<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
SUNRISE PRESCHOOLS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
SUNRISE PRESCHOOLS, INC.
9128 East San Salvador, Suite 200
Scottsdale, Arizona 85258
________________________________________________________________________________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 26, 1996
________________________________________________________________________________
To the Stockholders of Sunrise Preschools, Inc.:
The Annual Meeting of the stockholders of Sunrise Preschools, Inc., a
Delaware corporation (the "Company"), will be held at the offices of Arthur
Andersen LLP, Two North Central Avenue, Suite 1000, Phoenix, Arizona 85004, on
Friday, January 26, 1996, at 2:00 p.m. M.S.T. for the following purposes:
1. To elect one director to serve a three-year term;
2. To ratify the adoption of the Company's 1995 Stock Option Plan
under which 500,000 shares of the Company's Common Stock are
reserved for grants of stock options to employees;
3. To ratify the adoption of the Company's Non-Employee Directors
Stock Option Plan under which 100,000 shares of the Company's
Common Stock are reserved for grants of stock options to
non-employee directors of the Company; and
4. To transact such other business as may properly come before
the meeting or any adjournment thereof.
Stockholders of record at the close of business on November 29, 1995 (the
"Record Date") are entitled to vote at the meeting and at any adjournment or
postponement thereof. Shares can be voted at the meeting only if the holder is
present or represented by proxy. A list of stockholders entitled to vote at
the meeting will be available for inspection at the Company's corporate
headquarters for any purpose germane to the Annual Meeting during ordinary
business hours for ten (10) days prior to the meeting.
A copy of the Company's 1995 Annual Report to Stockholders, which includes
audited financial statements, is enclosed. Management and the Board of
Directors cordially invite you to attend the Annual Meeting.
By Order of the Board of Directors,
James R. Evans
President and Chief Executive Officer
Scottsdale, Arizona
December 26, 1995
IMPORTANT: IT IS IMPORTANT THAT YOUR SHAREHOLDINGS BE REPRESENTED AT THIS
MEETING. PLEASE COMPLETE, DATE, SIGN AND PROMPTLY MAIL THE ENCLOSED PROXY
CARD IN THE ACCOMPANYING ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE
UNITED STATES.
<PAGE> 3
SUNRISE PRESCHOOLS, INC.
________________________________________________________________________________
PROXY STATEMENT
________________________________________________________________________________
INFORMATION CONCERNING SOLICITATION AND VOTING
The accompanying proxy is solicited by the Board of Directors of
Sunrise Preschools, Inc., a Delaware corporation (the "Company"), for use at
the Annual Meeting of Stockholders to be held on January 26, 1996 (the "Annual
Meeting"), or any adjournment or postponement thereof, for the purposes set
forth herein and in the accompanying Notice of Annual Meeting of Stockholders.
This Proxy Statement and the accompanying form of proxy were mailed to all
stockholders entitled to vote at the Annual Meeting on or about December 26,
1995. The corporate offices of the Company are located at 9128 East San
Salvador, Suite 200, Scottsdale, Arizona 85258 and its telephone number at
that address is (602) 860-1611.
Only stockholders of record at the close of business on November 29,
1995 (the "Record Date") are entitled to notice of and to vote at the Annual
Meeting or any adjournment or postponement thereof. On the Record Date,
2,982,968 shares of Common Stock, $.01 par value, and 500,000 shares of Series
B Preferred Stock, $1.00 par value (the "Preferred Stock"), were issued and
outstanding. Each holder of Common Stock and Preferred Stock is entitled to
one vote, exercisable in person or by proxy, for each share of the Company's
Common Stock or Preferred Stock held of record on the Record Date.
The presence of a majority of the combined voting power of the Common
Stock and the Preferred Stock, in person or by proxy, is required to constitute
a quorum for the conduct of business at the Annual Meeting. Votes withheld
from any director are counted for purposes of determining the presence of a
quorum, but have no legal effect under Delaware law. Abstentions and broker
non-votes will also be included in the determination of the number of shares
represented for a quorum. At the Annual Meeting, the Company will appoint an
Inspector of Election to count all votes and ballots and make a written report
thereof.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of shares of
Common Stock and Preferred Stock of the Company on November 30, 1995 by each
director and executive officer, by all directors and executive officers as a
group and by all persons known by the Company to be the beneficial owners of
more than 5% of the Company's Common Stock and Preferred Stock on a combined
basis. Each share of Preferred Stock is convertible into one share of Common
Stock.
The percentage ownership information set forth in the right hand
column of the following table has been computed in accordance with Securities
and Exchange Commission ("SEC") guidelines as described in Note (3). In
accordance with such guidelines, the percentage ownership information shown for
Michael J. Connelly, LN Investment Capital Limited Partnership and Lepercq
Investment Limited Partnership - II reflects the outstanding voting power of
holders of Preferred Stock, which generally votes with the Common Stock on
matters submitted for stockholder vote.
<PAGE> 4
<TABLE>
<CAPTION>
Shares of Common and
Preferred Stock Beneficially Owned
--------------------------------------------------
Number of Shares Percent of
Name and Address Beneficially Held(1) Ownership(2)
---------------- ----------------------------- --------------------
<S> <C> <C>
James R. Evans 744,910 24.2%
9128 East San Salvador, Suite 200
Scottsdale, Arizona 85258
Barbara L. Owens 152,993 4.9%
9128 East San Salvador, Suite 200
Scottsdale, Arizona 85258
Ronald J. O'Connor 6,000 0.2%
9128 East San Salvador, Suite 200
Scottsdale, Arizona 85258
Ruby G. Kelly 17,500 0.6%
9128 East San Salvador, Suite 200
Scottsdale, Arizona 85258
Robert A. Rice 22,188 0.7%
c/o Prime Discount Securities, Inc.
559 Congress Street
Portland, Maine 04112
Dr. Richard H. Hinze 21,000 0.7%
215 F. River Trail
Morganton, North Carolina 28655
Michael J. Connelly(3) 1,088,055 31.2%
LN Investment Capital Limited Partnership(3) 633,817 19.6%
Lepercq Investment Limited Partnership - II(3) 454,238 14.2%
James Alexander 157,325 5.3%
P.O. Box 5583
Virginia Beach, Virginia 23455
John Rutkowski 165,563 5.6%
2828 North Central, Suite 1100
Phoenix, Arizona 85004
All directors and executive officers as a group (5 964,590 29.4%
persons)
[Footnotes on following page.]
</TABLE>
2
<PAGE> 5
(1) Includes presently exercisable options as follows: James R. Evans -
94,032; Barbara L Owens - 147,550; Robert A. Rice - 20,000; Dr.
Richard H. Hinze - 20,000; Ronald J. O'Connor - 5,000; Ruby G. Kelly -
10,000; and all directors and executive officers as a group - 296,582.
(2) The percentages shown include the shares of Common Stock actually
owned as of November 30, 1995, and the shares of Common Stock with
respect to which the person had the right to acquire beneficial
ownership within 60 days of such date pursuant to options and the
conversion of the Preferred Stock. All shares of Common Stock that
the identified person had the right to acquire within 60 days of
November 30, 1995 upon the exercise of options or the conversion of
the Preferred Stock, are deemed to be outstanding when computing the
percentage of the securities owned by such person, but are not deemed
to be outstanding when computing the percentage of the securities
owned by any other person.
(3) Michael J. Connelly does not directly own any shares of Common Stock
or Preferred Stock; however, Mr. Connelly is the managing general
partner of (i) LN Investment Capital Limited Partnership ("LNIC"),
which owns 342,367 shares of Common Stock and 291,450 shares of
Preferred Stock and (ii) Lepercq Investment Limited Partnership - II
("LIP-II"), which owns 245,688 shares of Common Stock and 208,550
shares of Preferred Stock. As a result, Mr. Connelly may be deemed to
have beneficial ownership of the securities beneficially owned by such
partnerships. Mr. Connelly disclaims beneficial ownership of such
securities. LNIC and LIP-II collectively own all of the issued and
outstanding Preferred Stock. The number of shares disclosed as
beneficially owned are amounts as reported in a Form 5 filed with the
SEC in September 1995 and a Form 4 filed with the SEC in October 1995.
The address of each of Mr. Connelly, LNIC and LIP-II is c/o Lepercq
Capital Management, Inc., 1675 Broadway, 16th Floor, New York, New
York 10019.
VOTING AND REVOCATION OF PROXIES
All valid proxies received before the Annual Meeting and not revoked
will be exercised. All shares represented by proxy will be voted, and where a
stockholder specifies by means of his or her proxy a choice with respect to any
matter to be acted upon, the shares will be voted in accordance with the
specifications so made. If no choice is indicated on the proxy, the shares
will be voted in accordance with the recommendations of the Board of Directors
as to such matters. Proxies may be revoked at any time prior to the time they
are voted by: (a) delivering to the Secretary of the Company a written
instrument of revocation bearing a date later than the date of the proxy; or
(b) duly executing and delivering to the Secretary a subsequent proxy relating
to the same shares; or (c) attending the meeting and voting in person.
SOLICITATION OF PROXIES
The cost of soliciting proxies, including the cost of preparing and
mailing the Notice and Proxy Statement, will be paid by the Company.
Solicitation will be primarily by mailing this Proxy Statement to all
stockholders entitled to vote at the meeting. Proxies may be solicited by
officers and directors of the Company personally or by telephone or facsimile,
without additional compensation. The Company may reimburse brokers, banks and
others holding shares in their names for others for the cost of forwarding
proxy materials and obtaining proxies from beneficial owners.
ELECTION OF DIRECTORS
The Board of Directors currently consists of four members and is
divided into three classes. One class of directors is elected each year to
serve for a term of three years. Each director serves until his successor has
been elected and qualified, or until his earlier resignation or removal. The
term of Dr. Richard H. Hinze expires at the Annual Meeting; the term of James
R. Evans expires in the following year; and the terms of Barbara L. Owens and
Robert A. Rice expire in two years. Under the Company's Bylaws, the number of
3
<PAGE> 6
directors may be increased to nine. The Company's Restated Certificate of
Incorporation, as amended, restricts the removal of directors under certain
circumstances.
Pursuant to an agreement between the Company and purchasers of the
Company's Preferred Stock, the Company has agreed to use its reasonable best
efforts to maintain a designee of the purchasers (the "Series B Designee") on
the Company's Board of Directors. As of November 30, 1995, there was no Series
B Designee on the Company's Board of Directors. However, the Company has
reserved a seat on the Board of Directors for a Series B Designee.
The Company has nominated Dr. Hinze to be re-elected at the Annual
Meeting. Unless otherwise instructed, the proxy holders will vote the proxies
received by them for Dr. Hinze. In the event that Dr. Hinze is unable or
declines to serve as director at the time of the Annual Meeting, the proxies
will be voted for any nominee who shall be designated by the Board of Directors
to fill the vacancy. It is not expected that Dr. Hinze will be unable or will
decline to serve as director. If elected, the term of office of Dr. Hinze will
continue until the third annual meeting of stockholders after election or until
his successor has been duly elected and qualified.
The Company's Bylaws provide that any stockholder entitled to vote in
an election of directors may nominate persons for election as directors only if
written notice of such stockholder's intent to make such nomination is given,
either by personal delivery or by United States mail, postage prepaid to the
Secretary, Sunrise Preschools, Inc., 9128 East San Salvador, Suite 200,
Scottsdale, Arizona 85258, not later than: (i) with respect to the election to
be held at an annual meeting of stockholders, thirty (30) days in advance of
such meeting, and (ii) with respect to any election to be held at a special
meeting of stockholders for the election of directors, the close of business on
the 10th day following the date on which notice of such meeting is first given
to stockholders. Each such notice must set forth: (a) the name and address of
the stockholder who intends to make the nomination and of the person or persons
to be nominated, (b) a representation that such stockholder is a holder of
record of stock of the Company entitled to vote at such meeting and intends to
appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice, (c) a description of all arrangements or
understandings between such persons specified in the notice, (d) a description
of all arrangements or understandings between such stockholder and each nominee
and any other person or persons (naming such person or persons) pursuant to
which the nomination or nominations are to be made by such stockholder, (e)
such other information regarding each nominee proposed by such stockholder as
would have been required to be included in a proxy statement filed pursuant to
the proxy rules of the SEC if such nominee had been nominated or intended to be
nominated by the Board of Directors and (f) the consent of each nominee to
serve as a director of the Company if elected. The chairman of a stockholder
meeting may refuse to acknowledge the nomination of any person not made in
compliance with the foregoing procedures.
The names of all directors and executive officers and certain
information about them, are set forth on the following page.
4
<PAGE> 7
<TABLE>
<CAPTION>
Name Age Positions With Company
---- --- ----------------------
<S> <C> <C>
James R. Evans 48 Chairman of the Board, President
Robert A. Rice 40 Director
Dr. Richard H. Hinze 74 Director
Barbara L. Owens 47 Director, Executive Vice President,
Secretary and Treasurer
Ruby G. Kelly 41 General Manager
Ronald J. O'Connor 37 Controller
</TABLE>
James R. Evans has been the President and a Director of the Company
since its inception. Prior to that time, Mr. Evans was an executive with
Smitty's Super Value, Inc., a large retail food and general merchandise chain.
During his twenty years at Smitty's Super Value, Inc., Mr. Evans was
responsible at various times for marketing strategy, designing store layouts,
development of financial models and budgets and store management. Mr. Evans is
a member of the Arizona Child Care Licensure Advisory Committee and has been a
national presenter at various child care conventions on diverse child care
topics.
Robert A. Rice has been a Director of the Company since October 1993.
Mr. Rice is a director of Firstmark Corp., which is listed for trading on
Nasdaq, and is a Vice-President of two subsidiaries of Firstmark Corp.,
Firstmark Investment Corp. and Firstmark Capital Corp. Firstmark Corp. and its
subsidiaries are engaged in financial services and real estate and timber
operations. Mr. Rice has been the President and Chairman of Prime Discount
Securities, Inc., a National Association of Securities Dealers registered
investment broker-dealer, since he founded the entity in 1983. Mr. Rice has
also been the President of Prime Securities Corp., an investment management
company, since he founded the entity in 1990. Mr. Rice is a general partner of
BR Partners, a partnership that owns and operates commercial and residential
real estate in Maine.
Dr. Richard H. Hinze has been a Director of the Company since August
1987. Since September 1984, Dr. Hinze has been the President and Chairman of
Flying H Enterprises, Inc., a family owned Hawaii corporation focusing on
consulting and development of child care programs for public and private
entities, which has been inactive since 1994. From 1972 until his retirement
in April 1987, Dr. Hinze was a researcher for the Curriculum Research and
Development Group at the University of Hawaii-Manoa studying gifted children
and early childhood education. He has also served from October 1985 through
April 1987 as the director for all campuses of the University of Hawaii Child
Care Project, where he developed a system for offering child care for students
and faculty. Dr. Hinze was also the treasurer of the National Association for
Education of Young Children from 1976 through 1980. Dr. Hinze has published
several articles in professional publications relating to child care and
education and received his Ed.D from Stanford University.
Barbara L. Owens was a consultant to the Company beginning in February
1987, and became a full-time employee, Vice President-Operations, in June 1987.
Ms. Owens became a Director in March 1988, Secretary in August 1988, Treasurer
in May 1989 and Executive Vice President in September 1989. Ms. Owens has
substantial experience in the child care industry, including employment for 13
years at Palo Alto Educational Systems, Inc., which had approximately 30 child
care centers in four states when it was sold to Gerber Children's Center, Inc.
in October 1984. Ms. Owens' positions at Palo Alto Educational Systems, Inc.
included President and Chief Operating Officer. After that time, Ms. Owens
provided child care consulting services to various organizations in the United
States. Ms. Owens currently serves on an editorial
5
<PAGE> 8
panel of the Child Care Information Exchange, a national child care
publication. Ms. Owens has also given presentations at various annual
conferences of the National Association of Early Childhood Professionals.
Ruby G. Kelly joined the Company as its General Manager in November
1995. From 1981 until joining the Company in 1995, Ms. Kelly was employed by
LaPetite Academy, one of the largest child care providers in the United States
with more than 800 child care centers located in 35 states. Ms. Kelly served
in various capacities at LaPetite Academy, including most recently as a
Divisional Director, a position in which she had responsibility for the
operations of more than 50 child care centers. Ms. Kelly is a member of the
National Association For the Education of Young Children (the "NAEYC") and
serves on a panel that evaluates child care centers to determine whether they
are eligible for the accreditation designation which is a nationally recognized
designation established by the NAEYC. Ms. Kelly is also an active member of
the Phoenix, Arizona chapter of the NAEYC and serves on its Public Policy
Committee. In addition, Ms. Kelly is on the Board of Directors of the
Colorado Child Care Association.
Ronald J. O'Connor joined the Company in September 1994 as the
Controller. From 1988 until joining the Company, Mr. O'Connor was the Deputy
City Controller for the City of Phoenix, Arizona. Prior to that time, Mr.
O'Connor was the Corporate Controller at El Pollo Asado, Inc. Mr. O'Connor has
also been an audit manager at Touche Ross & Co. (now DeLoitte & Touche, LLP)
and has been a Certified Public Accountant since 1981.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During fiscal 1995, the Board of Directors met eleven times. Each
director attended at least 75% of the meetings held during fiscal 1995,
including meetings of Committees of which each is a member. The Board of
Directors has a Compensation Committee but does not have an Audit Committee or
a Nominating Committee.
The Compensation Committee, which currently is comprised of Dr.
Richard H. Hinze and Robert A. Rice, is responsible for administering the
Company's stock option plans and addressing other executive compensation
matters. The Compensation Committee held two meetings in fiscal 1995.
EXECUTIVE COMPENSATION
The table on the following page summarizes all compensation paid to
the Company's President (the Chief Executive Officer of the Company) and to the
Company's other most highly compensated executive officer other than the
President whose total annual salary and bonus exceeded $100,000 (collectively,
the "Named Executive Officers"), for services rendered in all capacities to the
Company during the fiscal years ended July 31, 1995, 1994 and 1993.
6
<PAGE> 9
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
-----------------------------------
Annual Compensation Awards Payouts
----------------------------------- ----------------------- ---------
Other Restricted Securities
Name and Fiscal Annual Stock Underlying LTIP All Other
Principal Position Year Salary Bonus Compensation Award(s) Option(s) Payouts Compensation(1)
------------------ ------ --------- --------- ------------ ---------- ---------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James R. Evans 1995 $ 150,000 $ 65,151 $-0- $-0- 373,200 $-0- $-0-
Chairman of the
Board and 1994 $ 105,007 $ 53,494 $-0- $-0- -0- $-0- $-0-
President
1993 $ 105,007 $ 62,227 $-0- $-0- -0- $-0- $-0-
------------------ ------ --------- --------- ------------ ---------- ---------- ------- ---------------
Barbara L. Owens 1995 $ 85,000 $ 52,777 $-0- $-0- 135,858(2) $-0- $-0-
Executive Vice
President, 1994 $ 56,632 $ 62,792 $-0- $-0- $-0- $-0-
Secretary and -0-
Treasurer 1993 $ 56,632 $ 65,877 $-0- $-0- -0- $-0- $-0-
------------------ ------ --------- --------- ------------ ---------- ---------- ------- ---------------
</TABLE>
(1) See the discussion under the caption "EXECUTIVE COMPENSATION --
Employment Contracts" regarding certain other compensation the Named
Executive Officer may be entitled to upon certain specified events.
(2) Of the stock options granted to Ms. Owens, 75,858 were options that
were granted by the Company in 1995 to replace 84,558 options that
were granted to Ms. Owens in prior years and canceled in 1995. The
Board of Directors of the Company determined that the options that
were canceled no longer provided the intended incentives to Ms. Owens
because their exercise prices, which ranged from $1.38 to $2.00 per
share, exceeded the current market price for the Company's Common
Stock.
The following table sets forth certain information concerning
individual grants of stock options during the fiscal year ended July 31, 1995
to each of the Named Executive Officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Individual Grants
--------------------------------------------------------------------------------------
% of Total
Number of Securities Options/SARs
Underlying Granted To Exercise or
Option/SARs Employees Base Price Expiration
Name Granted (#) in Fiscal Year ($/Share) Date
- --------------------- -------------------------- --------------- ------------ ---------------
<S> <C> <C> <C> <C>
James R. Evans 363,200(1) 62% $1.5125 May 4, 2000
10,000 2% $1.00 December 31, 1997
- -----------------------------------------------------------------------------------------------------------------
Barbara L. Owens 125,858(2) 21% $1.375 May 4, 2005
10,000 2% $1.00 December 31, 1997
- -----------------------------------------------------------------------------------------------------------------
[Footnotes on following page.]
</TABLE>
7
<PAGE> 10
(1) A portion of the options granted to Mr. Evans were granted under the
Company's 1995 Stock Option Plan as incentive stock options, which
qualify for special treatment under United States tax laws. As
required by such tax laws, the options were granted at 110% of the
fair market value of the Company's Common Stock on the date of grant.
The 1995 Stock Option Plan has been approved by the Board of Directors
of the Company and will be submitted to the Company's Stockholders for
their ratification at the Annual Meeting as described in this Proxy
Statement. If the 1995 Stock Option Plan is not ratified by the
Company's stockholders at the Annual Meeting, the terms of Mr. Evans'
option grant provide that his incentive stock options may be
reclassified to non- statutory options in which case the option
exercise price will be reduced to the fair market value of the
Company's Common Stock on the date of grant, which was $1.375 per
share, and the term of such options will be extended from five years
to ten years.
(2) Of the stock options granted to Ms. Owens, 75,858 were options that
were granted by the Company in 1995 to replace 84,558 options that
were granted to Ms. Owens in prior years and canceled in 1995. The
Board of Directors of the Company determined that the options that
were canceled no longer provided the intended incentives to Ms. Owens
because their exercise prices, which ranged from $1.38 to $2.00 per
share, exceeded the current market price for the Company's Common
Stock.
The following table sets forth certain information concerning each
exercise of stock options during the year ended July 31, 1995 by each of the
Named Executive Officers and the aggregated fiscal year-end value of the
unexercised options of each such Named Executive Officer.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
OPTION VALUE AS OF JULY 31, 1995
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised Options In-the-Money
at Fiscal Year End (#) Options at Fiscal Year End ($)
---------------------------- ------------------------------
Shares
Acquired on Value
Name Exercise (#) Realized ($) Exercisable Unexerciseable Exercisable Unexerciseable
- ------------------- ------------ ------------ ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
James R. Evans -0- $-0- 94,032 290,473 $ 95,758 $250,533
- ------------------- ------------ ------------ ----------- -------------- ----------- --------------
Barbara L. Owens -0- $-0- 147,550 -0- $155,605 $-0-
- ------------------- ------------ ------------ ----------- -------------- ----------- --------------
</TABLE>
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company are entitled to receive
$500 per meeting attended. All Directors are reimbursed for their reasonable
out-of-pocket expenses incurred in connection with attendance at Board and
Committee meetings. Directors who are employees of the Company do not receive
compensation for service on the Board or Committees of the Board other than
their compensation as employees. Directors who are not employees of the
Company also participate in the Company's Non-Employee Directors Stock Option
Plan.
EMPLOYMENT CONTRACTS
On October 15, 1993, the Compensation Committee approved employment
agreements with James R. Evans for services as President and with Barbara L.
Owens for services as Executive Vice President, Secretary and Treasurer (Mr.
Evans and Ms. Owens are sometimes collectively referred to herein as the
"Employee"). These agreements were subsequently amended on September 16, 1994
and May 4, 1995.
8
<PAGE> 11
As amended, the agreements require Mr. Evans and Ms. Owens to devote their
full-time to the Company and provide for a base salary, currently $154,500 and
$87,550 per year, respectively, which is increased on August 1 of each year to
reflect increases in the National Consumer Price Index of the preceding year.
The Employee is entitled to receive bonuses in the discretion of the
Compensation Committee to be paid in accordance with Company bonus plans in
effect from time to time. Each of the agreements has a perpetual three-year
term, such that on any given date each agreement has a three-year remaining
term. The agreements may not be terminated unilaterally by the Company, except
for cause, which includes (i) conviction of a felony that impairs the ability
of the Employee to perform his or her duties with the Company or (ii) failure
of performance as determined by the Board. The agreements provide that the
salaries of Mr. Evans and Ms. Owens will be reviewed annually, but such
salaries may not be decreased.
Each of the agreements provides that if the Employee is terminated by
the Company other than for cause or disability, or by the Employee for good
reason (as defined in the agreements), the Company shall pay to the Employee
(i) his or her salary through the termination date plus any accrued but unpaid
bonuses, and (ii) a lump sum payment equal to the sum of three years of the
Employee's annual salary and an amount equal to all bonuses paid to the
Employee in the three years immediately preceding termination. In addition,
the Company must maintain until the first to occur of (i) the Employee's
attainment of alternative employment or (ii) three years from the date of
termination, the Employee's benefits under the Company's benefit plans to which
the Employee and his or her eligible beneficiaries were entitled immediately
prior to the date of termination. If the Employee requests, the Company must
also assign to the Employee any assignable insurance policy on the life of the
Employee owned by the Company at the end of the period of coverage. In
addition, all options or warrants to purchase Common Stock held by the Employee
on the date of termination become exercisable on the date of termination,
regardless of any vesting provisions, and remain exercisable for the longer of
one year from the date of termination or the then remaining unexpired term of
such warrants or options. If the Employee is terminated for cause or if the
Employee terminates his or her employment other than for good reason (as
defined in the agreement), the Company's only obligation is to pay the Employee
his or her base salary and accrued vacation pay through the date of
termination.
If the Employee is incapacitated due to physical or mental illness
during the term of his or her employment, the agreements provide that the
Company shall pay to the Employee a lump sum equal to two years of the
Employee's base compensation and all bonuses paid to the Employee in the two
years preceding the date of termination due to illness. If the Employee dies
during his or her employment, the only benefits payable to his or her estate
under the agreements are those payable pursuant to the Company's survivor's
benefits insurance and other applicable programs and plans then in effect.
If the Employee's employment is terminated, the Company has agreed to
indemnify the Employee for claims and expenses associated with certain personal
guarantees made by the Employee. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS." In addition, the Company has agreed to use its best efforts to
secure the release of such personal guarantees.
STOCK OPTION PLANS
1987 STOCK OPTION PLAN
The Company's Stock Option Plan (the "1987 Plan") was adopted by the
Board of Directors and approved by the stockholders in July 1987. Only
employees (including officers and directors, subject to certain limitations)
are eligible to receive options under the 1987 Plan, under which 240,000 shares
of Common Stock are authorized for issuance.
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The 1987 Plan provides for the granting to employees of either
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), or non-qualified stock options.
The 1987 Plan is administered by the Board of Directors of the Company, or a
committee of the Board, which determines the terms of options granted under the
1987 Plan, including the exercise price and the number of shares subject to the
option. Generally, the exercise price of options granted under the 1987 Plan
must be not less than the fair market value of the underlying shares on the
date of grant, and the term of each option may not exceed eleven years (ten
years in the case of incentive stock options). Incentive stock options granted
to persons who have voting control over 10% or more of the Company's capital
stock are granted at 110% of the fair market value of the underlying shares on
the date of grant and expire five years after the date of grant.
The 1987 Plan provides the Board of Directors with the discretion to
determine when options granted thereunder shall become exercisable. Generally,
such options may be exercised after a period of time specified by the Board of
Directors at any time prior to expiration, so long as the optionee remains
employed by the Company. No option granted under the 1987 Plan is transferable
by the optionee other than by will or the laws of descent and distribution, and
each option is exercisable during the lifetime of the optionee only by the
optionee.
As of November 30, 1995, options to purchase all of such shares were
issued and outstanding; such options have terms of five to ten years, with
exercise prices of $0.50 to $2.375 per share, which is generally the fair
market value of the underlying shares as of the date of grant. Options are
generally subject to a three or five-year vesting schedule.
1995 STOCK OPTION PLAN
In May 1995, the Company's Board of Directors approved the 1995 Stock
Option Plan pursuant to which 500,000 shares of Common Stock have been
authorized for issuance. At the Annual Meeting, the Board of Directors has
recommended that the Company's Stockholders ratify the 1995 Stock Option Plan.
For a discussion of the provisions of the 1995 Stock Option Plan, see "Adoption
of 1995 Stock Option Plan" (Proposal No. 1).
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
In May 1995, the Company's Board of Directors approved the
Non-Employee Directors Stock Option Plan pursuant to which 100,000 shares of
Common Stock have been authorized for issuance. At the Annual Meeting, the
Board of Directors has recommended that the Company's Stockholders ratify the
Non-Employee Directors Stock Option Plan. For a discussion of the provisions
of the Non-Employee Directors Stock Option Plan, see "Adoption of Non-Employee
Directors Stock Option Plan" (Proposal No. 2).
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 as amended, (the
"Exchange Act") requires the Company's officers and directors, and persons who
beneficially own more than 10% of a registered class of the Company's equity
securities, to file reports of ownership and changes in ownership with the SEC.
Officers, directors and greater than 10% stockholders are required by Exchange
Act regulations to furnish the Company with copies of all Section 16(a) forms
they file.
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Based solely on its review of the copies of such forms received by it,
or written representations from certain reporting persons that no Form 5 was
required for such persons, the Company believes that, other than as disclosed
below, during the fiscal year ending July 31, 1995, all filing requirements
applicable to its officers, directors and greater than 10% beneficial owners
were complied with.
Ronald J. O'Connor failed to report timely that he had become the
Company's Controller and Principal Accounting Officer on a Form 3. Mr.
O'Connor also reported the grant by the Company of options to acquire 5,000
shares of Common Stock and the acquisition of 1,000 shares of the Company's
Common Stock on a Form 3, rather than a Form 4. On November 10, 1995 Mr.
O'Connor filed an amended Form 3 reporting his appointment as the Company's
Controller and Principal Accounting Officer and a Form 4 reporting the
acquisition of options to acquire 5,000 shares of Common Stock and the
acquisition of 1,000 shares of Common Stock.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
James R. Evans and Barbara L. Owens have personally guaranteed various
child care facility lease payments and other obligations to third parties. As
of July 31, 1995 and 1994, the aggregate amounts of lease payments and other
obligations guaranteed by Mr. Evans were approximately $5,000,000 and
$5,500,000, respectively. The aggregate amount of lease payments and other
obligations by Ms. Owens were approximately $1,000,000 as of July 31, 1995 and
1994.
Both James R. Evans and Barbara L. Owens have employment agreements
with the Company. See "EXECUTIVE COMPENSATION -- Employment Contracts."
In early 1994, the Board of Directors approved the transfer to
Preschool Services, Inc., a Hawaii nonprofit corporation ("PSI") of a portion
of the Company's operations. Because of PSI's nonprofit status, PSI is
eligible to receive certain grants and subsidies. Pursuant to an agreement
with PSI (the "PSI Agreement"), the Company provides PSI with management,
administrative and operational services and educational programs.
Additionally, pursuant to the PSI Agreement, the Company leases to PSI all of
the equipment and other property necessary for the operation of PSI's child
care centers. Barbara L. Owens is the President and James R. Evans is the Vice
President of PSI. Dr. Richard Hinze, Mrs. Owens and Mr. Evans are directors of
PSI. No directors or officers of the Company are members of PSI and none of
them receive any compensation from PSI.
The PSI Agreement stipulates that the Company is to receive an
administrative services fee for providing the services described above. For
fiscal 1995 and 1994, the administrative fees totaled $42,000 and $25,000,
respectively. Pursuant to the PSI Agreement, the administrative fee equals 9%
of PSI's adjusted gross revenues each month, subject to certain limitations.
In addition, the Company receives lease payments of approximately $120,000
annually. During fiscal 1995, the Company agreed to defer future
administrative fees and lease payments due from PSI (which in the aggregate are
approximately $170,000 annually) until such time as PSI's cash flow is adequate
to fund these fees, which the Company estimates will occur no sooner than 1998.
In connection with this deferral, the accumulated amounts due from PSI at July
31, 1995 were converted to a promissory note equal to the present value of the
expected future payments to be received from PSI related to the balance of the
receivable outstanding at July 31, 1995, over a period of seven years. This
resulted in a reduction in the outstanding receivable balances through a charge
to the provision for bad debts of $176,500. The promissory note bears interest
at 8.0%, with monthly payments due beginning January 1998 through July 2002.
In addition, no administrative fees payable under the PSI Agreement were
recognized in the quarter ended October 31, 1995.
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<PAGE> 14
All transactions between the Company and its officers, directors,
principal stockholders, or other affiliates have been and will be on terms no
less favorable to the Company than could be obtained from unaffiliated third
parties on an arms-length basis and, in the future, will be approved by a
majority of the Company's disinterested directors.
RATIFICATION OF 1995 STOCK OPTION PLAN
(PROPOSAL NO. 1)
At the Annual Meeting, the Company will seek stockholder ratification
of the 1995 Stock Option Plan (the "1995 Plan") that authorizes the issuance of
up to 500,000 shares of Common Stock pursuant to option grants. The 1995 Plan
is intended to provide officers and other employees of the Company who, in the
opinion of the Board of Directors, are responsible for the continued growth,
development and financial success of the Company, with an incentive to actively
contribute to the Company's growth by enabling them to acquire a proprietary
interest in the Company. The Company's Board of Directors adopted the 1995
Plan in May 1995 and has directed that the 1995 Plan be submitted to the
stockholders of the Company for ratification at the Annual Meeting.
The 1995 Plan provides for the grant of options, which may be
non-qualified options, incentive stock options, or any combination of the
foregoing. In general, options granted under the 1995 Plan are not
transferable and expire eleven (11) years after the date of grant (ten years in
the case of incentive stock options). The per share exercise price of an
incentive stock option granted under the 1995 Plan may not be less than the
fair market value of the Common Stock on the date of grant. Incentive stock
options granted to persons who have voting control over 10% or more of the
Company's capital stock are granted at 110% of the fair market value of the
underlying shares on the date of grant and expire five years after the date of
grant. No option may be granted after May 2, 2005.
The 1995 Plan provides the Board of Directors with the discretion to
determine when options granted thereunder will become exercisable. Generally,
such options may be exercised after a period of time specified by the Board of
Directors at any time prior to expiration, so long as the optionee remains
employed by the Company. No option granted under the 1995 Plan is transferable
by the optionee other than by will or the laws of descent and distribution, and
each option is exercisable during the lifetime of the optionee only by the
optionee. A copy of the 1995 Plan is attached hereto as Exhibit "A".
At November 30, 1995, under the 1995 Plan, options to purchase 360,000
shares of Common Stock were issued and outstanding, with terms ranging from
five to ten years. The exercise prices of all such options range from $1.375
to $2.25 per share.
Adoption of the 1995 Plan requires the affirmative vote of a majority
of the shares of Common Stock and Preferred Stock present at the Annual Meeting
in person or by proxy.
RATIFICATION OF NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
(PROPOSAL NO. 2)
At the Annual Meeting, the Company will seek stockholder ratification
of a Non-Employee Directors Stock Option Plan (the "Directors Plan") that
authorizes the issuance of up to 100,000 shares of Common Stock pursuant to
option grants. The Directors Plan is intended to provide non-employee
directors with an incentive to actively direct and contribute to the Company's
growth by enabling them
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<PAGE> 15
to acquire a proprietary interest in the Company. The Company's Board of
Directors adopted the Directors Plan in May 1995, and has directed that the
Directors Plan be submitted to the stockholders of the Company for ratification
at the Annual Meeting.
On the date the Directors' Plan was adopted by the Company's Board of
Directors, each non-employee director was granted an option to acquire 10,000
shares of the Company's common stock. Each non-employee director who joins the
Board of Directors after the date the Company's Board of Directors approved the
Directors Plan will likewise receive an option to acquire 10,000 shares of the
Company's Common Stock. In addition to the foregoing option grants, each year
every non-employee director automatically receives an option to acquire 5,000
shares of the Company's Common Stock on the third business day following the
date the Company publicly announces its annual financial results; provided that
such director has attended at least 75% of the meetings of the Board of
Directors and of the Board Committees of which such non-employee director is a
member in the preceding fiscal year.
No option granted under the Directors Plan is transferable by the
optionee other than by will or the laws of descent and distribution, and each
option is exercisable during the lifetime of the optionee only by the optionee.
A copy of the Directors Plan is attached hereto as Exhibit "B".
As of November 30, 1995, options to purchase 30,000 shares of Common
Stock had been granted; such options have a term of six years with exercise
prices of $1.375 to $2.1875 per share, which was the fair market value of the
underlying shares on the date of grant. Except for options granted on the
effective date of the Directors' Plan, which are fully vested, all options
granted under the Directors' Plan will be subject to a one-year vesting
schedule. All options granted or to be granted under the Directors' Plan are
non-qualified stock options.
Adoption of the Directors Plan requires the affirmative vote of a
majority of the shares of Common Stock and Preferred Stock present at the
Annual Meeting in person or by proxy.
FEDERAL INCOME TAX CONSIDERATIONS
The discussion that follows is a summary, based upon current law, of
some of the significant federal income tax considerations relating to awards
under the 1995 Plan and the Directors Plan (collectively, the "Plans"). The
following discussion does not address state, local or foreign tax consequences.
A participant in the Plans, (a "Participant") will not recognize
taxable income upon the grant or exercise of an incentive stock option except
under certain circumstances when the exercise price is paid with already-owned
shares of Common Stock that were acquired through the previous exercise of an
incentive stock option. However, upon the exercise of an incentive stock
option, the excess of the fair market value of the shares received on the date
of exercise over the exercise price of the shares will be treated as a tax
preference item for purposes of the alternative minimum tax. In order for the
exercise of an incentive stock option to qualify for the foregoing tax
treatment, the Participant generally must be an employee of the Company from
the date the incentive stock option is granted through the date three months
before the date of exercise, except in the case of death or disability, where
special rules apply. The Company will not be entitled to any deduction with
respect to the grant or exercise of an incentive stock option.
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<PAGE> 16
If shares acquired upon exercise of an incentive stock option are not
disposed of by the Participant within two years from the date of grant or
within one year after the transfer of such shares to the Participant (the "ISO
Holding Period"), then (i) no amount will be reportable as ordinary income with
respect to such shares by the Participant or recipient and (ii) the Company
will not be allowed a deduction in connection with such incentive stock option
or the Common Stock acquired pursuant to the exercise of the incentive stock
option. If a sale of such Common Stock occurs after the ISO Holding Period has
expired, then any amount recognized in excess of the exercise price will be
reportable as a long-term capital gain, and any amount recognized below the
exercise price will be reportable as a long-term capital loss. The exact
amount of tax payable on a long-term capital gain will depend upon the tax
rates in effect at the time of the sale. The ability of a Participant to
utilize a long-term capital loss will depend upon the Participant's other tax
attributes and the statutory limitations on capital loss deductions not
discussed herein. To the extent that alternative minimum taxable income was
recognized on exercise of the incentive stock option, the basis in the Common
Stock acquired may be higher for determining a long-term capital gain or loss
for alternative minimum tax purposes.
A "disqualifying disposition" will result if Common Stock acquired
upon the exercise of an incentive stock option (except in the circumstances of
a decedent's incentive stock option as described below) is sold before the ISO
Holding Period has expired. In such case, at the time of a disqualifying
disposition (except in the case of a Participant subject to Section 16
restrictions of the Exchange Act, as noted below), the Participant will
recognize ordinary income in the amount of the difference between the exercise
price and the lesser of (i) the fair market value on the date of exercise or
(ii) the amount realized on disposition. If the amount realized on the sale is
less than the exercise price, then the Participant will recognize no ordinary
income, and the recognized loss will be reportable as a short-term capital
loss. The Participant will report as a short-term capital gain, as applicable,
any amount recognized in excess of the fair market value on the date of
exercise, and the Company will be allowed a deduction on its federal income tax
return in the year of the disqualifying disposition equal to the ordinary
income recognized by the Participant. To the extent that alternative minimum
taxable income was recognized on exercise of the incentive stock option, the
basis in the Common Stock acquired may be higher for determining a short-term
capital gain or loss for alternative minimum tax purposes.
The general rules discussed above are different if the Participant
disposes of the shares of Common Stock in a disqualifying disposition in which
a loss, if actually sustained, would not be recognized by the Participant.
Examples of these dispositions include gifts or sales to related parties such
as members of the Participant's family and corporations or entities in which
the Participant owns a majority equity interest. In such circumstances, the
Participant would recognize ordinary income equal to the difference between the
exercise price of the Common Stock and the fair market value of the Common
Stock on the date of exercise. The amount of ordinary income would not be
limited by the price at which the Common Stock was actually sold by the
Participant.
If the Participant retires or otherwise terminates employment with the
Company, other than by reason of death or permanent and total disability, an
incentive stock option must be exercised within three months of such
termination in order to be eligible for the tax treatment of the incentive
stock options described above, provided the ISO Holding Period requirements are
met. If a Participant terminates employment because of a permanent and total
disability, the incentive stock option will be eligible for such treatment if
it is exercised within one year of the date of termination of employment,
provided the ISO Holding Period requirements are met. In the event of a
Participant's death, the incentive stock option will be eligible for such
treatment if exercised by the Participant's legatees, personal representatives
or distributees within one year from the date of death, provided that the death
occurred while the Participant was employed, within three months of the date of
termination of employment or
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<PAGE> 17
within one year following the date of termination of employment because of
permanent and total disability.
In general, a Participant to whom a nonqualified option is granted
will recognize no taxable income at the time of the grant. Upon exercise of a
nonqualified option, the Participant will recognize ordinary income in an
amount equal to the amount by which the fair market value of the Common Stock
on the date of exercise exceeds the exercise price of the nonqualified option,
and the Company will generally be entitled to a deduction equal to the ordinary
income recognized by the Participant in the year the participant recognizes
ordinary income, subject to the limitations of Section 162(m) of the Code.
For purposes of the "alternative minimum tax" applicable to
individuals, the exercise of an incentive stock option is treated in the same
manner as the exercise of a nonqualified option. Thus, a Participant must, in
the year of option exercise, include the difference between the exercise price
and the fair market value of the stock on the date of exercise in alternative
minimum taxable income. The alternative minimum tax is imposed upon an
individual's alternative minimum taxable income currently, but only to the
extent that such tax exceeds the taxpayer's regular income tax liability for
the taxable year.
The Company is required to withhold certain income taxes from
Participants upon exercises of nonqualified options. The Company will be
entitled to a business expense deduction for both financial statement and
federal income tax purposes equal to the ordinary income recognized by the
Participant in the year the Participant recognizes ordinary income from the
exercise of nonqualified options.
In addition to the foregoing federal tax consequences, the exercise,
ultimate sale or other disposition of options by Participants will in most
cases be subject to state income taxation.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE IN FAVOR OF
RATIFICATION OF THE 1995 PLAN AND THE DIRECTORS PLAN.
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed Arthur Andersen LLP, independent
public accountants, to audit the consolidated financial statements of the
Company for fiscal 1996. Arthur Andersen LLP representatives are expected to
be present at the Annual Meeting and will have the opportunity to make a
statement if they desire to do so and are expected to be available to respond
to appropriate questions.
STOCKHOLDER PROPOSALS TO BE PRESENTED AT THE NEXT ANNUAL MEETING
Any stockholder proposals intended to be presented at the Company's
1996 annual meeting of stockholders must be received by the Company no later
than August 29, 1996, to be evaluated by the Board for inclusion in the proxy
statement for that meeting. Additionally, if a stockholder wishes to present
an item for consideration at the Annual Meeting to be held on January 26, 1996,
he or she must give notice of his or her intention to the Secretary of the
Company along with a brief description of the business he or she wishes to
discuss. To be considered timely for the Annual Meeting, such notice must be
received by the Company no later than 5:00 P.M. M.S.T. on January 9, 1996.
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OTHER BUSINESS
The Board of Directors is not aware of any other business to be
considered or acted upon at the Annual Meeting. If any other business properly
comes before the Annual Meeting, it is the intention of the persons named in
the enclosed proxy card to vote the shares they represent as the Board of
Directors may recommend.
1995 ANNUAL REPORT ON FORM 10-KSB
The Company files annual reports on Form 10-KSB with the SEC. A copy
of the annual report for the fiscal year ended July 31, 1995 (except for
certain exhibits thereto) may be obtained, free of charge, upon written request
by any stockholder to Sunrise Preschools, Inc., 9128 East San Salvador, Suite
200, Scottsdale, Arizona 85258, Attention: Stockholder Relations. Copies of
all exhibits to the annual report are available upon a similar request, subject
to payment of a $.15 per page charge to reimburse the Company for its expenses
in supplying any exhibit.
By Order of the Board of Directors,
James R. Evans
President and Chief Executive Officer
Scottsdale, Arizona
December 26, 1995
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EXHIBIT "A"
SUNRISE PRESCHOOLS, INC.
1995 STOCK OPTION PLAN
1. Purpose of the Plan. The purposes of this 1995 Stock Option
Plan are to attract and retain the best available personnel for positions of
substantial responsibility to provide successful management of the Company's
business, to provide additional incentive to certain key employees of the
Company, and to promote the success of the Company's business through the grant
of options to purchase shares of the Company's Common Stock.
Options granted hereunder may be either "Incentive Stock Options," as
defined in Section 422 of the Code, or "Non-Statutory Stock Options," at the
discretion of the Board and as reflected in the terms of the written option
agreement.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Board" shall mean the Board of Directors of the
Company or the Committee, if one has been appointed.
(b) "Code" shall mean the Internal Revenue Code of 1986,
as amended, and the rules and regulations promulgated thereunder.
(c) "Common Stock" shall mean the common stock of the
Company described in the Company's Certificate of Incorporation, as
amended.
(d) "Company" shall mean Sunrise Preschools, Inc., a
Delaware corporation, and shall include any parent or subsidiary
corporation of the Company as defined in Sections 424(e) and (f),
respectively, of the Code.
(e) "Committee" shall mean the Committee appointed by the
Board in accordance with paragraph (a) of Section 4 of the Plan, if
one is appointed.
(f) "Employee" shall mean any person, including officers
and directors, employed by the Company. The payment of a director's
fee by the Company shall not be sufficient to constitute "employment"
by the Company.
(g) "Exchange Act" shall mean the Securities and Exchange
Act of 1934, as amended.
(h) "Fair Market Value" shall mean, with respect to the
date a given Option is granted or exercised, the value of the Common
Stock determined by the Board in such manner as it may deem equitable
for Plan purposes but, in the case of an Incentive Stock Option, no
less than is required by applicable laws or regulations; provided,
however, that where there is a public market for the
<PAGE> 20
Common Stock, the Fair Market Value per Share shall be the mean of the
bid and asked prices of the Common Stock on the date of grant, as
reported in the Wall Street Journal (or, if not reported, as otherwise
reported by the National Association of Securities Dealers Automated
Quotation System) or, in the event the Common Stock is listed on the
New York Stock Exchange or the American Stock exchange, the Fair
Market Value per Share shall be the closing price on such exchange on
the date of grant of the Option, as reported in the Wall Street
Journal.
(i) "Incentive Stock Option" shall mean an Option which
is intended to qualify as an incentive stock option within the meaning
of Section 422 of the Code.
(j) "Option" shall mean a stock option granted under the
Plan.
(k) "Optioned Stock" shall mean the Common Stock
subject to an Option.
(l) "Optionee" shall mean an Employee of the Company who
has been granted one or more Options.
(m) "Parent" shall mean a "parent corporation," whether
now or hereafter existing, as defined in Section 424(e) of the Code.
(n) "Plan" shall mean this Stock Option Plan.
(o) "Share" shall mean a share of the Common Stock, as
adjusted in accordance with Section 11 of the Plan.
(p) "Subsidiary" shall mean a "subsidiary corporation,"
whether now or hereafter existing, as defined in Section 424(f) of the
Code.
(q) "Tax Date" shall mean the date an Optionee is
required to pay the Company an amount with respect to tax withholding
obligations in connection with the exercise of an option.
3. Common Stock Subject to the Plan. Subject to the provisions
of Section 11 of the Plan, the maximum aggregate number of shares which may be
optioned and sold under the Plan is 500,000 Shares of Common Stock. The Shares
may be authorized, but unissued, or previously issued Shares acquired or to be
acquired by the Company and held in treasury.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares covered by such
Option shall, unless the Plan shall have been terminated, be available for
future grants of Options.
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4. Administration of the Plan.
(a) Procedure.
(i) The Plan shall be administered by the Board
in accordance with Securities and Exchange Commission Rule
16b-3 ("Rule 16b-3"); provided, however, that the Board may
appoint a Committee to administer the Plan at any time or from
time to time and, provided further, that if members of the
Board are not "disinterested" within the meaning of Securities
and Exchange Commission Rule 16b-3, then any participation by
directors in the Plan must be administered by a Committee
appointed by the Board.
(ii) The Committee shall consist of at least two
(2) members of the Board, each of whom is "disinterested"
within the meaning of Securities and Exchange Commission Rule
16b-3 to administer the Plan on behalf of the Board, subject
to such terms and conditions as the Board may prescribe. Once
appointed, the Committee shall continue to serve until
otherwise directed by the Board. From time to time the Board
may increase the size of the Committee and appoint additional
members thereof, remove members (with or without cause), and
appoint new members in substitution therefor, fill vacancies
however caused, or remove all members of the Committee and
thereafter directly administer the Plan; provided, however,
that at no time may any director who is not "disinterested"
within the meaning of Securities and Exchange Commission Rule
16b-3 serve on the Committee nor shall a Committee of less
than two (2) members administer the Plan.
(b) Powers of the Board. Subject to the provisions of
the Plan, the Board shall have the authority, in its discretion: (i)
to grant Incentive Stock Options, in accordance with Section 422 of
the Code, and to grant "nonstatutory stock options;" (ii) to
determine, upon review of relevant information and in accordance with
Section 2 of the Plan, the Fair Market Value of the Common Stock;
(iii) to determine the exercise price per Share of Options to be
granted, which exercise price shall be determined in accordance with
Section 8(a) of the Plan; (iv) to determine the Employees to whom, and
the time or times at which Options shall be granted and the number of
shares to be represented by each Option; (v) to interpret the Plan;
(vi) to prescribe, amend and rescind rules and regulations relating to
the Plan; (vii) to determine the terms and provisions of each Option
granted (which need not be identical) and, with the consent of the
Optionee thereof, modify or amend each Option; (viii) to accelerate or
defer (with the consent of the Optionee) the exercise date of any
Option; (ix) to authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of an Option
previously granted by the Board; (x) to accept or reject the election
made by an Optionee pursuant to Section 17 of the Plan; and (xi) to
make all other determinations deemed necessary or advisable for the
administration of the Plan.
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(c) Effect of Board's Decision. All decisions,
determinations and interpretations of the Board shall be final and
binding on all Optionees and any other holders of any Options granted
under the Plan.
5. Eligibility.
(a) Consistent with the Plan's purposes, Options may be
granted only to key Employees of the Company as determined by the
Board. An Employee who has been granted an Option may, if he is
otherwise eligible, be granted an additional Option or Options.
Incentive Stock Options may be granted only to those Employees who
meet the requirements applicable under Section 422 of the Code.
(b) With respect to Incentive Stock Options granted under
the Plan, the aggregate fair market value (determined at the time the
Incentive Stock Option is granted) of the Common Stock with respect to
which Incentive Stock Options are exercisable for the first time by
the employee during any calendar year (under all plans of the Company
and its parent and subsidiary corporations) shall not exceed One
Hundred Thousand Dollars ($100,000).
The Plan shall not confer upon any Optionee any right with respect to
continuation of employment with the Company, nor shall it interfere in any way
with his right or the Company's right to terminate his employment at any time.
6. Effective Date. The Plan shall take effect on May 4, 1995,
the date on which the Board approved the Plan. No Option may be granted after
May 5, 2005 (ten (10) years from the effective date of the Plan); provided,
however, that the Plan and all outstanding Options shall remain in effect until
such Options have expired or until such Options are canceled. The Plan shall
be submitted for shareholder approval at the next meeting of shareholders of
the Company; provided, however, that failure to obtain such approval shall not
affect the effectiveness of the Plan.
7. Term of Option. Unless otherwise provided in the Stock Option
Agreement, the term of each Incentive Stock Option shall be ten (10) years from
the date of grant thereof. Unless otherwise provided in the Stock Option
Agreement, the term of each Option which is not an Incentive Stock Option shall
be eleven (11) years from the date of grant. Notwithstanding the above, in the
case of an Incentive Stock Option granted to an Employee who, at the time the
Incentive Stock Option is granted, owns ten percent (10%) or more of the Common
Stock as such amount is calculated under Section 422(b)(6) of the Code ("Ten
Percent Shareholder"), the term of the Incentive Stock Option shall be five (5)
years from the date of grant thereof or such shorter time as may be provided in
the Stock Option Agreement.
8. Exercise Price and Payment.
(a) Exercise Price. The per Share exercise price for the
Shares to be issued pursuant to exercise of an Option shall be
determined by the Board, but in the case of an Incentive Stock Option
shall be no less than one hundred percent
4
<PAGE> 23
(100%) of the Fair Market Value per Share on the date of grant;
provided, further, that in the case of an Incentive Stock Option
granted to an Employee who, at the time of the grant of such Incentive
Stock Option, is a Ten Percent Shareholder, the per Share exercise
price shall be no less than one hundred ten percent (110%) of the Fair
Market Value per Share on the date of grant. In no event may the
exercise price in the case of a nonstatutory stock option be less than
eighty-five (85%) of the Fair Market Value per share on the date of
grant.
(b) Payment. The price of an exercised Option and any
taxes attributable to the delivery of Common Stock under the Plan, or
portion thereof, shall be paid:
(i) In United States dollars in cash or by check,
bank draft or money order payable to the order of the Company;
or
(ii) At the discretion of the Board, through the
delivery of shares of Common Stock, with an aggregate Fair
Market Value, equal to the option price; or
(iii) By a combination of (i) and (ii) above.
The Board shall determine acceptable methods for tendering
Common Stock as payment upon exercise of an Option and may impose such
limitations and prohibitions on the use of Common Stock to exercise an
Option as it deems appropriate, with respect to nonstatutory options,
at the election of the Optionee pursuant to Section 17, the Company
may satisfy its withholding obligations by retaining such number of
shares of Common Stock subject to the exercised Option which have an
aggregate Fair Market value on the exercise date equal to the
Company's aggregate federal, state, local and foreign tax withholding
and FICA and FUTA obligations with respect to income generated by the
exercise of the Option by Optionee.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any
Option granted hereunder shall be exercisable at such times and under
such conditions as determined by the Board, including performance
criteria with respect to the Company and/or the Optionee, and as shall
be permissible under the terms of the Plan. Unless otherwise
determined by the Board at the time of grant, an Option may be
exercised in whole or in part. An Option may not be exercised for a
fraction of a Share.
An Option shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the
terms of the Option by the person entitled to exercise the Option and
full payment for the Shares with respect to which the Option is
exercised has been received by the Company. Full payment may, as
authorized by the Board, consist of any
5
<PAGE> 24
consideration and method of payment allowable under Section 8(b) of
the Plan. Until the issuance (as evidenced by the appropriate entry
on the books of the Company or of a duly authorized transfer agent of
the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a shareholder
shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock
certificate is issued, except as provided in Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be available, both for
purposes of the Plan and for sale under the Option by the number of
Shares as to which the Option is exercised.
Notwithstanding anything contained in this Plan to the
contrary, the Board may establish certain restrictions on the times at
which an Option may be exercised after a number of elapsed years
together with cumulative exercise rights and may retain certain rights
with respect to a fixed repurchase price for the Option Stock if the
Employee voluntarily terminates his employment with the Company within
a certain period of time after exercising the Option or whose
employment is involuntarily terminated for gross misconduct, fraud,
embezzlement, theft, breach of any fiduciary duty owed to the Company
or for nonperformance of duties.
(b) Termination of Status as an Employee. Unless
otherwise provided in an Option Agreement relating to an Option that
is not an Incentive Stock Option, if an Employee's employment by the
Company is terminated, except if such termination is voluntary or
occurs due to retirement with the consent of the Board, death or
disability, the Option, to the extent not exercised, shall cease on
the date on which Employee's employment by the Company is terminated.
If an Employee's termination is voluntary or occurs due to retirement
with the consent of the Board, then the Employee may, but only within
thirty (30) days (or such other period of time not exceeding three (3)
months as is determined by the Board) after the date he ceases to be
an Employee of the Company, exercise his Option to the extent that he
was entitled to exercise it at the date of such termination. To the
extent that he was not entitled to exercise the Option at the date of
such termination, or if he does not exercise such Option (which he was
entitled to exercise) within the time specified herein, the Option
shall terminate.
(c) Disability. Unless otherwise provided in an Option
Agreement relating to an Option that is not an Incentive Stock Option,
notwithstanding the provisions of Section 9(b) above, in the event an
Employee is unable to continue his employment with the Company as a
result of his permanent and total disability (as defined in Section
22(e)(3) of the Code), he may, but only within three (3) months (or
such other period of time not exceeding twelve (12) months as it is
determined by the Board) from the date of termination, exercise his
Option to the extent he was entitled to exercise it at the date of
such termination. To the extent
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<PAGE> 25
that he was not entitled to exercise the Option at the date of
termination, or if he does not exercise such Option (which he was
entitled to exercise) within the time specified herein, the Option
shall terminate.
(d) Death of Optionee. Unless otherwise provided in an
Option Agreement relating to an Option that is not an Incentive Stock
Option, if Optionee dies during the term of the Option and is at the
time of his death an Employee of the Company who shall have been in
continuous status as an Employee since the date of grant of the
Option, the Option may be exercised at any time within one (1) year
following the date of death (or such other period of time as is
determined by the Board), by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance,
but only to the extent that Optionee was entitled to exercise the
Option on the date of death. To the extent that decedent was not
entitled to exercise the Option on the date of death, or if the
Optionee's estate, or person who acquired the right to exercise the
Option by bequest or inheritance, does not exercise such Option (which
he was entitled to exercise) within the time specified herein, the
Option shall terminate.
10. Non-Transferability of Option. An Option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner
other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee.
11. Adjustments Upon Changes in Capitalization or Merger. Subject
to any required action by the shareholders of the Company, the number of shares
of Common Stock covered by each outstanding Option, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellations or expiration of an Option, as well as the price per share
of Common Stock covered by each such outstanding Option, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the common stock, or any other
increase or decrease in the number of issued shares of Common Stock effected
without receipt of consideration by the Company; provided, however, that
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration." Such adjustment shall be
made by the Board, whose determination in that respect shall be final, binding
and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class shall affect, and no adjustment by reason thereof, shall
be made with respect to the number or price of shares of Common Stock subject
to an Option.
In the event of the proposed dissolution or liquidation of the
Company, the Option will terminate immediately prior to the consummation of
such proposed action, unless otherwise provided by the Board. The Board may,
in the exercise of its sole discretion in such instances, declare that any
Option shall terminate as of a date fixed by the Board and give each Optionee
the right to exercise his Option as to all or any part of the Optioned Stock,
including Shares as to which the Option would not otherwise be exercisable. In
the event of a proposed sale of all
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<PAGE> 26
or substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, the Option shall be assumed or an equivalent
option shall be substituted by such successor corporation or a parent or
subsidiary of such successor corporation, unless the Board determines, in the
exercise of its sole discretion and in lieu of such assumption or substitution,
that the Optionee shall have the right to exercise the Option as to all of the
Optioned Stock, including Shares as to which the Option would not otherwise be
exercisable. If the Board makes an Option fully exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the
Board shall notify the Optionee that the Option shall be fully exercisable for
a period of thirty (30) days from the date of such notice (but not later than
the expiration of the term of the Option under the Option Agreement), and the
Option will terminate upon the expiration of such period.
12. Time of Granting Options. The date of grant of an Option
shall, for all purposes, be the date on which the Board makes the determination
granting such Option. Notice of the determination shall be given to each
Employee to whom an Option is so granted within a reasonable time after the
date of such grant.
13. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may amend or
terminate the Plan from time to time in such respect as the Board may
deem advisable; provided, however, that the following revisions or
amendments shall require approval of the holder of a majority of the
outstanding Shares of the Company entitled to vote:
(i) Any increase in the number of Shares subject
to the Plan, other than in connection with an adjustment under
Section 11 of the Plan;
(ii) Any change in the designation of the class of
employees eligible to be granted Options; or
(iii) If the Company has a class of equity security
registered under Section 12 of the Exchange Act at the time of
such revision or amendment, any material increase in the
benefits accruing to participants under the Plan.
(b) Effect of Amendment or Termination. Any such
amendment or termination of the Plan shall not affect Options already
granted and such Options shall remain in full force and effect as if
this Plan had not been amended or terminated, unless mutually agreed
otherwise between the Optionee and the Board, which agreement must be
in writing and signed by the Optionee and the Company.
14. Conditions Upon Issuance of Shares. Shares shall not be
issued pursuant to the exercise of an Optionee unless the exercise of such
Option and the issuance and delivery of such Shares pursuant thereto shall
comply with all relevant provisions of law, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
8
<PAGE> 27
promulgated thereunder, and the requirements of any stock exchange upon which
the Share may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
In the case of an Incentive Stock Option, any Optionee who disposes of
Shares of Common Stock acquired on the exercise of an Option by sale or
exchange (a) either within two (2) years after the date of the grant of the
Option under which the Common Stock was acquired or (b) within one (1) year
after the acquisition of such Shares of Common Stock shall notify the Company
of such disposition and of the amount realized upon such disposition.
15. Reservation of Shares. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
16. Option Agreement. Options shall be evidenced by written
option agreement in such form as the Board shall approve.
17. Withholding Taxes. Subject to Section 4(b)(x) of the Plan and
prior to the Tax Date, the Optionee may make an irrevocable election to have
the Company withhold from those Shares that would otherwise be received upon
the exercise of any nonstatutory stock option, a number of Shares having a Fair
Market Value equal to the minimum amount necessary to satisfy the Company's
federal, state, local and foreign tax withholding obligations and FICA and FUTA
obligations with respect to the exercise of such Option by the Optionee.
An Optionee who is also an officer of the Company must make the
above-described election:
(a) at least six months after the date of grant of the
Option (except in the event of death or disability); and
(b) either:
(i) six months prior to the Tax Date, or
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<PAGE> 28
(ii) prior to the Tax Date and during the period
beginning on the third business day following the date of the
Company releases its quarterly or annual statement of sales
and earnings and ending on the twelfth business day following
such date.
18. Miscellaneous Provisions.
(a) Plan Expenses. Any expenses of administering this
Plan shall be borne by the Company.
(b) Use of Exercise Proceeds. The payment received from
Optionees from the exercise of Options shall be used for the general
corporate purposes of the Company.
(c) Construction of Plan. The place of administration of
the Plan shall be in the State of Arizona, and the validity,
construction, interpretation, administration and effect of the Plan
and of its rules and regulations, and rights relating to the Plan,
shall be determined in accordance with the laws of the State of
Arizona and where applicable, in the State of Delaware and in
accordance with the Code.
(d) Taxes. The Company shall be entitled if necessary or
desirable to pay or withhold the amount of any tax attributable to the
delivery of Common Stock under the Plan from other amounts payable to
the Employee after giving the person entitled to receive such Common
Stock notice as far in advance as practical, and the Company may defer
making delivery of such Common Stock if any such tax may be pending
unless and until indemnified to its satisfaction.
(e) Indemnification. In addition to such other rights of
indemnification as they may have as members of the Board, the members
of the Board shall be indemnified by the Company against all costs and
expenses reasonably incurred by them in connection with any action,
suit or proceeding to which they or any of them may be a party by
reason of any action taken or failure to act under or in connection
with the Plan or any Option, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by
independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding,
except a judgment based upon a finding of bad faith; provided that
upon the institution of any such action, suit or proceeding a Board
member shall, in writing give the Company notice thereof and an
opportunity, at its own expense, to handle and defend the same before
such Board member undertakes to handle and defend it on her or his own
behalf.
(f) Gender. For purposes of this Plan, words used in the
masculine gender shall include the feminine and neuter, and the
singular shall include the plural and vice versa, as appropriate.
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<PAGE> 29
EXHIBIT "B"
SUNRISE PRESCHOOLS, INC.
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Plan are to
attract and retain the best available individuals to serve as non-employee
members of the Board of Directors of the Company, to reward such directors for
their contributions to the profitable growth of the Company, and to maximize
the identity of interest between such directors and stockholders generally.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Board" shall mean the Board of Directors of the
Company.
(b) "Company" shall mean Sunrise Preschools, Inc., a
Delawre corporation.
(c) "Effective Date" shall be the date that the Board of
Directors of the Company adopts this Plan.
(d) "Eligible Director" shall mean (i) those individuals
who are serving as non-employee members of the Board on the Effective
Date, or (ii) those individuals who are elected or appointed as
non-employee members of the Board after the Effective Date, whether
through appointment by the Board or election of the Company's
stockholders.
(e) "Exercise Price" shall mean, with respect to Shares
of Optioned Stock, the Fair Market Value of such Shares on the date of
grant of the Option.
(f) "Fair Market Value" shall mean, with respect to the
date a given Option is granted or exercised, the value of the Common
Stock determined by the Board in such manner as it may deem equitable
for Plan purposes; provided, however, that where there is a public
market for the Common Stock, the Fair Market Value per Share shall be
the mean of the bid and asked prices of the Common Stock on the date
of grant, as reported in the Wall Street Journal (or, if not reported,
as otherwise reported by the National Association of Securities
Dealers Automated Quotation System) or, in the event the Common Stock
is listed on the New York Stock Exchange or the American Stock
exchange, the Fair Market Value per Share shall be the closing price
on such exchange on the date of grant of the Option, as reported in
the Wall Street Journal.
<PAGE> 30
(g) "Option" shall mean a right to purchase Stock,
granted pursuant to the Plan.
(h) "Optioned Stock" shall mean the Stock subject to an
Option.
(i) "Optionee" shall mean a non-employee director of the
Company who has been granted an Option.
(j) "Plan" shall mean this Non-Employee Directors Stock
Option Plan.
(k) "Share" shall mean a share of the Stock.
(l) "Stock" shall mean the Common Stock of the Company
described in the Certificate of Incorporation of the Company.
(m) "Stock Option Agreement" shall mean the written
agreement evidencing the grant of an Option.
(n) "Trading Day" shall mean a day on which the Fair
Market Value of the Stock can be determined.
3. Common Stock Subject to the Plan. Subject to increases and
adjustments pursuant to Section 9 of the Plan, the number of Shares reserved
and available for distribution under the Plan shall be one hundred thousand
(100,000). If an Option shall expire or become unexercisable for any reason
without having been exercised in full, the unauthorized Shares covered by the
Option shall, unless the Plan shall have terminated, be available for future
grants of Options.
4. Option Grants.
(a) On the Effective Date, each Eligible Director shall
be granted an Option to purchase 10,000 shares of Stock.
(b) Each individual who first becomes an Eligible
Director after the Effective Date, whether through election by the
stockholders or appointment of the Board, shall automatically be
granted at the time of such initial election or appointment, an Option
to purchase 10,000 shares of Stock.
(c) On the third business day after the announcement by
the Company of its annual financial results each year (the "Annual
Grant Date"), beginning with the date of such announcement in 1995,
each individual who is at that time an Eligible Director shall
automatically be granted an Option under the Plan to purchase an
additional 5,000 shares of Stock; provided such individual (i) has
attended 75% of the meetings of the Board held during the 12-month
period
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<PAGE> 31
immediately preceding the Annual Grant Date, or (ii) if such
individual was appointed or elected as a director during such 12-month
period, he or she has attended 75% of the meetings of the Board held
during his of her term as a director, and (iii) has attended 75% of
the meetings of any Committee of the Board to which such individual
has been appointed as a member during such 12-month period.
(d) The purchase price of Shares subject to an Option
shall be the Fair Market Value on the date of grant.
(e) Each Option granted on the Effective Date, as set
forth in (a) above, shall be fully vested and immediately exercisable.
Each Option granted after the Effective Date, as set forth in (b) and
(c) above, shall vest one year after the date of grant, provided that
the Optionee remains an Eligible Director at such vesting date.
5. Stockholder Approval. This Plan was adopted by the Board of
Directors of the Company on May 30, 1995 (the "Effective Date"). Options may
be granted under the Plan on and after the Effective Date. The Plan shall be
submitted for stockholder approval at the next annual or special meeting of
stockholders. However, the failure to obtain such approval shall not affect
the effectiveness of the Plan. No Option may be granted after the expiration
of 10 years from the effective date of the Plan; provided, however, that the
Plan and all outstanding Options shall remain in effect until such Options
shall have been exercised, shall have expired or shall otherwise be terminated.
6. Term; Exercise; Rights as a Stockholder.
(a) The term of each Option shall be six (6) years from
the date of grant thereof. The Option may be exercised in whole or in
part at any time after vesting and during the term of the Option. No
fractional Shares will be issued upon exercise of the Option and, if
the exercise results in a fractional interest, an amount will be paid
in cash equal to the value of such fractional interest based on the
Fair Market Value of the Shares on the date of exercise.
(b) An Option shall be deemed to be exercised upon
receipt by the Company from the Optionee of written notice of such
exercise. Such notice shall be accompanied by full payment for the
Shares subject to such exercise.
7. Payment. The Exercise Price shall be paid:
(a) In United States dollars in cash or by check payable
to the order of the Company; or
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<PAGE> 32
(b) Subject to the approval of the Board, by delivery of
Shares with an aggregate Fair Market Value equal to the Exercise
Price; or
(c) By any combination of (a) and (b) above.
The Board shall determine acceptable methods for tendering
Stock as payment upon exercise of an Option and may impose such limitations and
prohibitions on the use of Stock to exercise an Option as it deems appropriate.
8. Transferability of Options. The Option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner
other than by will or by the laws of descent and distribution to the limited
extent provided herein or pursuant to a "qualified domestic relations order" as
defined by the Internal Revenue Code or the Employee Retirement Income Security
Act or the rules thereunder. Except as permitted herein, an Option may be
exercised, during the lifetime of the Optionee, only by the Optionee or by his
guardian or legal representative.
In the event of the Optionee's death, his or her Option shall
be exercisable, prior to the expiration of the Option, by the person or persons
to whom his or her accrued and vested rights pass by will or by the laws of
descent and distribution.
9. Adjustments Upon Changes in Capitalization or Merger. Subject
to any required action by the stockholders of the Company, the number of Shares
covered by each outstanding Option, and the number of Shares which have been
authorized for issuance under the Plan but as to which no Options have yet been
granted or which have been returned to the Plan upon cancellation or expiration
of an Option, as well as the price per Share covered by each such outstanding
Option, shall be proportionately adjusted for any increase or decrease in the
number of issued Shares resulting from a stock split, reverse stock split,
consolidation, subdivision, stock dividend, combination or reclassification of
the Shares, or any other increase or decrease in the number of issued Shares
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be
deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein,
no issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made, with respect to the number or price of Shares
subject to an Option.
In the event of the proposed dissolution or liquidation of the
Company, all Options will terminate immediately prior to the consummation of
such proposed action, unless otherwise provided by the Board. The Board may,
in the exercise of its sole discretion in such instances, declare that any
Option shall terminate as of a date fixed by the Board and give each holder the
right to exercise the Option as to all or any part thereof, including Shares as
to which the Option would not otherwise be exercisable. In the event of a
proposed sale of all or substantially all of the assets of the Company, or the
merger of the Company with or into another corporation,
4
<PAGE> 33
the Option shall be assumed or an equivalent Option shall be substituted by
such successor corporation or a parent or subsidiary of such successor
corporation, unless the Board determines, in the exercise of its sole
discretion and in lieu of such assumption or substitution, that the holder
shall have the right to exercise the Option as to all of the Shares, including
Shares as to which the Option would not otherwise be exercisable. If the Board
makes an Option exercisable in lieu of assumption or substitution in the event
of a merger or sale of assets, the Board shall notify the holder that the
Option shall be fully exercisable for a period of 30 days from the date of such
notice (but not later than the expiration of the term of the Option), and the
Option will terminate upon the expiration of such period.
10. Amendment and Termination of the Plan. The Board may amend
the Plan from time to time in such respects as the Board may deem advisable or
terminate the Plan; provided, however, that amendments to the Plan relating to
the amount, price or timing of Option grants shall not be made more than once
in any six month period, other than amendments necessary to comply with changes
in the Internal Revenue Code, the Employee Retirement Income Security Act, or
the rules thereunder. Any amendment or termination of the Plan shall not
affect Options already granted and such Options shall remain in full force and
effect as if this Plan had not been amended or terminated.
Notwithstanding the foregoing, revisions or amendments that
accomplish any of the following shall require approval of the stockholders of
the Company, to the extent required by law, rule or regulation:
(a) Materially increase the benefits accruing to
participants under the Plan;
(b) Materially increase the number of Shares which may be
issued under the Plan;
(c) Materially modify the Plan as to eligibility for
participation in the Plan; or
(d) Otherwise cause the Plan to lose its exemption under
Section 16(b) of the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
11. Conditions Upon Issuance of Shares. Shares shall not be
issued pursuant to the exercise of an Option unless the exercise of such Option
and the issuance and delivery of such Shares pursuant thereto shall comply with
all relevant provisions of law, including, without limitation the Securities
Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the
rules and regulations promulgated thereunder, and the requirements of any stock
exchange or market system upon which the Shares may be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
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<PAGE> 34
As a condition to the exercise of an Option, the Company may
require the Optionee to represent and warrant at the time of any such exercise
that the Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares if, in the opinion of counsel for
the Company, such a representation is required or advisable.
Inability of the Company to obtain authority from a regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary or advisable to the lawful issuance and sale of any Shares
hereunder, shall relieve the Company of any liability in respect of the failure
to issue or sell such Shares as to which such requisite authority shall not
have been obtained.
12. Termination of Option.
(a) Termination as a Director. If an Optionee ceases to
be a director, unless such cessation occurs due to death or
disability, then the Option shall terminate on the date thirty days
after the date the Optionee ceases to be a director.
(b) Disability. Unless otherwise provided in the Stock
Option Agreement, in the event an Optionee is unable to continue to be
a member of the Board as a result of his permanent and total
disability (as defined in Section 22(e)(3) of the Internal Revenue
Code of 1986, as amended), he may exercise the Option at any time
within twelve (12) months following the date he ceased to be a
director, but only to the extent he was entitled to exercise it on the
date he ceased to be a director. To the extent that he was not
entitled to exercise the Option on the date he ceased to be a
director, or if he does not exercise such Option (which he was
entitled to exercise) within the time specified herein, the Option
shall terminate.
(c) Death. Unless otherwise provided in the Stock Option
Agreement, if an Optionee dies during the term of the Option, the
Option may be exercised at any time within twelve (12) months
following the date of death, but only to the extent that an Optionee
was entitled to exercise the Option on the date of death. To the
extent that decedent was not entitled to exercise the Option on the
date of death, or if the Optionee's estate, or person who acquired the
right to exercise the Option by bequest or inheritance, does not
exercise such Option (which he was entitled to exercise) within the
time specified herein, the Option shall terminate.
13. Option Agreement. Options shall be evidenced by Stock Option
Agreements in such form as the Board shall approve.
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<PAGE> 35
14. Miscellaneous Provisions.
(a) Plan Expense. Any expenses of administering this
Plan shall be borne by the Company.
(b) Construction of Plan. The validity, construction,
interpretation, administration and effect of the Plan and of its rules
and regulations, and rights relating to the Plan, shall be determined
by the Board in accordance with the laws of the State of Delaware.
(c) Taxes. The Company shall be entitled if necessary or
desirable to pay or withhold the amount of any tax attributable to the
delivery of Common Shares under the Plan after giving the person
entitled to receive such Shares notice as far in advance as practical,
and the Company may defer making delivery of such Shares if any such
tax may be pending unless and until indemnified to its satisfaction.
(d) Gender. For purposes of this Plan, words used in the
masculine gender shall include the female and neuter, and the singular
shall include the plural and vice versa, as appropriate.
7
<PAGE> 36
EXHIBIT "C"
PROXY SUNRISE PRESCHOOLS, INC. PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF SUNRISE
PRESCHOOLS, INC.
FOR THE ANNUAL MEETING OF SHAREHOLDERS
The undersigned shareholder of Sunrise Preschools, Inc., a Delaware
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders dated December 26, 1995 and hereby appoints James R. Evans and
Barbara L. Owens and each of them, proxies and attorneys-in-fact, with full
power to each of substitution, on behalf and in the name of the undersigned, to
represent the undersigned at the Annual Meeting of Stockholders of the Company
to be held on January 6, 1996 at 2:00 p.m. local time, at the offices of Arthur
Andersen & Co., 2 North Central, Suite 1000, Phoenix, Arizona 85004 and at any
adjournment or adjournments thereof, and to vote all shares of Common Stock and
Series B Preferred Stock that the undersigned would be entitled to vote if then
and there personally present, on the matters set forth below.
ELECTION OF DIRECTORS
[ ] VOTE FOR the nominee listed below.
[ ] WITHHOLD AUTHORITY to vote for the nominee listed below.
Dr. Richard H. Hinze
Proposal No. 1 - Ratification of 1995 Stock Option Plan
[ ] VOTE FOR ratification of the 1995 Stock Option Plan.
[ ] WITHHOLD AUTHORITY to vote for ratification of the 1995 Stock Option
Plan.
Proposal No. 2 - Ratification of Non-Employee Directors Stock Option Plan
[ ] VOTE FOR ratification of the 1995 Non-Employee Directors Stock Option
Plan.
[ ] WITHHOLD AUTHORITY to vote for ratification of the Non-Employee
Directors Stock Option Plan.
THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED FOR THE NOMINEE SET FORTH ABOVE, IN FAVOR OF PROPOSAL NO. 1 AND
PROPOSAL NO. 2 AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY
COME BEFORE THE MEETING.
A majority of such attorneys or substitutes as shall be present and shall act
at said Annual Meeting or any adjournment or adjournments thereof (or if only
one shall be present and act, then that one) shall have and may exercise all of
the powers of said attorneys-in-fact hereunder.
Dated: , 199
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Signature
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Signature if Held Jointly
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Print Name(s)
(This Proxy should be dated, signed by the
stockholder(s) and returned promptly in the
enclosed envelope. When signing as executor,
administrator, attorney, trustee or guardian,
please give full title as such. If a corporation,
please sign in full corporate name by president or
other authorized officer. If a partnership,
please sign in partnership name by authorized
person. If shares are held by joint tenants or as
community property, both should sign.)
