SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended Commission File Number
September 30, 1996 0-19516
SUNRISE RESOURCES, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1632858
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5500 Wayzata Boulevard, Suite 725
Golden Valley, Minnesota 55416
(Address of principal executive offices)
Registrant's telephone number, including area code
(612) 593-1904
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
7,188,721 shares of Common Stock, $.01 par value as of November 6, 1996
1
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Included herein is the following unaudited financial information:
Consolidated Balance Sheets as of September 30, 1996 and March 31, 1996.
Consolidated Statements of Operations for three month and six
month periods ended September 30, 1996 and 1995.
Consolidated Statements of Cash Flows for the six month
periods ended September 30, 1996 and 1995.
Notes to Consolidated Financial Statements.
2
<PAGE>
SUNRISE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, March 31,
1996 1996
------------- -----------
ASSETS (Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 1,834,000 $ 1,629,000
Accounts receivable, less allowance for doubtful accounts
of $755,000 and $626,000 3,908,000 3,537,000
Income taxes receivable -- 1,157,000
Inventory held for sale 108,000 123,000
Loans receivable, less allowance for possible losses of $2,837,000
and $2,773,000 11,356,000 14,074,000
Investment in leasing operations:
Direct financing leases 57,822,000 65,165,000
Operating leases, less accumulated depreciation of
$21,612,000 and $19,927,000 35,590,000 28,962,000
Equipment held for lease 9,334,000 6,474,000
Initial direct costs 574,000 670,000
------------ -----------
Total investment in leasing operations 103,320,000 101,271,000
------------ -----------
Furniture and fixtures, less accumulated depreciation
of $457,000 and $396,000 469,000 515,000
Other assets 123,000 172,000
Goodwill and non-compete agreement, less
accumulated amortization of $72,000 and $50,000 585,000 607,000
------------ -----------
Total assets $121,703,000 $123,085,000
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Financing arrangements:
Borrowings under lines of credit $ 24,585,000 $ 18,298,000
Note payable to King Management Corporation 1,593,000 4,127,000
Recourse participations in loans receivable 1,702,000 4,582,000
Discounted lease rentals 46,897,000 56,520,000
------------ -----------
Total financing arrangements 74,777,000 83,527,000
------------ -----------
Accounts payable 9,246,000 4,837,000
Accrued liabilities 4,128,000 3,919,000
Accrued income taxes 731,000 --
Deferred tax liability 1,498,000 1,498,000
------------ -----------
Total liabilities 90,380,000 93,781,000
------------ -----------
COMMITMENTS AND CONTINGENCIES (Note 6)
SHAREHOLDERS' EQUITY
Common stock, par value $.01 per share, authorized
17,500,000 shares, 7,189,000 shares issued
and outstanding at both dates 72,000 72,000
Capital stock, undesignated, par value $.01 per share,
authorized 2,500,000 shares, none issued or outstanding -- --
Additional paid-in capital 25,601,000 25,601,000
Retained earnings 5,650,000 3,631,000
Total shareholders' equity 31,323,000 29,304,000
------------ -----------
Total liabilities and shareholders' equity $121,703,000 $123,085,000
============ ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
3
<PAGE>
SUNRISE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended September 30, Ended September 30,
------------------------------------ ------------------------------------
1996 1995 1996 1995
----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
REVENUES
Operating leases $ 6,142,000 $ 5,427,000 $ 11,866,000 $ 11,060,000
Direct financing leases 2,046,000 2,573,000 4,221,000 4,873,000
Equipment sales 2,314,000 4,563,000 4,801,000 6,207,000
Interest Income 178,000 661,000 397,000 1,260,000
Fee income 58,000 128,000 123,000 230,000
--------------- --------------- --------------- ---------------
Total Revenues 10,738,000 13,352,000 21,408,000 23,630,000
--------------- --------------- --------------- ---------------
COSTS AND EXPENSES
Depreciation 3,682,000 3,443,000 6,838,000 7,072,000
Interest 1,603,000 2,156,000 3,313,000 4,240,000
Provision for lease and loan losses 205,000 710,000 426,000 758,000
Cost of equipment sold 1,885,000 4,208,000 4,065,000 5,626,000
Compensation expense 1,003,000 798,000 1,784,000 1,778,000
Other operating expenses 580,000 653,000 1,101,000 1,286,000
--------------- --------------- --------------- ---------------
Total Costs and Expenses 8,958,000 11,968,000 17,527,000 20,760,000
--------------- --------------- --------------- ---------------
INCOME FROM OPERATIONS
BEFORE PROVISION
FOR INCOME TAXES 1,780,000 1,384,000 3,881,000 2,870,000
PROVISION FOR INCOME TAXES 854,000 552,000 1,862,000 1,147,000
--------------- --------------- --------------- ---------------
NET INCOME $ 926,000 $ 832,000 $ 2,019,000 $ 1,723,000
=============== =============== =============== ===============
NET INCOME PER COMMON
AND COMMON
EQUIVALENT SHARE $ 0.13 $ 0.12 $ 0.28 $ 0.24
============== =============== =============== ==============
WEIGHTED AVERAGE NUMBER
OF COMMON AND
COMMON EQUIVALENT
SHARES OUTSTANDING 7,222,000 7,189,000 7,202,000 7,191,000
=============== =============== =============== ===============
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
4
<PAGE>
SUNRISE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended September 30,
1996 1995
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 2,019,000 $ 1,723,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for lease and loan losses 410,000 758,000
Depreciation and amortization 6,860,000 7,094,000
Change in operating assets and liabilities:
Accounts receivable (499,000) (2,143,000)
Income taxes receivable 1,157,000 --
Other assets 145,000 (70,000)
Inventory held for sale 15,000 146,000
Accounts payable 4,409,000 (591,000)
Accrued liabilities 209,000 1,934,000
Accrued income taxes 731,000 (23,000)
--------------- ---------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 15,456,000 8,828,000
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in loans receivable (1,221,000) (29,657,000)
Principal portion of loans receivable collected 3,875,000 25,327,000
Purchase of equipment for lease (22,364,000) (24,805,000)
Principal portion of direct financing leases collected 13,228,000 11,081,000
Purchase of furniture and fixtures (19,000) (102,000)
---------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES (6,501,000) (18,156,000)
---------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on lines of credit 9,700,000 20,020,000
Payments on lines of credit (3,413,000) (16,350,000)
Proceeds from discounted lease financing 4,339,000 20,029,000
Payments on discounted lease financing (13,962,000) (11,202,000)
Proceeds from participations in loans receivable -- 280,000
Payments on participations in loans receivable (2,880,000) (1,320,000)
Proceeds from note payable to King Holding Corporation -- 224,000
Payments on note payable to King Holding Corporation (2,534,000) (3,603,000)
--------------- ---------------
NET CASH (USED IN) PROVIDED BY FINANCING
ACTIVITIES (8,750,000) 8,078,000
---------------- ---------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 205,000 (1,250,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,629,000 2,398,000
--------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,834,000 $ 1,148,000
=============== ===============
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
5
<PAGE>
SUNRISE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTH PERIODS ENDED SEPTEMBER 30, 1996 and 1995 (Unaudited)
1. ACCOUNTING POLICIES
In the opinion of management the accompanying financial statements contain
all adjustments necessary to present fairly the financial position of
Sunrise Resources, Inc. and Subsidiaries (the "Company") as of September
30, 1996 and March 31, 1996, the Company's results of operations for the
three months and six months ended September 30, 1996 and 1995, and the
Company's cash flows for the six months ended September 30, 1996 and 1995.
All such adjustments are of a normal and recurring nature.
These statements should be read in conjunction with the Notes to the
Financial Statements contained in the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 1996, filed with the Securities and
Exchange Commission, and with Management's Discussion and Analysis of
Financial Condition and Results of Operations appearing on pages 9 through
15 of this quarterly report. Results for the interim periods are not
necessarily indicative of sales trends or future results and performance.
2. INCOME TAXES
Income tax expense has been provided based on management's estimate of the
annualized effective tax rate of 48% for the three and six month periods
ended September 30, 1996, and 40% for the three and six month periods ended
September 30, 1995.
3. LOANS RECEIVABLE
Loans by Collateral Type
The composition of the loans receivable portfolio by collateral type was as
follows:
<TABLE>
<CAPTION>
September 30, March 31,
1996 1996
--------------- --------------
<S> <C> <C>
Commercial loans, collateralized primarily by receivables $ 480,000 $ 1,282,000
Commercial loans, collateralized by equipment, marketable
securities and other 5,484,000 7,563,000
Real estate loans 2,376,000 4,205,000
Impaired loans 8,416,000 8,150,000
Non-recourse participations (2,455,000) (4,216,000)
--------------- ---------------
14,301,000 16,984,000
Less:
Allowance for possible loan losses (2,837,000) (2,773,000)
Unearned fees from loan origination (108,000) (137,000)
--------------- ---------------
$ 11,356,000 $ 14,074,000
=============== ===============
</TABLE>
Loan Portfolio Activity and Allowance for Possible Loan Losses -
As of September 30, 1996 and March 31, 1996, the Company's recorded investment
in impaired and other loans and the related valuation allowances were as
follows:
<TABLE>
<CAPTION>
September 30, 1996 March 31, 1996
------------------------------------ -----------------------------------
Recorded Valuation Recorded Valuation
Investment Allowance Investment Allowance
<S> <C> <C> <C> <C>
Impaired loans -
Nonaccrual $ 8,191,000 $ 2,612,000 $ 7,925,000 $ 2,514,000
Other 225,000 225,000 225,000 225,000
Performing loans 8,340,000 -- 13,050,000 34,000
Nonrecourse participations (2,455,000) -- ( 4,216,000) --
------------ -------------- -------------- ---------------
$ 14,301,000 $ 2,837,000 $ 16,984,000 $ 2,773,000
============ ============== ============== ==============
</TABLE>
6
<PAGE>
The activity in the allowance for possible loan losses during the three and
six month periods ended September 30, 1996 and 1995 was as follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended September 30, Ended September 30,
---------------------------- ------------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance, beginning of period $2,803,000 $2,155,000 $2,773,000 $2,125,000
Provisions for loan losses 34,000 605,000 64,000 635,000
Write-offs -- -- -- --
---------- ---------- ---------- ----------
Balance, end of period $2,837,000 $2,760,000 $2,837,000 $2,760,000
========== ========== ========== ==========
</TABLE>
The average investment in impaired loans for the three and six month
periods ended September 30, 1996 and 1995 was $8.4 million, $10.2 million,
$8.3 million and $7.2 million, respectively.
Interest payments received on impaired loans are recorded as interest
income unless collection of the remaining recorded investment is doubtful,
at which time payments received are recorded as reductions of principal.
The Company did not recognize any interest income on impaired loans for the
respective three and six month periods ended September 30, 1996 and 1995.
When, in the opinion of management, a reasonable doubt exists as to the
collectibility of interest or fee income, the accrual of such income is
discontinued and uncollected income accruals are reversed. During the three
and six months ended September 30, 1996 and 1995, the Company did not
recognize fee and interest income totaling $139,000, $736,000, $266,000 and
$0, respectively, relating to the impaired loans referred to in the
preceding paragraph.
4. DISCOUNTED LEASE RENTALS
Discounted lease rentals consist of the following:
September 30, March 31,
1996 1996
-------------- ---------------
Non-recourse $ 37,612,000 $ 43,969,000
Recourse 9,285,000 12,551,000
--------------- ---------------
$ 46,897,000 $ 56,520,000
=============== ===============
5. ARRANGEMENTS
Lines of Credit -
The Company has a $25 million line of credit facility with a bank for use
in its normal operations. Advances under this line of credit are subject to
a borrowing base limitation of $25 million at September 30, 1996. The
balance outstanding as of quarter end was $24.6 million. Advances under the
line are at prime, and are collateralized by substantially all otherwise
unsecured assets of the Company. This line expired as of September 30, 1996
and was renewed under identical terms for another twelve month period
ending September 30, 1997.
Note Payable to King Management Corporation -
At September 30, 1996, the Company had an outstanding note payable to The
King Management Corporation, an affiliate of Peter King, former Chairman
and member of the Board. This note was collateralized by certain lease and
rental equipment. The note was payable in semi-monthly installments and
bore interest at prime. The maturity date was February 1996. At September
30, 1996, the Company was in default with regards to that note. The note
was subsequently paid off in connection with recent financing. See Note 7
"Subsequent Events".
7
<PAGE>
Event of Non-Compliance -
As of March 31, 1996, the Company was not in compliance with a recourse
discounted loan agreement, with a balance of approximately $5.6 million,
and had not repaid a note payable to The King Management Corporation which
matured in February 1996 with a balance of approximately $4.1 million.
These events resulted in an event of noncompliance under cross-default
provisions of the Company's bank line of credit agreement. As of September
30, 1996, balances outstanding under the recourse discounted loan agreement
and The King Management Corporation note were approximately $4.8 million
and $1.6 million, respectively. On November 8, 1996, all debt outstanding
to The King Management Corporation was repaid in full. This resulted in
eliminating all related defaults under that facility. In addition, on
November 8, 1996, the Company amended the terms of its recourse discounted
loan agreement, simultaneously receiving a waiver of all events of
non-compliance under that agreement.
6. COMMITMENTS AND CONTINGENCIES
Litigation -
Peter King has commenced arbitration proceedings against the Company
relating to the February 1995 merger of the Company with The P.J. King
Companies, Inc. (d/b/a International Leasing Corporation) ("ILC") on the
basis that, in his view, problems underlying the net investment in several
direct financing loans and leases arose prior to the merger and were not
disclosed. He has also asserted other claims regarding valuation of certain
other assets of the Company at the time of the merger. In addition to
seeking money damages or additional shares of the Company Common Stock, Mr.
King may attempt to obtain rescission of the merger. Such an attempt, which
will be resisted by the Company, could result in Mr. King and his
affiliates reacquiring ownership of ILC's vendor leasing business as it
existed in February 1995 and all other ILC assets and liabilities. The
matter is currently scheduled to be heard in late November 1996.
On August 15, 1996, a lessee of the Company filed for protection under
Chapter 11 of the Bankruptcy Code. The Bankruptcy court has approved the
lessee's motion to reject its lease with the Company. After having made a
$6.8 million provision for loss on lease receivables pertaining to this
customer in fiscal 1995, the Company's net investment in the lease was
approximately $363,000 as of September 30, 1996. The Company believes the
value of the leased equipment will be adequate to cover the Company's net
investment.
7. EVENTS SUBSEQUENT TO SEPTEMBER 30, 1996
On October 1, 1996, the Company and The King Management Corporation signed
an amendment to the original security agreement dated June 22, 1995. This
amendment authorized the borrowing of $1,955,000 by the Company from The
King Management Corporation. Such borrowing was secured by certain leased
equipment and payable in 60 days. All amounts outstanding were repaid on
November 8, 1996.
On October 31, 1996, Sunrise Resources, Inc., Sunrise Leasing Corporation
and Sunrise Funding Corporation I entered into an agreement with a
subsidiary of Dougherty Dawkins, Inc. to place up to $20 million of notes
issued by Sunrise Funding Corporation to private institutional investors.
On November 8, 1996, Sunrise Funding Corporation I became a wholly-owned
subsidiary of Sunrise Leasing Corporation. The notes are secured by certain
leases contributed to the subsidiary by Sunrise Leasing Corporation. This
securitization facility was closed on November 8, 1996, with an initial
funding of $13,000,000. The funds were used to repay the $3.1 million of
loans from The King Management Corporation, to pay accrued interest and
fees in connection with the amendment of the Company's recourse discounted
loan agreement (under which the Company had been in default), and to repay
the $9.4 million outstanding under the Company's bank line of credit. This
reduction to the outstanding bank line of credit makes credit available to
fund additional equipment purchases.
8
<PAGE>
ITEM 2. Management's discussion and analysis of financial condition and results
of operations.
Revenues
The Company classifies its lease transactions, as required by the Statement of
Financial Accounting Standards No. 13 ("FASB 13"), as either direct financing or
operating leases. Revenue, costs and resulting income are recognized during each
of the accounting periods during the term of the lease. The allocation of income
among the accounting periods within a lease term will vary depending upon the
lease classification.
The Company segregates the sources of its revenue into five categories for
financial statement purposes: (i) operating leases; (ii) direct financing
leases; (iii) sales of new and used equipment; (iv) interest income; and (v) fee
income.
Operating Leases. All leases that are not classified as direct financing leases
are treated as operating leases. Monthly payments from these leases are
recognized as leasing revenue. The Company's cost of the leased equipment is
recorded on the balance sheet and is depreciated on a straight-line basis over
the lease term to the Company's estimate of residual value. Revenue,
depreciation expense and the resultant margin for operating leases are recorded
evenly over the term of the lease. If the lease is discounted to a financial
institution, the related interest expense declines over the term of the lease as
the principal is reduced, with the resultant net margin being lower in the early
periods of the lease and higher in the later periods.
Direct Financing Leases. These leases transfer substantially all benefits and
risks of equipment ownership to the lessee. A lease is a direct financing lease
if the creditworthiness of the customer and the collectibility of lease payments
are reasonably certain and it meets one of the following criteria: (i) the lease
transfers ownership of the equipment to the customer by the end of the lease
term; (ii) the lease contains a bargain purchase option; (iii) the lease term at
inception is at least 75% of the estimated economic life of the leased
equipment; or (iv) the present value of the minimum lease payments is at least
90% of the fair value of the leased equipment at inception of the lease.
Direct financing leases consist of future lease payments plus the residual value
(collectively referred to as the "gross investment"). Residual value is the
estimated fair market value at the time of lease termination. The difference
between the gross investment in the lease and the cost (or carrying amount, if
different) of the leased equipment is recorded as unearned revenue. The "net
investment" in the lease is the gross investment less unearned revenue. The
unearned revenue is amortized to leasing revenue over the lease term to produce
a constant percentage return on the net investment whether or not the lease is
discounted to a financial institution.
Equipment Sales. Revenue from equipment sales transactions is recognized by the
Company at the time title to the equipment passes to the customer. Leases that
entitle the customer to purchase the leased equipment for a nominal sum at the
end of the lease term and which are discounted on a nonrecourse basis at the
lease commencement date, leaving the Company with no interest in the
transaction, are treated by the Company as a sale of equipment.
Interest Income. Interest income is accrued on unimpaired loans receivable under
the effective interest method. Interest income is not recognized on loans which
have been identified by the Company as impaired.
Fee Income. The Company earns fee income principally for arranging leases
between unrelated parties. These fees are recognized at the closing of such
transactions. At lease termination, the Company may also be entitled to
additional fee income equal to a portion of the net proceeds from a subsequent
lease or sale of the equipment. The Company's portion of such net proceeds, if
any, is reported as fee income at the time of the subsequent lease or sale of
the equipment.
Financing
As of September 30, 1996, the Company's total borrowings of $74.8 million were
comprised of $37.6 million and $37.2 million in nonrecourse and recourse debt,
respectively, representing 50.3% and 49.7% of total funds borrowed,
respectively. This compares to March 31, 1996 where the Company had total
borrowings of $83.5 million, which were comprised of nonrecourse discounted
lease rentals totaling $44.0 million and recourse borrowings totaling $39.5
million, representing 52.6% and 47.4%, of total funds borrowed.
9
<PAGE>
In addition to the finance arrangements described above, the Company had entered
into certain SFR lending transactions prior to fiscal 1995, and sold nonrecourse
participation in those loans to financial institutions. As of September 30,
1996, these loans and the related nonrecourse participations totaled $2.5
million. Since the Company's only obligation with respect to these
participations is as a servicer for a fee, the loans and related nonrecourse
participations have been eliminated from the Company's consolidated balance
sheets.
As of September 30, 1996, the Company was not in compliance with a recourse
discounted loan agreement, with a balance of approximately $4.8 million, and had
not repaid a note payable to The King Management Corporation which matured in
February 1996 with a balance of approximately $1.8 million. See Note 5 to
Consolidated Financial Statements under Item 1 above. On November 8, 1996, all
debt outstanding to The King Management Corporation was repaid in full. This
resulted in eliminating all related defaults under that facility. In addition,
on November 8, 1996, the Company amended the terms of its recourse discounted
loan agreement, simultaneously receiving a waiver of all events of
non-compliance under that agreement. See Note 7 to Consolidated Financial
statements under Item 1 above.
On November 8, 1996, the Company's wholly-owned subsidiary, Sunrise Funding
Corporation I, completed the initial closing of a securitization facility with
an initial funding of $13,000,000. See Note 7 to Consolidated Financial
Statements under Item 1 above.
Cash Flows from Leases
Cash flows are not affected by how a particular lease is classified, but are
affected by the Company's decision on how its investment in a particular lease
will be financed. When the Company discounts lease payments on a nonrecourse or
recourse basis with a financial institution, the discounted future lease
payments are received up-front, and are recorded on the Company's balance sheet
as discounted lease rentals. If, however, the Company chooses not to discount
the remaining lease payments, the total lease payments are received by the
Company over the lease term.
Sunrise Financial Resources, Inc.
The Board of Directors made the determination in fiscal 1996 to discontinue the
SFR business. The Company has sold the SFR asset-based lending accounts and
one-half of its SFR commercial accounts. Management believes the loan portfolio
is reflected at its estimated liquidation value as of September 30, 1996.
Results of Operations for the Three and Six Months Ended September 30, 1996 and
1995
Total revenue decreased $2.6 million (19.6%) and $2.2 million (9.4%) for the
three and six month periods ended September 30, 1996, as compared to the
corresponding periods in fiscal 1996. The majority of the revenue decrease came
from a drop in equipment sales, in both direct and vendor business. Equipment
sales were down $2.2 million (49.3%) and $1.4 million (22.7%) for the three and
six month periods of fiscal 1997 as compared to the corresponding periods in
fiscal 1996. Interest income and fee income has and will decline significantly
with the winding down of the SFR business. Operating lease revenues showed
moderate growth for the three and six month period due to an increase in the
vendor leasing programs. Direct financing leasing revenues decreased $527,000
(20.5%) and $652,000 (13.4%) for the three and six month periods ended September
30, 1996 due to a large number of leases coming off-lease, and fewer going
on-lease due to sales people directing their efforts toward the vendor leasing
business.
10
<PAGE>
Total leasing revenues were as follows (dollar amounts in millions):
<TABLE>
<CAPTION>
Three Months Six Months
Ended September 30, Ended September 30,
------------------- -------------------
1996 1995 1996 1995
------------ ---------- ----------- ----------
Amount % Amount % Amount % Amount %
------------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Leasing Revenues:
Vendor $ 4.7 57% $ 3.2 40% $ 8.9 55% $ 6.6 41%
Direct 3.5 43 4.8 60 7.2 45 9.3 59
--- --- --- --- --- --- --- ---
Total $ 8.2 100% $ 8.0 100% $16.1 100% $15.9 100%
======= ==== ====== ==== ======= ==== ======= ====
As a percent of total revenues 76.2% 59.9% 75.1% 67.4%
===== ===== ===== =====
</TABLE>
Margins from leasing activities (leasing revenue, less depreciation and interest
expense of $5.3 million and $10.2 million) were 35.5% and 36.9%, and 30.0% and
29.0% for the three and six month periods of fiscal 1997 and fiscal 1996,
respectively. Margins will fluctuate from period to period based upon the mix of
direct financing and operating leases and the extent to which the Company
finances leases with internally generated funds. The increase in margins for
fiscal 1997 relates primarily to more leases being financed with internally
generated funds versus externally generated funds during the corresponding
period in fiscal 1996. Margins will also be affected by the mix and age of
direct finance and operating leases in the current portfolio.
In order to limit the impact of any interest rate fluctuations on its leasing
transactions, the Company continually monitors its lease rate factors relative
to interest rates on borrowed funds. The lease rate factors are adjusted
periodically on new leases to correspond to any change in interest rates on
borrowed funds supporting the related transactions.
Revenue from equipment sales decreased $2.2 million and $1.4 million for the
three and six month periods ended September 30, 1996 as compared to the
corresponding periods in fiscal 1996. This decrease is primarily a result of
lower off-lease sales coming from the vendor lease business. The gross margins
of this activity were 18.5% and 15.3% of sales revenue for the three and six
month periods of fiscal 1997, compared to 7.8% and 9.4% for the corresponding
periods in fiscal 1996. These favorable gross margins in the current period were
the result of establishing more conservative residuals on equipment that is now
coming off-lease. Gross margins will also vary depending on the Company's
ability to purchase equipment at competitive prices and to negotiate attractive
selling prices for such equipment.
Interest income decreased $483,000 (73.1%) and $863,000 (68.5%) for the three
and six month periods of fiscal 1997 as compared to the corresponding period in
fiscal 1996. This decrease was caused by the liquidation of a significant part
of the SFR loan portfolio which coincided with the Company's decision to
discontinue its commercial and asset-based lending business.
Fee income decreased $70,000 (54.7%) and $107,000 (46.5%) for the three and six
month periods of fiscal 1997 as compared to the same period in fiscal 1996. This
decrease was primarily the result of the fiscal 1996 cessation of SFR lending
activities.
Total costs and expenses decreased $3.0 million (25.2%) and $3.2 million (15.6%)
for the three and six month periods of fiscal 1997 as compared to the
corresponding period in fiscal 1996, notwithstanding significantly increased
legal fees relating to the Company's financing activities and the dispute with
King Management Corporation. The Company anticipates that its legal costs should
decrease significantly in fiscal 1998. The decrease related principally to the
lower amount of equipment sales and the lower associated costs.
Depreciation expense for the three month period ended September 30, 1996
increased $239,000 (6.9%) over the same period a year ago. This increase was due
to an increase in vendor equipment operating leases that were added during the
second quarter of fiscal 1997. This offset an overall decrease for the current
six month period of $234,000 (3.3%) compared to the corresponding period in
fiscal 1996, which was due to an overall decline in the amount of operating
lease equipment during the six month period.
11
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Interest expense decreased $553,000 (25.6%) and $927,000 (21.9%) for the three
and six month periods of fiscal 1997 as compared to the corresponding period in
fiscal 1996. The decrease in interest expense reflects lower average borrowings
during the period.
Compensation expense increased $205,000 (25.7%) for the three month period ended
September 30, 1996, compared to the same period in fiscal 1996. The increase was
the result of increased personnel associated with the expansion of the Company's
services as well as accruals for year-end merit compensation. Compensation
expense for the three and six month periods of fiscal 1996 included one-time
charges of $104,000 and $284,000 which were part of severance agreements payable
to former employees of the Company.
Other operating expenses decreased $53,000 (8.4%) and $185,000 (14.4%) for the
three and six month periods of fiscal 1997 as compared to the corresponding
periods in fiscal 1996. The decrease was a direct result of the Company's
efforts to control operating costs and reduce overhead.
Income tax provision as a percentage of income before taxes was 48.0% and 48.0%
and 39.9% and 40.0% for the three and six month periods ended September 30, 1996
and 1995, respectively. The increase in the tax rate in the current fiscal
period is due to the potential unrealizability of certain alternative minimum
tax credits.
As a result of the foregoing factors, net income increased $94,000 (11.3%) and
$296,000 (17.2%) for the three and six month periods of fiscal 1997 as compared
to the corresponding periods in fiscal 1996.
12
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Liquidity and Capital Resources
General
The Company uses a combination of its credit lines and internally generated cash
flows to finance, on an interim basis, loans to customers and the acquisition of
equipment for lease or sale. Generally, upon commencement of a lease, the
Company attempts to assign the remaining lease payment stream to a financial
institution on a discounted, nonrecourse basis. In this manner, the Company
finances a substantial portion of the equipment cost on a long-term basis and
attempts to limit its risk, if any, to its equity investment in the loan or
equipment. The discounted lease proceeds received by the Company are used to
reduce borrowings under the Company's credit lines. Where the Company finances
the equipment cost either internally or on a recourse basis, the Company assumes
the entire risk on its investment in the loan or equipment. Recently, Sunrise
Leasing Corporation's wholly-owned subsidiary, Sunrise Funding Corporation I has
securitized its lease receivables and related residuals. The Company anticipates
that it may enter into similar transactions to finance a portion of its vendor
program leases in the future. See Note 7 to Consolidated Financial Statements
under Item 1 above.
At September 30, 1996, the Company had total borrowings outstanding of $74.8
million, of which 50.3% were nonrecourse. At March 31, 1996, the Company had
total borrowings outstanding of $83.5 million, of which 52.7% were nonrecourse.
As of September 30, 1996, the Company had a total investment in leasing
operations of $103.3 million, as compared to $101.3 million at March 31, 1996.
The marginal increase in investment in leasing operations was due to an increase
in new equipment installations and upgrades. The Company's investment in leasing
operations includes equipment held for lease, which consists of equipment for
which a lease has been signed but which has not yet commenced. The amount of
equipment held for lease fluctuates significantly depending on the dollar
amounts and commencement dates of the Company's leases.
Net cash provided by operating activities was $15.5 million for the first six
months of fiscal 1997. Accounts payable increased $4.4 million, accounts
receivable increased $500,000, and accrued liabilities increased $200,000 due to
a general increase in the Company's lease portfolio and other business
activities. The Company expects to fund these requirements through internally
generated funds, as well as borrowings under its lines of credit. The Company
also expects to realize additional cash from the future remarketing of leased
equipment.
Equipment expenditures of $22.4 million for the first six months of fiscal 1997
were financed through $15.5 million of cash flows from operations, through the
discounting of $4.3 million of noncancelable lease rentals to various financial
institutions at fixed rates, and through the use of the Company's lines of
credit. The Company does not have any material commitments for capital
expenditures, other than equipment held for lease.
Investments in loans receivable were $1.2 million for the first six months of
fiscal 1997 and were financed primarily through internally generated funds and
use of short-term borrowings under the Company's lines of credit.
Inflation has not been a significant factor in the Company's business in any of
the periods presented.
Financing Sources
The Company maintains a $25 million line of credit. Of this amount, $24.6
million had been utilized as of September 30, 1996. On November 8, 1996, the
Company repaid $9.4 million on this line of credit. Advances under the line are
collateralized by substantially all of the Company's assets. The interest rate
is at prime, and the Company is subject to certain financial and other covenants
relating to net worth ratios and liquidity requirements.
The Company's line of credit matured September 30, 1996. The line was renewed as
of October 1, 1996 and was extended under identical terms for a twelve month
period maturing on September 30, 1997. See "Looking Forward".
13
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As of March 31, 1996, the Company was not in compliance with a recourse
discounted loan agreement, with a balance of approximately $5.6 million, and had
not repaid a note payable to The King Management Corporation which matured in
February 1996 with a balance of approximately $4.1 million. These events
resulted in an event of noncompliance under cross-default provisions of the
Company's bank line of credit agreement. As of September 30, 1996, balances
outstanding under the recourse discounted loan agreement and The King Management
Corporation note were approximately $4.8 million and $1.6 million, respectively.
On November 8, 1996, all debt outstanding to The King Management Corporation was
repaid in full. This resulted in eliminating all related defaults under that
facility. In addition, on November 8, 1996, the Company amended the terms of its
recourse discounted loan agreement, simultaneously receiving a waiver of all
events of non-compliance under that agreement.
The Company has recently entered into an agreement with a subsidiary of
Dougherty Dawkins, Inc. to place up to $20 million of notes issued by a
subsidiary of the Company to private institutional investors. This
securitization facility was closed on November 8, 1996, with an initial funding
of $13,000,000. The funds were primarily used to repay the $3.1 million of loans
from The King Management Corporation and to pay down the Company's bank line of
credit. See Note 7 to Consolidated Financial Statements under Item 1 above. As a
result of closing this financing, the Company decided not to pursue a previously
proposed $10 million financing from The King Management Corporation. However,
the Company believes that if its business grows as anticipated, additional
financing will be required, and it is currently discussing such financing with
several sources. The ability to obtain such financing will depend, at least in
part, on the outcome of the arbitration hearing on the claims of the former ILC
shareholders relating to the February 1995 merger of ILC and the Company which
is now scheduled to begin in late November 1996.
Liquidity
Based on its completion of the Dougherty Dawkins financing and its recent
success in obtaining additional discount financing, the Company believes that it
will be able to finance its anticipated equipment purchasing commitments for the
remainder of fiscal 1997. In order to fund its anticipated commitments in fiscal
1998, the Company will require additional financing facilities. Although there
is no assurance that the Company will be able to obtain such financing,
management is cautiously optimistic that it will be able to obtain financing as
required to fund its equipment purchase commitments in fiscal 1998. If for any
reason the Company is unable to obtain additional financing in fiscal 1998, its
revenue growth in fiscal 1998 would be materially adversely affected.
Over the past year or more, the Company has continued to monitor several problem
leases and loans. See Note 6 to Consolidated Financial Statements for
information on significant lessee bankruptcy. While there continues to be
several loans payable to the Company as to which the Company could be forced to
take additional write-offs, management does not believe that any such write-offs
would be material or that they would create new covenant violations on current
credit facilities or otherwise limit or reduce the Company's access to credit.
Looking Forward
Although the equipment leasing business continues to be a significant component
of the Company's business, the Company has since June 1995 focused more of its
resources in building the vendor leasing business. In addition to its currently
active vendor programs, the Company signed agreements with four additional
vendors, and is in various stages of negotiations with several other vendors.
Management believes that new vendor programs will generate significant revenues
for the Company in fiscal 1997 and fiscal 1998.
The former ILC shareholders are seeking rescission and damages in connection
with the February 1995 merger of ILC and the Company, and the matter is
scheduled for arbitration in late November 1996. See Note 6 to Consolidated
Financial Statements under Item 1 above. Although the Company is disputing the
claims, an unfavorable determination by the arbitrator could result in the
former ILC shareholders gaining control of the Company's vendor leasing business
as it existed in February 1995 or being awarded additional stock of the Company
which could cause significant dilution to the holdings of the current
shareholders. If the Company avoids an arbitration award granting rescission,
and it firmly believes it will, management believes that the Company will be
able to further increase its credit facilities which will allow the Company to
expand its vendor leasing business significantly and materially improve its
overall operations in fiscal 1998. The Company's ability to effect this
improvement is subject to the "Cautionary Statements" set forth below.
14
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Because of a customer's default on certain lease payments and its negative
financial circumstances, with respect to fiscal 1995 the Company made a
provision for loss on lease receivables pertaining to this customer of $6.8
million. As of March 31, 1996, the Company's net investment in the related lease
relationship was approximately $557,000, and related recourse borrowings
aggregated $5.6 million. The settlement agreement signed in June 1996 among the
Company, the lessee and the bank did not close. The lessee was unable to raise
the $3 million necessary and could not meet its obligation under the agreement.
The Company subsequently declared the lessee in default under the lease and on
August 15, 1996, the lessee filed for protection under Chapter 11 of the
Bankruptcy Code. Since filing, the court has approved the lessee's motion to
reject its lease with the Company. The Company expects that the value of the
equipment will be adequate to recover its net investment, which as of September
30, 1996 was $363,000. In addition, the Company has restructured the related
recourse discounted loan agreement that relates to this equipment, the balance
outstanding of which as of September 30, 1996 was $4,765,000. The Company has
pledged additional collateral and the bank has waived all remaining outstanding
defaults.
Cautionary Statements
As provided for under the Private Securities Litigation Reform Act of 1995, the
Company wishes to caution investors that the following important factors, among
others, in some cases have affected and in the future could affect the Company's
actual results of operations and cause such results to differ materially from
those anticipated in forward-looking statements made in this document and
elsewhere by or on behalf of the Company.
Highly Competitive Industry. The data processing equipment leasing business is
highly competitive. The Company competes with numerous companies, including
leasing companies, commercial banks and financial institutions, some of which
the company relies on to obtain capital to finance its leases. Most of the
Company's competitors are significantly larger and have substantially greater
resources than the Company. Because of its relative lack of capital, the Company
typically chooses not to compete with large leasing companies for those leases
in which the cost of the equipment greatly exceeds the amount of nonrecourse
financing available.
Future Growth. The Company's ability at grow to an acceptable rate is dependent
to a great extent on the expansion of its vendor leasing programs. As of
September 30, 1996, the Company has only two significant vendor leasing programs
and has signed agreements for four other vendor leasing programs. While the
Company believes it has the ability and capacity to develop other large vendor
leasing programs, there is no assurance that it will be successful in this
regard or that it will be able to generate acceptable revenue growth.
Risk of Additional Write-Offs. While the Company believes that its current
reserves are adequate, it continues to monitor closely several restricted loans.
There is no assurance that such loans will not go into default or that they are
adequately secured. Any future losses on such loans incurred in excess of the
Company's reserves could materially affect the Company's future earnings.
Peter King Claims. The claims of the former ILC shareholders regarding the
merger of ILC and Sunrise Leasing Corporation will be heard in a binding
arbitration scheduled for late November 1996. The ILC shareholders are seeking
rescission and/or substantial damages which, if granted, would be in the form of
additional shares of Company stock thereby materially diluting the holdings of
current shareholders. Under the rescission claim, the ILC shareholders will seek
to gain control of the Company's entire vendor leasing business. The Company
firmly believes that rescission is not a proper remedy, but if rescission is
granted, it would not cover that part of the new vendor leasing clients
generated after the merger.
Nonrecourse Financing. The Company's growth and profitability are dependent to a
great extent on the continued willingness of banks and other financial
institutions to lend the Company money to finance its leasing transactions on a
nonrecourse basis. In order for the Company to obtain such financing, its
customers must have a credit standing which is satisfactory to the Company's
lenders. There is no assurance that banks or other financial institutions will
be willing to continue to finance the Company's leasing transactions on a
nonrecourse basis or that the Company will continue to attract customers that
meet the credit standards of its financing sources. Any adverse change in either
the willingness of financial institutions to finance the Company's lease
transactions on a nonrecourse basis or in the Company's ability to attract
creditworthy customers could adversely affect its future leasing revenue.
15
<PAGE>
Recourse Financing. Although nonrecourse financing will continue to be the
Company's preferred form of financing, recourse financing may be used when
nonrecourse financing is not available for a particular lease or when the
benefits of recourse financing outweigh the risks. The Company assumes a
significantly higher degree of risk with recourse financed leases because the
lessee is often more susceptible to default and the lender has direct recourse
against the Company for the amount of any default by the lessee. Such a default
could have a material adverse effect on the Company if the fair market value of
the leased equipment at the time of default is insufficient to satisfy the
obligations due the lender. There is no assurance that such defaults will not
occur. Recently, the Company's subsidiary has securitized certain of its lease
receivables and related residuals associated with certain of the Company's
vendor program leases, and the Company anticipates that it may enter into
similar transactions to finance a portion of this business in the future. If it
were unable to acquire such additional financing, the Company would need to rely
more heavily on additional recourse financing to further finance this type of
business.
Major Customers/Vendors. As of September 30, 1996, $23,541,000 in leasing
operations and loans receivable balances were funded internally or with recourse
obligations held by 15 customers having balances outstanding in amounts greater
than $500,000. Total investments in leases and loans receivables to customers
considered highly leveraged or with cash flows from operations inadequate to
service existing obligations were $34,250,000 or 31% of the portfolio as of
September 30, 1996. Defaults by such customers would result in a significant
loss to the Company, to the extent such amounts are not already reserved. In
addition, as these leases and loans are funded internally or through recourse
financing, the Company would be obligated to repay the remaining principal
balance to the financial institution out of internally generated funds while
receiving no cash payments from the lessee/borrower.
In addition, 52.8% and 46.3% of the Company's leasing revenue for the three and
six month periods ended September 30,1996 was generated through a single vendor
leasing program. Should this program terminate, the Company would continue to
realize related revenues for a period of up to three years. The Company believes
that during this period it would be able to replace this business. If, however,
the Company would be unable to replace this business, the Company's future
financial results could be materially and adversely affected.
Control by a Small Group of Investors. As of September 30, 1996, 39.6% of the
outstanding shares of Sunrise Resources, Inc. was controlled by trusts for the
benefit of Peter King and the sons of Peter King. Because of such share
ownership, these trusts may be able to control the election of all members of
the Board of Directors, and may be able to control all future corporate actions.
If the former shareholders of ILC are successful in their arbitration claims,
the holdings of Company stock by these trusts could increase significantly.
Residual Values of Leased Equipment. The value of the data processing equipment
leased by the Company to its customers represents a substantial portion of the
Company's capital. At the inception of each lease, the Company estimates the
residual value of the leased equipment, which is the estimated market value of
the equipment at the end of the initial lease term. The actual realized residual
value of leased equipment may differ from its estimated residual value,
resulting in profit or loss when the leased equipment is sold or leased again at
the end of the initial lease term. If a lessee defaults on a lease which has
been discounted by the Company to a financial institution, the financial
institution may foreclose on its security interest in the leased equipment and
the Company may not realize any portion of such residual value. In addition,
data processing equipment is subject to rapid technological obsolescence typical
of the computer industry. While the Company's experience to date has generally
resulted in actual residual values in excess of estimated residual values, a
greater than expected decrease in the market value of data processing or other
equipment leased by the Company could materially and adversely affect the
Company's financial condition and profitability.
16
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PART II--OTHER INFORMATION
Item 1. In June of 1995 the former ILC shareholders advised the Company
that they were reserving their rights in connection with the
merger of the Company and ILC in February 1995. The claims of the
former ILC shareholders are expected to go to arbitration in late
November 1996. See Note 6 to Financial Statements at Part I, Item
1, above.
Item 2. Changes in Securities - NONE
Item 3. Defaults on Senior Securities - See Note 5 to Financial
Statements at Part I, Item 1, above.
Item 4. Submission of Matters to a Vote of Security Holders - NONE
Item 5. Other Information - NONE
ITEM 6. Exhibits and Reports on Form 8-K.
a. Exhibits
See Exhibit Index immediately following the signature page.
b. Form 8-K
There have been no Current Reports on Form 8-K filed on
behalf of the Company during the quarter ended September 30,
1996.
17
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUNRISE RESOURCES, INC.
Date: November 14, 1996 By:/s/ Errol Carlstrom
Errol Carlstrom, President and Chief Executive
Officer (Principal executive officer)
By:/s/ Barry J. Schwach
Barry J. Schwach
Executive Vice President of Finance and
Administration and Chief Financial Officer
(Principal financial officer)
By:/s/ Paul R. Wotta
Paul R. Wotta
Controller (Principal accounting officer)
18
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBIT INDEX TO FORM 10-Q
Commission File No.: 0-19516
For the quarter ended
September 30, 1996
SUNRISE RESOURCES, INC.
Exhibit
Number Description
3.1 Restated Articles of Incorporation, as amended - incorporated by
reference to Exhibit 3.1 to the Company's Annual Report on
Form 10-K for the year ended March 31, 1995.
3.2 Restated Bylaws--incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-18,
Reg. No. 33-42477C.
4.1 Specimen of Common Stock Certificate--incorporated by reference
to Exhibit 4 to Amendment No. 1 to the Company's Registration
Statement on Form S-18, Reg. No. 33-42477C.
10.1 Amendment to Security Agreement dated June 22, 1995 between the
Company and King Holding Corporation
10.2 First Amendment to Amended and Restated Credit Agreement dated
October 1, 1996 between the Company and First Bank National
Association
10.3 Promissory Note Extension Agreement dated October 1, 1996 between
the Company and First Bank National Association
10.4 Employment Agreement October 14, 1994 between the Company and
Barry J. Schwach
10.5 Employment Agreement October 14, 1994 between the Company and
William B. King
10.6 Incentive Compensation Plan for Fiscal Year 1997
10.7 Replacement Promissory note dated November 7, 1996 by the Company
in favor of Daiwa Bank, Limited at the Sumitomo Bank, Ltd.
10.8 Amended and Restated Loan and Security Agreement and Waiver dated
November 7, 1996 between the Company and Daiwa Bank, Limited
11.1 Per Share Earnings Computations
27.0 Financial Data Schedule (filed with electronic version only)
*Management contract or other compensatory plan.
19
Amendment to Security Agreement
Dated June 22, 1995
Between Sunrise Leasing Corporation ("Borrower") and
King Holding Corporation ("Secured Party")
Borrower wishes to finance $1,955,038.85 of Equipment under its current
facility with Secured Party under the same terms and conditions except as
changed herein, by providing Secured Party with Collateral pursuant to this
Security Agreement. Secured Party agrees to advance $1,955,038.85 to Borrower
under the terms and conditions below.
All capitalized terms not herein defined shall have the meaning given
them in the Security Agreement dated June 22, 1995.
Borrower shall amortize this outstanding balance by making semi-monthly
payments to Secured Party as follows:
October 15, 1996 $102,883.07
October 31, 1996 $102,883.06
November 15, 1996 $ 92,831.66
Within 60 days from the date funds are advanced to Borrower, Borrower
shall pay such remaining principal amount previously advanced together with
interest on the unpaid balance.
All other terms and conditions of the Security Agreement remain the
same.
Sunrise Leasing Corporation King Management Corporation
By: /s/ Barry J. Schwach By: /s/ Peter J. King
Its: Chief Financial Officer Its: President
FIRST AMENDMENT TO AMENDED AND
RESTATED CREDIT AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
(this "Amendment"), made and entered into as of October 1, 1996, is by and
between Sunrise Leasing Corporation and Sunrise Resources, Inc., Minnesota
corporations (the "Borrower"), and FIRST BANK NATIONAL ASSOCIATION , a national
banking association (the "Bank").
RECITALS
1. The Bank and the Borrower entered into an Amended and Restated
Credit Agreement dated as of April 1, 1996 (the "Credit Agreement"); and
2. The Borrower desires to amend certain provisions of the Agreement,
and the Bank has agreed to make such amendments, subject to the terms and
conditions set forth in this Amendment.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto hereby covenant
and agree to be bound as follows:
Section 1. Capitalized Terms. Capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned to them in the Credit
Agreement, unless the context shall otherwise require.
Section 2. Amendments. The Credit Agreement is hereby amended as
follows:
2.1 Definitions. The definitions of "Termination Date" contained in
Section 1 of the Credit Agreement is amended in its entirety as follows:
"Termination Date" means the earlier of (a) September 30, 1997; or (b)
the date upon which the Obligation of the Bank to make advances is terminated
pursuant to Section 8.2.
Section 3. Effectiveness of Amendments. The amendments contained in
this Amendment shall become effective upon delivery by the Borrower of, and
compliance by the Borrower with, the following:
3.1 This Amendment, duly executed by the Borrower.
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3.2 Promissory Note Extension Agreement in the form attached hereto as
Exhibit A.
3.3 A confirmation of Security Agreement in the form of Exhibit B
attached to this Amendment, duly executed by the Borrower.
3.4 The Borrower shall have satisfied such other conditions as
specified by the Bank or counsel to the Bank, including payment of all unpaid
legal fees and expenses incurred by the Bank through the date of this Amendment
in connection with the Credit Agreement.
Section 4. Representations; Acknowledgments. The Borrower hereby
represents that on and as of the date hereof and after giving effect to this
Amendment (a) all of the representations and warranties contained in the Credit
Agreement, and in any and all other Loan Documents of the Borrower, are true,
correct and complete in all respects as of the date hereof as though made on and
as of such date, except for changes permitted by the terms of the Credit
Agreement, and (b) the Borrower is in compliance with all covenants and
agreements of the Borrower as set forth in the Credit Agreement and in any and
all other Loan Documents of the Borrower. The Borrower represents and warrants
that the Borrower has the power and legal right and authority to enter into this
Amendment and has duly authorized as appropriate the execution and delivery of
this Amendment and other agreements and documents executed and delivered by the
Borrower in connection herewith or therewith by proper corporate action. The
Borrower acknowledges and agrees that its obligations to the Bank under the
Credit Agreement and exist and are owing without offset, defense or counterclaim
assertable by the Borrower against the Bank. The Borrower further acknowledges
and agrees that its obligations to the Bank under the Credit Agreement, as
amended, constitute "Obligations" within the meaning of the Security Agreement
and are secured by the Security Agreement, as amended.
Section 5. Affirmation, Further References. Except as expressly
modified under this Amendment, all of the terms, conditions, provisions,
agreements, requirements, promises, obligations, duties, covenants and
representations of the Borrower under the Credit Agreement, the Security
Agreement, and any and all other Loan Documents entered into with respect to the
obligations under the Credit Agreement are incorporated herein by reference and
are hereby ratified and affirmed in all respects by the Borrower. All references
in the Credit Agreement to "this Agreement," "herein," "hereof," and similar
references, and all references in the other Loan Documents to the "Agreement,"
shall be deemed to refer to the Agreement, as amended by this Amendment.
Section 6. Merger and Integration, Superseding Effect. This Amendment,
from and after the date hereof, embodies the entire agreement and understanding
between the parties hereto and supersedes and has merged into it all prior oral
and written agreements on the same subjects by and between the parties hereto
with the effect that this Amendment, shall control with respect to the specific
subjects hereof and thereof.
2
<PAGE>
Section 7. Severability. Whenever possible, each provision of this
Amendment and any other statement, instrument or transaction contemplated hereby
or thereby or relating hereto or thereto shall be interpreted in such manner as
to be effective, valid and enforceable under the applicable law of any
jurisdiction, but, if any provision of this Amendment or any other statement,
instrument or transaction contemplated hereby or thereby or relating hereto or
thereto shall be held to be prohibited, invalid or unenforceable under the
applicable law, such provision shall be ineffective in such jurisdiction only to
the extent of such prohibition, invalidity or unenforceability, without
invalidating or rendering unenforceable the remainder of such provision or the
remaining provisions of this Amendment or any other statement, instrument or
transaction contemplated hereby or thereby or relating hereto or thereto in such
jurisdiction, or affecting the effectiveness, validity or enforceability of such
provision in any other jurisdiction.
Section 8. Successors. This Amendment shall be binding upon the
Borrower and the Bank and their respective successors and assigns, and shall
inure to the benefit of the Borrower and the Bank and the successors and assigns
of the Bank.
Section 9. Legal Expenses. The Borrower agrees to reimburse the Bank,
upon execution of this Amendment, for all reasonable out-of-pocket expenses
(including attorneys' fees and legal expenses of Dorsey & Whitney, counsel for
the Bank) incurred in connection with the Credit Agreement, including in
connection with the negotiation, preparation and execution of this Amendment and
all other documents negotiated, prepared and executed in connection with this
Amendment, and in enforcing the obligations of the Borrower under the Credit
Agreement, as amended by this Amendment, which obligations of the Borrower shall
survive any termination of the Credit Agreement.
Section 10. Headings. The headings of various sections of this
Amendment have been inserted for reference only and shall not be deemed to be a
part of this Amendment.
Section 11. Counterparts. This Amendment may be executed in several
counterparts as deemed necessary or convenient, each of which, when so executed,
shall be deemed an original, provided that all such counterparts shall be
regarded as one and the same document, and either party to this Amendment may
execute any such agreement by executing a counterpart of such agreement.
Section 12. Governing Law. The Amendment Documents shall be governed by
the internal laws of the State of Minnesota, without giving effect to conflict
of law principles thereof.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date and year first above written.
SUNRISE LEASING CORPORATION
By: /s/ Barry J. Schwach
Title: Chief Financial Officer
SUNRISE RESOURCES, INC.
By: /s/ Barry J. Schwach
Title: Chief Financial Officer
FIRST BANK NATIONAL ASSOCIATION
By: /s/ Mark McDonald
Title: Vice President
4
PROMISSORY NOTE EXTENSION AGREEMENT
This Promissory Note Extension Agreement is entered into effective this
first day of October, 1996 by and between Sunrise Leasing Corporation, a
Minnesota corporation, and Sunrise Resources, Inc., a Minnesota corporation
(collectively "Borrower") and First Bank National Association, a national
banking association ("Bank").
RECITALS
FIRST. Pursuant to an Amended and Restated Credit Agreement dated as of
April 1, 1996, the Borrower executed and delivered to the Bank a promissory
note, in the original principal amount of $25,000,000 (the "Note").
SECOND. Pursuant to the terms of the Note, it became due and payable on
September 30, 1996. The Borrower has applied to the Bank for and extension of
the stated maturity date of the Note and the Bank has agreed to so extend the
Note subject to the terms and conditions hereof.
NOW THEREFORE, and in consideration of the extension of the stated
maturity date of the Note, the mutual covenants, promises and agreements
contained herein and other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged. The Borrower and the Bank agree as
follows:
1. The stated maturity of the Note is hereby extended to
September 30, 1997 at which date all outstanding principal and
accrued interest of the Note shall be due and payable in full.
2. The Borrower affirms that the outstanding principal on the
Note as of the date hereof is the sum of $24,584,785.83 and
warrants and represents to the Bank that the Note, as so
extended, hereby, is the legal, valid and binding obligation
of the Borrower enforceable against the Borrower in accordance
with its terms and is not subject to any defense, counterclaim
or right of offset.
3. The Borrower consents to the personal jurisdiction of the
state and federal courts located in the State of Minnesota in
connection with any controversy related to the Note as
extended hereby, waives any argument that venue in such forums
is not convenient and agrees that any litigation instigated by
the Borrower against the Bank in connection with the Note
shall be venued either in the district courts of Hennepin
County, Minnesota or the United States District Court for the
District of Minnesota, Fourth Division.
4. The Note as extended hereby shall be continued to be secured
by the security interest granted by Borrowers pursuant to the
Security Agreement dated April 1, 1996, all without loss of
lien or priority.
<PAGE>
5. Accept as expressly modified or amended herein, all of the
terms and provisions of the Note shall remain in full force
and effect as set forth therein.
IN WITNESS WHEREOF, the Borrower and Bank cause this Agreement to be
executed by the duly authorized officers the day and the year first above
written.
SUNRISE LEASING CORPORATION
By /s/ Barry J. Schwach
Its Chief Financial Officer
SUNRISE RESOURCES, INC.
By /s/ Barry J. Schwach
Its Chief Financial Officer
FIRST BANK NATIONAL
ASSOCIATION
By /s/ Mark McDonald
Its Vice President
Employment Agreement
This Agreement incorporates the employment arrangement between ILC and you as of
the date executed below:
1. Your title, duties and compensation in the subsequent organization
shall be described to you prior to the change of ownership. Your
compensation and package of benefits as a whole shall be commensurate
with your new duties. Your tenure with Sunrise will include the time
you have been an employee of ILC as it relates to benefits and any
other criteria that utilizes tenure of employment.
2. If you join the new organization and:
a) Your title, duties, package of benefits as a whole (other than
changes which are applicable to all other employees of Sunrise) or
compensation changes significantly subsequent to the merger and during
the guarantee period in a manner adverse to you and without your
written consent, or
b) You are terminated for any reason other than gross misconduct,
embezzlement, fraud, theft, or being found guilty of a felony, and
c) You do not resign voluntarily (other than as a result of the
circumstances described in 2(a) above),
you shall receive minimum compensation of $115,000 per year for the
unexpired term of this two-year employment compensation guarantee
period. The two-year guarantee period shall commence on the first day
of your employment with Sunrise.
If your employment ceases during the first year, you shall receive your minimum
monthly salary for the remainder of the year and your guaranteed bonus plus your
full Guaranteed Minimum Amount for the second year.
If your employment is terminated during the second year, you shall receive your
minimum monthly salary for the remainder of the year and your guaranteed bonus.
These amounts shall be paid upon termination of your employment.
Your compensation guarantee is calculated as follows:
Salary $7,917/month
Bonus $20,000/annual
Total Annual Guaranteed Minimum Amount $115,000
INTERNATIONAL LEASING CORPORATION I agree to the above.
Signed: /s/ Peter J. King Signed: /s/ Barry J. Schwach
Name: Peter J. King Name: Barry J. Schwach
Date: October 14, 1994 Date: October 14, 1994
Employment Agreement
This Agreement incorporates the employment arrangement between ILC and you as of
the date executed below:
1. Your title, duties and compensation in the subsequent organization
shall be described to you prior to the change of ownership. Your
compensation and package of benefits as a whole shall be commensurate
with your new duties. Your tenure with Sunrise will include the time
you have been an employee of ILC as it relates to benefits and any
other criteria that utilizes tenure of employment.
2. If you join the new organization and:
a) Your title, duties, package of benefits as a whole (other than
changes which are applicable to all other employees of Sunrise) or
compensation changes significantly subsequent to the merger and during
the guarantee period in a manner adverse to you and without your
written consent, or
b) You are terminated for any reason other than gross misconduct,
embezzlement, fraud, theft, or being found guilty of a felony, and
c) You do not resign voluntarily (other than as a result of the
circumstances described in 2(a) above),
you shall receive minimum compensation of $100,000 per year for the
unexpired term of this two-year employment compensation guarantee
period. The two-year guarantee period shall commence on the first day
of your employment with Sunrise.
If your employment ceases during the first year, you shall receive your minimum
monthly salary for the remainder of the year and your guaranteed bonus plus your
full Guaranteed Minimum Amount for the second year.
If your employment is terminated during the second year, you shall receive your
minimum monthly salary for the remainder of the year and your guaranteed bonus.
These amounts shall be paid upon termination of your employment.
Your compensation guarantee is calculated as follows:
Salary $6,250/month
Bonus $25,000/annual
Total Annual Guaranteed Minimum Amount $100,000
INTERNATIONAL LEASING CORPORATION I agree to the above.
Signed: /s/ Peter J. King Signed: /s/ William B. King
Name: Peter J. King Name: William B. King
Date: October 14, 1994 Date: October 14, 1994
SUNRISE RESOURCES, INC.
INCENTIVE COMPENSATION PLAN
Objective
The objective of the Sunrise Resources Incentive Compensation Plan (ICP) is to
provide additional compensation to those employees identified by senior
management which will assist the company in attaining both short term and long
term goals.
Scope
It is the philosophy of the Company to provide some level of incentive payment
to all employees as a means to reward and retain a competent staff. Various
levels of incentive payment is made to these employees based upon their grade
level, and importance of the job in the company's financial performance.
Term and Approval
The ICP program will be set each fiscal year by senior management, with any
proposed changes, and presented to the Board of Directors for final approval.
Payment
All payments under this ICP program will be paid in the 1st quarter following
each fiscal year as determined by senior management.
Eligibility
All full-time employees, except commissioned employees covered by another
program, are eligible. Individuals must be employed on the first and last days
of the fiscal year with no break in service, and must be employed on the date
payments are made under the program, unless other arrangements have been made in
writing and approved by the Company's President and Chief Executive Officer.
Award levels
Awards will be made to the employees covered under this plan, based upon
predetermined financial goals of the company, and the employees latest Annual
Performance Rating ( See Sunrise Resources Performance Appraisal ). Objectives
and levels of performance will be summarized on the Sunrise Resources Pool
Objectives Form. Actual results will be interpolated on the Form to establish
actual payments. No awards will be made for personal objectives unless the
Company achieves it's annual objectives as defined on the Sunrise Resources Pool
Objectives Forms.
<PAGE>
Award Pools
Each year, management will establish five bonus pools based upon job levels,
established minimum targets, and maximum cash payments expressed as a percentage
of the pool's combined base salaries in place at the end of each fiscal year.
Non- Management Pool- maximum of 10% of base salaries. (See exhibit A)
This pool consists of personnel considered support, non-management employees. A
single 10% payment will be made only if the company achieves it's annual income
before tax budget including bonus accrual, approved by the board of directors,
and each individual has an Annual Performance Rating of no less than 3.5.
Middle Management Pool- maximum of 20% of base salaries. (See Exhibit B)
This pool consists of personnel considered middle management. A payment of 50%
of the award level will be paid only if the company achieves it's annual income
before tax budget including bonus accrual, approved by the board of directors,
and an additional payment of 50% of the award level will be made only if the
individual has an Annual Performance rating of no less than 3.5.
Senior Management Pool- maximum of 40% of base salaries. (See exhibit C
and D) This pool consists of senior management department heads. For non-sales
department heads, a payment of 50% of the award level will be made only if the
company achieves it's annual income before tax budget including bonus accrual,
approved by the board of directors. An additional payment of 50% of the award
level will be made only if the individual has an Annual Performance rating of no
less than 3.5.
For sales department heads, a payment of 60% of the award level will be
made only if the company achieves it's annual income before tax budget including
bonus accrual, approved by the board of directors. An additional 20% of the
award level payment will be made only if the Company achieves it's annual
revenue budget from SLC and ILC business and approved by the board of directors.
20% of the award level will be paid based upon the individual attaining an
Annual Performance rating of no less than 3.5.
Executive Management Pool- maximum of 75% of base salaries. (See exhibit
E) This pool consists of the President/ CEO and other individuals identified by
the board of directors. A payment of 75% of the award level will be made only if
the company achieves it's annual income before tax budget including bonus
accrual, approved by the board of directors. A payment of 25% of the award will
be made based upon non-financial objectives established by the board of
directors, and the degree to which they have been met.
<PAGE>
Discretionary Bonus Pool- In the event the Company achieves earnings
greater than it's annual income before tax budget including bonus accrual,
approved by the board of directors, senior management and executive management
will be eligible for a discretionary bonus. In the event the Company achieves
less than it's annual income before tax budget including bonus accrual, approved
by the board of directors, the board of directors retains the ability to award
discretionary bonus payments they believe to be appropriate.
Annual Income Before Tax is defined as the budget approved by the board of
directors, including applicable accrual for bonuses to be paid.
<PAGE>
(EXHIBIT A)
SUNRISE RESOURCES POOL OBJECTIVES FOR FISCAL 1997
Pool name Non-Management
Total Salaries for Participants $ 356,436.00
Anticipated maximum bonus to be paid $ 35,644.00
TARGETS
Minimum Medium Maximum
Opportunity 5 % 7.5 % 10%
Projected Value $ $ $
------- ------ -------
Actual Value $ $ $
------- ------ -------
<TABLE>
<CAPTION>
Objective Description Weight Threshold Target Maximum Actual Incentive Earned
<S> <C> <C> <C> <C> <C> <C>
1) Income Before Tax 100% 6,000,000 6,355,000 6,710,000 $
2) & 3.5 or + Perf. Rating met met met
3) %
4) %
5) %
Financial Objectives Include Bonus Accrual Total Incentive $
</TABLE>
Goal Approval /s/ Errol Carlstrom /s/ Thomas R. King
President & CEO Board of Directors
Date: 10/24/96 Date
Award Approval /s/ Thomas R. King
President & CEO Board of Directors
Date Date
<PAGE>
N0N-MANAGEMENT ELIGIBLE EMPLOYEES
Alex Stamson
Sophia Schwartz
George Ramsburg
Susan Bowman
Kelly Pottratz
Lynn Showalter
Rick Quinlan
Anna Miller
Todd Baumgartner
Trent Waite
JoAnn Lighten
Kerri Hanvelt
Dianne MacKenzie
<PAGE>
(EXHIBIT B)
SUNRISE RESOURCES POOL OBJECTIVES FOR FISCAL YEAR 1997
Pool name Middle Management
Total Salaries for Participants $ 402,075.00
Anticipated maximum bonus to be paid $ 80,415.00
TARGETS
Minimum Medium Maximum
Opportunity 10 % 15 % 20%
Projected Value $ $ $
------- ------ -------
Actual Value $ $ $
------- ------ -------
<TABLE>
<CAPTION>
Objective Description Weight Threshold Target Maximum Actual Incentive Earned
<S> <C> <C> <C> <C> <C> <C>
1) Income Before Tax 50% 6,000,000 6,355,000 6,710,000 $
2) & 3.5 or + Perf. Rating 50% met met met
3) %
4) %
5) %
Financial Objectives Include Bonus Accrual Total Incentive $
</TABLE>
Goal Approval /s/ Errol Carlstrom /s/ Thomas R. King
President & CEO Board of Directors
Date: 10/24/96 Date
Award Approval /s/ Thomas R. King
President & CEO Board of Directors
Date Date
<PAGE>
MIDDLE MANAGEMENT ELIGIBLE EMPLOYEES
Bruce Gravelle
Carrie Halvorson
Dan Cadwell
Rich Reamer
Paul Wotta
Susan Vik
Terri Bond
Joann Cross
Sandy Kleis
<PAGE>
(EXHIBIT C)
SUNRISE RESOURCES POOL OBJECTIVES FOR FISCAL YEAR 1997
Pool name Senior Management-Non Sales
Total Salaries for Participants $ 222,000.00
Anticipated maximum bonus to be paid $ 88,800.00
TARGETS
Minimum Medium Maximum
Opportunity 20 % 30 % 40%
Projected Value $ $ $
------- ------ -------
Actual Value $ $ $
------- ------ -------
<TABLE>
<CAPTION>
Objective Description Weight Threshold Target Maximum Actual Incentive Earned
<S> <C> <C> <C> <C> <C> <C>
1) Income Before Tax 50% 6,000,000 6,355,000 6,710,000 $
2) & 3.5 or + Perf. Rating 50% met met met
3) %
4) %
5) %
Financial Objectives Include Bonus Accrual Total Incentive $
</TABLE>
Goal Approval /s/ Errol Carlstrom /s/ Thomas R. King
President & CEO Board of Directors
Date: 10/24/96 Date
Award Approval /s/ Thomas R. King
President & CEO Board of Directors
Date Date
<PAGE>
SENIOR MANAGEMENT -NON SALES ELIGIBLE EMPLOYEES
Brad Pike
Barry Schwach
<PAGE>
(EXHIBIT D)
SUNRISE RESOURCES POOL OBJECTIVES FOR FISCAL YEAR 1997
Pool name Senior Management-Sales
Total Salaries for Participants $ 252,000.00
Anticipated maximum bonus to be paid $ 100,800.00
TARGETS
Minimum Medium Maximum
Opportunity 20 % 30 % 40%
Projected Value $ $ $
------- ------ -------
Actual Value $ $ $
------- ------ -------
<TABLE>
<CAPTION>
Objective Description Weight Threshold Target Maximum Actual Incentive Earned
<S> <C> <C> <C> <C> <C> <C>
1) Income Before Tax 60% 6,000,000 6,355,000 6,710,000 $
2) SLC/ILC Total Revenue 20% 40,000,000 43,270,000 46,540,000
3) & 3.5 or + Perf. Rating 20% met met met
4) %
5) %
Financial Objectives Include Bonus Accrual Total Incentive $
</TABLE>
Goal Approval /s/ Errol Carlstrom /s/ Thomas R. King
President & CEO Board of Directors
Date: 10/24/96 Date
Award Approval /s/ Thomas R. King
President & CEO Board of Directors
Date Date
<PAGE>
SENIOR MANAGEMENT-SALES ELIGIBLE EMPLOYEES
Dana Prescott
Bill King
<PAGE>
(EXHIBIT E)
SUNRISE RESOURCES POOL OBJECTIVES FOR FISCAL YEAR 1997
Pool name Executive Management
Total Salaries for Participants $ 200,000.00
Anticipated maximum bonus to be paid $ 150,000.00
TARGETS
Minimum Medium Maximum
Opportunity 25 % 50 % 75%
Projected Value $ $ $
------- ------ -------
Actual Value $ $ $
------- ------ -------
<TABLE>
<CAPTION>
Objective Description Weight Threshold Target Maximum Actual Incentive Earned
<S> <C> <C> <C> <C> <C> <C>
1) Income Before Tax 75% 6,000,000 6,355,000 6,710,000 $
2) Personal Objectives 25% met met met
3) %
4) %
5) %
Financial Objectives Include Bonus Accrual Total Incentive $
</TABLE>
Goal Approval /s/ Errol Carlstrom
President & CEO Board of Directors
Date: 10/24/96 Date
Award Approval
President & CEO Board of Directors
Date Date
<PAGE>
EXECUTIVE MANAGEMENT ELIGIBLE EMPLOYEES
Errol Carlstrom
REPLACEMENT PROMISSORY NOTE
$4,464,778.55 Minneapolis, Minnesota
Due: September 1, 1999 November 7, 1996
FOR VALUE RECEIVED, the undersigned, Sunrise Resources, Inc., a Minnesota
corporation ("Sunrise") and Sunrise Leasing Corporation, a Minnesota corporation
(SLC; and together with Sunrise being sometimes hereinafter referred to
collectively as the "Borrowers" and individually as a "Borrower"), jointly and
severally promise to pay to the order of The Daiwa Bank, Limited (the "Lender"),
at The Sumitomo Bank, Ltd., ABA Number 071001850 for credit account of The Daiwa
Bank, Ltd, Tokyo A/C Number 010021413, Reference: Sunrise Resources (or other
location specified by the Lender), the sum of Four Million Four Hundred Sixty
Four Thousand Seven Hundred Seventy-Eight and 55/100ths Dollars ($4,464,778.55).
The Borrower jointly and severally promise to pay interest on the unpaid
principal amount of this Note at such interest rates and at such times as are
specified in the hereinafter referred to Loan Agreement.
The Borrower agrees to pay the principal of this Note in the amounts and at
such times as are specified in the Loan Agreement.
Both principal and interest are payable in lawful money of the United
States of America in immediately available funds.
This Note is the Note referred to in, and is entitled to the benefits of,
the Amended and Restated Loan and Security Agreement dated as of November 7,
1996 (the Amended and Restated Loan and Security Agreement as it may be amended,
modified, supplemented or restated from time to time being herein referred to as
the "Loan Agreement") among the Borrowers and the Lender. The Loan Agreement,
among other things, contains provisions for acceleration of the maturity hereof
upon the happening of certain stated events prior to the maturity hereof upon
the terms and conditions therein specified, and contains provisions for the
mandatory prepayment hereof upon certain conditions.
This Note is secured in accordance with the Loan Agreement and may now or
hereafter be secured by one or more other security agreements or other
instruments or agreements.
Presentment and demand for payment, notice of dishonor, protest and notice
of protest are hereby waived. In the event of default, the undersigned agrees to
pay costs of collection and reasonable attorneys' fees including, without
limitation, attorneys' fees and legal expenses incurred in connection with any
appeal of a lower court's judgment or order.
This Note is being executed and delivered in replacement of, but not in
payment of, that certain Promissory Note dated February 7, 1995 made by Sunrise
payable to the order of the Lender in the original principal amount of
$7,200,000.00 and on which there is an outstanding principal balance of
$4,464,778.55; which outstanding principal balance is now evidenced by the Note.
<PAGE>
EACH BORROWER HEREBY WAIVES THE RIGHT TO TRIAL BY JURY OF THE MATTERS
ARISING OUT OF THIS NOTE OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Sunrise Resources, Inc.
By /s/ Barry J. Schwach
Its Chief Financial Officer
Sunrise Leasing Corporation
By /s/ Barry J. Schwach
Its Chief Financial Officer
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
This AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT AND WAIVER, dated as
of November 7, 1996 (the "Amendment"), among Sunrise Resources, Inc. (the
"Original Borrower"), Sunrise Leasing Corporation ("SLC;" and together with the
Original Borrower being sometimes hereinafter referred to collectively as the
"Borrowers" and individually as a "Borrower") and The Daiwa Bank, Limited (the
"Lender").
RECITALS:
A. The Original Borrower and the Lender are parties to that certain Loan
and Security Agreement dated as of February 7, 1995 (the "1995 Loan Agreement").
B. On or about March 31, 1995, the Original Borrower transferred to SLC, a
wholly-owned Subsidiary of the Original Borrower, a substantial portion of the
Original Borrower's assets including, without limitation, the "Loan Support
Leases" in violation of the Original Agreement. In connection therewith, SLC
agreed with the Original Borrower to assume all of the Original Borrower's
obligations under the Loan Documents but has failed to execute an assumption
agreement in form and substance satisfactory to the Lender.
C. On July 27, 1995, the Original Borrower and the Lender entered into an
Amendment No. 1 to Loan and Security Agreement and Waiver (the "First
Amendment;" the 1995 Loan Agreement as amended by the First Amendment being the
"Original Agreement") pursuant to which the Original Borrower and the Lender
agreed to amend certain provisions of the Original Agreement and the Lender
agreed to waive the "Defaults" and "Events of Default" specified therein;
provided, however that the waiver granted by the First Amendment was rendered
void, ab initio, because of the failure of certain condition subsequent set
forth in the First Amendment.
D. The Original Borrower has requested that the Lender waive all existing
"Defaults" and "Events of Default" under the Original Agreement and the Lender
has required as a condition precedent to doing so, that the Original Agreement
be amended and restated in accordance with this Agreement.
NOW, THEREFORE, the parties hereto agree to amend and restate the Original
Agreement in its entirety to read as follows:
<PAGE>
ARTICLE I
DEFINITIONS
1.1 Definitions. The following terms when used in this Agreement (such
terms and other capitalized terms being used herein with the meanings ascribed
to them in this Article I) shall, except where the context otherwise requires,
have the following meanings (such definitions to be equally applicable to the
singular and plural forms thereof):
"Affiliate" shall include, with respect to any Person, any other Person who
directly or indirectly controls, is controlled by, or is under common control
with such party and in addition, in the case of the Borrowers, each officer,
director, or shareholder of any Borrower or any Subsidiary, and each joint
venturer and partner of any Borrower.
"Agreement" shall mean this Agreement as originally executed and as
amended, modified or supplemented from time to time.
"APT" shall mean Advanced Promotion Technologies, Inc., a Delaware
corporation, which is the debtor-in-possession in that certain reorganization
proceeding captioned In Re: Advanced Promotion Technologies, Inc. pending in the
United States Bankruptcy Court for the Southern District of Florida (the
"Bankruptcy Court") as Case No. 96-23875- RBR/Chapter 11.
"APT Loan Support Lease" shall mean the following Lease Schedules (the "APT
Lease Schedules") entered into pursuant to that certain Master Lease Agreement
between the Original Borrower and/or SLC, as lessor, and APT, as lessee, dated
as of May 22, 1992 (the "APT Master Lease") and rights of lessor under the APT
Master Lease as they relate to the APT Lease Schedules:
Schedule C dated as of November 10, 1993 Schedule D dated as of October 13,
1993 Schedule E dated as of February 23, 1994 Schedule F dated as of March 21,
1994 Schedule H dated as of August 24, 1994 Schedule I dated as of January 31,
1995.
"APT Loan Support Leased Goods" shall mean the items of property leased by
the Original Borrower and/or SLC to APT pursuant to the APT Loan Support Lease.
"Borrower(s)" shall have the meaning provided in the preamble hereto.
"Business Day" shall mean any day on which commercial banks in Minneapolis,
Minnesota and Chicago, Illinois are open for the transaction of business of the
kind contemplated by this Agreement.
2
<PAGE>
"Capital Base" shall mean the sum of the Original Borrower's consolidated
Tangible Net Worth plus Subordinated Debt.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
"Collateral" shall mean all property in which a Security Interest is
granted pursuant to any Loan Document.
"Controlled Account" shall mean any bank account maintained by a Borrower
with a financial institution acceptable to the Lender, provided, that such
account is subject to a collateral account agreement which is in a form
acceptable to the Lender in its sole discretion pursuant to which such financial
institution agrees: (x) to act as the agent of the Lender, and (y) upon notice
from the Lender that an Event of Default has occurred and is continuing, to
deliver to the Lender all collected funds which are in such account.
"Default" shall mean any event which if continued uncured would, with
notice or lapse of time or both, constitute an Event of Default.
"Effective Date" shall mean the day on which this Agreement becomes
effective upon the satisfaction of all of the conditions precedent specified in
Article III.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute, together with regulations thereunder.
"ERISA Affiliate" shall mean any trade or business (whether or not
incorporated) that is a member of a group of which any Borrower is a member and
which is treated as a single employer under Section 414 of the Code.
"Event of Default" shall mean any Event of Default described in Article
VIII.
"GAAP" shall mean generally accepted accounting principles as applied in
the preparation of the audited consolidated financial statement of the Original
Borrower referred to in Section 5.4.
"Indebtedness": Without duplication, all obligations, contingent or
otherwise, which in accordance with GAAP should be classified upon the obligor's
balance sheet as liabilities, but in any event including the following (whether
or not they should be classified as liabilities upon such balance sheet): (a)
obligations secured by any mortgage, pledge, security interest, lien, charge or
other encumbrance existing on property owned or acquired subject thereto,
whether or not the obligation secured thereby shall have been assumed and
whether or not the obligation secured is the obligation of the owner or another
party; (b) any obligation on account of deposits or advances; (c) any obligation
for the deferred purchase price of any property or services, except trade
accounts payable, (d) any obligation as lessee under any capitalized lease; (e)
all guaranties, endorsements and other contingent obligations in respect to
Indebtedness of others; and (f) undertakings or agreements to reimburse or
indemnify issuers of letters of credit. For all purposes of this Agreement, the
Indebtedness of any Person shall include the Indebtedness of any partnership or
joint venture in which such Person is a general partner or a joint venturer.
3
<PAGE>
"ILC Merger" shall mean the merger of The P.J. King Companies, Inc. d/b/a
International Leasing Corporation with and into the Original Borrower.
"Instruments" shall mean any negotiable instrument or certificated or
non-certificated security or any other writing which evidences a right to the
payment of money and is not itself a security agreement or lease and is of a
type which is in the ordinary course of business transferred by delivery with
any necessary endorsement or assignment.
"Lease" shall mean any lease or rental agreement relating to real or
personal property and the related payments thereunder of which any Borrower is
the lessor or an assignee of the lessor, whether now existing or hereafter
arising.
"Lender" shall have the meaning provided in the preamble hereto.
"Lessee(s)" shall mean the lessee or lessees under a Lease.
"Loan" shall mean the loan made to the Borrower, jointly and severally, by
the Lender pursuant to Section 2.1.
"Loan Document(s)" shall mean individually or collectively, as the case may
be, this Agreement, the Note and all other documents executed and delivered by
the Borrower pursuant to this Agreement, as originally executed and as amended,
modified or supplemented from time to time.
"Loan Rate" shall mean 8.90% per annum.
"Loan Support Leased Goods" shall mean the items of property leased by the
Borrower to a Lessee pursuant to a Loan Support Lease.
"Loan Support Lease" shall mean: (a) collectively, the Master Lease
Agreement (Agreement Number 1215) dated February 2, 1995 (the "Avi Casino
Lease") between SLC, as lessor, and Avi Casino Enterprises, Inc. ("Avi Casino"),
as lessee as amended by that certain First Amendment to Master Lease Agreement
dated May 1, 1996 (as corrected on May 23, 1996) together with the following
related documents; (i) Schedule A dated February 2, 1995; (ii) Purchase
Leaseback Agreement (Agreement No. 11692) dated February 16, 1995 as amended by
a First Amendment dated February 24, 1995; (iii) Acceptance Certificate No. A1
dated February 2, 1995 as amended by a First Amendment dated February 24, 1995;
(iv) Purchase Leaseback Agreement (Agreement No. 11753) dated March 27, 1995;
and (v) Acceptance Certificate No. A2 dated March 31, 1995 as amended by a First
Amendment dated as of March 27, 1995; (b) the APT Loan Support Lease; or (c) any
replacement or substitute lease for the AVI Casino Lease accepted by the Lender,
in its sole discretion; in each case as amended, modified, or supplemented in
accordance with this Agreement.
4
<PAGE>
"Loan Support Security" shall mean all guarantees, security deposits or
other security or Collateral provided by any Lessee as security for its
obligations under the Loan Support Lease.
"Material Adverse Occurrence" shall mean any occurrence of whatsoever
nature (including, without limitation, any adverse determination in any
litigation, arbitration or governmental investigation or proceeding) which
materially impairs the ability of the Borrowers (taken as a whole) to perform
their obligations under the Loan Documents.
"Maturity" of the Loan shall mean the earlier of: (i) the date upon which
the Loan is declared due and payable (or automatically becomes due and payable)
upon the occurrence of an Event of Default as provided in Article VII; or (ii)
September 1, 1999.
"Monthly Payment Date" shall mean the first day of each month.
"Note" shall mean the promissory note in the form of Exhibit A attached
hereto made by the Borrower payable to the order of the Lender to evidence the
Loan and each substitute, renewal or replacement note therefor.
"Obligations" shall mean the Loan and all other liabilities, obligations,
covenants and duties owing by any Borrower to the Lender of any kind or nature,
present or future, arising under the Loan Documents.
"Original Agreement" shall have the meaning provided in the recitals
hereto.
"Original Borrower" shall have the meaning provided in the preamble hereto.
"PBGC" shall mean the Pension Benefit Guaranty Corporation, established
pursuant to Subtitle A of Title IV or ERISA, and any successor thereto or to the
functions thereof.
"Permitted Lien(s)" shall mean:
(a) liens for taxes, assessments or governmental charges or levies not
yet due and payable;
(b) liens imposed by law, such as materialmen's, mechanic's,
carriers', workmen's, employees' and repairmen's liens; and
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(c) Security Interest in favor of First Bank National Association,
provided that such lien is in all respects subordinate to the Lender's
Security Interest in the Collateral;
(d) the rights of Lessees under the applicable Leases;
provided, however, that none of the liens, Security Interests or other
encumbrances listed in clauses (a), (b) or (c) above shall, in any event,
constitute a "Permitted Lien" on and after the commencement in respect thereof
of any enforcement, collection, execution, levy or foreclosure or forfeiture
proceeding, which remains unstayed or unbonded for five consecutive days.
"Person" shall mean any natural person, corporation, firm, association,
government, governmental agency or any other entity, whether acting in an
individual, fiduciary or other capacity.
"Plan" shall mean an employee benefit plan or other plan, maintained for
employees of the Borrower or of any ERISA Affiliate, and subject to Title IV of
ERISA or Section 412 of the Code.
"Primary Credit Agreement" shall mean that certain Amended and Restated
Credit Agreement dated April 1, 1996, between the Borrower and First Bank
National Association, as amended to the date of this Agreement; and any future
credit agreement pursuant to which the Borrower obtains a substitute or
replacement line of credit.
"Primary Credit Documents" shall mean any document or agreement executed by
the Borrower pursuant to or in connection with any Primary Credit Agreement.
"Proceeds" shall mean whatever is received upon the sale, exchange,
collection or other disposition of Collateral or Proceeds, including but not
limited to proceeds of insurance assigned to the Lender pursuant to Section 4.3.
"Quarterly Measurement Date" shall mean each March 31, June 30, September
30 and December 31.
"Regulatory Change" means any change after the date hereof in any (or the
adoption after the date hereof of any new) (i) federal or state law or foreign
law applying to the Lender; or (ii) regulation, interpretation, directive or
request (whether or not having the force of law) applying or in the reasonable
opinion of the Lender applicable to, the Lender of any court or governmental
authority charged with the interpretation or administration of any law referred
to in clause (i) of this definition or of any fiscal, monetary, or other
authority having jurisdiction over the Lender.
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"Related Party" shall mean any Person (other than a Subsidiary): (a) which
directly or indirectly, through one or more intermediaries, controls, or is
controlled by, or is under common control with, the Borrower, (b) which
beneficially owns or holds 5% or more of the equity interest of the Borrower, or
(c) 5% or more of the equity interest of which is beneficially owned or held by
the Borrower or a Subsidiary. The term "control" means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
"Rent" shall mean with respect to each Lease all monies due or to become
due under such Lease.
"Reportable Event" shall have the meaning given to that term in Title IV of
ERISA.
"Security" shall mean each and every guaranty, security interest, mortgage,
pledge or other security securing the payment and performance of a Loan Support
Lease, whether now or hereafter existing.
"Security Interest" shall mean any lien, pledge, mortgage, encumbrance,
charge or security interest of any kind whatsoever (including, without
limitation, the lien or retained security title of a conditional vendor) whether
arising under a security instrument or as a matter of law, judicial process or
otherwise or the agreement by any Borrower to grant any lien, security interest
or pledge, mortgage or encumber any asset.
"SLC" shall have the meaning provided in the recitals hereto.
"Subordinated Debt" shall mean Indebtedness of any Borrower which is
subordinated to the Loan on terms and conditions satisfactory to the Lender in
its sole and absolute discretion.
"Subsidiary" shall mean any Person of which or in which any Borrower and
its other Subsidiaries own directly or indirectly 50% or more of: (a) the
combined voting power of all classes of stock having general voting power under
ordinary circumstances to elect a majority of the board of directors of such
Person, if it is a corporation, (b) the capital interest or profit interest of
such Person, if it is a partnership, joint venture or similar entity, or (c) the
beneficial interest of such Person, if it is a trust, association or other
unincorporated organization.
"Tangible Net Worth" means, at any date, the sum of the common stock,
preferred stock, additional paid-in capital, and retained earnings of the
Original Borrower (excluding treasury stock) and its consolidated Subsidiaries,
less the book value of all assets of the Original Borrower and its consolidated
Subsidiaries that would be treated as intangibles under GAAP including, without
limitation, goodwill, licenses, patents, trademarks, treasury stock, unamortized
debt discount and expenses, leasehold improvements, cost of investments in
excess of net assets at the time of acquisition by the Borrower or any of its
consolidated Subsidiaries, and write-ups in the book value of the assets of the
Original Borrower or any of its consolidated Subsidiaries resulting from a
revaluation thereof.
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Other terms defined herein shall have the meaning ascribed to them herein.
1.2 Accounting Terms and Calculations. Except as may be expressly provided
to the contrary herein, all accounting terms used herein shall be interpreted
and all accounting determinations hereunder (including, without limitation,
determination of compliance with financial ratios and restrictions in Articles
VII and VIII hereof) shall be made in accordance with GAAP consistently applied.
Any reference to "consolidated" financial terms shall be deemed to refer to
those financial terms as applied to the Original Borrower and its Subsidiaries
in accordance with GAAP.
l.3 Computation of Time Periods. In this Agreement, in the computation of a
period of time from a specified date to a later specified date, unless otherwise
stated, the word "from" means "from and including" and the words "to" or "until"
each means "to but excluding."
1.4 Other Definitional Provisions. The words "hereof," "herein," and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement. References to Sections, Exhibits, Schedules and like references are
to this Agreement unless otherwise expressly provided.
ARTICLE II
THE LOAN
2.1 The Loan.
(a) Making of the Loan. On the Effective Date of this Agreement, the
outstanding principal balance of the "Loan" made under the Original
Agreement in the amount of $4,464,778.55 shall be subject to the terms and
conditions of this Agreement and shall constitute the loan (the "Loan")
made to the Borrowers, jointly and severally, under this Agreement. SLC
acknowledges that, as part of the consideration for the Original Borrower's
transfer of assets to SLC, SLC agreed with the Original Borrower to assume
all of the Original Borrower's "Obligations" under the Original Agreement
and that the Lender was a third-party beneficiary of such agreement.
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(b) The Note. The Loan shall be evidenced by the Note made by the
Borrowers jointly and severally payable to the order of the Lender in a
principal amount equal to the Loan.
(c) Interest on the Loan; Scheduled Payments.
(i) Subject to the provisions of Section 2.1(c)(vi), the
Borrowers jointly and severally agree to pay interest on the
outstanding principal amount of the Loan from the date of this
Agreement until all principal and interest thereon has been paid at a
rate equal to the Loan Rate.
(ii) On each Monthly Payment Date, commencing December 1, 1996,
and continuing until Maturity, the Borrowers shall jointly and
severally make blended monthly payments of principal of and interest
on the Loan in the amount set forth in the table below for the
applicable period:
Monthly Monthly Principal
Payment Date and Interest Payment
December 1, 1996 to and including
September 1, 1998 $ 184,733.05
November 1, 1998 to and including
December 1, 1998 $ 116,889.63
January 1, 1999 to and including
March 1, 1999 $ 99,326.78
April 1, 1999 to and including
September 1, 1999 $ 39,933.53.
(iii) The entire outstanding principal amount of the Loan,
together with accrued and unpaid interest, shall be payable at
Maturity of the Loan.
(iv) Interest accrued after Maturity of the Loan shall be payable
upon demand.
(v) If the Borrowers shall fail to make scheduled payments
pursuant to Section 2.1(c)(ii) and such failure continues for a period
of ten days, then the Borrowers shall promptly jointly and severally
pay to the Lender a late payment fee of an amount equal to one and
one-half percent (1.5%) of such delinquent payment. The provisions of
this Section 2.1(c)(v) shall not apply to any payment which is due as
a result of the acceleration of the maturity of the Loan.
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(vi) Notwithstanding the provisions of Section 2.1(c)(i), after
the occurrence and during the continuance of an Event of Default, the
Loan shall bear interest at a rate equal to the Loan Rate plus one and
one-half percent (1.5%) per annum.
(vii) No provision of this Agreement or the Note shall require
the payment or permit the collection of interest in excess of the rate
permitted by applicable law.
2.2 Mandatory Prepayment. Contemporaneously with any Borrower's receipt of
any proceeds from the sale, financing, discounting or other disposition of any
Collateral, the Borrowers shall jointly and severally make a prepayment with
respect to the Loan in an amount equal to the lesser of 100% of such proceeds or
the Obligations. All prepayments pursuant to this Section 2.2 shall be applied
to the Obligations in such order of application as elected by the Lender, in its
sole discretion, but any application to the outstanding principal balance of the
Loan shall be applied to the installments of principal in the inverse order of
the maturity thereof.
2.3 Voluntary Prepayment.
(a) The Borrowers shall have the right, upon one Business Day's prior
written notice, to prepay the Loan in whole or in part; provided, that any
such prepayment shall be in the minimum amount of $50,000 or an integral
multiple thereof.
(b) All prepayments made pursuant to this Section 2.3 shall be applied
to the Obligations in such order of application as elected by the Lender,
in its sole discretion, but any application to the outstanding principal
balance of the Loan shall be applied to the installments of principal in
the inverse order of the maturity thereof.
2.4 Payments. Any other provision of this Agreement to the contrary
notwithstanding, all payments of interest on and principal of the Loan and fees
due under this Agreement shall be made by the Borrowers without setoff or
counterclaim in immediately available funds to the Lender at:
The Sumitomo Bank, Ltd.
ABA Number 071001850
for credit account of The Daiwa Bank, Ltd.
Tokyo A/C Number 010021413
Reference: Sunrise Resources
by not later than 2:00 p.m. (Chicago time) on the date due. Funds received after
such time shall be deemed to have been received on the next Business Day.
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2.5 Funding Losses. If, at the time of any prepayment pursuant to Section
2.2 or 2.3, the Interest Differential is greater than zero, the Borrowers shall
jointly and severally pay to the Lender a prepayment premium equal to the
present value (determined in accordance with standard financial practice) of the
product of the Interest Differential times the amount prepaid times the Average
Maturity Period. The amount of the prepayment premium shall be calculated as
follows. The amount prepaid shall be multiplied by (a) the Interest
Differential, times (b) a fraction, the numerator of which is the number of days
in the Average Maturity Period and the denominator of which is 360. The
resulting product shall then be divided by the number of whole months (using a
thirty-day month) in the Average Maturity Period, yielding a quotient (the
"Quotient"). The amount of the prepayment premium shall be the present value
(determined in accordance with standard financial practice) on the date of
prepayment (using the Loan Rate as the discount factor) of a stream of equal
monthly payment in number equal to the number of whole months (using a
thirty-day month) in the Average Maturity Period, with the amount of each
hypothetical monthly payment equal to the Quotient and with the first payment
payable thirty days after the date of prepayment.
For purposes of this Agreement, the following terms shall have the
following meanings:
"Average Maturity Period": The weighted average time to scheduled
maturity of all Loan principal prepaid at any one time. Average Maturity
Period shall be computed by multiplying the dollar amount of each
installment of Loan principal prepaid by the number of days until the
scheduled maturity of that installment, adding together the resulting
products and dividing the resulting sum by the total dollar amount of the
principal being prepaid.
"Government Yield": As of any date of determination, the yield
(converted as necessary to the equivalent monthly compound rate) on U.S.
Treasury securities having a maturity date closest to the Average Maturity
Period, as published in The Wall Street Journal (or, if not so published,
as determined by the Lender by using the average of quotes obtained by the
Lender from three primary dealers that market U.S. Treasury securities in
the secondary market). "U.S. Treasury securities" means actively traded
U.S. Treasury bonds, bills and notes.
"Interest Differential": As of the date of any full or partial
prepayment of the Loan, the Loan Rate minus the Government Yield as of the
date of prepayment.
2.6 Substitution of Leases. Intentionally Deleted.
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2.7 Capital Adequacy. If any Regulatory Change imposes, modifies or deems
applicable any reserve, special deposit, compulsory loan, FDIC insurance or
similar requirement against assets held by, or deposits or other liabilities in
or for the account of, or advances or loans by, or other credit extended by, or
any other acquisition of funds by, the Lender or any capital adequacy, capital
maintenance or similar requirement (including a request or requirement which
affects the manner in which the Lender allocates capital resources to its
commitments and loans (including, without limitation, the commitment of the
Lender and the Loan hereunder)), and as a result thereof, in the opinion of the
Lender, the rate of return on the Lender's capital (including, but not limited
to, the Lender's cost increases resulting from such Regulatory Change) as a
consequence of its commitment and the Loan made hereunder is reduced to a level
below that which the Lender could have achieved but for such circumstances,
then, and in each such case, upon ninety (90) days notice to the Borrowers of
the nature of such Regulatory Change, the Borrowers shall jointly and severally
pay to the Lender such additional amount or amounts as shall compensate the
Lender for such reduction in rate of return for the period from and after such
ninetieth (90th) day after such notice is given. A statement of the Lender as to
any such additional amount or amounts (including calculations thereof in
reasonable detail) shall be rebuttable presumptive evidence of the matters
stated therein. In determining such amount, the Lender may use any method of
averaging and attribution that it, in its sole and absolute discretion, shall
deem applicable. The obligations of the Borrower under this Section 2.7 shall
survive the termination of this Loan and Security Agreement; provided that the
Lender shall be obligated to make any claim pursuant to this Section 2.7 within
one year after any such termination.
ARTICLE III
CONDITIONS TO LOAN
3.1 Documentation. The Effective Date of this Agreement is subject to the
condition precedent that the Lender shall have received, all of the following,
unless waived by the Lender:
(a) A favorable opinion of counsel to the Borrowers, substantially in
the form of Exhibit B attached hereto;
(b) The Note appropriately completed and duly executed by the
Borrowers;
(c) Recent UCC searches from the filing offices in all states required
by the Lender which reflect that no Person holds a Security Interest in the
Borrower's interest in the Collateral except Permitted Liens;
(d) UCC financing statements appropriately completed and duly executed
by each Borrower, including UCC-3 assignments of the relevant Borrower's
existing filings in which a Lessee is named as debtor;
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(e) A certified copy of Resolutions of the Board of Directors of each
Borrower authorizing or ratifying the execution, delivery and performance
of the transactions contemplated by the Loan Documents;
(f) A Certificate by the Secretary or any Assistant Secretary of each
Borrower certifying the names of the officers of such Borrower authorized
to sign the Loan Documents together with a sample of the true signature of
such officers;
(g) A copy of the articles of incorporation of each Borrower certified
by the Minnesota Secretary of State;
(h) A copy of the bylaws of each Borrower certified by its Secretary
or Assistant Secretary;
(i) Certificates of Good Standing for each Borrower issued by its
state of incorporation;
(j) Immediately available funds equal to the sum of:
(i) $49,110.00 to the payment of default interest on the "Loan"
under the Original Agreement, which payment shall satisfy and
discharge the Borrowers' liability for default interest on such
"Loan", notwithstanding that the actual amount of such default
interest may be greater than the amount required to be paid hereunder;
(ii) $15,000.00 as a restructuring fee; and
(iii) amounts required to be paid by the Borrowers pursuant to
Section 9.4;
(k) A subordination agreement from First Bank National Association in
form and substance satisfactory to the Lender pursuant to which First Bank
National Association subordinates its Security Interest in the Collateral
to the Lender's Security Interest therein;
(l) Originals of Loan Support Lease and related documents certified by
the Borrowers to be true, correct and complete copies thereof;
(m) Lessee estoppel letter from Avi Casino; and
(n) Such other approvals, opinions or documents as the Lender may
reasonably request.
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3.2 Additional Conditions Precedent. The Effective Date of this Agreement
shall be further subject to the satisfaction of each of the following
conditions, unless waived in writing by the Lender:
(a) The representations and warranties set forth in Article IV shall
be true and correct on the Effective Date (and after giving effect
thereto);
(b) No Default or Event of Default and no Material Adverse Occurrence
shall result from this Agreement becoming effective; and
(c) No litigation, arbitration or governmental investigation or
proceeding shall be pending, or to the knowledge of any Borrower
threatened, against any Borrower or affecting the business or operations of
any Borrower which was not disclosed by the Borrowers to the Lender
pursuant to Section 5.6, and no development shall have occurred in any
litigation, arbitration or governmental investigation or proceeding so
disclosed, which, in either event, would constitute a Material Adverse
Occurrence.
ARTICLE IV
SECURITY INTEREST; COLLECTIONS
4.1 Grant of Security Interest. As security for the payment and performance
of all Obligations, each Borrower hereby grants to the Lender a Security
Interest in all of such Borrower's now owned or hereafter acquired or arising
interest in the Loan Support Leases, the Loan Support Leased Goods, the Loan
Support Security and Proceeds thereof and, to the extent assignable, any
landlord lien waivers obtained by the Borrower in connection with any Loan
Support Leases.
4.2 Servicing and Collections. Except as otherwise provided in this Section
4.2 and in Article VIII, the Borrowers shall continue to service the Loan
Support Leases and to collect, at their own expense, all amounts due or to
become due any Borrower under the Loan Support Leases and all other Collateral.
In connection with such collections, the Borrowers may take such action as the
Borrowers may deem necessary or advisable to enforce collection of the Loan
Support Leases and such other Collateral; provided, however, that the Lender
shall have the right at any time after the occurrence and during the
continuation of an Event of Default to direct the Lessees under any Loan Support
Leases or obligors with respect to such other Collateral to make payment of all
amounts due or to become due to any Borrower thereunder directly to the Lender
and, upon such notification and at the expense of the Borrowers, to enforce
collection of any such Loan Support Leases or other Collateral, and to adjust,
settle or compromise the amount or payment thereof in the same manner and to the
same extent as any Borrower might have done, but unless and until the Lender
does so or gives the Borrowers other instructions, the Borrowers shall make all
collections. After the occurrence and during the continuation of an Event of
Default, all full and partial payments on any Collateral received by any
Borrower shall immediately be delivered by such Borrower to the Lender in their
original form, except for endorsement where necessary, to be applied in
accordance with Section 8.4; and until such payments are so delivered to the
Lender, such payments shall be held in trust by such Borrower for and as the
Lender's property and shall not be commingled with any funds of such Borrower.
The Lender shall apply all such collections toward the payment of Obligations in
such order as the Lender may elect; provided, however, that any application is
conditioned upon final payment of any check or other instrument.
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4.3 Assignment of Insurance. Each Borrower hereby assigns to the Lender, as
additional security for payment of the Obligations, any and all monies due or to
become due under, and any and all other rights of such Borrower with respect to,
any and all policies of insurance covering casualty loss to the Collateral.
After the occurrence and during the continuation of an Event of Default, the
Lender may (but need not) in its own name or in the relevant Borrower's name
execute and deliver proofs of claim, receive such monies, endorse checks and
other instruments representing such monies, and settle or litigate any claim
against the issuer of any such policy.
4.4 Release of Security Interest at End of Initial Lease Term. Promptly
after the end of the initial lease term of any Loan Support Lease, provided that
no Event of Default has occurred and is continuing, the Lender shall terminate
its Security Interest in such Loan Support Lease, the related Loan Support
Security, and the related Loan Support Leased Goods and shall execute such
termination statements, releases and other documents as the Borrower may
reasonably request to effect such termination.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrowers jointly and severally represent and warrant to the Lender as
follows:
5.1 Organization, etc. Each of the Borrowers and its corporate Subsidiaries
is a corporation validly organized and existing and in good standing under the
laws of the state of its incorporation, has full power and authority to own its
property and conduct its business substantially as presently conducted by it and
is duly qualified to do business and in good standing as a foreign corporation
in each jurisdiction where the nature of its business makes such qualification
necessary and where the failure to qualify would be a Material Adverse
Occurrence. Each Borrower has full power and authority to enter into and to
perform its obligations under the Loan Documents to which it is a party and to
obtain the Loan hereunder.
5.2 Due Authorization. The execution, delivery and performance by each
Borrower of the Loan Documents to which it is a party have been duly authorized
by all necessary corporate action, do not require any approval or consent of, or
any registration, qualification or filing with, any governmental agency or
authority or any approval or consent of any other Person (including, without
limitation, any stockholder) other than such consents, registrations,
qualifications and filings as have been obtained, do not and will not conflict
with, result in any violation of or constitute any default under, any provision
of such Borrower's articles of incorporation or by-laws, any agreement binding
on or applicable to such Borrower or any of its property, or any law or
governmental regulation or court decree or order, binding upon or applicable to
such Borrower or of any of its property and will not result in the creation or
imposition of any Security Interest in any of its property pursuant to the
provisions of any agreement binding on or applicable to such Borrower or any of
its property, except the Security Interest in favor of the Lender in the
Collateral. Neither any Borrower nor any Subsidiary is in default under or in
violation of any such law, statute, rule or regulation, order, writ, judgment,
injunction, decree, determination or award or any such indenture, loan or credit
agreement or other agreement, lease or instrument in any case in which the
consequences of such default or violation could constitute a Material Adverse
Occurrence. No Default or Event of Default has occurred and is continuing.
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Section 5.3 Government Consent. No order, consent, approval, license,
authorization or validation of, or filing, recording or registration with, or
exemption by, any governmental or public body or authority is required on the
part of any Borrower to authorize, or is required in connection with, the
execution, delivery and performance of, or the legality, validity, binding
effect or enforceability of, the Loan Documents to which such Borrower is a
party.
Section 5.4 Financial Statements and Condition. The Original Borrower's
audited consolidated financial statements as at March 31, 1995, and its
unaudited consolidated financial statements as at December 31, 1995, as
heretofore furnished to the Lender, have been prepared in accordance with GAAP
on a consistent basis and fairly present the financial condition of the Original
Borrower and its consolidated Subsidiaries as at such dates and the results of
their operations and changes in financial position for the respective periods
then ended. As of the dates of such financial statements, neither the Original
Borrower nor any Subsidiary had any material obligation, contingent liability,
liability for taxes or long-term lease obligation which is not reflected in such
financial statements or in the notes thereto. Since December 31, 1995, there has
not been any Material Adverse Occurrence.
5.5 Validity of this Agreement, etc. Each Loan Document is the legal, valid
and binding obligation of each Borrower which is a party thereto and is
enforceable in accordance with its terms, subject only to bankruptcy,
insolvency, reorganization, moratorium or similar laws, rulings or decisions at
the time in effect affecting the enforceability of rights of creditors generally
and to general equitable principles which may limit the right to obtain
equitable remedies.
5.6 Litigation, etc. Except as disclosed to the Lender on Schedule 5.6
attached hereto, there is no action, suit or proceeding at law or equity, or
before or by any federal, state, local or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
pending, or to the knowledge of any Borrower threatened, against any Borrower or
any of its Subsidiaries or any of their property which, if determined adversely,
would be a Material Adverse Occurrence; and neither any Borrower nor any
Subsidiary is in default with respect to any final judgment, writ, injunction,
decree, rule or regulation of any court or federal, state, local or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, where the effect of such default would be a Material
Adverse Occurrence.
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5.7 Title to Collateral. Each Borrower has good and marketable title to all
of the Collateral pledged by it and none of the Collateral is subject to any
Security Interest except for the Security Interests created pursuant to the Loan
Documents and Permitted Liens.
5.8 Validity of Avi Casino Lease; etc. (a) The Avi Casino Lease and the
Loan Support Security relating thereto are genuine, legally valid and
enforceable against SLC and, to the best of the Borrowers' knowledge, against
Avi Casino and each other party thereto; and the unpaid Rent thereon and any
Security therefor will be as represented in the Lease Schedules and will arise
out of the lease of inventory to customers in the ordinary course of business.
The Borrowers have delivered to the Lender true and complete copies of the Avi
Casino Lease and its Loan Support Security. Neither the Avi Casino Lease nor any
of its Loan Support Security has been amended or modified except as disclosed to
the Lender. To the Borrowers' knowledge, no default now exists under the Avi
Casino Lease. No Borrower has received notice of any casualty loss occurring
with respect to the Loan Support Leased Goods subject to the Avi Casino Lease.
None of the Loan Support Security for the Avi Casino Lease has been revoked in
whole or in part. The financial statements and spreadsheets prepared by the
Borrowers and delivered to the Lender which set forth (a) the status and amounts
of payments which have been, or are scheduled to be, made by Lessees under the
Avi Casino Lease, (b) the Borrower's costs incurred to acquire the goods leased
under the Avi Casino Lease, (c) the type of goods leased, and (d) the term of
the Avi Casino Lease, which statements were used by the Lender to agree to enter
into this Agreement, are all complete, accurate, true and correct in all
material respects.
(b) The APT Loan Support Lease and the Loan Support Security relating
thereto are genuine, legally valid and enforceable against each Borrower party
thereto and, to the best of the Borrowers' knowledge, against APT and each other
party thereto; and the unpaid Rent thereon and any Security therefor were as
represented in the Lease Schedules comprising part of the APT Loan Support Lease
and arose out of the lease of inventory to customers in the ordinary course of
business. The Borrowers have delivered to the Lender true and complete copies of
the APT Loan Support Lease and its Loan Support Security. Neither the APT Loan
Support Lease nor any of its Loan Support Security has been amended or modified
except as disclosed to the Lender. To the Borrowers' knowledge, no default now
exists under the APT Loan Support Lease except as disclosed on Schedule 5.8
attached hereto and incorporated herein by reference. No Borrower has received
notice of any casualty loss occurring with respect to the APT Loan Support
Leased Goods. None of the Loan Support Security for the APT Loan Support Lease
has been revoked in whole or in part.
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5.9 Chief Executive Office. The location of the chief executive office of
each Borrower is set forth on the signature page hereof and will not be changed
without 30 days' prior written notice to the Lender. Each Borrower warrants that
its books and records concerning the Collateral are located at its chief
executive office.
5.10 Name of Borrower. Each Borrower's true name is as set forth in the
preamble hereto. No Borrower has used any other name within the past five years
except that the Original Borrower has previously used the name Sunrise Leasing
Corporation and, the Original Borrower's merger partner in the ILC Merger has
previously used the names The P. J. King Companies, Inc. and International
Leasing Corporation.
Section 5.11 Contingent Liabilities. Except as described in Schedule 5.11,
neither any Borrower nor any Subsidiary has any contingent liabilities which are
material to the Borrowers and the Subsidiaries as a consolidated enterprise.
Section 5.12 Compliance. The Borrowers and the Subsidiaries are in material
compliance with all statutes and governmental rules and regulations applicable
to them.
Section 5.13 Environmental, Health and Safety Laws. There does not exist
any violation by any Borrower or any Subsidiary of any applicable federal, state
or local law, rule or regulation or order of any government, governmental
department, board, agency or other instrumentality relating to environmental,
pollution, health or safety matters which will or threatens to impose a material
liability on such Borrower or such Subsidiary or which would require a material
expenditure by any Borrower or such Subsidiary to cure. Neither any Borrower nor
any Subsidiary has received any notice to the effect that any part of its
operations or properties is not in material compliance with any such law, rule,
regulation or order or notice that it or its property is the subject of any
governmental investigation evaluating whether any remedial action is needed to
respond to any release of any toxic or hazardous waste or substance into the
environment, the consequences of which non-compliance or remedial action could
constitute a Material Adverse Occurrence.
Section 5.14 ERISA. Each Plan complies with all material applicable
requirements of ERISA and the Code and with all material applicable rulings and
regulations issued under the provisions of ERISA and the Code setting forth
those requirements. No Reportable Event has occurred and is continuing with
respect to any Plan. All of the minimum funding standards applicable to such
Plans have been satisfied and there exists no event or condition which would
permit the institution of proceedings to terminate any Plan under Section 4042
of ERISA. The current value of the Plans' benefits guaranteed under Title IV of
ERISA does not exceed the current value of the Plans' assets allocable to such
benefits.
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Section 5.15 Regulation U; Use of Proceeds. No Borrower is engaged in the
business of extending credit for the purpose of purchasing or carrying margin
stock (as defined in Regulation U of the Board of Governors of the Federal
Reserve Board), and no part of the proceeds of the Loan will be used to purchase
or carry margin stock or for any other purpose which would violate any of the
margin requirements of the Board of the Governors of the Federal Reserve System.
Section 5.16 Ownership of Property; Liens. The Borrowers and the
Subsidiaries have good and marketable title to their respective real properties
and good and sufficient title to their respective other properties, including
all properties and assets referred to as owned by the Borrower and the
Subsidiaries in the audited financial statement of the Borrowers referred to in
Section 5.4 (other than property disposed of since the date of such financial
statement in the ordinary course of business).
Section 5.17 Taxes. Each of each Borrower and each Subsidiary has filed all
federal, state and local tax returns required to be filed and has paid or made
provision for the payment of all taxes due and payable pursuant to such returns
and pursuant to any assessments made against it or any of its property and all
other taxes, fees and other charges imposed on it or any of its property by any
governmental authority (other than taxes, fees or charges the amount or validity
of which is currently being contested in good faith by appropriate proceedings
and with respect to which reserves in accordance with GAAP have been provided on
the books of the Borrowers or the Subsidiaries). No tax liens have been filed
and no material claims are being asserted with respect to any such taxes, fees
or charges. The charges, accruals and reserves on the books of each Borrower and
each Subsidiary in respect of taxes and other governmental charges are adequate.
The Borrowers and the Subsidiaries have made all required withholding payments.
Section 5.18 Trademarks, Patents. The Borrowers and the Subsidiaries
possess or have the right to use all of the patents, trademarks, trade names,
service marks and copyrights, and applications therefor, and all technology,
know-how, processes, methods and designs used in or necessary for the conduct of
their respective businesses, without known conflict with the rights of others.
Section 5.19 Investment Company Act. Neither any Borrower nor any
Subsidiary is an "investment company" or "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
Section 5.20 Public Utility Holding Company Act. Neither any Borrower nor
any Subsidiary is a "holding company" or a "subsidiary company" of a holding
company or an "affiliate" of a holding company or of a subsidiary company of a
holding company within the meaning of the Public Utility Holding Company Act of
1935, as amended.
Section 5.21 Subsidiaries. Schedule 5.21 sets forth as of the date of this
Agreement a list of all Subsidiaries and the number and percentage of the shares
of each class of capital stock owned beneficially or of record by any Borrower
or any Subsidiary therein and the jurisdiction of incorporation of each
Subsidiary.
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Section 5.22 Partnerships and Joint Ventures. Schedule 5.22 sets forth as
of the date of this Agreement a list of all partnerships or joint ventures in
which any Borrower or any Subsidiary is a partner (limited or general) or joint
venturer.
Section 5.23 Escrow Agreement. No Borrower has terminated that certain
Escrow Agreement (the "APT Escrow Agreement") dated as of February 2, 1995 among
APT, Fort Knox Escrow Services, Inc. ("Fort Knox"), and the Original Borrower or
has agreed to any amendment or modification thereto or waiver of any provision
thereof. To the best of the Borrowers' knowledge, APT has complied with all of
its obligations under the APT Escrow Agreement so that Fort Knox has a current
version of the "Information" described in the APT Escrow Agreement.
Section 5.24 No Defenses. As of the Effective Date of this Agreement, no
events have taken place and no circumstances exist at the date hereof which
would give any Borrower the right to assert a defense, offset or counterclaim to
any claim by the Lender for payment of the Obligations.
Section 5.25 Survival of Representations. All representations and
warranties contained in this Article V shall survive the Effective Date of this
Agreement.
ARTICLE VI
AFFIRMATIVE COVENANTS
The Borrowers jointly and severally agree with the Lender that, as long as
the Loan shall be outstanding, unless the Lender shall otherwise consent in
writing:
Section 6.1 Financial Statements and Reports. The Borrowers shall furnish
to the Lender:
(a) As soon as available and in any event within 100 days after the
end of each fiscal year of the Original Borrower, the annual audit report
of the Original Borrower and its Subsidiaries prepared on a consolidated
basis and in conformity with GAAP, consisting of at least statements of
income, cash flow, changes in financial position and stockholders' equity,
and a consolidated balance sheet as at the end of such year, setting forth
in each case in comparative form corresponding figures from the previous
annual audit, certified without qualification by independent certified
public accountants of recognized standing selected by the Original Borrower
and acceptable to the Lender, together with any management letters,
management reports or other supplementary comments or reports to the
Borrower or its board of directors furnished by such accountants.
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(b) As soon as available and in any event within 60 days after the end
of each fiscal quarter of each fiscal year, a copy of the unaudited
financial statement of the Original Borrower and its Subsidiaries prepared
in the same manner as the audit report referred to in Section 6.1(a),
except that such statements may exclude footnotes and may be subject to
normal, year-end adjustments, signed by the Original Borrower's chief
financial officer, consisting of at least consolidated statements of
income, cash flow, changes in financial position and stockholders' equity
for the Original Borrower and the Subsidiaries for such quarter and for the
period from the beginning of such fiscal year to the end of such quarter,
and a consolidated balance sheet of the Original Borrower as at the end of
such quarter.
(c) Together with the financial statements furnished by the Borrowers
under Sections 6.1(a) and 6.1(b), a compliance certificate in the form of
Exhibit C attached hereto and made a part hereof signed by the chief
financial officer of the Original Borrower demonstrating in reasonable
detail compliance (or noncompliance, as the case may be) with each of the
financial ratios and restrictions contained in Article VII and stating that
as at the date of each such financial statement there did not exist any
Default or Event of Default, or if such Default or Event of Default
existed, specifying the nature and period of existence thereof and what
action the Borrowers propose to take with respect thereto.
(d) Promptly after receipt (i) annual audited financial statements and
quarterly unaudited financial statements for APT or any Lessee, (ii) Forms
10-K and 10-Q for APT or any Lessee if it is required to file such periodic
reports with the Securities and Exchange Commission and (iii) any other
financial statements or other material information received by the Borrower
from APT and/or any Lessee.
(e) Within 30 days after the end of each month, the Borrowers'
internally prepared monthly aging report with respect to the Loan Support
Lease including lease payments and lease payment delinquencies as of the
last day of such month.
(f) Immediately upon becoming aware of any Default or Event of
Default, a notice describing the nature thereof and what action the
Borrowers propose to take with respect thereto.
(g) Immediately upon becoming aware of the occurrence of any
Reportable Event or any "prohibited transaction" (as defined in Section
4975 of the Code), a notice specifying the nature thereof and what action
the Borrowers propose to take with respect thereto, and, when received,
copies of any notice from PBGC of intention to terminate or have a trustee
appointed for any Plan.
(h) Promptly upon the mailing or filing thereof, copies of all
financial statements,reports and proxy statements mailed to any Borrower's
shareholders, and copies of all registration statements, periodic reports
and other documents filed with the Securities and Exchange Commission (or
any successor thereto) or any national securities exchange.
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(i) Immediately upon becoming aware of the occurrence thereof, notice
of the institution of any litigation, arbitration or governmental
proceeding, or the rendering of a judgment or decision in such litigation
or proceeding, which is material to the Borrowers and the Subsidiaries as a
consolidated enterprise, and the steps being taken by the Person(s)
affected by such proceeding.
(j) From time to time, such other information regarding the business,
operation and financial condition of the Borrowers and the Subsidiaries as
the Lender may reasonably request.
6.2 Maintenance of Corporate Existences, etc. The Borrowers shall cause to
be done at all times all things necessary to maintain and preserve the corporate
existence of the Borrowers and of the Subsidiaries, and their respective
qualification to transact business in each jurisdiction in which the character
of the properties owned, leased or operated by it or the business conducted by
them would be materially adversely affected by their failure to so qualify.
6.3 Notation on Chattel Paper. The Borrowers shall deliver to the Lender
the original of all Loan Support Leases and will stamp any Master Lease which
relates to Loan Support Leases which are scheduled thereunder with a legend
reflecting the Lender's Security Interest in such schedules. The Lender may
stamp all such Loan Support Leases with a legend reflecting the Lender's
Security Interest therein.
6.4 Protection of Collateral. The Borrowers shall jointly and severally
bear and pay all expenses of protecting, storing, warehousing, insuring,
handling and shipping of the Collateral, all costs of keeping the Collateral
free of any Security Interests prohibited by this Agreement and of removing the
same if they should arise, and any and all excise, property, sales and use taxes
imposed by any state, federal or local authority on any of the Collateral or in
respect of the sale thereof.
6.5 Insurance. The Borrowers shall ensure that each applicable Lessee
complies with the insurance maintenance obligations set forth in the applicable
Loan Support Lease.
6.6 Compliance with Law. Each Borrower shall, and shall cause each
Subsidiary to, comply in all material respects with all laws, rules,
regulations, orders, writs, judgments, injunctions, decrees and awards to which
it may be subject. The Borrowers shall not use the Collateral, or knowingly
permit the Collateral to be used, for any unlawful purpose or in violation of
any federal, state or municipal law.
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6.7 Books and Records; Access.
(a) The Borrowers shall permit any Person designated by the Lender to
visit and inspect any of its properties, corporate books and financial
records, to examine and to make copies of its books of accounts and other
financial records, and to discuss the affairs, finances and accounts of the
Borrowers and the Subsidiaries with, and to be advised as to the same by,
its officers at such reasonable times and intervals as the Lender may
designate; provided, that, so long as no Default or Event of Default has
occurred, such visits and inspections shall not occur more often than once
during any six-month period.
(b) The Lender shall have authority, at any time, to place, or require
each Borrower to place, upon such Borrower's books and records relating to
the Collateral a notation or legend stating that such Collateral is subject
to a Security Interest in favor of the Lender.
6.8 Additional Documentation. The Borrower shall execute, from time to
time, such financing statements, assignments, and other documents covering the
Collateral as the Lender may reasonably request in order to create, evidence,
perfect, maintain or continue its Security Interest in the Collateral, and the
Borrowers shall jointly and severally pay the cost of filing the same in all
public offices in which the Lender may deem filing to be appropriate.
6.9 ERISA. The Borrower shall maintain each Plan in compliance with all
material, applicable requirements of ERISA and the Code and with all material,
applicable rulings and regulations issued under the provisions of ERISA and of
the Code.
6.10 Payment of Taxes and Claims. Each Borrower shall, and shall cause each
Subsidiary to, file all tax returns and reports which are required by law to be
filed by it and pay before they become delinquent all taxes, assessments and
governmental charges and levies imposed upon it or its property and all claims
or demands of any kind (including, without limitation, those of suppliers,
mechanics, carriers, warehouses, landlords and other like Persons) which, if
unpaid, might result in the creation of a Security Interest upon its property;
provided that the foregoing items need not be paid if they are being contested
in good faith by appropriate proceedings, and as long as such Borrower's or such
Subsidiary's title to its property is not materially adversely affected, its use
of such property in the ordinary course of its business is not materially
interfered with and adequate reserves with respect thereto have been set aside
on such Borrower's or such Subsidiary's books in accordance with GAAP.
6.11 Maintenance of Account. Each Borrower agrees that, after the
occurrence of any Default or Event of Default, and upon the written request of
the Lender, all payments received by the Borrower pursuant to any Collateral
will promptly be deposited by such Borrower into a Controlled Account. Until
such payments are so deposited, such payments shall be held in trust by such
Borrower for the Lender and shall not be commingled with any other funds of such
Borrower. The Borrower further agrees that it will not deposit any monies into a
Controlled Account other than payments received by such Borrower pursuant to any
Collateral.
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6.12 Changes to Primary Credit Agreement. The Borrower shall promptly
notify the Lender of any changes in the covenants which are applicable to any
Borrower and/or its Subsidiaries pursuant to the Primary Credit Agreement or any
other Primary Credit Document. If requested by the Lender, the Borrowers will
enter into such amendments to the Loan Documents to incorporate such changes as
the Lender shall request.
6.13 Minimum Tangible Net Worth. The Borrowers shall maintain at all times
a minimum Tangible Net Worth of not less than $26,442,922 plus 75% of the
Borrower's cumulative net income after March 31, 1996, with no allowance for
losses plus 100% of the net proceeds of any new equity issued by the Borrower
after March 31, 1996, and consented to by the Lender.
6.14 Minimum Cash Flow. The Borrowers shall maintain the ratio of the
Borrowers' consolidated cash receipts to consolidated cash expenses at not less
than 1.25 to 1.00 calculated as of the end of each fiscal quarter of the
Borrowers and determined on a rolling four quarter basis.
6.15 Ratio of Senior Recourse Debt to Capital Base. The Borrowers shall
maintain at all times the ratio of the Borrowers' consolidated senior recourse
debt to their consolidated Capital Base at not more than 4.50 to 1.0.
ARTICLE VII
NEGATIVE COVENANTS
The Borrowers jointly and severally agree with the Lender that, as long as
the Loan shall be outstanding, unless the Lender shall otherwise consent in
writing:
7.1 Merger. The Borrowers shall not, and shall not permit any Subsidiary
to, merge or consolidate or enter into any analogous reorganization or
transaction with any Person.
7.2 Sale of Assets. The Borrowers shall not, and shall not permit any
Subsidiary to, sell, transfer, lease, or otherwise convey all or any substantial
part of its assets.
7.3 Purchase of Assets. The Borrowers shall not, and shall not permit any
Subsidiary to, purchase or lease or otherwise acquire all or substantially all
of the assets of any Person to the extent that such purchases or leases would,
in the aggregate, exceed $500,000 during the term of this Agreement.
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7.4 Plans. The Borrowers shall not, and shall not permit any Subsidiary to,
permit any condition to exist in connection with any Plan which might constitute
grounds for the PBGC to institute proceedings to have such Plan terminated or a
trustee appointed to administer such Plan; permit any Plan to terminate under
any circumstances which would cause the lien provided for in Section 4068 of
ERISA to attach to any property, revenue or asset of the Borrower or any
Subsidiary; or permit the underfunded amount of Plan benefits guaranteed under
Title IV of ERISA to exceed $50,000.
7.5 Change in Nature of Business. The Borrowers shall not, and shall not
permit any Subsidiary to, make any material change in the nature of its business
as carried on at the date of this Agreement.
7.6 Subsidiaries, Partnerships and Joint Ventures. The Borrowers shall not,
and shall not permit any Subsidiary to, either (a) form or acquire any
corporation which would thereby become a Subsidiary; or (b) form or enter into
any partnership as a limited or general partner or into any joint venture.
7.7 Other Agreements. The Borrowers shall not, and shall not permit any
Subsidiary to, enter into any agreement, bond, note or other instrument with or
for the benefit of any Person other than the Lender which would be violated or
breached by any Borrower's performance of its obligations under the Loan
Documents.
7.8 Restricted Payments. The Borrowers shall not, and shall not permit any
Subsidiary to, purchase or redeem any shares of its stock, declare or pay any
dividends thereon (other than dividends payable solely in a Borrower's common
stock and dividends payable to the Borrower), make any distribution to
stockholders as such (other than the Borrower), or set aside any funds for any
such purpose, and not prepay, purchase or redeem any Subordinated Debt.
7.9 Security Interest; Transfers.
(a) The Borrowers shall not create, incur, assume or suffer to exist
any Security Interest on any of the Collateral except Permitted Liens and
Security Interests in favor of the Lender created by the Loan Documents.
The Borrower shall not transfer its interest in any Collateral, except as
specifically permitted by the Loan Documents.
(b) Without the prior written consent of the Lender, which consent
will not be unreasonably withheld, the Borrowers shall not, and shall not
permit any Subsidiary (other than a Borrower) to, create, incur, assume or
suffer to exist any Security Interest on any of its property, real or
personal, except (i) Security Interests in favor of the Lender created
pursuant to the Loan Documents; (ii) Security Interests in existence as of
the date of this Agreement listed on Schedule 7.9; (iii) Security Interests
securing non-recourse Indebtedness or recourse Indebtedness in an amount of
up to $1,000,000 in any single transaction, in each case incurred in the
ordinary course of business provided that such Security Interests are
limited only to those Leases and the goods which are the subject of such
Leases as to which the recourse of the applicable lender is limited; and
(iv) Security Interests for current taxes and assessments which are not yet
due and payable.
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7.10 Modification of Loan Support Leases. The Borrowers shall not amend or
modify any provision of any Loan Support Lease except in accordance with the
Borrowers' customary practices; provided, however, that (i) without the Lender's
prior written consent, the Borrower shall not (1) decrease the amount of, or
delay the due date of, any Rent, (2) release any collateral or guarantor, (3)
knowingly waive any event of default, or (4) permit any assignment by a Lessee,
and (ii) after the occurrence of an Event of Default, the Borrowers shall not
enter into any amendment or modification of any Loan Support Lease without the
Lender's prior written consent.
7.11 Location of Loan Support Leased Goods. At the time of attachment and
perfection of the Security Interest granted pursuant hereto, all Loan Support
Leased Goods, will be located and will be maintained only at the locations set
forth on the applicable Lease Schedule. The Borrowers shall not permit such Loan
Support Leased Goods to be removed from such locations unless, promptly after
the Borrowers has knowledge of any such removal, the Borrowers determine that
the new location is a location for which financing statements have been filed
where appropriate or other action taken to continue the perfection of the
Lender's Security Interest as a first priority Security Interest therein or if
such financing statements have not been previously filed or other action taken
in the new location, gives written notice to the Lender of the location or
locations to which the Collateral has been moved, and the Borrowers delivers to
the Lender acknowledgment copies of financing statements filed where appropriate
to continue the perfection of the Lender's Security Interest as a first priority
Security Interest therein. The Lender's Security Interest attaches to all of the
Collateral wherever located and the Borrowers' failure to inform the Lender of
the location of any item or items of Collateral shall not impair the Lender's
Security Interest therein.
7.12 Transactions with Related Parties. The Borrowers shall not, and shall
not permit any Subsidiary to, enter into or be a party to any transaction or
arrangement, including, without limitation, the purchase, sale, lease or
exchange of property or the rendering of any service, with any Related Party,
except: (a) in the ordinary course of and pursuant to the reasonable
requirements of the applicable Borrower's or the applicable Subsidiary's
business and upon fair and reasonable terms which shall be no less favorable to
such Borrower or such Subsidiary than would be obtained in a comparable
arm's-length transaction with a Person not a Related Party; (b) indebtedness
owed to King Holding Company, The P.J. King Companies, Inc., or any of their
respective Affiliates permitted by Section 7.13(d) and secured by Security
Interests permitted by Section 7.9(b) and payments thereon in accordance with
the terms thereof in effect on the Effective Date; or (c) a settlement with The
P. J. King Companies, Inc. or any of Peter J. King's Affiliates pertaining to
claims arising out of the ILC Merger so long as such settlement only requires
the issuance of common or preferred stock by the Borrowers or any of their
Subsidiaries and does not require any cash payments.
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7.13 Additional Indebtedness. Without the prior written consent of the
Lender, which consent will not be unreasonably withheld, the Borrowers shall
not, and shall not permit any Subsidiary to, create, incur, assume or suffer to
exist any Indebtedness other than: (a) Indebtedness in favor of the Lender; (b)
current liabilities incurred in the ordinary course of business; (c)
non-recourse Indebtedness, or recourse Indebtedness up to but not exceeding
$1,000,000 in any single transaction, incurred in the ordinary course of
business; and (d) Indebtedness existing on the date of this Agreement and set
forth on Schedule 7.13 hereto.
7.14 Guaranties. Without the prior written consent of the Lender, which
consent will not be unreasonably withheld, except for guaranties listed on
Schedule 7.14 attached the Borrowers shall not, and shall not permit any
Subsidiary, to assume, guarantee, endorse or otherwise become liable in
connection with the indebtedness of any other person or entity except
endorsements of negotiable instruments for deposit or collection in the ordinary
course of business and guaranties of recourse Indebtedness of a Subsidiary
(other than a Borrower) up to, but not exceeding $1,000,000 in any single
transaction of such Subsidiary.
ARTICLE VIII
EVENTS OF DEFAULT
8.1 Events of Default. The occurrence of any one or more of the following
events shall constitute an Event of Default:
(a) The Borrowers shall fail to make when due, whether by acceleration
or otherwise, any payment of principal of or interest on the Note or any
fee or other amount required to be made to the Lender pursuant to the Loan
Documents;
(b) Any representation or warranty made or deemed to have been made by
or on behalf of any Borrower or any Subsidiary in any of the Loan Documents
or by or on behalf of any Borrower or any Subsidiary in any certificate,
statement, report or other writing furnished by or on behalf of any
Borrower to the Lender pursuant to the Loan Documents shall prove to have
been false or misleading in any material respect on the date as of which
the facts set forth are stated or certified or deemed to have been stated
or certified;
(c) The Borrower shall fail to comply with Section 6.1(f), 6.2, 6.13,
6.14, 6.15 or 6.16 hereof or any Section of Article VII hereof;
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(d) Any Borrower shall fail to comply with any agreement, covenant,
condition, provision or term contained in the Loan Documents (and such
failure shall not constitute an Event of Default under any of the other
provisions of this Section 8.1) and such failure to comply shall continue
for 30 calendar days after notice thereof to the Borrowers by the Lender;
(e) Any Borrower or any Subsidiary shall become insolvent or shall
generally not pay its debts as they mature or shall apply for, shall
consent to, or shall acquiesce in the appointment of a custodian, trustee
or receiver of the Borrower or such Subsidiary or for a substantial part of
the property thereof or, in the absence of such application, consent or
acquiescence, a custodian, trustee or receiver shall be appointed for the
Borrower or a Subsidiary or for a substantial part of the property thereof
and shall not be discharged within 30 days;
(f) Any bankruptcy, reorganization, debt arrangement or other
proceedings under any bankruptcy or insolvency law shall be instituted by
or against a Borrower or a Subsidiary, and, if instituted against a
Borrower or a Subsidiary, shall have been consented to or acquiesced in by
such Borrower or such Subsidiary, or shall remain undismissed for 30 days,
or an order for relief shall have been entered against such Borrower or
such Subsidiary, or any Borrower or any Subsidiary shall take any corporate
action to approve institution of, or acquiescence in, such a proceeding;
(g) Any dissolution or liquidation proceeding shall be instituted by
or against a Borrower or a Subsidiary and, if instituted against a Borrower
or a Subsidiary, shall be consented to or acquiesced in by such Borrower or
such Subsidiary or shall remain for 30 days undismissed, or any Borrower or
any Subsidiary shall take any corporate action to approve institution of,
or acquiescence in, such a proceeding;
(h) A judgment or judgments for the payment of money (other than a
judgment described in subsection (l) below) in excess of the sum of $50,000
in the aggregate shall be rendered against a Borrower or a Subsidiary and
such Borrower or such Subsidiary shall not discharge the same or provide
for its discharge in accordance with its terms, or procure a stay of
execution thereof, prior to any execution on such judgments by such
judgment creditor, within 30 days from the date of entry thereof, and
within said period of 30 days, or such longer period during which execution
of such judgment shall be stayed, appeal therefrom and cause the execution
thereof to be stayed during such appeal;
(i) Steps to terminate any Plan shall be instituted by any Borrower or
any ERISA Affiliate if, in order to effectuate such termination, such
Borrower or any ERISA Affiliate would be required to make a contribution to
such Plan, or would incur a liability or obligation to such Plan, in excess
of $50,000, or the PBGC shall institute steps to terminate any Plan;
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(j) The maturity of any Indebtedness in an amount in excess of
$100,000 of a Borrower (other than Indebtedness under this Agreement) or a
Subsidiary shall be accelerated, or a Borrower or a Subsidiary shall fail
to pay any such Indebtedness when due or, in the case of such Indebtedness
payable on demand, when demanded, or any event shall occur or condition
shall exist and shall continue for more than the period of grace, if any,
applicable thereto and shall have the effect of causing, or permitting the
holder of any such Indebtedness or any trustee or other Person acting on
behalf of such holder to cause such Indebtedness to become due prior to its
stated maturity or to realize upon any Collateral given as security
therefor;
(k) The Borrowers shall fail to have a Primary Credit Facility in full
force and effect on terms substantially similar to those in effect on the
date hereof;
(l) The entry of an order, judgment or decree by any court or an award
by arbitrators rescinding the ILC Merger or imposing monetary damages
against one or more of the Borrowers for claims relating to the ILC Merger
(any such rescission or monetary damage order, judgement, decree or award
being a "King Judgment") and either: (i) such King Judgment is enforced, or
sought to be enforced, by the holder thereof (a "King Judgment Holder")
against any Borrower or any Borrower's property through any judicial or
non-judicial action including, without limitation, by agreement with any
Borrower; (ii) any Borrower agrees or allows any King Judgment Holder to
take any action with respect to any Borrower's property to satisfy or
secure, in whole or in part, any King Judgment regardless of whether such
King Judgment remains valid or enforceable at the time or after any such
allowance or agreement except as permitted by Section 7.12(c); or (iii)
such King Judgment, regardless of whether modified, becomes final by appeal
or passage of time to appeal without an appeal being filed; or
(m) Any "Event of Default" (howsoever defined) occurs under the Avi
Casino Lease and such "Event of Default" is not cured within any applicable
cure period provided in the Avi Casino Lease.
8.2 Right of Acceleration Upon Event of Default. If an Event of Default
described in Section 8.1(e), (f) or (g) shall occur, the full unpaid principal
amount of the Note shall automatically be due and payable without any
declaration, notice, presentment, protest or demand of any kind (all of which
are hereby waived). If any other Event of Default shall occur and be continuing,
the Lender may declare the outstanding principal amount of the Note to be due
and payable without notice, presentment, protest or demand of any kind (all of
which are hereby waived), whereupon the full unpaid amount of the Note shall be
and become immediately due and payable.
8.3 Additional Rights and Remedies. In addition to acceleration of the Loan
pursuant to Section 8.2, upon the occurrence of an Event of Default, and at any
time thereafter, the Lender may exercise any one or more of the following rights
and remedies:
29
<PAGE>
(a) Offset any deposits, including unmatured time deposits, then
maintained by any Borrower with the Lender, whether or not then due,
against any of the Obligations;
(b) In the name of any Borrower or otherwise, demand, collect, receive
and receipt for, compound, compromise, settle and give acquittance for and
prosecute and discontinue any suits or proceedings in respect of any or all
of the Collateral;
(c) Take any action which the Lender may deem necessary or desirable
in order to realize on the Collateral, including, without limitation, the
power to direct any obligor on the Collateral to make payment directly to
the Lender and the power to perform any contract, to endorse in the name of
the Borrower any checks, drafts, notes, or other instruments or documents
received in payment of or on account of the Collateral; and
(d) Subject to any right of quiet enjoyment of Avi Casino or any other
Lessee under the documents creating the Loan Support Leases, exercise any
and all other rights and remedies available to it by law or by agreement,
including rights and remedies under the Uniform Commercial Code or any
other applicable law, or under this Agreement and, in connection therewith,
the Lender may require the Borrowers to assemble the Collateral and make it
available to the Lender at a place to be designated by the Lender, and any
notice of intended disposition of any of the Collateral required by law
shall be deemed reasonable if such notice is given to the Borrowers at
least ten days before the date of such disposition.
8.4 Application of Moneys. All proceeds of Collateral shall be applied in
accordance with Minnesota Statutes ss.336.9-504 and such proceeds applied toward
the Obligations shall be applied in such order as the Lender may elect.
ARTICLE IX
MISCELLANEOUS
9.1 Waivers, Amendments, etc. The provisions of this Agreement, including
the closing conditions set forth herein, may from time to time be amended,
modified or waived, if such amendment, modification or waiver is in writing and
consented to by the Borrowers and the Lender.
No failure or delay on the part of the Lender or the holder of the Note in
exercising any power or right under this Agreement or the Note shall operate as
a waiver thereof, nor shall any single or partial exercise of any such power or
right preclude any other or further exercise thereof or the exercise of any
other power or right. No notice to or demand on the Borrower in any case shall
entitle it to any notice or demand in similar or other circumstances.
30
<PAGE>
9.2 Computation and Payment, etc., of Liabilities. All computations of
interest payable on the outstanding principal amount of the Loan shall be
computed on the basis of a year comprised of 360 days, but charged for the
actual number of days elapsed (including the first day but excluding the last
day) occurring in the period for which such interest is payable. Whenever any
payment to be made hereunder shall otherwise be due on a day which is not a
Business Day, such payment shall be made on the next succeeding Business Day,
and such extension of time shall be included in computing the fees or interest
payable on such next succeeding Business Day.
9.3 Notices. All communications and notices provided under this Agreement
shall be in writing or by telecopy and if to any party addressed or delivered to
it at the address shown on the signature page hereof, or to any party at such
other address as may be designated by such party in a notice to the other party.
Any such notice shall be deemed to be given when transmitted and received by
telecopier or personally delivered, or three days after being deposited in the
United States mail, postage prepaid (whether or not actually received), or one
day after delivery to Federal Express or other overnight courier service
(whether or not actually received).
9.4 Costs and Expenses. The Borrowers jointly and severally agree to
reimburse upon demand for all reasonable expenses paid or incurred by the Lender
(including filing and recording costs and fees and expenses of legal counsel,
who may be employees of the Lender) in connection with the negotiation and
preparation of the Loan Documents. The Borrower agrees to pay, and save harmless
from all liability for, any stamp or other taxes which may be payable with
respect to the execution or delivery of the Loan Documents. The Borrower agrees
to reimburse the Lender upon demand for all reasonable out-of-pocket expenses
(including attorneys' fees and legal expenses) paid or incurred by the Lender in
connection with the amendment, modification, interpretation, collection or
enforcement of the obligations of the Borrower hereunder or under the Note or
any other Loan Documents including, without limitation, attorneys' fees and
legal expenses in connection with any appeal of a lower court's order or
judgment. The Obligations of the Borrower under this Section shall survive any
termination of this Agreement.
9.5 Severability. Any provision of this Agreement or any Loan Document
executed pursuant hereto which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or such Loan Document or affecting the validity or
enforceability of such provision in any other jurisdiction.
9.6 Cross-References. References in this Agreement to any Section or
Article are, unless otherwise specified, to such Section or Article of this
Agreement.
31
<PAGE>
9.7 Headings. The various headings of this Agreement are inserted for
convenience only and shall not affect the meaning or interpretation of this
Agreement or any provisions hereof.
9.8 Governing Law. This Agreement, the Note, and each other Loan Document
shall each be deemed to be a contract made under and governed by the internal
laws of the State of Minnesota.
9.9 Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
assigns, except that Borrowers may not assign or transfer their rights hereunder
without the prior written consent of the Lender. The Lender may furnish any
information concerning any Borrower in the possession of the Lender from time to
time to participants and prospective participants and to successors and assigns
and prospective successors and assigns, and may furnish information in response
to credit inquiries consistent with general banking practice.
9.10 Recitals Incorporated. The recitals to this Agreement are incorporated
into and constitute an integral part of this Agreement.
9.11 Commissions. The Borrowers hereby jointly and severally warrant to the
Lender and the Lender hereby warrants to the Borrower that no broker, agent or
finder has been retained by either party and that no broker's commissions,
finder's fees or like charges have been incurred in connection with this
transaction. Each party hereby indemnifies and agrees to hold harmless the other
from and against all losses, damages, costs, expenses (including reasonable fees
and expenses of attorneys), causes of action, suits or judgments of any nature
arising out of any claim, demand or liability to or asserted by any broker,
agent or finder, other than herein specified, claiming to have acted on behalf
of the indemnifying party in connection with this transaction.
9.12 Entire Agreement. This Agreement and the other Loan Documents embody
the entire agreement and understanding between the Borrowers and the Lender with
respect to the subject matter hereof and thereof. This Agreement supersedes the
Original Agreement (except as provided in ARTICLE IV hereof) and all prior
agreements and understandings relating to the subject matter hereof.
9.13 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and either of the parties hereto may execute this Agreement by
signing any such counterpart.
32
<PAGE>
9.14 Consent to Jurisdiction. AT THE OPTION OF THE LENDER, THIS AGREEMENT,
THE NOTE, AND THE OTHER LOAN DOCUMENTS MAY BE ENFORCED IN ANY FEDERAL COURT OR
MINNESOTA STATE COURT SITTING IN MINNEAPOLIS OR ST. PAUL, MINNESOTA; AND THE
BORROWER CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY
ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE BORROWER
COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT
THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS
AGREEMENT, THE LENDER AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE
TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH
TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE
DISMISSED WITHOUT PREJUDICE.
9.15 Waiver of Jury Trial. THE BORROWER WAIVES ANY RIGHT TO A TRIAL BY JURY
IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS (a) UNDER THIS
AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR
WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR (b) ARISING FROM
ANY BANKING RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREES
THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE
A JURY.
9.16 Waiver of Defaults; etc. On the Effective Date of this Agreement, the
Lender waives all "Defaults" and "Events of Default" existing under the Original
Agreement.
9.17 Release. On the Effective Date of this Agreement, each Borrower hereby
releases and forever discharges the Lender and its successors, assigns,
directors, officers, agents, employees and participants from any and all
actions, causes of action, suits, proceedings, debts, sums of money, covenants,
contracts, controversies, claims and demands, at law or in equity, which such
Borrower ever had or, as of the Effective Date, has against the Lender or its
successors, assigns, directors, officers, agents, employees or participants by
virtue of their relationship to any Borrower in connection with the Original
Agreement and the transactions related thereto.
9. 18 Consent. On the Effective Date of this Agreement, the Lender consents
to the financing transaction described on Schedule 9.18 attached hereto and
waives any Default or Event of Default under Section 7.2, 7.6 or 7.9 resulting
from the consummation of such transaction.
33
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
Sunrise Leasing Corporation
By /s/ Barry J. Schwach
Its Chief Financial Officer
Address: 5500 Wayzata Boulevard, Suite 725
Minneapolis, Minnesota 55416
Attention: Mr. Errol Carlstrom
Telecopier No.: (612) 513-3299
Sunrise Resources, Inc.
By /s/ Barry J. Schwach
Its Chief Financial Officer
Address: 5500 Wayzata Boulevard, Suite 725
Minneapolis, Minnesota 55416
Attention: Mr. Errol Carlstrom
Telecopier No.: (612) 513-3299
The Daiwa Bank, Limited,
By Jan Okuda
Its Attorney-In-Fact
Address for Notices:
4135 Multifoods Tower
33 South Sixth Street
Minneapolis, MN 55402
Attention: Mr. Michael Philippe
Telecopier No.: (612) 332-6745
34
<PAGE>
LIST OF EXHIBITS
Exhibit A Note
Exhibit B Opinion of Counsel
Exhibit C Compliance Certificate
LIST OF SCHEDULES
Schedule 5.2 Due Authorization
Schedule 5.6 Litigation
Schedule 5.8 APT Loan Support Lease Defaults
Schedule 5.11 Contingent Liabilities
Schedule 5.21 Subsidiaries
Schedule 5.22 Partnerships and Joint Ventures
Schedule 7.9 Existing Security Interests
Schedule 7.13 Existing Indebtedness
Schedule 7.14 Existing Guaranties
Schedule 9.18 Financing Transactions
SUNRISE RESOURCES, INC. AND SUBSIDIARIES
PER SHARE EARNINGS COMPUTATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
------------------ -----------------
1996 1995 1996 1995
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Primary Earnings Per Share:
Weighted average number of
common shares outstanding 7,189,000 7,189,000 7,189,000 7,189,000
Common stock equivalents from
assumed exercise of options and
warrants 33,000 -- 13,000 2,000
---------------- -------------- --------------- ---------------
Total shares 7,222,000 7,189,000 7,202,000 7,191,000
================ ============== =============== ===============
Net income $ 926,000 $ 832,000 $ 2,019,000 $ 1,723,000
================ ============== =============== ===============
Net income per common and
common equivalent share $ 0.13 $ 0.12 $ 0.28 $ 0.24
================ ============== ============== ===============
Fully Dilutive Earnings Per Share:
Weighted average number of
common shares outstanding 7,189,000 7,189,000 7,189,000 7,189,000
Common stock equivalents
from assumed exercise of
options and warrants 33,000 -- 13,000 2,000
--------------- -------------- -------------- ---------------
Total shares 7,222,000 7,189,000 7,202,000 7,191,000
================ ============== =============== ===============
Net income $ 926,000 $ 832,000 $ 2,019,000 $ 1,723,000
================ ============== =============== ===============
Net income per common
and common equivalent share $ 0.13 $ 0.12 $ 0.28 $ 0.24
================ ============== ============== ===============
</TABLE>
Net income per common and common equivalent share is computed using the weighted
average number of shares outstanding during each period. Common equivalent
shares represent the dilutive effects of outstanding stock options and warrants
using the treasury stock method and average market prices during the periods.
The calculation of fully dilutive earnings per share uses the higher of the
ending market price for the period or the average market price.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 1,834,000
<SECURITIES> 0
<RECEIVABLES> 18,856,000
<ALLOWANCES> 3,592,000
<INVENTORY> 108,000
<CURRENT-ASSETS> 120,526,000
<PP&E> 926,000
<DEPRECIATION> 457,000
<TOTAL-ASSETS> 121,703,000
<CURRENT-LIABILITIES> 90,380,000
<BONDS> 0
0
0
<COMMON> 72,000
<OTHER-SE> 31,323,000
<TOTAL-LIABILITY-AND-EQUITY> 121,703,000
<SALES> 21,408,000
<TOTAL-REVENUES> 21,408,000
<CGS> 17,527,000
<TOTAL-COSTS> 17,527,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,881,000
<INCOME-TAX> 1,862,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,019,000
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
</TABLE>
