus Compensation Deferral Election form and return it prior to the beginning
of the plan year (or the calendar month in which you first become an "Active
Participant").
You designate the percentage of your "Bonus Compensation" that you would like to
defer on the form. Once you have submitted your form for a plan year, your
election becomes irrevocable.
If you become an "Active Participant" on June 30, 1998, you may defer your
"Bonus Compensation" for the plan year ending on July 3, 1998. You will need to
complete and execute the Bonus Compensation Deferral Election form for that plan
year and return it before June 30, 1998.
HOW DO I ELECT THE FORM OF MY DISTRIBUTIONS UNDER THE EXECUTIVE PLAN?
When you first become an "Active Participant," you must elect whether to receive
distributions upon your Normal Retirement, Disability Retirement or death (if
you are then employed by Sunrise and its subsidiaries) in the form of a lump sum
payment or installment payments. If you elect installment payments, you must
elect the number of years (not greater than 10 years) over which your
installment payments will be made, and whether the installments will be paid
annually or quarterly.
You may make a separate distribution election for each distribution event. For
example, you may elect to receive annual installment payments for 10 years in
the event of your Normal Retirement, and elect to receive a lump sum payment in
the event of your Disability Retirement or death.
Your initial distribution elections will be made on your first Bonus
Compensation Deferral Election form. You may change your distribution elections
at a later time, subject to certain requirements and limitations. See "May I
change my distribution elections?".
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Your distribution elections will not apply if you terminate employment prior to
your Normal Retirement, Disability Retirement or death. In that case, your
distribution will be made in the form of a lump sum payment. See "How will my
Accounts be paid upon termination of employment prior to Normal Retirement,
Disability Retirement or death?".
WHAT HAPPENS IF I DO NOT MEET THE ELIGIBILITY REQUIREMENTS IN A LATER PLAN YEAR?
If you become an "Active Participant" for a plan year, and you do not meet the
eligibility requirements on the first day of a later plan year, you will not be
an "Active Participant" for that later plan year. You will not be able to defer
your "Bonus Compensation," and you will not be eligible to receive profit
sharing restoration or supplemental contribution credits for that plan year.
However, you will remain a "Participant" in the Executive Plan. You will
continue to earn service toward the vesting of your Accounts under the Executive
Plan and all rules regarding distributions will continue to apply.
If you meet the eligibility requirements on the first day of a subsequent plan
year, you will again become an "Active Participant." You will then be able to
defer your "Bonus Compensation" for that plan year and be eligible to receive
profit sharing restoration or supplemental contribution credits.
BONUS DEFERRALS
HOW DO BONUS DEFERRALS UNDER THE EXECUTIVE PLAN WORK?
You may defer any whole percentage of your "Bonus Compensation" up to 25% of
your "Bonus Compensation."
Your "Bonus Compensation" deferrals are credited to your Nonqualified Deferred
Compensation Account under the Executive Plan on the date on which your bonus is
paid.
HOW IS MY "BONUS COMPENSATION" DETERMINED?
Your "Bonus Compensation" for a Plan Year means your bonus earned during the
fiscal year of Sunrise that coincides with the plan year under the MIB Program,
less the 20% of the bonus that is required to be deferred under the MIB Program.
In addition, your "Bonus Compensation" includes any bonus that was previously
required to be deferred under the MIB Program, but is now earned during the
fiscal year of Sunrise that coincides with the plan year.
EXAMPLE: You elect to defer 10% of your "Bonus Compensation" for the plan
year ending on June 30, 2000. Your "Bonus Compensation" for the plan year
ending on June 30, 2000 means the bonus earned by you during the Sunrise
fiscal year ending on the same date, reduced by the 20% that is required to
be deferred under the MIB Program.
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Your "Bonus Compensation" for the plan year ended on June 30, 2000 is to be
paid on September 1, 2000. Accordingly, 10% of your bonus that would be
paid (after reduction for any amount required to be deferred to later
fiscal years) will be then be deferred.
Your bonus for the fiscal year ending on June 30, 2000 is $50,000. This
bonus amount is reduced by 20%, or $10,000, which is required to be
deferred under the MIB Program. Accordingly, your "Bonus Compensation" for
the plan year ending on June 30, 2000 is $40,000. You defer 10% of
$40,000, or $4,000, under the Executive Plan.
In addition, your "Bonus Compensation" for the plan year ended on June 30,
2000 may include deferred portions of your bonuses for the 1998 and 1999
fiscal years if the conditions are met under the MIB Program for their
payment. Your "Bonus Compensation" for the plan year ending on June 30,
2000 will include these amounts, and 10% of those amounts will also be
deferred under the Executive Plan.
WHEN MUST I MAKE MY ELECTION TO DEFER A PORTION OF MY BONUS?
You must elect to defer "Bonus Compensation" for any plan year before the first
day of the plan year. In the above example, your 10% of Bonus Compensation
deferral election must be made no later than the last day of the 1999 plan year,
which will end on July 2, 1999. However, for the first year in which you are
eligible to participate, your election to defer Bonus Compensation must be made
not later than the last day of the month before you become eligible. If you
become an "Active Participant" on June 30, 1998, your election for the plan year
ending on July 3, 1998 must be made not later than June 30, 1998.
Your Bonus Compensation deferral election for a plan year only applies to that
plan year. You may make a new Bonus Compensation deferral election for a
subsequent plan year if you are an "Active Participant" for that plan year.
CAN I CHANGE MY BONUS DEFERRAL ELECTION?
Your Bonus Compensation deferral election for a plan year is irrevocable once
the plan year begins and cannot be increased or decreased.
However, you may reduce or suspend your Bonus Compensation deferral election for
a plan year if you suffer an Unforeseeable Emergency.
An "Unforeseeable Emergency" is a severe financial hardship resulting from
extraordinary and unforeseeable circumstances as a result of one or more events
beyond your control. The requirements for an "Unforeseeable Emergency" are much
more limited than the requirements for a "Hardship" under the Savings Plan.
The reduction or discontinuance of your Bonus Compensation deferrals may not
exceed the amount necessary to satisfy the Unforeseeable Emergency, after
considering the amount of your Unforeseeable Emergency which can be satisfied
from other resources reasonably available to you. The reduction or
discontinuance applies only to your Bonus Compensation deferrals that
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have not yet been made and not retroactively to amounts previously deferred. If
you discontinue your Bonus Compensation deferrals for a plan year, you may not
defer your Bonus Compensation for the following plan year.
CAN MY BONUS DEFERRAL ELECTION LIMIT MY "HARDSHIP" WITHDRAWALS UNDER THE SAVINGS
PLAN?
Yes. The Savings Plan requires that you suspend all compensation deferrals
under all Sunrise plans for 12 months in order to make a "Hardship" withdrawal
under the Savings Plan. However, unless you have an "Unforeseeable Emergency,"
you will not be able to suspend your Bonus Compensation deferral election under
the Executive Plan. This may prevent you from receiving a "Hardship" withdrawal
under the Savings Plan.
WHAT HAPPENS TO MY DEFERRED "BONUS COMPENSATION"?
The "Bonus Compensation" that you defer remains a general, unsecured liability
of Sunrise. Sunrise will establish an account on your behalf, which will be
carried on the books of Sunrise as an obligation to pay you the deferred amount
plus any earnings credits (described under "Investment of your Accounts" on page
7). You or your beneficiary will become an unsecured creditor of Sunrise with
no preferential right to or interest in any particular asset owned by Sunrise.
PROFIT SHARING RESTORATION CREDITS;
SUPPLEMENTAL CONTRIBUTION CREDITS
WHY ARE PROFIT SHARING RESTORATION CREDITS PROVIDED UNDER THE EXECUTIVE PLAN?
If you are an "Active Participant" in the Executive Plan for a plan year, you
may receive tax-deferred profit sharing restoration credits based on the
discretionary profit sharing contributions made by Sunrise under the Savings
Plan.
Your allocation of discretionary profit sharing contributions under the Savings
Plan is based on your "Compensation," as defined under the Savings Plan. The
Internal Revenue Code limits the dollar amount of "Compensation" that can be
taken into account under the Savings Plan. For example, the Savings Plan will
not take into account your "Compensation" in excess of $160,000 for the plan
year ending on June 30, 1998. The Savings Plan will also not count as
"Compensation" your bonuses deferred under the Executive Plan. As a result,
your allocation of discretionary profit sharing contributions under the Savings
Plan will not reflect your total "Compensation."
Therefore, your profit sharing restoration credits are based on the additional
discretionary profit sharing contributions that you would receive under the
Savings Plan if your total compensation were taken into account. However, the
total of your allocation of discretionary profit sharing contributions under the
Savings Plan and your profit sharing restoration credits under the Executive
Plan will not exceed 10% of your "Compensation" for the plan year.
5
<PAGE>
Your profit sharing restoration credits are based on the plan year of the
Savings Plan that ends nearest to the last day of the plan year of the Executive
Plan.
HOW ARE MY PROFIT SHARING RESTORATION CREDITS UNDER THE EXECUTIVE PLAN
DETERMINED?
If you are an "Active Participant" in the Executive Plan for a plan year, you
will receive a profit sharing restoration credit that is based on the additional
discretionary profit sharing contribution that you would have received if your
total "Compensation" had been counted under the Savings Plan, subject to the 10%
of "Compensation" limitation described above.
EXAMPLE: Assume that Sunrise makes a discretionary profit sharing
contribution under the Savings Plan for the plan year ending on June 30,
1998. You are an "Active Participant" in the Executive Plan for the plan
year ending on July 3, 1998 and you receive total "Compensation" of
$250,000 during the plan year of the Savings Plan ending on June 30, 1998.
However, only $160,000 of your "Compensation" is taken into account in
allocating the discretionary profit sharing contribution under the Savings
Plan.
Sunrise makes a discretionary profit sharing contribution for that plan
year of 5% of each Associate's "Compensation" up to the Social Security
Wage Base (i.e., $65,400) and 10% of each Associate's "Compensation" that
exceeds the Social Security Wage Base. An Associate's "Compensation" in
excess of $160,000 is disregarded.
You receive a profit sharing restoration credit under the Executive Plan
equal to 10% of the portion of your "Compensation" that is not taken into
account under the Savings Plan. Specifically, a profit sharing restoration
credit of $9,000 (10% of $90,000) is credited to your account in the
Executive Plan.
Your profit sharing restoration credit under the Executive Plan will be
determined assuming that you did not defer any "Bonus Compensation" under the
Executive Plan. For example, if you defer a portion of your "Bonus
Compensation" that is otherwise payable in September of 1998, your profit
sharing restoration credit for the plan year of the Executive Plan ending on
July 2, 1999 (which is based on the plan year of the Savings Plan ending on June
30, 1999) will be determined as if you received all of your "Bonus Compensation"
payable during that month.
Your profit sharing restoration credits will be credited to your Nonqualified
Employer Contributions Account under the Executive Plan. Those amounts will be
credited on the date on which the discretionary profit sharing contributions are
made to the Savings Plan.
HOW ARE MY SUPPLEMENTAL CONTRIBUTION CREDITS UNDER THE EXECUTIVE PLAN
DETERMINED?
If you are an "Active Participant" in the Executive Plan for a plan year, you
may receive a tax-deferred supplemental contribution credit that is determined
in the discretion of the Sunrise Board of Directors. Your supplemental
contribution credits, if any, will be credited to your Nonqualified Employer
Contributions Account under the Executive Plan on the date specified by the
Sunrise Board of Directors.
6
<PAGE>
YOUR ACCOUNTS UNDER THE PLAN;
INVESTMENT OF YOUR ACCOUNTS
HOW DO I DETERMINE HOW MUCH I AM ENTITLED TO RECEIVE UNDER THE EXECUTIVE PLAN?
Your benefits under the Executive Plan are determined by the amounts credited to
your accounts. Your accounts include your "Nonqualified Deferred Compensation
Account" and your "Nonqualified Employer Contributions Account."
Your Bonus Compensation deferral credits are credited to your "Nonqualified
Deferred Compensation Account." Your profit sharing restoration credits and
supplemental contribution credits (if any) are credited to your "Nonqualified
Employer Contributions Account."
Each account is credited with interest, earnings, gains or losses in the manner
described below.
HOW ARE THE EARNINGS CREDITED TO MY ACCOUNTS DETERMINED?
Sunrise has selected American Express Trust Company ("American Express") as
trustee, recordkeeper and investment manager for the Executive Plan. (American
Express has provided these same services for the Savings Plan since 1990.)
Using American Express as the investment manager enables the Executive Plan to
mirror many of the investment funds provided in the Savings Plan. Also, using
American Express as the recordkeeper allows for the convenience of a combined
statement showing your Savings Plan accounts and your Executive Plan accounts,
as separate items, on a quarterly basis. As in the Savings Plan, your accounts
in the Executive Plan will be credited with interest, earnings, gains or losses.
The Executive Plan, as a nonqualified plan, is not eligible to investment in all
of the same funds as the qualified Savings Plan. However, the Executive Plan
presently offers the following five investment funds:
IDS New Dimensions Fund
IDS Stock Fund
Franklin Mutual Shares Fund (Class I)
IDS Mutual Fund
IDS Selective Fund.
Other funds may be added in the future as recommended by the Administrative
Committee.
You may choose to allocate your account credits to just one or all of the
investment funds listed. Your allocation percentages must be in 5% increments
and the total must equal 100%. Flat dollar amounts are not permitted.
MAY I CHANGE MY INVESTMENT ELECTION?
Yes. You may elect to change your allocation percentages for future account
credits. Also, you may elect to transfer any whole percentage of the amount of
your accounts from one investment
7
<PAGE>
fund to another. Changes in allocation percentages and transfers between
investment funds are made by calling American Express at 1-800-521-SAVE and
speaking with a customer service representative or using the automated voice
response system. American Express will issue you a private investment number
(PIN) for confidential access to your accounts 24 hours a day.
HOW OFTEN ARE EARNINGS CREDITED TO MY ACCOUNTS?
The value of each investment fund is determined on each business day. The
interest, earnings, gains and losses on an investment fund are allocated among
the Accounts of participants that are considered invested in the investment fund
in proportion to each participant's investment on the preceding business day.
MAY I CONTINUE TO DIRECT THE INVESTMENT OF MY
ACCOUNTS AFTER I RETIRE OR TERMINATE EMPLOYMENT?
Yes. You may continue to direct the investment of any Bonus Compensation
deferral credits, profit sharing restoration credits and supplemental
contribution credits made to your Accounts after you retire or terminate
employment. In addition, you may elect to transfer amounts in your Accounts
from one investment fund to another after you retire or terminate employment.
CAN MY BENEFICIARY DIRECT THE INVESTMENT OF MY ACCOUNTS AFTER MY DEATH?
Yes. Your Beneficiary may direct the investment of any Bonus Compensation
deferral credits, profit sharing restoration credits and supplemental
contribution credits made to your Accounts after your death. Also, your
Beneficiary may elect to transfer amounts credited to your Accounts from one
investment fund to another. Your Beneficiary's investment fund directions will
only apply to the portion of your Accounts to which that Beneficiary is
entitled.
VESTING OF ACCOUNTS
WHEN AM I VESTED IN MY ACCOUNTS?
You are immediately fully vested in the value of your Nonqualified Deferred
Compensation Account.
Your Nonqualified Employer Contribution Account will vest at 25% for each year
of service beginning after two years, so that you will become fully vested after
five years. This is the same vesting schedule as provided under the Savings
Plan. Your years of service are determined under the Savings Plan.
In addition, if you die, become totally and permanently disabled, or reach your
Normal Retirement Date (age 55), your Nonqualified Employer Contributions
Account will become fully vested, provided that you are employed by Sunrise or
one of its subsidiaries.
8
<PAGE>
If there is a "Change in Control", your Nonqualified Employer Contributions
Account will become fully vested. The definition of "Change in Control" is
contained in the plan document for the Executive Plan.
DISTRIBUTION OF YOUR ACCOUNTS
HOW WILL MY ACCOUNTS BE PAID UPON
NORMAL RETIREMENT, DISABILITY RETIREMENT OR DEATH?
You will receive the amounts credited to your Accounts upon your Normal
Retirement, Disability Retirement or death (if you are then employed by Sunrise
and its subsidiaries) either as a lump sum payment or installment payments. You
designate the form of distribution that applies upon your Normal Retirement,
Disability Retirement or death on your Distribution Election form when you first
became an "Active Participant". If you do not designate the form of your
distribution, you will receive a lump sum distribution. As described below, you
may change your distribution election in certain circumstances.
If you transfer your employment among Sunrise and its subsidiaries, you will not
be considered to have retired or terminated your employment and you will not be
entitled to a distribution upon retirement or termination of employment (as
described below). However, if your employer ceases to be a subsidiary of
Sunrise as a result of a merger, consolidation, reorganization, sale of stock or
other transaction, and you do not transfer to Sunrise or another subsidiary, you
will be considered to have retired (if you are age 55 or older) or terminated
employment.
HOW WILL MY ACCOUNTS BE PAID UPON TERMINATION OF
EMPLOYMENT BEFORE NORMAL RETIREMENT, DISABILITY RETIREMENT OR DEATH?
If you terminate employment prior to Normal Retirement, Disability Retirement or
death, the vested amounts credited to your Accounts will be distributed to you
as a lump sum payment. You will receive a lump sum payment even if you elected
to receive installment payments upon your Normal Retirement, Disability
Retirement or death.
HOW ARE INSTALLMENT PAYMENTS MADE?
As described above, you may elect to receive your distribution in installment
payments upon your Normal Retirement, Disability Retirement or death.
Installment payments are made in a fixed number of annual or quarterly
installments of at least $100 during a period not to exceed 10 years. You elect
the period over which you will receive installment payments and whether the
payments are made quarterly or annually.
The amount of each installment payment is determined by dividing the balance in
your Accounts (as adjusted for the interest, earnings, gains or losses on the
investment funds in which your Accounts are considered invested and any prior
withdrawals and distributions), by the remaining number of installments to be
paid.
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MAY I CHANGE MY DISTRIBUTION ELECTIONS?
Yes. You may change your distribution election for distributions made upon your
Normal Retirement, Disability Retirement or death. However, your right to
change a distribution election is subject to certain limitations.
If you change a distribution election, the change will not be effective unless a
full calendar year elapses between the time the new distribution election is
made or you terminate employment. If you terminate employment before the new
election becomes effective, your old distribution election will apply.
EXAMPLE: You elect to receive distributions upon your Normal Retirement in
the form of annual installments for a period of ten years on your initial
Bonus Deferral Election Form submitted in 1998. In June, 2000, you submit
a Distribution Election Change form electing to receive a lump sum payment
upon Normal Retirement. Your new distribution election will not be
effective until January 1, 2002. If you terminate employment upon Normal
Retirement before January 1, 2002, your original installment distribution
election will apply.
You may change a distribution election by submitting a Distribution Election
Change form to the Administrator of the Plan. You will need to designate the
event to which your new distribution election applies (i.e., Normal Retirement,
Disability Retirement or death), whether the distribution is to be made in the
form of a lump sum payment or installment payments and, if you elect installment
payments, the number of years (not greater than 10 years) over which your
installment payments will be made and whether the installments will be paid
annually or quarterly.
WHAT HAPPENS IF I DIE WHILE EMPLOYED BY SUNRISE?
If you die while employed by Sunrise and its subsidiaries, you will become 100%
vested in any portion of your Accounts not already fully vested and your
Accounts will be paid to your designated beneficiary or beneficiaries under the
Savings Plan. In that case, your Accounts will be distributed in the form of
distribution that you elected.
If you elected to have your beneficiary or beneficiaries receive installment
payments, and one of your beneficiaries dies before receiving all of his or her
installment payments, the portion of your Accounts to which that beneficiary was
entitled will be paid in one lump sum payment to the estate of that beneficiary.
Your Savings Plan beneficiary designation may conflict with wills, trusts, or
other legal documents and you are urged to consult with your individual legal
counsel regarding the appropriate beneficiary designation.
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<PAGE>
WHAT HAPPENS IF I DIE AFTER NORMAL RETIREMENT OR DISABILITY RETIREMENT?
If you terminate employment upon your Normal Retirement or Disability
Retirement, and you die while receiving installment payments, the installment
payments will continue to your beneficiary or beneficiaries under the Savings
Plan.
If one of your beneficiaries dies before receiving all of his or her installment
payments, the portion of your Accounts to which that beneficiary was entitled
will be paid in one lump sum payment to the estate of that beneficiary.
WHAT HAPPENS IF I DO NOT DESIGNATE A BENEFICIARY UNDER THE SAVINGS PLAN?
If you do not designate a beneficiary under the Savings Plan, your distribution
will be made to your surviving spouse. If you do not have a surviving spouse,
your distribution will be made to your legal heirs.
WHAT HAPPENS IF I NEED THE DEFERRED AMOUNTS EARLIER THAN PLANNED?
In the event of an Unforeseeable Emergency as described in "Can I change my
bonus deferral election during the plan year?", the Administrator may, in its
discretion, authorize an early distribution from your Accounts. Your
withdrawal in the event of an Unforeseeable Emergency is limited to the amount
that is necessary to remedy your Unforeseeable Emergency. If you make such a
withdrawal, you may not make any "Bonus Compensation" deferrals under the
Executive Plan for the plan year beginning after your withdrawal. (Note, too,
that if you make a hardship withdrawal under the Savings Plan, you will not be
permitted to defer under the Executive Plan for the plan year beginning on or
after your withdrawal.) Such a withdrawal will be taxed as ordinary income for
Federal income tax purposes in the year of withdrawal. The Administrator will
provide you with more information concerning the availability of these
withdrawals upon request.
MAY I MAKE A WITHDRAWAL IF I DO NOT HAVE AN UNFORESEEABLE EMERGENCY?
You may make a withdrawal from your Accounts even if you do not have an
Unforeseeable Emergency. However, a portion of your Accounts will be forfeited
if you make a withdrawal under these circumstances.
You may designate the amount of your Accounts that is subject to withdrawal.
You will receive 85% of the amount that you designated. The remaining 15% of
the amount designated is forfeited upon the withdrawal. This forfeiture is
necessary in order to impose a substantial limitation or restriction on your
ability to withdraw the amounts in your Accounts. The Administrator will
provide you with more information concerning the availability of these
withdrawals upon request.
CAN I PLEDGE MY ACCOUNTS AS SECURITY FOR A LOAN?
No. You cannot borrow from the Executive Plan nor use your Accounts as
collateral for a loan.
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TRUST FUNDING
IS THE EXECUTIVE PLAN FUNDED BY A TRUST?
Sunrise will establish a grantor trust (which is commonly referred to as a
"rabbi trust") (the "Trust") in connection with the Executive Plan. The Trust
may be used to make distributions under the Executive Plan. American Express
will act as Trustee for the Executive Plan.
Sunrise will make contributions to the Trust in amounts equal to the Bonus
Compensation deferral credits, profit sharing restoration credits and
supplemental contribution credits that are credited to each Participant's
accounts. Sunrise will make contributions not later than 30 days after the date
on which such amounts are credited to a Participant's Accounts.
HOW DOES THE TRUST WORK?
As described above, Sunrise will make irrevocable contributions to the Trust for
purposes of providing benefits under the Executive Plan.
Benefits under the Executive Plan will be paid from the Trust as directed by
Sunrise. Sunrise may pay benefits under the Executive Plan directly to
Participants and their beneficiaries. If the assets of the Trust are not
sufficient to pay benefits under the Executive Plan, Sunrise will pay the
benefits directly.
The assets of the Trust, and the earnings on those assets, will be held separate
and apart from the other funds of Sunrise, and will be used exclusively to
provide benefits under the Executive Plan, unless used to satisfy the claims of
the general creditors of Sunrise. Sunrise will direct the investment of the
assets of the Trust. Sunrise may direct that the assets of the Trust be
invested in the investment funds designated by Participants. However, Sunrise
will not be required to direct such investments.
The Trust will NOT provide benefits under the Executive Plan if Sunrise becomes
"Insolvent". Sunrise will be considered "Insolvent" if Sunrise is unable to pay
its debts as they become due, or is subject to a pending proceeding as a debtor
under the United States Bankruptcy Code. Accordingly, your benefits under the
Executive Plan will NOT be protected by the Trust if Sunrise becomes
"Insolvent."
WHAT HAPPENS IF SUNRISE BECOMES "INSOLVENT"?
If Sunrise becomes "Insolvent," the Trust will discontinue the payment of
benefits under the Executive Plan. The assets of the Trust will be held for the
benefit of Sunrise's general creditors. In that case, you will not receive any
further payments from the Trust.
If the trustee of the Trust later determines that Sunrise is no longer
"Insolvent", benefit payments from the Trust may resume to the extent that there
are assets in the Trust.
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DOES THE TRUST CHANGE MY STATUS AS A GENERAL, UNSECURED CREDITOR OF SUNRISE?
No. You have an unsecured, contractual right to benefits under the Executive
Plan. You are a general, unsecured creditor of Sunrise with respect to your
benefits, and you have no preferred claim on, or any beneficial ownership
interest in, any of the assets of the Trust. As described above, the assets of
the Trust will be subject to the claims of Sunrise's general creditors under
federal and state law in the event that Sunrise becomes "Insolvent."
FEDERAL INCOME AND EMPLOYMENT TAX CONSEQUENCES
IF I ELECT TO DEFER MY BONUS, WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES?
The Executive Plan is designed to operate as a tax deferral plan. This means
that you do not recognize the Bonus Compensation you defer as income for Federal
income tax purposes for the calendar year in which it would otherwise have been
paid. Instead, your deferred Bonus Compensation and any interest credited to
your Nonqualified Deferred Compensation Account under the Executive Plan will be
recognized as income for Federal income tax purposes in the calendar year it is
distributed to you.
WHAT ARE THE SOCIAL SECURITY AND MEDICARE
TAX CONSEQUENCES OF DEFERRING BONUS COMPENSATION?
Your deferred Bonus Compensation remains subject to Social Security (to the
extent your calendar year-to-date compensation in that year is under the Social
Security Wage Base) and Medicare taxes (i.e., FICA taxes) for the calendar year
in which your deferred Bonus Compensation would otherwise have been paid.
The profit sharing restoration credits and supplemental contributions credits
that are credited to your Nonqualified Employer Contribution Account, and any
interest credited on those amounts, under the Executive Plan are subject to
Social Security (if any) and Medicare taxes when you become vested in those
amounts.
Distributions from your Accounts are not subject to Social Security and Medicare
taxes at the time of payment.
WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF
RECEIVING DISTRIBUTIONS FROM THE EXECUTIVE PLAN?
Distributions from the Executive Plan will be taxed as ordinary income for
Federal income tax purposes in the year you or your beneficiary receive the
payment.
The Executive Plan is not a qualified retirement plan, and your distributions
under the Executive Plan will not be eligible for the special Federal income tax
treatment (e.g., five or ten year averaging) which may be available for your
distributions under the Savings Plan. Also, you may not defer taxation on your
distribution by rolling your distribution to a qualified retirement plan or to
an Individual Retirement Account or Annuity.
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PLAN ADMINISTRATION
WHO ADMINISTERS THE EXECUTIVE PLAN?
The Administrative Committee appointed by Sunrise is the "Administrator" and is
responsible for the administration and operation of the Executive Plan. The
Administrative Committee has full discretionary power and authority to interpret
the Executive Plan, to make findings of fact, to determine questions of
eligibility and vesting of participants and to determine entitlement to account
credits and distributions under the Executive Plan. The Administrative
Committee consists of Sunrise's Chief Executive Officer, Chief Financial Officer
and Vice-President of Corporate Human Resources.
CAN THE EXECUTIVE PLAN BE AMENDED OR TERMINATED?
The Sunrise Board of Directors may amend the Executive Plan in any manner from
time to time. However, no amendment will decrease your vested percentage or
amount of interest in your Accounts under the Executive Plan. Also, no
amendment relating to any requirement of Sunrise to make contributions to the
Trust will be effective with respect to the amounts credited to your Accounts on
the date of the adoption of the amendment.
ARE ALL OF THE PROVISIONS IN THE EXECUTIVE PLAN DESCRIBED IN THIS SUMMARY?
No. This is only a summary of certain of the provisions of the Executive Plan.
The actual provisions controlling the operation of the Executive Plan are more
complex and are contained in the Executive Plan document.
WHAT HAPPENS IF THERE IS A CONFLICT BETWEEN
THE EXECUTIVE PLAN DOCUMENT AND THIS DOCUMENT?
All questions about your rights and the rights of your beneficiaries will be
determined by reference to the Executive Plan document. In the event of any
conflict between any provision contained in this document and the terms of the
Executive Plan document or in the event any provision is not discussed in this
summary, the terms of the Executive Plan document will control.
WHAT IF A DISPUTE ARISES OVER MY BENEFITS?
If you believe an error has been made in your benefits under the Executive Plan,
you should promptly give your claim in writing to the claims official appointed
by the Administrative Committee. The Executive Plan provides a procedure for
handling disputes in case your written claim is not honored. In this case, you
will receive detailed written instructions on how to appeal. You may appeal any
denial of a written claim to the review official appointed by the Administrative
Committee.
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SUMMARY OF
THE SUNRISE MEDICAL INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
ELIGIBILITY AND PARTICIPATION. . . . . . . . . . . . . . . . . . . . . . . . .1
Who is eligible to participate in the Executive Plan?. . . . . . . . . . . . .1
When do I become an "Active Participant" in the Executive Plan?. . . . . . .2
How do I elect to defer my bonus under the Executive Plan? . . . . . . . . .2
How do I elect the form of my distributions under the Executive Plan?. . . .2
What happens if I do not meet the eligibility requirements
in a later plan year?. . . . . . . . . . . . . . . . . . . . . . . . . . .3
BONUS DEFERRALS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
How do bonus deferrals under the Executive Plan work?. . . . . . . . . . . .3
How is my "Bonus Compensation" determined? . . . . . . . . . . . . . . . . .3
When must I make my election to defer a portion of my bonus? . . . . . . . .4
Can I change my bonus deferral election? . . . . . . . . . . . . . . . . . .4
Can my bonus deferral election limit my "Hardship" withdrawals
under the Savings Plan?. . . . . . . . . . . . . . . . . . . . . . . . . .5
What happens to my deferred "Bonus Compensation"?. . . . . . . . . . . . . .5
PROFIT SHARING RESTORATION CREDITS;
SUPPLEMENTAL CONTRIBUTION CREDITS. . . . . . . . . . . . . . . . . . . . . . .5
Why are profit sharing restoration credits provided under
the Executive Plan?. . . . . . . . . . . . . . . . . . . . . . . . . . . .5
How are my profit sharing restoration credits under the Executive Plan
determined?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
How are my supplemental contribution credits under the Executive Plan
determined?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
YOUR ACCOUNTS UNDER THE PLAN;. . . . . . . . . . . . . . . . . . . . . . . . .7
How do I determine how much I am entitled to receive under the
Executive Plan?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
How are the earnings credited to my accounts determined? . . . . . . . . . .7
May I change my investment election? . . . . . . . . . . . . . . . . . . . .7
How often are earnings credited to my Accounts?. . . . . . . . . . . . . . .8
May I continue to direct the investment of my. . . . . . . . . . . . . . . .8
Accounts after I retire or terminate employment? . . . . . . . . . . . . . .8
Can my Beneficiary direct the investment of my Accounts after my
death? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
VESTING OF ACCOUNTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
When am I vested in my Accounts? . . . . . . . . . . . . . . . . . . . . . .8
</TABLE>
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<PAGE>
SUMMARY OF
THE SUNRISE MEDICAL INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
DISTRIBUTION OF YOUR ACCOUNTS. . . . . . . . . . . . . . . . . . . . . . . . .9
How will my Accounts be paid upon . . . . . . . . . . . . . . . . . . . .9
Normal Retirement, Disability Retirement or death?. . . . . . . . . . . .9
How will my Accounts be paid upon termination of
employment before Normal Retirement, Disability Retirement or death?. .9
How are installment payments made?. . . . . . . . . . . . . . . . . . . .9
May I change my distribution elections? . . . . . . . . . . . . . . . . .9
What happens if I die while employed by Sunrise?. . . . . . . . . . . . 10
What happens if I die after Normal Retirement or Disability
Retirement?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
What happens if I do not designate a beneficiary under the
Savings Plan?. . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
What happens if I need the deferred amounts earlier than planned? . . . 11
May I make a withdrawal if I do not have an Unforeseeable Emergency?. . 11
Can I pledge my Accounts as security for a loan?. . . . . . . . . . . . 11
TRUST FUNDING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Is the Executive Plan funded by a trust?. . . . . . . . . . . . . . . . 11
How does the Trust work?. . . . . . . . . . . . . . . . . . . . . . . . 12
What happens if Sunrise becomes "Insolvent"?. . . . . . . . . . . . . . 12
Does the Trust change my status as a general, unsecured creditor of
Sunrise? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
FEDERAL INCOME AND EMPLOYMENT TAX CONSEQUENCES . . . . . . . . . . . . . . . 13
If I elect to defer my bonus, what are the Federal income
tax consequences?. . . . . . . . . . . . . . . . . . . . . . . . . . .13
What are the Social Security and Medicare
tax consequences of deferring Bonus Compensation?. . . . . . . . . . .13
What are the Federal income tax consequences of
receiving distributions from the Executive Plan? . . . . . . . . . . .13
PLAN ADMINISTRATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Who administers the Executive Plan? . . . . . . . . . . . . . . . . . . 13
Can the Executive Plan be amended or terminated?. . . . . . . . . . . . 14
Are all of the provisions in the Executive Plan described
in this summary?. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
What happens if there is a conflict between
the Executive Plan document and this document? . . . . . . . . . . . .14
What if a dispute arises over my benefits?. . . . . . . . . . . . . . . 14
</TABLE>
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EXHIBIT 21
SUNRISE MEDICAL INC. AND SUBSIDIARIES
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
INCORPORATION Ownership
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<S> <C> <C>
NAME OF SUBSIDIARY
Sunrise Medical CCG Inc. Wisconsin 100%
Sunrise Medical HHG Inc. California 100%
DynaVox Systems, Inc. Pennsylvania 100%
SunMed Finance Inc. Delaware 100%
Sunrise Medical Canada Inc. Canada 100%
Sunrise Medical Holdings B.V. Netherlands 100%
Norsk Rehab AS Norway 100%
Sopur Medizintechnik GmbH Germany 100%
Sunrise Medical B.V. Netherlands 100%
Sunrise Medical S.A. France 100%
DeVilbiss Medical France S.A. France 100%
SCI La Planche S.A. France 100%
Sunrise Medical S.L. Spain 100%
Sunrise Medical S.r.l. Italy 100%
Sunrise Medical Ltd. United Kingdom 100%
Parker Bath Ltd. United Kingdom 100%
DeVelbiss Mediquip Ltd. United Kingdom 100%
Sunrise Medical A.G. Switzerland 100%
Vitactiv AB Sweden 100%
Sunrise Medical Pty Ltd. Australia 100%
Sunrise Medical Technologias S.A. de C.V. Mexico 100%
</TABLE>
- ----------------------
Each corporation is the parent of those indented beneath it.
The company has omitted from the list 15 foreign and six domestic
subsidiaries. None of the omitted companies individually or in the aggregate
is a significant subsidiary.
61
<PAGE>
EXHIBIT 23
ACCOUNTANTS' CONSENT
The Board of Directors
Sunrise Medical Inc.:
We consent to incorporation by reference in Registration Statement No. 333-44911
on Form S-4, Statement No. 33-88216 on Form S-8, Statement, No. 333-50047 on
Form S-8, Statement No. 33-82842 on Form S-8 and Statement No. 33-39887 on Form
S-8 of Sunrise Medical Inc. of our report dated August 19, 1998 relating to the
consolidated balance sheets of Sunrise Medical Inc. and subsidiaries as of July
3, 1998 and June 27, 1997 and the related consolidated statements of operations,
stockholders' equity and cash flows and related financial statement schedule for
each of the years in the three-year period ended July 3, 1998, which report
appears in the July 3, 1998 annual report on Form 10-K of Sunrise Medical Inc.
KPMG Peat Marwick LLP
Los Angeles, California
September 18, 1998
64
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF JULY 3, 1998 AND THE CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE YEAR ENDED JULY 3, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-03-1998
<PERIOD-START> JUN-28-1997
<PERIOD-END> JUL-03-1998
<CASH> 931
<SECURITIES> 0
<RECEIVABLES> 144,135
<ALLOWANCES> 9,839
<INVENTORY> 94,589
<CURRENT-ASSETS> 256,739
<PP&E> 167,557
<DEPRECIATION> 81,753
<TOTAL-ASSETS> 616,305
<CURRENT-LIABILITIES> 149,160
<BONDS> 188,029
0
0
<COMMON> 22,151
<OTHER-SE> 250,509
<TOTAL-LIABILITY-AND-EQUITY> 616,305
<SALES> 657,169
<TOTAL-REVENUES> 657,169
<CGS> 451,631
<TOTAL-COSTS> 451,631
<OTHER-EXPENSES> 211,373
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,222
<INCOME-PRETAX> (11,802)
<INCOME-TAX> 208
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,010)
<EPS-PRIMARY> (0.55)
<EPS-DILUTED> (0.55)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF JUNE 27, 1997 AND THE CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE YEAR ENDED JUNE 27, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-27-1997
<PERIOD-START> JUN-29-1996
<PERIOD-END> JUN-27-1997
<CASH> 4,223
<SECURITIES> 0
<RECEIVABLES> 142,836
<ALLOWANCES> 7,309
<INVENTORY> 90,034
<CURRENT-ASSETS> 242,460
<PP&E> 175,543
<DEPRECIATION> 84,009
<TOTAL-ASSETS> 615,731
<CURRENT-LIABILITIES> 139,373
<BONDS> 0
0
0
<COMMON> 21,885
<OTHER-SE> 261,807
<TOTAL-LIABILITY-AND-EQUITY> 615,731
<SALES> 670,545
<TOTAL-REVENUES> 670,545
<CGS> 447,806
<TOTAL-COSTS> 447,806
<OTHER-EXPENSES> 188,260
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,774
<INCOME-PRETAX> 23,477
<INCOME-TAX> 11,363
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,114
<EPS-PRIMARY> 0.56
<EPS-DILUTED> 0.55
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF JUNE 28, 1996 AND THE CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE YEAR ENDED JUNE 28, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-28-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-28-1996
<CASH> 1,957
<SECURITIES> 0
<RECEIVABLES> 149,521
<ALLOWANCES> 13,279
<INVENTORY> 82,306
<CURRENT-ASSETS> 255,938
<PP&E> 158,374
<DEPRECIATION> 75,654
<TOTAL-ASSETS> 624,578
<CURRENT-LIABILITIES> 148,745
<BONDS> 207,456
0
0
<COMMON> 21,428
<OTHER-SE> 241,853
<TOTAL-LIABILITY-AND-EQUITY> 624,578
<SALES> 675,417
<TOTAL-REVENUES> 675,417
<CGS> 449,629
<TOTAL-COSTS> 449,629
<OTHER-EXPENSES> 262,950
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,687
<INCOME-PRETAX> (51,749)
<INCOME-TAX> (11,371)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (40,378)
<EPS-PRIMARY> (1.89)
<EPS-DILUTED> (1.89)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 26, 1997, DECEMBER 26, 1997 AND
MARCH 27, 1998 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE QUARTERS
ENDED SEPTEMBER 26, 1997, DECEMBER 26, 1997 AND MARCH 27, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> JUL-03-1998 JUL-03-1998 JUL-03-1998
<PERIOD-START> JUN-28-1997 JUN-28-1997 JUN-28-1997
<PERIOD-END> SEP-26-1997 DEC-26-1997 MAR-27-1998
<CASH> 4,025 3,382 3,103
<SECURITIES> 0 0 0
<RECEIVABLES> 136,100 152,961 146,856
<ALLOWANCES> 8,498 10,848 9,371
<INVENTORY> 90,695 94,565 101,185
<CURRENT-ASSETS> 243,575 259,672 259,408
<PP&E> 180,046 177,044 176,591
<DEPRECIATION> 87,421 89,303 92,442
<TOTAL-ASSETS> 613,006 626,969 619,470
<CURRENT-LIABILITIES> 131,261 145,696 153,109
<BONDS> 191,047 186,101 172,288
0 0 0
0 0 0
<COMMON> 21,888 21,999 22,030
<OTHER-SE> 260,178 264,982 263,918
<TOTAL-LIABILITY-AND-EQUITY> 613,006 626,969 619,470
<SALES> 155,032 324,121 488,536
<TOTAL-REVENUES> 155,032 324,121 488,536
<CGS> 104,073 220,035 332,137
<TOTAL-COSTS> 104,073 220,035 332,137
<OTHER-EXPENSES> 47,482 101,207 149,011
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 3,411 7,435 11,076
<INCOME-PRETAX> 1,442 3,255 4,955
<INCOME-TAX> 573 1,458 3,256
<INCOME-CONTINUING> 0 0 0
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 869 1,797 1,699
<EPS-PRIMARY> .04 .08 0.08
<EPS-DILUTED> .04 .08 0.08
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 27, 1996, DECEMBER 27, 1996, AND
MARCH 28, 1997 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE QUARTERS
ENDED SEPTEMBER 27, 1996, DECEMBER 27, 1996 AND MARCH 28, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> JUN-27-1997 JUN-27-1997 JUN-27-1997
<PERIOD-START> JUN-29-1996 JUN-29-1996 JUN-29-1996
<PERIOD-END> SEP-27-1996 DEC-27-1996 MAR-28-1997
<CASH> 4,445 3,234 1,792
<SECURITIES> 0 0 0
<RECEIVABLES> 148,923 146,524 140,376
<ALLOWANCES> 13,087 9,288 10,830
<INVENTORY> 85,660 90,285 90,903
<CURRENT-ASSETS> 263,635 260,313 251,623
<PP&E> 161,093 165,873 172,817
<DEPRECIATION> 79,557 81,760 84,735
<TOTAL-ASSETS> 629,607 635,729 624,251
<CURRENT-LIABILITIES> 153,058 170,013 147,430
<BONDS> 202,503 179,239 191,633
0 0 0
0 0 0
<COMMON> 21,441 21,865 21,872
<OTHER-SE> 245,518 257,508 256,473
<TOTAL-LIABILITY-AND-EQUITY> 629,607 635,729 624,251
<SALES> 169,388 342,838 504,030
<TOTAL-REVENUES> 169,388 342,838 504,030
<CGS> 112,319 228,732 337,367
<TOTAL-COSTS> 112,319 228,732 337,367
<OTHER-EXPENSES> 47,850 96,294 143,043
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 4,002 7,874 11,545
<INCOME-PRETAX> 6,720 12,229 15,141
<INCOME-TAX> 3,146 5,703 7,324
<INCOME-CONTINUING> 0 0 0
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 3,574 6,526 7,817
<EPS-PRIMARY> .17 .31 .37
<EPS-DILUTED> .16 .30 .36
</TABLE>
