Sunrise Shares Hit New Low; Company Enacts Defensive Measures

Sunrise Senior Living yesterday took new defensive steps to protect itself from investors grabbing a significant stake in the company as its stock price continued its historic fall, closing at a new low of 38 cents per share.

The McLean company is one of the nation's largest providers of residential communities for the elderly. Its problems have deepened in recent months with the worsening economy, and its shares have fallen 98 percent since the second week of September.

The move could deter potential takeovers. The company yesterday changed its rules for when it can begin issuing preferred shares to thwart a buyer. Previously the company was allowed to issue such stock when a buyer had purchased at least 20 percent of the company. Now it is 10 percent. By issuing new shares, Sunrise can dilute the stake and make it more expensive for the buyer.

Sunrise also amended its rules to count as shareholders the hedge funds and others that have indirect control of the company through specific derivative arrangements.

Derrick C. Dagnan, an Avondale Partners analyst who covers Sunrise, said the moves were characteristic of a company in a defensive posture. It was unclear if there are any potential buyers, he said.

"It is difficult to say in this economic environment," Dagnan said. "I would be throwing a dart against the wall."

The company's dramatic share price decline follows a series of setbacks in recent years. Sunrise was an aggressive developer and borrowed heavily to fund its projects. Now many of those projects are not panning out as the economy has worsened and home prices have fallen, Dagnan said.

Investors are concerned how the company will repay its debt. In 2009 it must refinance $213.5 million worth of loans. That includes a $95 million line of credit the company must either refinance by Jan. 31 or strike a new deal with its lenders, a consortium led by Bank of America. Sunrise ended the quarter with $52.8 million worth in cash on its books.

In July, the company announced co-founder Paul J. Klaassen would step aside as chief executive to make way for Mark S. Ordan, a local executive who sold Fresh Fields to Whole Foods in 1996 and shopping mall developer Mills Corp. to Simon Property Group in 2007.

In its filing yesterday, Sunrise detailed its three-year contract with Ordan. The company said Ordan will be paid a base salary of $650,000 per year and will be eligible for an annual bonus of up to 300 percent of that salary.

Ordan will also receive 1.5 million worth of stock options, paid out in three equal, annual installments beginning on Nov. 1, 2009. The shares have an exercise price of 92 cents per share, their Nov. 13 closing price.

Sunrise also paid its chief accounting officer, Julie Pangelinan, a cash bonus of $200,000 for 2008, replacing its agreement to pay her that money in company shares.

In addition, the company made changes to its bylaws so that shareholders can more quickly remove board members. Board members will be elected to serve one-year terms and, beginning in 2010, shareholders will be able to vote on the entire nine-member board of directors at once instead of electing a third of them every year.

Staff researcher Meg Smith contributed to this article.