<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 29, 2000.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
------------------------
SUNRISE MEDICAL INC.
(NAME OF SUBJECT COMPANY)
SUNRISE MEDICAL INC.
(NAME OF PERSON FILING STATEMENT)
------------------------
COMMON STOCK, PAR VALUE $1.00 PER SHARE
(TITLE OF CLASS OF SECURITIES)
867910 10 1
(CUSIP NUMBER OF CLASS OF SECURITIES)
------------------------
MURRAY H. HUTCHISON
CHAIRMAN OF THE BOARD OF DIRECTORS
SUNRISE MEDICAL INC.
2382 FARADAY AVENUE, SUITE 200
CARLSBAD, CALIFORNIA 92008
(760) 930-1500
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICE AND
COMMUNICATIONS ON BEHALF OF PERSON(S) FILING STATEMENT)
------------------------
COPIES TO:
PAUL TOSETTI, ESQ.
LATHAM & WATKINS
633 WEST FIFTH STREET, SUITE 4000
LOS ANGELES, CA 90071
(213) 485-1234
/ / CHECK THE BOX IF THE FILING RELATES SOLELY TO PRELIMINARY COMMUNICATIONS
MADE BEFORE THE COMMENCEMENT OF A TENDER OFFER.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
This statement amends and supplements the Solicitation/Recommendation
Statement on Schedule 14D-9 filed with the Securities and Exchange Commission
(the "Commission") on October 30, 2000, as amended November 7, 2000 (the
"Schedule 14D-9"), by Sunrise Medical Inc., a corporation organized under the
laws of the State of Delaware (the "Company"), relating to an offer by V.S.M.
Acquisition Corp., a corporation organized under the laws of the State of
Delaware ("Purchaser") and a wholly owned subsidiary of V.S.M. Holdings, Inc., a
corporation organized under the laws of State of Delaware ("Holdings") and a
wholly owned subsidiary of V.S.M. Investors, LLC, a Delaware limited liability
company ("Parent") and an affiliate of Vestar Capital Partners IV, L.P.,
disclosed in a Tender Offer Statement on Schedule TO, dated October 30, 2000, as
amended November 6, 2000 and November 29, 2000 (the "Schedule TO"), to purchase
all of the issued and outstanding Shares at a price of $10.00 per Share, net to
the seller in cash (the "Offer Price"), upon the terms and subject to the
conditions set forth in the offer to purchase, dated October 30, 2000, as
amended and supplemented by the supplement dated November 29, 2000 (collectively
referred to as the "Offer to Purchase"), and the related letter of transmittal
(the "Letter of Transmittal," which, as may be amended and supplemented from
time to time, together with the Offer to Purchase, constitute the "Offer").
ITEM 2. IDENTITY AND BACKGROUND OF THE FILING PERSON.
The first paragraph of the response to Item 2(d) is hereby amended and
restated in its entirety as follows:
"(d) TENDER OFFER. This Schedule 14D-9 relates to the offer by V.S.M.
Acquisition Corp., a corporation organized under the laws of the State of
Delaware ("Purchaser") and a wholly owned subsidiary of V.S.M. Holdings, Inc., a
corporation organized under the laws of State of Delaware ("Holdings") and a
wholly owned subsidiary of V.S.M. Investors, LLC, a Delaware limited liability
company ("Parent") and an affiliate of Vestar Capital Partners IV, L.P.,
disclosed in the Tender Offer Statement on Schedule TO, dated October 30, 2000,
as amended on November 6, 2000 and November 29, 2000 (the "Schedule TO"), to
purchase all of the issued and outstanding Shares at a price of $10.00 per
Share, net to the seller in cash (the "Offer Price"), upon the terms and subject
to the conditions set forth in the offer to purchase dated October 30, 2000 as
amended and supplemented on November 29, 2000 (collectively referred to as the
"Offer to Purchase"), and the related letter of transmittal (the "Letter of
Transmittal," which, as may be amended and supplemented from time to time,
together with the Offer to Purchase, constitute the "Offer")."
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
Item 4(b) BACKGROUND OF THE MERGER is hereby amended and supplemented as
follows:
The second sentence of the third paragraph is amended and restated in its
entirety as follows:
"Following the press release, the Company received inquiries from
approximately 16 third parties, primarily financial buyers, interested in a
potential transaction with the Company."
The sixth through fifteenth paragraphs are amended and restated in their
entirety as follows:
"In the spring of 2000, members of the Company's senior management continued
to formulate and revise a series of internal restructuring plans and examined
various secured and unsecured financing alternatives. On February 29 and April
25, 2000, the Board met and received briefings on these matters from members of
the Company's senior management, including Mr. Hammes, Steven Jaye (the
Company's general counsel and senior vice president), Ted Tarbet (the Company's
chief financial officer), Raymond Huggenberger (the Company's senior vice
president and president of European operations), Geoff Cooper (the Company's
vice president and chief information officer), and John Radak (the Company's
controller). Also, Mr. Hammes and Mr. Jaye reported to the Board as to the
inquiries they had received from potential financial partners.
Following these Board meetings and through mid-June, at the request of the
Board, Mr. Hammes and Mr. Jaye met with representatives of four prospective
financial partner groups, answering questions
1
<PAGE>
regarding the Company and its business and prospects. On May 11, 2000, Messrs.
Hammes, Jaye and Radak held a preliminary meeting with representatives of Park
Avenue Equity Partners, L.P. ("Park Avenue") and Vestar Capital Partners IV,
L.P. ("Vestar"). Also on that same day, Mr. Hammes and Mr. Jaye held a
preliminary meeting with representatives of a consortium consisting of four
prospective merchant banking partners which indicated interest in exploring a
possible leveraged buyout or recapitalization involving the Company.
Mr. Hammes and Mr. Jaye again met with representatives of the merchant
banking consortium on June 1, 2000. On June 7, 2000, Mr. Hammes, Mr. Jaye and
Mr. Radak, together with representatives of Deutsche Banc Alex. Brown, again met
with the consortium. At this meeting, management made a presentation regarding
the Company and its business and prospects and answered questions regarding the
challenges facing the Company's restructuring plans.
On June 14, 2000, Mr. Hammes and Mr. Jaye, together with representatives of
Deutsche Banc Alex. Brown, met with Vestar and Park Avenue. At this meeting,
members of the Company's senior management made a presentation to
representatives of Vestar and Park Avenue. Also at this meeting, representatives
of Vestar and Park Avenue discussed their preliminary interest in pursuing with
the Company a leveraged recapitalization transaction that potentially would
value the Common Stock at a price per Share of $10.00.
In mid-June 2000, Mr. Hammes and Mr. Jaye, together with representatives of
Deutsche Banc Alex. Brown, also met again with representatives of the consortium
of four merchant banking firms to discuss further the consortium's interest in a
possible leveraged buyout or recapitalization transaction. The consortium
suggested a price per Share significantly lower than $10.00, and expressed
concern regarding the likelihood of successful implementation of the Company's
restructuring plans. In the week that followed, a member of the consortium
contacted the Company and orally suggested another form of transaction, which
also would have resulted in a price per Share significantly lower than $10.00.
During this time, again at the request of the Board, Mr. Hammes and Mr. Jaye,
together with representatives of Deutsche Banc Alex. Brown, also met with
another merchant banking firm to discuss a potential transaction. At that
meeting, representatives of management and the prospective financial buyer
discussed the Company's business and restructuring plans. The parties also
discussed potential financing of any transaction.
On June 21, 2000 the Board met to discuss, among other matters, the progress
made with respect to the Company's internal restructuring plans and financing
efforts. The Board was also updated as to the interest of, and discussions held
with, Vestar, Park Avenue and the other merchant banking firms referenced above.
In light of the high level of interest that was expressed by potential financial
partners at the previous meetings, the Board directed Mr. Hammes and Mr. Jaye
and Deutsche Banc Alex. Brown to continue to pursue discussions with Vestar,
Park Avenue and one other financial partner that had proposed the highest
transaction values. At this Board meeting, Deutsche Banc Alex. Brown reviewed
with the Board a list of potential strategic partners, and the Board authorized
Deutsche Banc Alex. Brown to contact the two strategic partners that the Board
believed would be likely to consider and consummate a possible business
combination or other strategic transaction with the Company.
In late June and July of 2000, discussions with Vestar, Park Avenue and the
other prospective financial partner continued. The parties continued to discuss
the Company's business and restructuring plans and the difficulties the Company
had encountered, including its loss of market share during the last few years.
In late July 2000, Messrs. Hammes, Jaye, Tarbet, Huggenberger, Cooper,
Radak, Sam Sinasohn, the Company's vice president of taxes and special projects
and Ben Anderson-Ray, the Company's senior vice president and president of its
Global Business Group and representatives of Deutsche Banc Alex. Brown met with
another prospective financial partner. The members of management made a more
detailed presentation of the Company's business and restructuring plans,
specifically discussing
2
<PAGE>
the challenges to the Company in its restructuring plans. Shortly thereafter,
that entity declined any further interest in pursuing a transaction.
On August 1, 2000, the other prospective financial partner returned the
information regarding the Company with which it had been provided, expressing
its unwillingness to proceed in a transaction that valued the Company's common
stock at or above $10.00 per share. After some discussion, the two strategic
partners that had been contacted also expressed no interest in pursuing such a
transaction.
On August 3, 2000, Mr. Hammes and Mr. Jaye and representatives of Deutsche
Banc Alex. Brown met with representatives of Vestar and Park Avenue. At that
meeting the parties discussed the historical performance of the Company and its
proposed restructuring plans, specifically discussing the challenges to the
Company in its restructuring plans. Around that time, the Company provided to
Vestar and Park Avenue certain confidential information and access to the
Company's employees in connection with Vestar's and Park Avenue's business
diligence."
The third sentence of the eighteenth paragraph is amended and restated in
its entirety as follows:
"The proposal provided for a break up fee of $10 million if a superior
proposal was accepted by the Company or if any acquisition proposal was accepted
by the Company within 12 months of the termination of the agreement with Parent.
It also provided for expense reimbursement arrangements whereby the Company
would be responsible for up to $4 million of expenses incurred by Parent."
Item 4(c) "REASONS FOR THE RECOMMENDATION OF THE BOARD OF DIRECTORS" is
hereby amended and supplemented as follows:
Paragraphs 2 through 4 are hereby amended and restated in their entirety as
follows:
"2. The Board considered the relationship of the Offer price to the
historical market prices of the Shares, with particular focus on the market
prices of the Shares during the period from January 1, 1999 to October 13, 2000,
during which period the trading volume of the Shares equaled approximately 96.9%
of the Shares in the public float. The Board noted that approximately 92% of
such Shares were traded at a price below $8.00 per Share. The Board also noted
the low and high market prices of the Shares of $3.75 and $7.13 per Share,
respectively, during the 52-week period (a period often used as a reference
point for the short-term trends in the market prices of publicly traded
securities) preceding public announcement of the Offer and the Merger. The Board
also considered the fact that the cash consideration that the Company's
stockholders would receive for each Share under the Revised Proposal was at a
significant premium to the Company's then-current market price.
3. The fact that the Board had explored the possibility of pursuing various
other possible transactions that would enhance stockholder value, including the
Company's alternative to remain an independent public company and the
possibility of curtailing operations in an attempt to increase profitability,
and other extraordinary corporate transactions, as well as the risks and
uncertainties associated with such alternatives. The Board considered the
current and historical financial condition and results of operations of the
Company, as well as the prospects and strategic objectives of the Company,
including the risks involved in achieving those prospects and objectives, and
the current and expected conditions in the industry in which the Company's
business operates. The Board considered the Company's failure starting in 1996
to successfully implement a series of restructuring plans and achieve the
desired results. The Board also considered that during this period the Company
had lost market share and earned significantly lower profits than a number of
its competitors, and had failed to demonstrate convincingly any transformation
to a significantly higher growth or higher profitability business. In addition,
the Board also considered the possibility of achieving the results sought by its
current restructuring plans (including attainment of significantly higher growth
and profits than the Company has historically achieved) may not in fact be
realized.
4. The Company's business, prospects, financial condition, current business
strategy and competitive position in the health care industry. In addition to
considering the loss of market share, the failed past restructuring efforts and
the possibility that the current restructuring plan would not achieve
3
<PAGE>
the results sought, the Board also considered the possibility that the Company's
future growth and achievement of its business plan may be constrained by the
Company's limited access to debt and equity financing.
The following paragraph is hereby inserted after paragraph 10:
"11. The Special Committee considered the ability of the stockholders who
may not support the Merger to obtain "fair value" for their shares if they
perfect and exercise their appraisal rights under the General Corporation Law of
the State of Delaware."
Item 4(c) "REASONS FOR THE RECOMMENDATION OF THE BOARD OF DIRECTORS--OPINION
OF DEUTSCHE BANC ALEX. BROWN" is hereby amended as follows:
The second sentence of the sixth paragraph thereof is hereby deleted.
The first sentence of the first paragraph of the subsection entitled
"DISCOUNTED CASH FLOW ANALYSIS" is hereby amended and restated in its entirety
as follows:
"Deutsche Banc Alex. Brown performed a discounted cash flow analysis to
estimate the present value of the unleveraged, after-tax free cash flows that
the Company could generate during estimated fiscal years 2001 through 2005. In
light of the Company's historical financial performance more fully described
below, this analysis was based on two scenarios reflecting the potential for
different revenue growth rates and EBITDA margins for the Company."
The first sentence of the second paragraph of the subsection entitled "OTHER
FACTORS" is hereby amended and restated in its entirety to read as follows:
"The above discussion is a summary description of the material financial
analyses performed and factors considered by Deutsche Banc Alex. Brown in
connection with its opinion to the Special Committee."
Such paragraph is further amended by inserting after the second sentence
thereof the following:
"Deutsche Banc Alex. Brown's opinion was not based on any single factor or
analysis, nor did Deutsche Banc Alex. Brown attribute particular weight to
individual factors or analyses. Rather, Deutsche Banc Alex. Brown believed that
the totality of the factors considered and analyses performed by Deutsche Banc
Alex. Brown in connection with its opinion operated collectively to support its
determination as to the fairness of the $10.00 per Share cash consideration from
a financial point of view."
Item 4(c) "REASONS FOR THE RECOMMENDATION OF THE BOARD OF DIRECTORS--OPINION
OF BATCHELDER & PARTNERS, INC." is hereby amended as follows:
The first sentence of the fourth paragraph is hereby amended by deleting the
word "solely".
The subsection entitled "COMPARABLE PUBLIC COMPANY ANALYSIS" is amended by
inserting after the fifth sentence thereof the following:
"This analysis indicated an implied equity value of between $2.41 and $13.87
per Share."
Such subsection is further amended by inserting after the penultimate
sentence thereof the following:
"This analysis indicated an implied equity value of between $0.84 and $8.60
per Share."
The subsection entitled "COMPARABLE TRANSACTION ANALYSIS" is amended by
inserting after the penultimate sentence thereof the following:
"This analysis indicated an implied equity value of between $2.81 and $16.56
per Share."
The subsection entitled "PREMIUMS PAID ANALYSIS" is amended by inserting at
the end thereof the following:
"This analysis indicated an implied equity value of between $7.85 and $8.75
per Share."
4
<PAGE>
The fourth sentence of the second paragraph of the subsection entitled
"DISCOUNTED CASH FLOW ANALYSIS" is hereby amended and restated in its entirety
to read as follows:
"The above discussion is a summary description of the material analyses and
examinations actually conducted by Batchelder in the preparation of its
opinion."
The third sentence of the third paragraph of such subsection is hereby
amended by deleting the word "solely" in each of the two places it appears.
Annex C to the Schedule 14D-9 is hereby deleted in its entirety and replaced
with Annex C to this Schedule.
ITEM 5. PERSONS/ASSETS, RETAINED, EMPLOYED, COMPENSATED OR USED. The
following sentence is to be inserted at the end of the second paragraph under
subsection Item 5(a)--"DEUTSCHE BANC ALEX. BROWN:"
"During the past two years, Deutsche Banc Alex. Brown and its affiliates
have received fees totaling approximately $10.8 million in the aggregate for its
financial services to the Company and Vestar and its affiliates."
ITEM 8. ADDITIONAL INFORMATION. The response to Item 8(b)--"PENDING
LITIGATION" is supplemented as follows:
The last paragraph of the subsection entitled "PENDING LITIGATION" is hereby
amended and supplemented by adding the following sentences after the first
sentence thereof:
"The actions KRIM V. SUNRISE MEDICAL INC. ET AL. and HARBOR FINANCE PARTNERS
V. SUNRISE MEDICAL INC. ET AL. have been consolidated, and as of the date
hereof, discovery has not been commenced. In connection with ROGERS V. SUNRISE
MEDICAL INC., ET AL., discovery requests have been made of the Company and its
directors, the Special Committee's financial advisors, Vestar, Parent, Holdings
and Purchaser. Each of these parties is in the process of responding to such
discovery requests. On November 21, 2000 the Court in ROGERS denied a motion for
a temporary restraining order of the Offer and the Merger, granted some limited
expedited discovery in the case and scheduled a hearing on plaintiff's motion
for a preliminary injunction in connection with the Offer and the Merger for
December 1, 2000. The defendants believe that such motion is wholly without
merit and intend to defend it vigorously."
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
Item 9 is hereby amended by adding the exhibits indicated:
<TABLE>
<CAPTION>
EXHIBIT
---------------------
<S> <C>
(a)(1)(K) Supplement to the Offer to Purchase dated November 29, 2000
(incorporated herein by reference to Exhibit (a)(1)(ix) to
Schedule TO filed by Purchaser with respect to the Company
on November 29, 2000.
(a)(1)(L)+ Supplement to Information Statement Pursuant to
Section 14(f) of the Securities Exchange Act of 1934 and
Rule 14f-1 thereunder (incorporated by reference herein and
attached hereto as Annex A).
(a)(5)(L)+ Text of Press Release, dated November 28, 2000.
(e)(4)+ Opinion of Batchelder & Partners, Inc., dated October 16,
2000 (incorporated by reference herein and attached hereto
as Annex C).
</TABLE>
------------------------
+ Filed herewith.
5
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
Date: November 29, 2000
SUNRISE MEDICAL INC.
By: /s/ MURRAY H. HUTCHISON
--------------------------------------
Name: Murray H. Hutchison
Title: Chairman of the Board
of Directors
6
<PAGE>
ANNEX A
The Information Statement, pursuant to Section 14(f) of the Securities
Exchange Act of 1934 and Rule 14f-1 thereunder, attached as Annex A to the
Schedule 14D-9 dated October 30, 2000 is amended and supplemented as follows:
"EXECUTIVE COMPENSATION--Summary Compensation Table" is hereby amended and
supplemented as follows:
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION ------------------------------
FISCAL --------------------- STOCK OPTION ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(10) BONUS(1) GRANTS COMPENSATION(7)
--------------------------- -------- ---------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Thomas H. O'Donnell(5)................... 1998 310,000 0 25,000 172,811
Corporate Senior Vice President;
President, North America
Steven A. Jaye........................... 1999 226,153 0 30,000 16,509
Senior Vice President, Chief 1998 228,289 0 22,000 16,702
Administrative Officer; General
Counsel; Secretary
</TABLE>
The title for Ben Anderson-Ray is amended and restated to read "CORPORATE
SENIOR VICE PRESIDENT; PRESIDENT, GLOBAL BUSINESS GROUP"
The title for Raymond Huggenberger are amended and restated to "CORPORATE
SENIOR VICE PRESIDENT; PRESIDENT, EUROPEAN OPERATIONS" and a footnote reference
"(6)" is added following his name.
Footnotes 3 and 7 to the Summary Compensation Table are amended to read as
follows:
(3) Mr. Hutchison served as interim Chief Executive Officer and President from
October 1999 to January 2000. Compensation presented reflects consulting
fees paid and stock options granted to Mr. Hutchison for his services as
Interim Chief Executive Officer and President. Compensation presented
includes directors' fees paid and stock options granted to Mr. Hutchison in
his capacity as a Non-employee Director of the Company.
(7)
<TABLE>
<CAPTION>
FISCAL PROFIT SHARING/
NAME YEAR SAVINGS PLAN
---- -------- ---------------
<S> <C> <C>
Ben Anderson-Ray................................ 1999 10,464
Steven A. Jaye.................................. 1999 10,464
1998 10,584
</TABLE>
Footnote 10 is added to the Summary Compensation Table as follows:
"(10) The amounts include compensation for accrued vacation."
Footnote (1) to the the table entitled "Aggregated Option/SAR Exercises in
Fiscal 2000 and June 30, 2000 Option/SAR Values" is amended and restated in its
entirety to read as follows:
"(1) Includes 4,000 exercisable options (with a value of $0) held by
Mr. Hammes that were granted to him in the capacity as a Non-employee Director,
and 29,000 exercisable options (with a value of $6,870) and 10,000 unexercisable
options (with a value of $0) held by Mr. Hutchison that were granted to him in
the capacity as a Non-employee Director."
The last sentence in the third paragraph of the section captioned "DIRECTOR
COMPENSATION" is amended and restated in its entirety to read as follows:
A-1
<PAGE>
"In fiscal year 2000, Messrs. Ault, Hutchison, Pierpoint, Stemler and
Woodhull each received an option grant covering 20,000 options (at an exercise
price of $4.188 per share). Directors may elect to receive their annual retainer
of $16,000 either in cash paid monthly or in stock options with a 25% gross-up.
For fiscal year 2000, all Non-employee Directors elected to receive 6,000 stock
options as their annual retainer. Mr. Hammes did not receive an option grant as
a Non-employee Director during fiscal year 2000."
"REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION--Compensation of
the Chief Executive Officer"
The seventh sentence of the first paragraph is amended and restated in its
entirety to read as follows:
"Pursuant to his Consulting Agreement, Mr. Chandler is entitled to
consulting payments and continued vesting of stock options through September
2002, and he (and his wife) are entitled to receive health, dental and visual
insurance benefits through 2008 and Mr. Chandler is entitled to continued life
and accident insurance through 2002."
The second sentence of the second paragraph is amended and restated in its
entirety to read as follows:
"His compensation package was negotiated and includes a base salary of
$550,000, a bonus level for meeting specified goals equal to 50% of annual
salary, prorated to account for the number of months worked in the fiscal year,
and reimbursement of moving expenses (plus tax gross-up on such payments) and of
reasonable legal fees incurred in negotiating the package."
The penultimate sentence of the second paragraph is amended and restated in
its entirety to read as follows:
"Vesting of two thirds of the options automatically accelerate upon a change
of control, with the remaining one-third accelerating to the extent the change
in control price exceeds the stock price targets."
The second introductory paragraph following the material in bullet points in
the section captioned "Security Ownership of Certain Beneficial Owners and
Management" is amended and restated in its entirety to read as follows:
"On October 17, 2000 there were a total of 22,359,218 shares of the
Company's common stock issued and outstanding. Except for information based on
Schedules 13D, 13F or 13G, as indicated in the footnotes hereto, beneficial
ownership is stated as of October 17, 2000. For each person all shares subject
to options held by such person that are exercisable within 60 days of October
17, 2000 are included in determining beneficial ownership and percentage
ownership for such person, as if such shares were outstanding on October 17,
2000."
A-2
<PAGE>
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT"
The table is amended and supplemented to read as specified below:
<TABLE>
<CAPTION>
AGGREGATE NUMBER
OF SHARES OPTIONS VESTED APPROXIMATE
BENEFICIALLY OR ACQUIRABLE PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNERS(1) OWNED(2) AT MERGER CLASS
---------------------------------------- ---------------- -------------- -----------
<S> <C> <C> <C>
Richard H. Chandler(4).............................. 9.53%(5)
Freedom Scientific Inc.
2131 Palomar Airport Road, Suite 200
Carlsbad, CA 92009
Chancellor LGT Asset Management..................... 1,731,700(3) 7.7%
1166 Avenue of the Americas
New York, NY 10036
</TABLE>
Footnote (3) to the the table is amended and restated in its entirety to
read as follows:
"(3) Based upon holdings reported by the named institutions in filings with
the Securities and Exchange Commission on Forms 13D, 13F and/or 13G, together
with telephonic confirmation of holdings (where possible) as of October 17,
2000."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The final sentence of the first paragraph of the section captioned is
amended and restated in its entirety to read as follows:
"Mr. Chandler beneficially holds approximately 9.53% of the Company's
outstanding securities."
The following sentence is added to the end of the first paragraph of the
subsection captioned "Indebtedness of Management":
"No payments are due until such time, except that the amount of any bonus
received by Mr. Hammes from his former employer is required to be used in
payment on this note."
A-3
<PAGE>
ANNEX C
BATCHELDER & PARTNERS, INC.
11975 EL CAMINO REAL, SUITE 300
SAN DIEGO, CALIFORNIA 92130
TELEPHONE: (858) 704-3300
TELECOPIER: (858) 704-3340
October 16, 2000
Special Committee of the Board of Directors
Sunrise Medical Inc.
2382 Faraday Avenue
Suite 200
Carlsbad, CA 92008
Gentlemen:
You have asked us to advise you with respect to the fairness from a
financial point of view of the Consideration (as herein defined) to be paid by
V.S.M. Investors, LLC, V.S.M. Holdings, Inc. and V.S.M. Acquisition Corp.
(individually and collectively, the "Acquiror") to the common shareholders
(other than the Parent, the Management Group, any other members of management
who have agreed to invest in the Parent and their affiliates) of Sunrise
Medical Inc., (the "Company"), pursuant to the terms of the Agreement and Plan
of Merger dated as of October 16, 2000 (the "Merger Agreement") as of the date
hereof. The Merger Agreement provides for, among other things, the acquisition
by the Acquiror of all of the outstanding shares of common stock, $1.00 par
value per share (the "Shares") of Sunrise Medical Inc. in exchange for $10.00
per Share in cash (the "Consideration"), subject to certain terms and conditions
more fully described in the Merger Agreement (the "Merger"). We are acting as
non-exclusive financial advisor to the Company's Special Committee in connection
with the Merger (although in so acting, we are not entering into an agency or
other fiduciary relationship with the Special Committee, the Company, its Board
or stockholders or any other person) and will receive a fee from the Company for
our services. In addition, the Company has agreed to indemnify us for certain
liabilities arising out of our engagement. Except as otherwise defined herein,
capitalized terms have the meanings ascribed to such terms in the Merger
Agreement.
In connection with our opinion, we have, among other things: (i) reviewed
certain publicly available and internal financial and other data with respect to
the Company, including the financial statements for recent years (the last
audited Company financial statements provided to Batchelder & Partners, Inc.
were as of June 30, 2000) and certain other relevant financial and operating
data relating to the Company made available to us from published sources and
from the internal records of the Company; (ii) reviewed the financial terms and
conditions of the Merger Agreement; (iii) reviewed certain publicly available
information concerning the trading of, and the trading market for the Common
Stock; (iv) reviewed and discussed with Deutsche Banc Alex. Brown, the Company's
financial advisor, the background, history and terms of the transaction;
(v) compared the Company from a financial point of view with certain other
companies that we deemed to be relevant; (vi) considered the financial terms, as
they relate to the Company and to the extent publicly available, of selected
recent business combinations of companies that we deemed to be comparable, in
whole or in part, to the Merger; (vii) discussed with the Company's management
the prospects for, and business challenges facing, the Company absent the
Merger; (viii) reviewed and discussed with representatives of the Company's
management certain information of a
C-1
<PAGE>
business and financial nature regarding the Company, furnished to us by them,
including management's financial forecasts and related assumptions of the
Company and the benefits expected to result from the Merger; (ix) made inquires
regarding, and discussed, the Merger and the Merger Agreement and other matters
related thereto with Company's counsel; and (x) performed such other analyses
and examinations as we deemed appropriate.
In connection with our review, we have not assumed any obligation
independently to verify the foregoing information and have relied on its
accuracy and completeness in all material respects. With respect to the
financial forecasts provided to us by representatives of the Company's
management, (i) management has advised us that the forecasts provided to us
accurately reflect the judgment of management; (ii) upon their advice and with
your consent we have assumed for purposes of our opinion that the forecasts,
including projections of restructuring charges, have been reasonably prepared on
bases reflecting the best available estimates and judgments of the Company's
management at the time and through the date hereof as to the future financial
performance of the Company; and (iii) that such projections provide a reasonable
basis upon which we can form our opinion. In rendering our opinion, we express
no view as to the reasonableness of the forecasts provided to us by the
Company's management or the assumptions on which such forecasts are based. You
have advised us and we have assumed, that there have been no material changes in
the Company's assets, financial condition, results of operations, business or
prospects since the respective dates of their last financial statements made
available to us. The management of the Company has advised us and we have
assumed that they are not aware of any facts or circumstances that would make
the information reviewed by us inaccurate or misleading. We have relied on
advice of your counsel and the independent accountants to the Company as to all
legal and financial reporting matters with respect to the Company, the Merger
and the Merger Agreement. We have assumed that the Merger will be consummated in
a manner that complies in all respects with the applicable provisions of the
Securities Act of 1933, as amended (the "Securities Act"), the Securities
Exchange Act of 1934 and all other applicable federal and state statutes, rules
and regulations including any applicable foreign laws. In addition, we have not
assumed responsibility for making an independent evaluation, appraisal or
physical inspection of any of the assets or liabilities (contingent or
otherwise) of the Company, nor have we been furnished with any such appraisals.
We were not retained or requested to consider any strategic alternatives to the
Merger or to seek indications of interest from potential buyers in connection
with rendering an opinion nor have we done so. We have assumed that the final
form of the Merger Agreement will be substantially similar to the last draft
reviewed by us. Finally, our opinion is based on economic, monetary, currency
exchange, financial markets and other conditions as in effect on, and the
information made available to us as of, the date hereof. Accordingly, although
subsequent developments may affect this opinion, and except as specifically
provided below, we do not assume any obligation to update, revise or reaffirm
this opinion.
We have further assumed with your consent that the representations and
warranties of each party in the Merger Agreement are true and correct, that each
party to the Merger Agreement will perform all of the covenants and agreements
required to be performed by such party under the Merger Agreement, and that the
Merger will be consummated in accordance with the terms described in the Merger
Agreement, without any further amendments thereto, and without waiver by the
Company of any of the conditions to its obligations thereunder. We have also
assumed that in the course of obtaining the necessary regulatory or other
consents or approvals (contractual or otherwise) for the Merger, no
restrictions, amendments or modifications, will be imposed that will have a
material adverse effect on the contemplated benefits of the Merger.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Consideration to be received by the holders of Shares (other
than the Parent, the Management Group, any other members of management who have
agreed to invest in the Parent and their affiliates) pursuant to the Merger
Agreement is fair to such holders from a financial point of view.
C-2
<PAGE>
This opinion is directed to the Special Committee for use in connection with
its consideration of the Merger and is not a recommendation to any stockholder
as to how such stockholder should vote with respect to the Merger or otherwise.
This opinion is not a recommendation to any stockholder as to whether any
stockholder should tender Shares into the Tender Offer pursuant to the Merger
Agreement. Further, this opinion addresses only the financial fairness of the
Consideration to be received by the stockholders of the Company (other than the
Parent, the Management Group, any other members of management who have agreed to
invest in the Parent and their affiliates) as of the date hereof, and it does
not address any other aspect of the Merger including, without limitation, the
relative merits of the Merger, any alternatives to the Merger or the Company's
underlying business decision to proceed with or effect the Merger including the
benefits to be obtained from ongoing independent operations. This opinion may
not be used or referred to by the Company, or quoted or disclosed to any person
in any manner, without our prior written consent except that, if required by
law, this opinion may be quoted in its entirety without deletion or modification
in any materials to be presented to the shareholders of the Company in
connection with the Merger. In furnishing this opinion, we do not admit that we
are experts within the meaning of the term "experts" as used in the Securities
Act and the rules and regulations promulgated thereunder, nor do we admit that
this opinion constitutes a report or valuation within the meaning of Section 11
of the Securities Act.
Respectfully,
/s/ BATCHELDER & PARTNERS, INC.
BATCHELDER & PARTNERS, INC.
C-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
---------------------
<S> <C>
(a)(1)(K) Supplement to the Offer to Purchase dated November 29, 2000
(incorporated herein by reference to Exhibit (a)(1)(ix) to
Schedule TO filed by Purchaser with respect to the Company
on November 29, 2000.
(a)(1)(L)+ Supplement to Information Statement Pursuant to
Section 14(f) of the Securities Exchange Act of 1934 and
Rule 14f-1 thereunder (incorporated by reference herein and
attached hereto as Annex A).
(a)(5)(L)+ Text of Press Release, dated November 28, 2000.
(e)(4)+ Opinion of Batchelder & Partners, Inc., dated October 16,
2000 (incorporated by reference herein and attached hereto
as Annex C).
</TABLE>
------------------------
+ Filed herewith.
