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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(AMENDMENT NO. 1)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 2000
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 our 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 /_/
The aggregate market value of the voting stock held by non-affiliates
of the registrant was $94,700,000 as of October 13, 2000.
As of October 13, 2000 the registrant had 22,359,218 outstanding shares
of $1 par value common stock.
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SUNRISE MEDICAL INC.
FORM 10-K/A
For the Fiscal Year Ended June 30, 2000
INDEX
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...............2
ITEM 11. EXECUTIVE COMPENSATION...........................................4
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..16
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................17
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EXPLANATORY NOTES
This Amendment No. 1 on Form 10-K/A is being filed by Sunrise Medical Inc. as an
amendment to its Annual Report on Form 10-K for the fiscal year ended June 30,
2000 to amend and restate in its entirety Part III.
THIS AMENDMENT AND THE FORM 10-K AMENDED HEREBY DO NOT GIVE EFFECT TO THE MERGER
AGREEMENT AMONG THE COMPANY, V.S.M. INVESTORS, LLC, V.S.M. HOLDINGS, INC. AND
V.S.M ACQUISITION CORP. DATED OCTOBER 16, 2000, NOR THE TRANSACTIONS
CONTEMPLATED THEREBY AND THE EFFECTS THEREOF, INCLUDING, WITHOUT LIMITATION, THE
TENDER OFFER AND THE MERGER (COLLECTIVELY, THE "MERGER TRANSACTIONS").
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The following persons serve as members of the Board of Directors of Sunrise
Medical Inc.;
LEE A. AULT III
Age 64, Director since 1988
Mr. Ault has served as Chairman of the Board of IN-Q-Tel, Inc., an
information technology company since August 1999. He was Chief Executive
Officer from 1968 through January 1992 of Telecredit, Inc., a payment
services Company. In 1990 Telecredit, Inc. merged with Equifax, Inc., a New
York Stock Exchange ("NYSE") listed information services Company. He serves
on the board of directors of Equifax, Inc., Office Depot, Inc. (a NYSE listed
office supplies retailer), American Variable Insurance Series and Pacific
Crest Outward Bound School.
MICHAEL N. HAMMES
Age 58, Director since 1998
Mr. Hammes has served as the President and Chief Executive Officer of the
Company since January 2000. From 1998 to January 2000, Mr. Hammes served as the
Chairman of the Board and Chief Executive Officer of Guide Corporation, a
privately held Company which purchased the automotive lighting business of
General Motors. From October 1993 to February 1997, Mr. Hammes was Chairman of
the Board and Chief Executive Officer of The Coleman Company, Inc., a global
manufacturer and distributor of camping and outdoor recreational products and
hardware/home products. From 1990 to 1993, he was Vice Chairman of the Black &
Decker Corporation and President of its Power Tool and Home Products Group. From
1986 to 1990, Mr. Hammes was President of International Operations for Chrysler
Corporation and a Vice President of the Company. Mr. Hammes also served in a
number of positions for Ford Motor Company, with which he was affiliated for
over 20 years, including President of Mexican Operations and President of
European Truck Operations. Mr. Hammes is also a board member of
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Navistar Corporation, Johns Manville Corporation and the Board of Visitors of
Georgetown University's School of Business.
MURRAY H. HUTCHISON
Age 61, Director since 1983
Mr. Hutchison has served as Chairman of the Board since January 2000. He
served as Interim Chairman of the Board of Directors, Chief Executive Officer
and President from October 1999 to January 2000, following Richard H.
Chandler's resignation from those positions. From 1976 through 1996, Mr.
Hutchison was Chairman of the Board and from 1976 through 1994 also served as
Chief Executive Officer of International Technology Corporation, a NYSE
listed environmental management Company. Mr. Hutchison serves on the board of
directors of Epic Solutions, Olson Company, Senior Resource Group and
Huntington Hotel Corporation, all privately held companies, and Cadiz, Inc.
and Jack in the Box Inc., both publicly traded companies.
WILLIAM L. PIERPOINT
Age 62, Director since 1985
Mr. Pierpoint was President and Chief Executive Officer of Summit Health
Ltd., a publicly traded, integrated health care company from 1977 to 1988.
Mr. Pierpoint is a certified public accountant and since 1988 has been a
private investor. In 1995 he became Vice Chairman of Strategic Partners Inc.
(dba Cherokee Uniforms), a privately held company.
JOSEPH STEMLER
Age 69, Director since 1989
Mr. Stemler served as Chief Executive Officer and Chairman of the Board of
Directors of the Maret Corporation, a privately held company from 1997 to 1999.
He is a Director of the Scholle Corporation, a privately held company, and
served as its CEO and Chairman in 1996. From 1989 through 1996, Mr. Stemler
served as Chairman of the Board of La Jolla Pharmaceutical Company, a publicly
held biotechnology company and as its President and CEO from 1989 through 1995.
Mr. Stemler became President and Chief Executive Officer of Quidel Corporation
in 1985, Chairman and Chief Executive Officer in 1988, Chairman in 1990 and Vice
Chairman in 1991. Mr. Stemler was President and Chief Executive Officer of
Bentley Laboratories, Inc. from 1978 to 1985.
JOHN R. WOODHULL
Age 66, Director since 1986
Mr. Woodhull was Chairman, President and CEO, from 1969 through 1998, of
Logicon, Inc., then a NYSE listed company, which provided electronic systems and
high-technology services to industry and government. Mr. Woodhull is currently a
private investor. He serves on the board of directors of FirstFed Financial
Corp., a NYSE listed company, First Federal Bank of California, a subsidiary of
FirstFed Financial Corp., the Chief Executives Organization, and the YMCA of
Metropolitan Los Angeles.
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EXECUTIVE OFFICERS
Information regarding our executive officers is included under a separate
caption in Part I of the Annual Report on Form 10-K, to which this amendment is
a part.
Sunrise is not aware of any family relationships between any of its director or
any of its executive officers, or between any director and any executive
officer.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") requires the Company's directors, executive officers and any persons who
are beneficial owners of more than 10% of the common stock ("Reporting Persons")
to report their initial ownership of common stock and any subsequent changes in
that ownership to the Securities and Exchange Commission ("SEC"). The Exchange
Act specifies deadlines for filing of these reports with the SEC and also
requires the disclosure in this report of any failure to meet the filing
deadlines.
During fiscal 2000, the Company believes that all reports for the Company's
Reporting Persons were timely filed with the SEC, except that Messrs. Hammes and
Stemler each failed to timely file one Form 4 each reporting one transaction,
and Mr. Pierpoint failed to timely file two Forms 4, each reporting one
transaction.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the annual and
long-term compensation for services in all capacities to the Company for the
fiscal years ended June 30, 2000, July 2, 1999 and July 3, 1998 of those persons
who were either:
- Chief Executive Officer at any time during the last completed fiscal year;
or
- one of the Company's four other most highly compensated executive officers
as of the end of the last completed fiscal year whose annual salary and
bonuses exceeded $100,000; or
- up to two other executive officers who would have qualified under the
preceding clause but for the fact that the person was not serving as an
executive officer at June 30, 2000 (collectively, the "Named Officers").
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG -TERM
ANNUAL COMPENSATION COMPENSATION ALL
FISCAL STOCK OPTION OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS(2) GRANTS COMPENSATION(8)
--------------------------- ------ --------- -------- ------ ---------------
<S> <C> <C> <C> <C> <C>
Michael N. Hammes(3)
PRESIDENT AND CHIEF EXECUTIVE OFFICER 2000 $230,577 $137,500 1,000,000 $129,993(9)
Murray H. Hutchison(4)
FORMER PRESIDENT AND CHIEF EXECUTIVE
OFFICER 2000 202,500 0 10,000 0
Richard H. Chandler(5) 2000 212,337 0 25,000 4,483
FORMER PRESIDENT AND CHIEF EXECUTIVE 1999 506,634 0 75,000 43,542
OFFICER 1998 492,500 0 60,000 46,967
Thomas H. O'Donnell(6) 2000 381,540 150,000 10,000 2,948
CORPORATE SENIOR VICE PRESIDENT; 1999 318,076 0 30,000 26,554
PRESIDENT, NORTH AMERICA 1998 310,000 0 25,000 172,811
Ben Anderson-Ray 2000 312,210(10) 27,930 285,000 93,882
CORPORATE SENIOR VICE PRESIDENT; 1999 311,565 0 40,000 137,677
PRESIDENT, GLOBAL BUSINESS GROUP 1998 280,000 0 7,000 13,964
Raymond Huggenberger(7) 2000 187,841 168,259 280,000 7,681
CORPORATE SENIOR VICE PRESIDENT; 1999 166,647 57,099 15,000 8,088
PRESIDENT, EUROPEAN OPERATIONS; 1998 51,286 0 10,000 8,242
Ted N. Tarbet 2000 283,273 80,325 265,000 21,063
SENIOR VICE PRESIDENT AND CHIEF 1999 246,730 0 30,000 18,477
FINANCIAL OFFICER 1998 233,000 0 25,000 19,587
Steven A. Jaye
SENIOR VICE PRESIDENT; CHIEF 2000 267,887 80,325 265,000 19,517
ADMINISTRATIVE OFFICER; GENERAL COUNSEL; 1999 226,153 0 30,000 16,509
SECRETARY 1998 228,289 0 22,000 16,702
</TABLE>
(1) The amounts include compensation for accrued vacation.
(2) The amounts reflect the bonuses earned under the Management Incentive Bonus
Plan ("MIB") in the designated fiscal years, but paid in the following
fiscal year, except for Mr. Hammes, whose bonus provisions were
contractual.
(3) Mr. Hammes became President and Chief Executive Officer of the Company and
its subsidiaries on January 17, 2000. Compensation presented does not
include directors' fees paid and stock options granted to Mr. Hammes in his
capacity as a Non-employee Director of the Company prior to his employment
by the Company.
(4) 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 does
not include directors' fees paid and stock options granted to Mr. Hutchison
in his capacity as a Non-employee Director of the Company.
(5) Mr. Chandler resigned as an officer and director of the Company and its
subsidiaries on October 4, 1999. See "Certain Relationships and Related
Transactions".
(6) Mr. O'Donnell resigned from employment effective March 31, 2000. He was
subsequently rehired after the June 30, 2000 fiscal year end.
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(7) Mr. Huggenberger commenced employment on March 1, 1998.
(8) Includes amounts shown below allocated by the Company for the accounts of
the Named Officers in fiscal 2000. The Company has no defined benefit or
other actuarial plan covering the Named Officers.
<TABLE>
<CAPTION>
PROFIT SUPPLEMENTAL
SHARING/SAVINGS EXECUTIVE LIFE INSURANCE RELOCATION
NAME FISCAL YEAR PLAN RETIREMENT PLAN PREMIUMS EXPENSES
---- ----------- ---- --------------- -------- --------
<S> <C> <C> <C> <C> <C>
Michael N. Hammes.......... 2000 $0 $0 $0 $109,795
Murray H. Hutchison........ 2000 0 0 0 0
Richard H. Chandler........ 2000 400 0 4,083 0
1999 10,464 28,126 4,952 0
1998 10,584 31,814 4,569 0
Thomas H. O'Donnell........ 2000 400 0 2,548 0
1999 10,464 12,901 3,189 0
1998 10,584 14,693 2,953 144,581
Ben Anderson-Ray........... 2000 10,296 12,177 977 70,432
1999 10,464 12,209 1,055 113,949
1998 10,584 2,417 963 0
Raymond Huggenberger....... 2000 7,681 0 0 0
1999 8,088 0 0 0
1998 8,242 0 0 0
Ted N. Tarbet.............. 2000 10,296 9,929 839 0
1999 10,464 7,018 995 0
1998 10,584 8,128 875 0
Steven A. Jaye............. 2000 10,296 8,675 547 0
1999 10,464 5,348 697 0
1998 10,584 5,512 606 0
</TABLE>
(9) Also includes $20,198 reimbursement for legal expenses incurred in
connection with the negotiation of his compensation package. Does
not include $21,867 earned by Mr. Hammes in fiscal year 2000 in directors'
fees as a Non-employee Director prior to his appointment as Chief Executive
Officer and President in January 2000.
(10) This amount includes a tax reimbursement in fiscal year 2000 of $20,000.
OPTIONS GRANTED IN LAST FISCAL YEAR
The following table sets forth information concerning options granted under the
Company's option plans to the Named Officers during the 2000 fiscal year.
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OPTION/SAR GRANTS IN 2000 FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATE OF STOCK
PRICE APPRECIATION FOR OPTION
INDIVIDUAL GRANTS TERM (2)
PERCENT OF TOTAL EXERCISE
OPTIONS OPTIONS GRANTED OR BASE
GRANTED TO EMPLOYEES PRICE EXPIRATION
NAME (#) (1) IN FISCAL YEAR PER SHARE DATE 5% 10%
---- ------- -------------- --------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Michael N. Hammes.......... 1,000,000 26.67% $5.563 1/24/10 $3,395,920 $8,702,583
Murray H. Hutchison(3)..... 10,000 * 5.438 10/26/09 31,137 81,791
Richard H. Chandler........ 25,000 * 6.313 8/24/09 99,255 251,532
Thomas H. O'Donnell(4)..... 10,000 * 6.313 8/24/09(4) 0(4) 0(4)
Ben Anderson-Ray........... 275,000 7.33 4.188 3/1/10 724,298 1,835,514
10,000 * 6.313 8/24/09 39,702 100,613
Raymond Huggenberger....... 275,000 7.33 4.188 3/1/10 724,298 1,835,514
5,000 * 6.313 8/24/09 19,851 50,306
Ted N. Tarbet.............. 245,000 6.53 4.188 3/1/10 645,284 1,635,275
20,000 * 6.313 8/24/09 79,404 201,226
Steven A. Jaye............. 245,000 6.53 4.188 3/1/10 645,284 1,635,275
20,000 * 6.313 8/24/09 79,404 201,226
</TABLE>
----------
* Represents less than 1%
(1) Options grants specified above with expiration dates in 2009 were made
under the Company's 3rd Amended and Restated 1993 Stock Option Plan, and
vest 25% per year and automatically accelerate (except for the option grant
to Mr. O'Donnell) upon a change in control of the Company. Option grants
specified above with expiration dates in 2010 were made under the Company's
Year 2000 Non-Qualified Stock Option Plan, and as to Mr. Hammes' options,
under the Michael N. Hammes Stock Option Agreement (collectively, the "Year
2000 Options). The Year 2000 Options vest in three equal tranches (i) equal
time vesting over four years (1/12 of total grant each year); (ii)
performance vesting based on attainment of earnings per share targets
(subject to seven year cliff vesting) and (iii) performance vesting based
on attainment of stock price targets (subject to seven year cliff vesting).
The options specified under clauses (i) and (ii) automatically accelerate
upon a change of control and the options specified under clause (iii)
accelerate upon a change of control only if and to the extent the change in
control stock price exceeds the stock price targets.
(2) Potential realizable value is calculated as the aggregate difference
between the market price of the Common Stock and the option exercise price
assuming that the stock price appreciates at the annual rate shown
(compounded annually) from the date of grant until the end of the option
term. These amounts are calculated based on the requirements promulgated by
the SEC and are not an estimate of future stock price growth.
(3) Excludes 20,000 options ($4.188 exercise price) granted to Mr. Hutchison as
a Non-employee Director during fiscal year 2000.
(4) All of these options held by Mr. O'Donnell were cancelled in connection
with Mr. O'Donnell's termination of employment on March 31, 2000.
Mr. O'Donnell was subsequently rehired in fiscal year 2001. The original
expiration date was 8/24/09, although these options are no longer
outstanding as of 6/30/00. As a consequence of the cancellation, these
options have no Potential Realizable Value, as defined.
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AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information with respect to the Named Officers
concerning the exercise of options during fiscal year 2000 and unexercised
options held as of the end of fiscal year 2000.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 2000 AND JUNE 30, 2000 OPTION/SAR
VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
AT JUNE 30, 2000(1) AT JUNE 30, 2000(3)
SHARES
ACQUIRED ON VALUE
NAME EXERCISE REALIZED(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael N. Hammes......... 0 $ 0 4,000 1,000,000 $ 0 $ 0
Murray H. Hutchison....... 0 0 29,000 20,000 6,870 6,870
Richard H. Chandler....... 0 0 150,000 117,500 0 0
Thomas H. O'Donnell(4).... 6,000 11,238 0 0 0 0
Ben Anderson-Ray.......... 0 0 24,000 322,000 0 188,925
Raymond Huggenberger...... 0 0 8,750 296,250 0 188,925
Ted N. Tarbet............. 9,000 19,665 70,500 302,500 0 168,315
Steven A. Jaye............ 0 0 32,000 301,000 0 168,315
</TABLE>
(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.
(2) Based on the market value of the underlying shares on the exercise date
minus the option exercise price per share.
(3) Calculated on the basis of the fair market value of the underlying shares
as of June 30, 2000 ($4.875 per share) minus the exercise price.
(4) All options held by Mr. O'Donnell were cancelled in connection with Mr.
O'Donnell's termination of employment on March 31, 2000. Mr. O'Donnell was
subsequently rehired in fiscal year 2001.
LONG-TERM INCENTIVE PLAN
The Named Officers received no long-term incentive awards in fiscal years 1999
and 2000 that could be paid in fiscal years 2001 or 2002.
EMPLOYMENT AGREEMENTS
Each of Messrs. Hammes, Anderson-Ray, Huggenberger, Tarbet and Jaye are also
parties to offer letters which set forth the basic terms of the employment of
such person. In pertinent part, the offer letter of Mr. Hammes provides that (i)
his salary will be $550,000 per year, (ii) his fiscal year 2000 bonus for
meeting specified goals was set at 50% of annual salary, prorated to account for
the number of months worked in the fiscal year, (iii) the Company will reimburse
moving expenses, plus pay a tax gross-up thereon, (iv) the Company will
reimburse reasonable legal fees incurred in negotiating the employment package
and (v) the Company will indemnify Mr. Hammes up to $500,000 to the extent he is
not paid any salary, bonus, deferred
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compensation or other benefits owed to him by his former employer, subject to
certain conditions.
CHANGE IN CONTROL AGREEMENTS
The Company's executive officers, other than Mr. O'Donnell, are each a party
to a Change in Control Agreement (each a "CIC Agreement"). The Company has
four forms of CIC Agreements, Each CIC Agreement contains a double trigger.
First a Change in Control (as defined in the CIC Agreement) must have
occurred and second, the executive officer, following such a Change in
Control, must have been terminated by the Company other than for Cause (as
defined in the CIC Agreements) or resigned for Good Reason (as defined in the
CIC Agreements). The CIC Agreements of Messrs. Hammes, Jaye, Tarbet,
Anderson-Ray and Huggenberger include a provision that allows the employee to
terminate his employment for any or no reason during the 30-day period
commencing on the first anniversary of the date of the Change in Control
(which termination is deemed a termination for good cause) and receive the
full benefits under the CIC Agreement.
The payments due pursuant to a CIC Agreement are equal to a multiplier of the
sum of (i) the greater of the executive officer's annual salary in effect as
of the date of termination or immediately prior to the Change in Control,
plus (ii) the greater of the amount of executive officer's target bonus under
the Management Incentive Bonus Plan in effect for the fiscal year during
which the date of termination occurs or during the fiscal year during which
the Change in Control occurs (referred to herein as the "Maximum Annual
Compensation"). The following executive officers of the Company have a CIC
Agreement: Mr. Hammes has a Type A1 CIC Agreement which provides for a
severance payment of 3x the Maximum Annual Compensation; Messrs.
Anderson-Ray, Huggenberger, Jaye and Tarbet have a Type A CIC Agreement which
provides for a severance payment of 2x the Maximum Annual Compensation; and
Mr. Radak has a Type C CIC Agreement which provides that if the date of
termination occurs at any time during the first year following the Change in
Control, severance equals the Maximum Annual Compensation, plus an amount
determined by multiplying the Maximum Annual Compensation by a fraction, the
numerator of which is the number of days left in the year following the
termination and the denominator of which is 365 and if the termination occurs
at any time during the second year following the Change in Control, severance
equals the Maximum Annual Compensation. Terminated executive officers that
are a party to a CIC Agreement shall also receive the amount the Company
would have contributed to his 401(k) Plan account and health insurance
benefits throughout the payout period.
SEVERANCE AGREEMENTS
The Company has various severance agreements with each of its executive
officers. Under the agreements of Messrs. Hammes, Jaye, Tarbet, Anderson-Ray,
Huggenberger and Radak, in the event of (i) termination of employment by the
Company for reasons other than Cause (as defined in the CIC Agreement), or (ii)
resignation by the employee for Good Reason (as defined in the CIC Agreement,
plus relocation) the Company is to pay the executive:
- three years' base salary for Mr. Hammes, two years' base salary for Messrs.
Jaye, Tarbet, Anderson-Ray and Huggenberger, and 18 month's base salary for
Mr. Radak, at the then current annual rate (or prior rate if higher); plus
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- two times for Messrs. Jaye and Tarbet, and 18 months for Mr. Radak, of the
full amount of his target bonus, and the pro-rated amount of his target
bonus for Messrs. Hammes, Anderson-Ray and Huggenberger, under the MIB in
effect for the fiscal year in which the termination or resignation occurs;
plus
- continuation for three years for Mr. Hammes, two years for Messrs. Jaye,
Tarbet, Anderson-Ray and Huggenberger, and 18 months for Mr. Radak, of all
perquisites including health, life and disability insurance, benefit and
pension plan (401(k)) contributions and the like to which the employee
would have been entitled to but for employment ceasing; plus
- outplacement services or (at the employee's option) cash payment in lieu
thereof equal to 25% of annual compensation (salary for all, plus target
bonus for Messrs. Jaye, Tarbet and Radak); plus
- for Messrs. Jaye, Tarbet and Radak all stock options immediately vest in
full and the employee has an extended time period in which to exercise such
options (two years for Messrs. Jaye and Tarbet, one year for Mr. Radak).
In addition, Messrs. Anderson-Ray and Huggenberger have agreed to not compete
with the Company for a period of two years following a termination of employment
that qualifies for severance payments.
The Company also has an agreement with Mr. O'Donnell which provides that in the
event of termination of employment for any reason, Mr. O'Donnell will (upon
execution of a release) (a) become a part time consultant for 24 months at a
rate of $83,750 per year, (b) be provided with health benefits throughout the
consulting period, (c) receive a lump sum payment of one year's salary, and (d)
not compete with the Company during the 24 month consulting period.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Ault, Hutchison and Woodhull, with Mr. Ault serving as chair, are the
members of the Compensation Committee. Mr. Hutchison served as the interim
Chairman of the Board of Directors, Chief Executive Officer and President of
Sunrise Medical from October 4, 1999 to January 16, 2000. Mr. Hutchison was paid
a consulting fee of $50,000 per month during such period and was granted stock
options covering 10,000 shares (at an exercise price of $5.438 per share) for
such services.
DIRECTOR COMPENSATION
Non-employee directors are paid an annual retainer of $16,000 paid in monthly
installments (or upon the election of the Director, in stock options with a
25% gross-up) and $1,200 for each Board meeting attended ($600 if a Board
meeting is telephonic). The Chairman of the Board, Mr. Hutchison, receives in
addition to the compensation for Non-employee Directors, $30,000 per year
paid in monthly installments and $2,500 for each day over one day per month
for Chairman of the Board services performed on behalf of the Company. In
addition, committee members are paid $1,000 per meeting if attended in person
or $500 per meeting if a committee meeting is telephonic. Committee chairs
receive an additional $2,000 annual retainer paid in semi-annual
installments. For service on the Special Committee created on August 25,
2000, the Board of Directors determined that each member of the Special
Committee would receive, irrespective of whether any proposed transaction was
entered into or completed, $25,000 and per meeting compensation of $1,200 per
meeting for attendance in person and $500 per meeting for telephone
attendance.
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Generally, upon the first Board meeting of each calendar year, each
non-employee director is granted an option to purchase 14,000 shares of
Common Stock under the Company's 3rd Amended and Restated 1993 Stock Option
Plan. These options vest 50% on the date of grant and 50% on the first
anniversary of the grant. In fiscal year 2000, each of Messrs. Ault,
Hutchison, Pierpoint, Stemler and Woodhull received an option grant covering
20,000 shares (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.
See "Compensation Committee Interlocks and Insider Participation" for
Compensation paid to Mr. Hutchison for his services as Interim Chief Executive
Officer and President.
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee")
is responsible for establishing and overseeing the policies that govern Company
compensation and benefit practices. As part of these functions, the Committee
evaluates the performance of the Chief Executive Officer, reviews with senior
management the performance of other highly compensated officers, and determines
their respective compensation levels in terms of salary, bonuses and related
benefits. The Committee has established a number of objectives, which serve as
guidelines in making all compensation decisions, including:
- The integration of compensation programs with the Company's
strategic direction in order to achieve its long-term competitive
objectives and strategic intent;
- The reward of annual operating and financial performance through
individual and group bonus incentives that pay for improved
quantitative performance versus annual targets;
- The encouragement of consistent, long-term enhancement of
stockholder value by providing multi-year performance incentives
through a contingent long-term bonus plan and equity ownership
through stock options; and
- The development and implementation of a competitive total
compensation program that enables the Company to attract and
retain high-caliber Associates at all levels.
The Company's compensation philosophy rewards individual and team
performance on the basis of both quantitative and qualitative factors.
Associates at all levels participate in one or more of the Company's various
bonus plans. These plans were aimed broadly at different groups including
senior and middle managers, engineers, technical specialists, sales
Associates and hourly factory and office Associates.
The Committee believes that the components of executive compensation
should include base salary, annual and long-term incentive compensation, stock
option grants and other benefits described below. A brief summary of each
component follows.
11
<PAGE>
BASE SALARY
Base salaries are intended to be competitive with market rates and are
based on an internal evaluation of the responsibilities of each position. The
Committee reviews hiring and turnover patterns within the Company and relies
from time to time on outside industry surveys to assess salary competitiveness.
The companies included in such surveys are typically companies having revenues
and businesses similar to those of Sunrise and/or which draw from the same
geographic area. The composition of such companies is generally a peer group of
U.S. medical equipment manufacturers similar (but not identical) in composition
to the Peer Group Index shown on the stock performance chart included herein.
The Committee believes that total cash compensation for Company executives
should be targeted within the 25th to 75th percentile of executives at companies
having businesses and revenues comparable to those of Sunrise. Where executives
fall within a salary range will depend on their seniority and their performance.
The Committee's objective is to link executive compensation with the Company's
financial performance, while also reflecting competitive market factors.
Salary increases are based on annual supervisor reviews and are
intended to reflect individual as well as business unit performance, along with
the results of industry survey results. Annual increases for salaried Associates
are all awarded on the same day, the first Monday in September, so as to ensure
fairness across the Company and to incorporate both the previous fiscal year's
operating results and individual performances.
ANNUAL INCENTIVE COMPENSATION
The Company has used throughout its history a Management Incentive
Bonus Plan (the "MIB Plan") pursuant to which members of management are eligible
to receive annual cash bonuses. Generally, each bonus will be based on both the
achievement of individual objectives agreed upon by the manager and his or her
immediate supervisor, and upon the attainment of certain earnings targets. With
regard to the Company's performance, the primary measure used for determining
bonuses is the Company's earnings per share growth. An operating unit's
performance has historically been measured against goals for earnings growth
(after a capital charge on any cash drawn), and levels of return on net assets.
No bonus is paid at either the corporate or divisional level unless earnings
exceed a minimal accepted threshold. Earnings goals are approved annually by the
Board of Directors and are tied to the Company's operating plan. Even if a bonus
is earned based on profit performance, the executive must still have
accomplished his or her personal objectives for the year in order to qualify for
the designated amount. The fiscal 2000 payout that was earned under the MIB
Plan ranged from 5% to 100% of a manager's salary, depending upon his or her
position.
STOCK OPTIONS
Certain management Associates of the Company are eligible to receive
periodic grants of non-qualified or incentive stock options pursuant to the 3rd
Amended & Restated 1993 Stock Option Plan (the "1993 Plan") and the Year 2000
Non-Qualified Stock Option Plan. The Year 2000 Plan was adopted by the Company
in February 2000, and has a total reserve of 3,000,000 shares. The Committee
establishes the terms of options granted under these plans. Options that have
been granted to Associates under the 1993 Plan become exercisable in four equal
annual
12
<PAGE>
increments beginning on the first anniversary date of the grant. Options that
have been granted under the Year 2000 Plan to senior management were modeled
after the options granted to Mr. Hammes, including option vesting in three equal
tranches: (i) equal time vesting over four years (1/12 of total grant per year);
(ii) performance vesting based on attainment of earnings per share targets
(subject to seven year cliff vesting) and (iii) performance vesting based on
attainment of stock price targets (subject to seven year cliff vesting). The
option price under both plans, which is determined by the Committee, is
generally equal to 100% of the fair market value of the shares covered by the
option on the date of grant. Options are granted to certain management and
senior technology Associates and are intended to retain them and motivate them
to improve the Company's long-term stock market performance, aligning their
interests with those of stockholders. In determining the number of options to be
granted to an Associate, the Committee makes a subjective determination based on
a number of factors, including the individual's level and scope of
responsibility, job performance, and the overall competitiveness of his or her
compensation package compared to the outside industry surveys referenced above.
About 7% of the Company's Associates qualify for stock options each year. A
portion of the option grants under the Year 2000 Plan to Associates other than
senior management had four years vesting provisions.
401(K) PROFIT SHARING CONTRIBUTIONS
The Company contributes to a 401(k) Profit Sharing/Savings Plan (the
"401(k) Plan") in which all domestic Associates (except those under certain
collective bargaining agreements) may participate after satisfying the service
requirements of the Plan. Annual awards for Associates under the profit sharing
portion of the plan typically varies from 4% to 6% of compensation (subject to
the statutory limitations on compensation referenced in the following
paragraph), contingent upon attainment of certain earnings targets by the
Company as a whole in the case of corporate office Associates, or by the
division, in the case of division Associates. In addition to the basic profit
sharing contribution, the Company contributes between 8% and 11% of compensation
above $72,600 and below $160,000 (the current Internal Revenue Code ("IRC")
statutory maximum under the 401(k) Plan). The savings portion of the 401(k) Plan
provides that Associates may defer compensation (subject to statutory
limitations) and provides Associates with a Company matching contribution, which
matches their voluntary savings on a dollar-for-dollar basis up to a maximum of
$400. Associates employed outside the United States generally participate in
defined contribution plans which mirror the United States plan, to the extent
appropriate in view of local laws and practices.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ("SERP")
The SERP provides for Company discretionary retirement contributions to
a non-qualified plan for the benefit of Associates earning a base salary of
$140,000 and above. The SERP contributions are intended to replace funds that
are not contributed to the 401(k) Plan due to the IRC statutory limitation
referenced above. Discretionary contributions may range up to 11% of
compensation over $160,000 earned in a fiscal year. In addition, these
Executives may also voluntarily defer up to 25% of their MIB bonus each year
into the SERP.
The SERP is funded through a "rabbi" trust with American Express Trust
Co. as the trustee and represents a contractual obligation of the Company to
make payments (subject to
13
<PAGE>
certain vesting restrictions) to the covered Executives upon retirement,
termination, disability or death. In the unlikely case that Sunrise becomes
insolvent, the assets of the Trust will be held for the benefit of the Company's
general creditors.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Richard H. Chandler resigned as President and Chief Executive
Officer of the Company effective October 4, 1999. In August 1998, the Board
increased Mr. Chandler's base salary to $510,000, which remained in effect
until his resignation. During fiscal 2000, the Board awarded Mr. Chandler
non-qualified stock options to purchase 25,000 shares (at a price of $6.313
per share), and contributed $400 to his 401(k) account as a matching
contribution. The Company made no contribution to his SERP account. Mr.
Chandler did not receive an MIB Bonus accrual or pay-out for fiscal 2000.
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 life and accident
insurance through 2002. Additionally, upon a change in control, the Company
is obligated to pay compensation through the remainder of the agreement's
term, and Mr. Chandler's service obligation would cease.
Mr. Hammes was appointed as President and Chief Executive Officer of
the Company effective January 17, 2000. 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, reimbursement of moving expenses (plus tax
gross-up on such payments) and of reasonable legal fees incurred in
negotiating the package. In addition, the Company will indemnify Mr. Hammes to
the extent he is not paid any salary, bonus, deferred compensation or other
benefits owed to him by his former employer, subject to certain conditions. In
addition, we established the Michael N. Hammes Stock Option Agreement, pursuant
to which Mr. Hammes was granted options covering 1,000,000 shares, granted at
the fair market value on the date of grant. These options vest in three equal
tranches (i) equal time vesting over four years (1/12 of total grant per year);
(ii) performance vesting based on attainment of earnings per share targets
(subject to seven year cliff vesting) and (iii) performance vesting based on
attainment of stock price targets (subject to seven year cliff vesting). 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.
See "Compensation Committee Interlocks and Insider Participation" for
Compensation paid to Mr. Hutchison for his services as Interim Chief Executive
Officer and President.
LEE A. AULT III MURRAY H. HUTCHISON JOHN R. WOODHULL
CHAIRMAN
14
<PAGE>
STOCK PERFORMANCE CHART
The following graph shows a five-year comparison of cumulative total returns for
the Company, the S&P 500 Index and peer group of companies ("Peer Group")1
selected on a line-of-business basis. The companies included in the Peer Group
are durable medical equipment manufacturers like Sunrise. The graph assumes the
value of the investment in the Company's Common Stock and each Index was $100 at
June 30, 1995, and that all dividends were reinvested.
[GRAPHIC OMITTED[
--------------------------------------------------------------------------------
LEGEND
SYMBOL CRSP TOTAL RETURNS INDEX FOR:
____________________________ SUNRISE MEDICAL INC.
---------------------------- S&P 500 Stocks
- - - - - - - - - - - - -- - Self-Determined Peer Group
<TABLE>
<CAPTION>
06/1995 06/1996 06/1997 06/1998 06/1999 06/2000
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
100.0 61.8 48.6 48.2 22.9 15.7
100.0 126.1 169.9 221.7 272.0 292.2
100.0 126.4 142.1 105.7 97.9 104.5
</TABLE>
--------------------------------------------------------------------------------
----------
1 The companies used in the Peer Group consist of Invacare, Inc. (IVC);
Respironics, Inc. (RESP); and Graham-Field Health Products, Inc. (GRIH).
Everest & Jennings International Ltd. (EJ) was acquired by Graham-Field
Health Products, Inc. in the fourth quarter of 1996. Everest & Jennings
International Ltd. shareholders received .35 common shares of Graham-Field
Health Products, Inc. for each Everest & Jennings International Ltd. common
share owned. For purposes of the above graph, the return for Everest &
Jennings International Ltd. within the peer group for the period November
27, 1996 to June 30, 2000 was calculated with the return of Graham-Field
Health Products, Inc. at the conversion rate noted above.
15
<PAGE>
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE COMPANY'S
PREVIOUS FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, WHICH MIGHT INCORPORATE FUTURE FILINGS,
INCLUDING THIS PROXY STATEMENT, THE PRECEDING COMPENSATION COMMITTEE REPORT ON
EXECUTIVE COMPENSATION AND THE COMPANY STOCK PERFORMANCE GRAPH WILL NOT BE
INCORPORATED BY REFERENCE INTO ANY OF THOSE PRIOR FILINGS, NOR WILL SUCH REPORT
OR GRAPH BE INCORPORATED BY REFERENCE INTO ANY FUTURE FILINGS MADE BY THE
COMPANY UNDER THOSE STATUTES.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of October 13, 2000, the name and address,
the total number of shares of common stock beneficially owned (as defined in
Rule 13d-3 under the Exchange Act), and the percentage of the outstanding shares
of the common stock so owned by:
- each person who is known to the Company to own beneficially 5% or more
of the outstanding shares of common stock;
- each of the directors;
- each of the Named Officers; and
- all current directors and executive officers as a group.
On October 13, 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, ownership is stated as of
October 13, 2000. For each person all shares subject to options held by such
person that are exercisable within 60 days of October 13, 2000, plus all shares
held for the benefit of such person under the Company's Profit Sharing/Savings
Plan , are included in determining beneficial ownership and percentage ownership
for such person as if such shares were outstanding on October 13, 2000.
Except to the extend indicated in the footnotes to the following table, each of
the persons or entities listed has sole voting and sole investment power with
respect to the shares which are deemed beneficially owned by such person or
entity.
16
<PAGE>
<TABLE>
<CAPTION>
OPTIONS
SHARES OF EXERCISABLE TOTAL SHARES
COMMON WITHIN BENEFICIALLY PERCENT
NAME AND ADDRESS OF 5% BENEFICIAL OWNERS STOCK HELD(1) 60 DAYS OWNED OF CLASS
---------------------------------------- ------------- ------- ----- --------
<S> <C> <C> <C> <C>
State of Wisconsin/Wisconsin Investment Board...... 3,259,900 (2) 0 3,259,900 14.58%
121 E. Wilson St
Madison, WI 53702
ICM Asset Management............................... 2,623,351 (2) 0 2,623,351 11.73
601 W. Main Avenue, Suite #917
Spokane, WA 99201
Richard H. Chandler................................ 1,921,716 (3) 187,500 2,009,216 9.53
Freedom Scientific Inc.
2131 Palomar Airport Road, Suite 200
Carlsbad, CA 92009
Heartland Advisors................................. 1,907,400 (2) 1,907,400 8.53
789 N. Water
Milwaukee, WI 53202
Chancellor LGT Asset Management.................... 1,731,700 (2) 0 1,731,700 7.7
1166 Avenue of the Americas
New York, NY 10036
Dimensional Fund Advisor........................... 1,617,900 (2) 0 1,617,900 7.24
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
<CAPTION>
DIRECTORS AND NAMED OFFICERS
----------------------------------------------------
<S> <C> <C> <C> <C>
Lee A. Ault III.................................... 16,000 29,000 45,000 *
Michael Hammes..................................... 13,300 4,000 17,300 *
Murray H. Hutchison................................ 4,500 39,000 43,500 *
William L. Pierpoint............................... 143,220 21,500 164,720 *
Joseph Stemler..................................... 123,724 24,000 147,724 *
John R. Woodhull................................... 33,600 29,00 62,600 *
Thomas H. O'Donnell................................ 12,978 0 12,978 *
Ben Anderson-Ray................................... 15,509 41,750 57,259 *
Raymond Huggenberger .............................. 0 13,750 13,750 *
Ted N. Tarbet...................................... 41,572 80,000 121,572 *
Steven A. Jaye..................................... 30,362 46,875 77,237 *
ALL DIRECTORS & EXECUTIVE OFFICERS AS A GROUP
(12 PERSONS).................................. 434,765 328,875 763,640 3.48
</TABLE>
* Represents less than 1%
(1) Includes 9,155, 11,705, 6,778, 16,472, and 58,473 shares held for the
benefit of Messrs. Anderson-Ray, Jaye, O'Donnell, Tarbet and all current
directors and executive officers as a group, respectively, under the
Company's Profit Sharing/Savings Plan.
(2) Based upon holdings reported by the named institutions in filings with the
SEC on Forms 13D, 13F, and/or 13G, together with telephonic confirmation of
holdings (where possible).
(3) Includes 82,850 shares held in a non-profit foundation of which Mr.
Chandler and family members are directors, and as to which Mr. Chandler
disclaims beneficial ownership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CONSULTING ARRANGEMENT
On October 4, 1999, Richard H. Chandler resigned from his positions as Chairman,
President, Chief Executive Officer and director of Sunrise Medical. The Company
then entered into a
17
<PAGE>
consulting, resignation and general release agreement with Mr. Chandler which
provides that Mr. Chandler be hired as a consultant to the Company from October
5, 1999 through September 30, 2002 during which time Mr. Chandler (a) will
consult with and advise the Board of Directors, (b) will hold all Company
information confidential and (c) will not compete with the Company nor solicit
or hire any Company associate. As compensation, Mr. Chandler will receive a
total of $1,830,000, paid in future installments. In addition, Mr. Chandler's
stock options continue to vest until 90 days following September 30, 2000 unless
they expire by their own terms earlier), and Mr. Chandler is to receive health,
dental and vision insurance benefits through March 20008 and life and accident
insurance through September 30, 2002. Mr. Chandler beneficially holds
approximately 9.53% of the Company's outstanding securities.
See "Compensation Committee Interlocks and Insider Participation" for
Compensation paid to Mr. Hutchison for his services as Interim Chief Executive
Officer and President.
INDEBTEDNESS OF MANAGEMENT
Michael Hammes, the Chief Executive Officer and President of the Company, was
granted a loan on March 31, 2000 in the amount of $500,000 at a 6.875% annual
interest rate. Principal and interest must be repaid in full on the earlier of
the third anniversary of the secured Promissory Note, or within ninety (90) days
following the effective date of the termination or resignation of Mr. Hammes
from employment with the Company. 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.
Ben Anderson-Ray, the Senior Vice President, Operations; and Group President of
Continuing Care, was granted a loan on May 31, 2000 in the amount of $100,000 at
a 6.841% annual interest rate. Principal and interest must be repaid in full on
the earlier of the third anniversary of the secured Promissory Note, or within
ninety (90) days following the effective date of resignation of Mr. Anderson-Ray
from employment with the Company. No payments are due until such time.
18
<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 our
behalf by the undersigned, thereunto duly authorized.
SUNRISE MEDICAL INC.
BY: /s/ Michael N. Hammes
------------------------------------
Michael N. Hammes
Chief Executive Officer and Director
(Principal Executive Officer)
BY: /s/ Ted N. Tarbet
------------------------------------
Ted N. Tarbet
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
BY: /s/ Lee A. Ault III
------------------------------------
Lee A. Ault III
Director
BY: /s/ Murray H. Hutchison
------------------------------------
Murray H. Hutchison
Director
BY: /s/ William L. Pierpoint
------------------------------------
William L. Pierpoint
Director
BY: /s/ Joseph Stemler
------------------------------------
Joseph Stemler
Director
BY: /s/ John R. Woodhull
------------------------------------
John R. Woodhull
Director
Date: October 30, 2000
19
