<PAGE> 1
SUNRISE PRESCHOOLS, INC.
9128 East San Salvador, Suite 200
Scottsdale, Arizona 85258
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 24, 1997
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 Ernst &
Young LLP, 40 North Central Avenue, Suite 900, Phoenix, Arizona 85004, on
Friday, January 24, 1997, 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 amend the Company's Certificate of Incorporation to change its name
to Sunrise Educational Services, Inc.; and
3. 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 December 6, 1996 (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 1996 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 29, 1996
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> 2
SUNRISE PRESCHOOLS, INC.
PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 24, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INFORMATION CONCERNING SOLICITATION AND VOTING......................................................................... 1
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......................................................... 1
Voting and Revocation of Proxies.............................................................................. 3
Solicitation of Proxies....................................................................................... 3
ELECTION OF DIRECTORS.................................................................................................. 3
Meetings and Committees of the Board of Directors............................................................. 6
EXECUTIVE COMPENSATION................................................................................................. 6
Summary Compensation Table.................................................................................... 6
Aggregated Option Exercises in Last Fiscal Year and Option Value as of July 31, 1995.......................... 7
Compensation of Directors..................................................................................... 7
Employment Contracts.......................................................................................... 7
Stock Option Plans............................................................................................ 8
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT...................................................................... 10
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................................................................... 10
PROPOSAL NO. 1 - AMENDMENT OF CERTIFICATE OF INCORPORATION TO CHANGE
NAME.......................................................................................................... 11
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS.......................................................................... 12
STOCKHOLDER PROPOSALS TO BE PRESENTED AT THE NEXT ANNUAL MEETING....................................................... 12
OTHER BUSINESS......................................................................................................... 13
1996 ANNUAL REPORT ON FORM 10-KSB...................................................................................... 13
</TABLE>
<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 24, 1997 (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 29,
1996. 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 December 6,
1996 (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, 500,000 shares of Series B
Preferred Stock, $1.00 par value (the "Series B Preferred"), and 357,333 shares
of Series C Preferred Stock, $1.00 par value (the "Series C Preferred") (the
Series B Preferred and the Series C Preferred hereinafter collectively referred
to as the "Preferred Stock") were issued and outstanding. Each holder of Common
Stock and Series B 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. Each share of the Series C Preferred
Stock carries that number of votes into which each share of Series C Preferred
Stock was convertible on the Record Date, which was 7.0588 shares of Common
Stock. Thus, each share of Series C Preferred Stock will be entitled to 7.0588
votes in matters presented to the stockholders for approval at the Annual
Meeting.
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. The proposal for which stockholder approval is being sought cannot
be approved without the affirmative vote of the holders of a majority of the
shares present, in person or by proxy, at the Annual Meeting. 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, 1996 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 Series B Preferred Stock is convertible into one share of
Common Stock. Each share of Series C Preferred Stock is convertible into 7.0588
shares of Common Stock.
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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 2. 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
Series B Preferred Stock, which generally votes with the Common Stock on matters
submitted for stockholder vote.
<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............................................. 817,637 26.0%
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
Robert A. Rice............................................. 27,187 0.9%
c/o Prime Securities Corp.
559 Congress Street
Portland, Maine 04112
Dr. Richard H. Hinze....................................... 26,000 0.9%
215 F. River Trail
Morganton, North Carolina 28655
Michael J. Connelly(3)..................................... 1,040,055 29.9%
LN Investment Capital Limited Partnership(3)............... 605,017 18.5%
Lepercq Investment Limited Partnership - II(3)............. 435,038 13.6%
John Rutkowski............................................. 165,433 5.5%
2828 North Central, Suite 1100
Phoenix, Arizona 85004
All directors and executive officers as a group 1,029,817 30.7%
(5 persons)
</TABLE>
(Footnotes on following page.)
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(1) Includes presently exercisable options as follows: James R. Evans -
166,759; Barbara L. Owens - 147,550; Robert A. Rice - 25,000; Dr.
Richard H. Hinze - 25,000; Ronald J. O'Connor - 5,000; and all
directors and executive officers as a group - 369,309.
(2) The percentages shown include the shares of Common Stock actually owned
as of November 30, 1996, 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, 1996 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
313,567 shares of Common Stock and 291,450 shares of Series B Preferred
and (ii) Lepercq Investment Limited Partnership - II ("LIP-II"), which
owns 226,488 shares of Common Stock and 208,550 shares of Series B
Preferred. 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 Series B
Preferred. The number of shares disclosed as beneficially owned are
amounts as reported in a Form 4 filed with the SEC on January 9, 1996.
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
James R. Evans expires at the Annual Meeting; the terms of Barbara L. Owens and
Robert A. Rice expire in the following year; and the term of Dr. Richard H.
Hinze expires in two years. Under the Company's Bylaws, the number
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<PAGE> 6
of directors may be increased to nine. The Company's Restated Certificate of
Incorporation, as amended, limits the liability of directors and restricts the
removal of directors under certain circumstances.
Pursuant to an agreement between the Company and purchasers of the
Company's Series B 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, 1996, 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 Mr. Evans to be re-elected at the Annual
Meeting. Unless otherwise instructed, the proxy holders will vote the proxies
received by them for Mr. Evans. In the event that Mr. Evans 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 Mr. Evans will be unable or will
decline to serve as director. If elected, the term of office of Mr. Evans 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.
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<TABLE>
<CAPTION>
Name Age Positions With Company
- ---- --- ----------------------
<S> <C> <C>
James R. Evans 49 Chairman of the Board, President
Dr. Richard H. Hinze 75 Director
Robert A. Rice 41 Director
Barbara L. Owens 48 Director, Executive Vice President,
Secretary and Treasurer
Ronald J. O'Connor 38 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.
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.
Robert A. Rice has been a Director of the Company since October 1993.
From July 1995 through October 1996, Mr. Rice was a director of Firstmark Corp.,
which is listed for trading on Nasdaq, and was 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., an investment management
company, 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.
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 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.
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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. Mr. O'Connor is a member of
the American Institute of Certified Public Accountants and the Arizona Society
of Certified Public Accountants.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During fiscal 1996, the Board of Directors met four 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 one meeting in fiscal 1996.
EXECUTIVE COMPENSATION
The following table 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, 1996, 1995 and 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
------------------- ------ -------
Restricted Securities
Name and Fiscal Other 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 1996 $154,500 $45,746 $-0- $-0- -0- $-0- $-0-
Chairman of the
Board and President 1995 $150,000 $65,151 $-0- $-0- 373,200 $-0- $-0-
1994 $105,007 $53,494 $-0- $-0- -0- $-0- $-0-
Barbara L. Owens 1996 $ 87,550 $45,746 $-0- $-0- -0- $-0- $-0-
Executive Vice
President, Secretary 1995 $ 85,000 $52,777 $-0- $-0- 135,858(2) $-0- $-0-
and Treasurer
1994 $ 56,632 $62,792 $-0- $-0- -0- $-0- $-0-
</TABLE>
- ----------
(1) See the discussion under the caption "EXECUTIVE COMPENSATION --
Employment Contracts" regarding certain other compensation the named
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 $2.00 per share, exceeded
the current market price for the Company's Common Stock.
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The following table sets forth certain information concerning each
exercise of stock options during the year ended July 31, 1996 by each of the
Named Executive Officers and the aggregated fiscal year-end value of the
unexercised options of each such Named Executive Officer.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
OPTION VALUE AS OF JULY 31, 1995
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised Options In-the-Money
at Fiscal Year End (#) Options at Fiscal Year End ($)
------------------------ ------------------------------
Shares Acquired Value Realized
Name on Exercise (#) ($) Exercisable Unexerciseable Exercisable Unexerciseable
------ --------------- ----- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
James R. Evans -0- $-0- 166,759 217,746 $ 17,740 $ 4,028
Barbara L. Owens -0- $-0- 147,550 -0- $ 31,073 $ -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. 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 may be 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
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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. As of November 30, 1996, options to purchase
237,937 of such shares have been granted; 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.
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
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<PAGE> 11
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.
1995 STOCK OPTION PLAN
The Company's 1995 Stock Option Plan (the "1995 Plan") was adopted by
the Board of Directors in May 1995 and approved by the stockholders in January
1996. The 1995 Plan authorizes the Board to grant options to employees of the
Company to purchase up to an aggregate of 500,000 shares of Common Stock.
Officers and other employees of the Company who, in the opinion of the Board of
Directors, are responsible for the continued growth and development and the
financial success of the Company are eligible to be granted options under the
1995 Plan. Options 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 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.
At November 30, 1996, under the 1995 Plan, options to purchase 359,063
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 $1.25 to $2.25
per share.
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
The Company's Non-Employee Directors Stock Option Plan (the "Directors'
Plan") was adopted by the Board of Directors in May 1995 and approved by the
stockholders in January 1996. Only non-employee directors are eligible to
receive options under the Directors' Plan, under which 100,000 shares are
authorized for issuance. As of November 30, 1996, options to purchase 40,000
shares of Common Stock had been granted; such options have a term of six years.
The exercise prices of all such options range from $1.188 to $2.1875 per share,
which was the fair market value of the underlying shares on the date of grant.
All options granted under the Directors' Plan are
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subject to a one-year vesting schedule. All options granted or to be granted
under the Directors' Plan are non-qualified stock options.
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
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.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 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% shareholders are required by Exchange Act regulations to furnish the
Company with copies of all Section 16(a) forms they file.
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 during the fiscal year
ending July 31, 1996, all filing requirements applicable to its officers,
directors and greater than 10% beneficial owners were complied with.
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, 1996, the aggregate amounts of lease payments and other obligations
guaranteed by Mr. Evans and Ms. Owens were approximately $4,233,000 and
$1,084,000, respectively. In addition, the Company leases equipment used in two
child care centers and two vehicles from Mr. Evans and Ms. Owens. Monthly lease
payments made by the Company under such leases to Mr. Evans and Ms. Owens in
fiscal year 1996 were approximately $3,061 and $962, respectively. The
prescribed lease rates reflected fair rental value at the time the leases were
entered into.
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
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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. 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.
Due to continued operating losses incurred during 1996, PSI approved a
plan to close two of its schools upon the expiration of the leases. Since the
estimated cash flows will not be sufficient to recover the leasehold
improvements related to these two schools, the Company recorded an impairment
reserve for these assets which totaled approximately $184,000 which is included
in facilities and maintenance expenses in fiscal 1996.
Also, since the Company is the lessee for two of the leases, they are
contingently liable for the lease payments to third parties. Since the estimate
future cash flows of PSI will not be sufficient to make the scheduled lease
payments, the Company recorded a contingent liability of approximately $418,000
related to the remaining lease payments which is included in facilities and
maintenance expenses in fiscal 1996.
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.
PROPOSAL NO. 1 - AMENDMENT OF CERTIFICATE OF INCORPORATION TO CHANGE NAME
At the Annual Meeting, the Company will seek stockholder approval of an
amendment to its Certificate of Incorporation to change its name to SUNRISE
EDUCATIONAL SERVICES, INC. (the "Name Change Amendment"). The Board of Directors
believes the proposed name reflects the broader scope of services the Company
now provides. In addition, Company surveys indicate that parents prefer to place
their children in educationally oriented centers. The Company's Board of
Directors approved the Name Change Amendment and has directed that the Name
Change Amendment be submitted to the stockholders of the Company for approval at
the Annual Meeting.
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As described more fully in the Company's 1996 Annual Report to
Stockholders, the Company has implemented a plan to develop into a hybrid
educational management company. In addition to expanding the number of centers
it operates, the Company has also expanded the types of services it provides.
The Company has selectively moved into primary education by adding first grade
classes in three of its Arizona centers in the fall of 1996. In addition, one of
the centers it acquired in the Phoenix area has been converted into a Suncrest
Private School ("Suncrest"). Suncrest offers a state-of-the-art environment,
with smaller class sizes, lower teacher to student ratios and more degreed
teachers than most preschools. Suncrest uses the nationally known and respected
High Scope teaching method and currently serves children ages 2 through
kindergarten, with plans to expand to include primary grades. In addition to
Sunrise Preschools and Suncrest, the Company also operates three Sunburst Child
Care Centers ("Sunburst Centers"). Sunburst Centers were designed to capitalize
on a market segment that cannot afford the higher tuition rates charged by the
Company at Suncrest and Sunrise Centers. The Sunburst Centers provide quality
care for lower tuition rates. Sunburst Centers also have lower operating costs,
allowing for the lower tuition rates. With Suncrest, Sunrise Preschools and
Sunburst Centers, the Company can penetrate three distinct income markets, thus
expanding its market opportunities. The Name Change Amendment will change the
Company's name to reflect its expansion into the three distinct service areas
and to emphasize the additional educational services the Company now provides.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE IN FAVOR OF
RATIFICATION OF THE NAME CHANGE AMENDMENT.
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed Ernst & Young LLP, independent
public accountants, to audit the consolidated financial statements of the
Company for fiscal 1997. Ernst & Young 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.
The Company dismissed the firm of Arthur Andersen LLP on May 1, 1996.
The reports of Arthur Andersen LLP on the Company's financial statement for the
past two fiscal years did not contain an adverse opinion or a disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principles. In connection with the audits of the Company's financial
statements for each of the two fiscal years ended July 31, 1995 and 1994, and in
subsequent interim periods, there were no disagreements with Arthur Andersen LLP
on any matters of accounting principles of practices, financial statement
disclosure or auditing scope and procedures which, if not resolved to the
satisfaction of Arthur Andersen LLP, would have caused Arthur Andersen LLP not
to respond fully to any inquiries from Ernst & Young LLP.
STOCKHOLDER PROPOSALS FOR THE NEXT ANNUAL MEETING
Any stockholder proposals intended to be presented at the Company's
next annual meeting of stockholders must be received by the Company no later
than August 27, 1997, 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 24, 1997, he
or she must give notice of his or her intention to the Secretary of the Company
along with a brief
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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 7, 1997.
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.
1996 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, 1996 (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 29, 1996
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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 STOCKHOLDERS
The undersigned stockholder of Sunrise Preschools, Inc., a Delaware corporation,
hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders
dated December 29, 1996 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 24, 1997 at 2:00 p.m. M.S.T., at the offices of Ernst & Young LLP, 40
North Central Avenue, Suite 900, Phoenix, Arizona 85004 and at any adjournment
or adjournments thereof, and to vote all shares of Common Stock, Series B
Preferred Stock and Series C 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 James R. Evans.
[ ] WITHHOLD AUTHORITY to vote for James R. Evans.
Proposal No. 1 - Amendment of the Certificate of Incorporation to Change Name
(the "Name Change Amendment")
[ ] VOTE FOR ratification of the Name Change Amendment.
[ ] WITHHOLD AUTHORITY to vote for ratification of the Name Change
Amendment.
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 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____
_________________________________________
Signature
_________________________________________
Signature if Held Jointly
_________________________________________
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.)
