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, 1997 0-19516
SUNRISE INTERNATIONAL LEASING CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 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
SUNRISE RESOURCES, INC.
(Former name, former address and former fiscal year, if changed since last
report)
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.
7,787,796 shares of Common Stock, $.01 par value as of November 12, 1997.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements Included herein is the following unaudited
financial information:
Consolidated Balance Sheets as of September 30, 1997 and March 31, 1997.
Consolidated Statements of Operations for three month and six month periods
ended September 30, 1997 and 1996.
Consolidated Statements of Cash Flows for the six month periods ended
September 30, 1997 and 1996.
Notes to Consolidated Financial Statements.
<PAGE>
SUNRISE INTERNATIONAL LEASING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, March 31,
1997 1997
--------------- ---------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 2,386,000 $ 2,191,000
Accounts receivable, less allowance for doubtful accounts
of $352,000 and $494,000 1,714,000 1,928,000
Income taxes receivable -- 1,245,000
Inventory held for sale 523,000 388,000
Loans receivable, less allowance for possible losses of $3,461,000
and $3,401,000 5,567,000 7,503,000
Investment in leasing operations:
Direct financing leases 37,099,000 46,759,000
Operating leases, less accumulated depreciation of
$25,022,000 and $22,973,000 44,807,000 42,211,000
Equipment held for lease 8,910,000 6,435,000
Initial direct costs 495,000 590,000
--------------- ----------------
Total investment in leasing operations 91,310,000 95,995,000
--------------- ----------------
Furniture and fixtures, less accumulated depreciation
of $617,000 and $535,000 382,000 411,000
Other assets 1,261,000 1,498,000
--------------- ----------------
Total Assets $ 103,144,000 $ 111,159,000
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Financing arrangements:
Notes payable $ 20,196,000 $ 13,329,000
Securitized borrowings 9,168,000 15,481,000
Recourse participations in loans receivable 35,000 435,000
Discounted lease rentals 32,412,000 40,198,000
--------------- ----------------
Total financing arrangements 61,811,000 69,443,000
--------------- ----------------
Accounts payable 4,401,000 6,808,000
Accrued liabilities 3,318,000 6,252,000
Accrued income taxes 1,100,000 --
Deferred tax liability 1,899,000 1,899,000
--------------- ----------------
Total Liabilities 72,529,000 84,402,000
--------------- ----------------
COMMITMENTS AND CONTINGENCIES (Note 6)
SHAREHOLDERS' EQUITY
Common stock, $.01 par value, 17,500,000
shares authorized, 7,788,000 and 7,189,000
shares issued and outstanding, respectively 78,000 72,000
Capital stock, undesignated, $.01 par value,
2,500,000 shares authorized, none issued or outstanding -- --
Additional paid-in capital 27,617,000 25,601,000
Retained earnings 2,920,000 1,084,000
--------------- --------------
Total Shareholders' Equity 30,615,000 26,757,000
--------------- --------------
Total Liabilities and Shareholders' Equity $ 103,144,000 $ 111,159,000
================ ===============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
<PAGE>
SUNRISE INTERNATIONAL LEASING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Six Months
Ended September 30, Ended September 30,
--------------------------------- ----------------------------------
1997 1996 1997 1996
----------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
REVENUES
Operating leases $ 8,316,000 $ 6,142,000 $ 16,236,000 $ 11,866,000
Direct financing leases 1,288,000 2,046,000 2,678,000 4,221,000
Equipment sales 1,763,000 2,314,000 3,420,000 4,801,000
Interest Income 67,000 178,000 137,000 397,000
Fee income 195,000 58,000 282,000 123,000
--------------- --------------- --------------- ---------------
Total Revenues 11,628,000 10,738,000 22,753,000 21,408,000
--------------- --------------- --------------- ---------------
COSTS AND EXPENSES
Depreciation 4,621,000 3,682,000 8,953,000 6,838,000
Interest 1,395,000 1,603,000 2,886,000 3,313,000
Provision for lease and loan losses 345,000 205,000 615,000 426,000
Cost of equipment sold 1,807,000 1,885,000 3,457,000 4,065,000
Compensation expense 872,000 1,003,000 1,836,000 1,784,000
Other operating expenses 745,000 580,000 1,479,000 1,101,000
--------------- --------------- --------------- ---------------
Total Costs and Expenses 9,785,000 8,958,000 19,226,000 17,527,000
--------------- --------------- --------------- ---------------
INCOME FROM OPERATIONS
BEFORE PROVISION
FOR INCOME TAXES 1,843,000 1,780,000 3,527,000 3,881,000
PROVISION FOR INCOME TAXES 885,000 854,000 1,692,000 1,862,000
--------------- --------------- --------------- ---------------
NET INCOME $ 958,000 $ 926,000 $ 1,835,000 $ 2,019,000
=============== =============== =============== ===============
NET INCOME PER COMMON
AND COMMON
EQUIVALENT SHARE $ 0.12 $ 0.13 $ 0.24 $ 0.28
============== =============== =============== ==============
WEIGHTED AVERAGE NUMBER
OF COMMON AND
COMMON EQUIVALENT
SHARES OUTSTANDING 7,856,000 7,222,000 7,586,000 7,202,000
=============== =============== =============== ===============
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
<PAGE>
SUNRISE INTERNATIONAL LEASING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended September 30,
-----------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 1,835,000 $ 2,019,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for lease and loan losses 615,000 410,000
Depreciation and amortization 9,358,000 6,860,000
Change in operating assets and liabilities:
Accounts receivable (41,000) (499,000)
Income taxes receivable 1,245,000 1,157,000
Other assets 98,000 145,000
Inventory held for sale (135,000) 15,000
Accounts payable (2,407,000) 4,409,000
Accrued liabilities (912,000) 209,000
Accrued income taxes 1,100,000 731,000
--------------- ---------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 10,756,000 15,456,000
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment for lease (18,666,000) (22,364,000)
Principal portion of direct financing leases collected 13,914,000 13,228,000
Investment in loans receivable -- (1,221,000)
Principal portion of loans receivable collected 1,876,000 3,875,000
Purchase of furniture and fixtures (52,000) (19,000)
---------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES (2,928,000) (6,501,000)
---------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on notes payable 22,999,000 9,700,000
Payments on notes payable (16,132,000) (3,413,000)
Payments on securitized borrowings (6,313,000) --
Proceeds from discounted lease financing 4,492,000 4,339,000
Payments on discounted lease financing (12,278,000) (13,962,000)
Payments on participations in loans receivable (401,000) (2,880,000)
Payments on note payable to King Holding Corporation -- (2,534,000)
--------------- ---------------
NET CASH USED IN FINANCING
ACTIVITIES (7,633,000) (8,750,000)
---------------- ----------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 195,000 205,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,191,000 1,629,000
--------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,386,000 $ 1,834,000
=============== ===============
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid 1,621,000 1,819,000
Income taxes paid (received) (700,000) 7,000
Stock issued in arbitration settlement (See Note 6) 2,022,000 --
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
<PAGE>
SUNRISE INTERNATIONAL LEASING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTH PERIODS ENDED SEPTEMBER 30, 1997 and 1996 (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 International Leasing Corporation (formerly known as Sunrise
Resources, Inc.) and Subsidiaries (the Company) as of September 30, 1997
and March 31, 1997 and the results of operations and cash flows for the
three and six months ended September 30, 1997 and 1996. 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, 1997, filed with the Securities and
Exchange Commission, and with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing in this quarterly
report. Results for the interim periods are not necessarily indicative of
sales trends or future results and performance.
During March 1997, the Financial Accounting Standards Board released SFAS
No. 128, Earnings per Share, which requires the disclosure of basic
earnings per share and diluted earnings per share. The Company expects to
adopt SFAS No. 128 in fiscal 1998 and anticipates it will not have a
material impact on the financial position or the results of operations of
the Company.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information, which
will be effective for the Company beginning April 1, 1998. SFAS No. 131
redefines how operating segments are determined and requires disclosure of
certain financial and descriptive information about a company's operating
segments. The Company has not yet completed its analysis of which operating
segments it will report on.
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 period
ended September 30, 1997, and 48% for the three and six month periods ended
September 30, 1996.
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,
1997 1997
--------------- ----------
<S> <C> <C>
Commercial loans, collateralized primarily by receivables $ -- $ 161,000
Commercial loans, collateralized by equipment, marketable
securities and other 4,409,000 5,163,000
Real estate loans 350,000 1,038,000
Non-accrual loans 4,633,000 5,475,000
Non-recourse participations (300,000) (867,000)
--------------- ---------------
9,092,000 10,970,000
Less:
Allowance for possible loan losses (3,461,000) (3,401,000)
Unearned fees from loan origination (64,000) (66,000)
--------------- ---------------
$ 5,567,000 $ 7,503,000
=============== ===============
</TABLE>
<PAGE>
Loan Portfolio Activity and Allowance for Possible Loan Losses
As of September 30, 1997 and March 31, 1997, the Company's recorded
investment in impaired and other loans and the related valuation allowances
was as follows:
<TABLE>
<CAPTION>
September 30, 1997 March 31, 1997
------------------------------------ ----------------------------------
Recorded Valuation Recorded Valuation
Investment Allowance Investment Allowance
----------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Impaired loans -
Nonaccrual $ 4,409,000 $ 3,236,000 $ 5,250,000 $ 3,176,000
Other 225,000 225,000 225,000 225,000
Performing loans 4,758,000 -- 6,362,000 --
Nonrecourse participations (300,000) -- (867,000) --
----------------- -------------- ---------------- ---------------
$ 9,092,000 $ 3,461,000 $ 10,970,000 $ 3,401,000
=============== ============= ============== ==============
</TABLE>
The activity in the allowance for possible loan losses during the three and
six months ended September 30, 1997 and 1996 was as follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended September 30, Ended September 30,
------------------------------ ------------------------------
1997 1996 1997 1996
----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Balance, beginning of period $3,431,000 $2,803,000 $3,401,000 $2,773,000
Provisions for loan losses 30,000 34,000 60,000 64,000
Write-offs -- -- -- --
------------ ------------- ------------ -----------
Balance, end of period $3,461,000 $2,760,000 $3,461,000 $2,760,000
============ ============= ============ ===========
</TABLE>
4. DISCOUNTED LEASE RENTALS
Discounted lease rentals consist of the following:
September 30, March 31,
1997 1997
--------------- ---------------
Non-recourse $ 26,309,000 $ 30,761,000
Recourse 6,103,000 9,437,000
--------------- ---------------
$ 32,412,000 $ 40,198,000
=============== ===============
5. FINANCING 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 $25.0 million at September 30, 1997. The
loan balance outstanding as of quarter end was $15.4 million. Advances
under the line bear interest at prime, and are collateralized by
substantially all otherwise unsecured assets of the Company. This line of
credit facility matured on September 30, 1997 and was renewed under
identical terms for another twelve-month period ending September 30, 1998.
This credit facility requires compliance with financial covenants,
including the maintenance of certain liquidity and net worth ratios,
prohibits the payment of dividends and requires compliance with other
financial covenants. As a result of charges taken in the fourth quarter of
fiscal year 1997 for lease and loan losses and related events, as of March
31, 1997, the Company did not meet certain financial and other covenants
contained in credit agreements with certain lenders. With the assistance of
King Management Corporation, the lenders have subsequently modified the
financial covenants or waived the events of noncompliance. As of September
30, 1997, the Company is in compliance with the revised terms of these
agreements.
<PAGE>
Term Loan
On May 16, 1997, Sunrise Leasing Corporation completed a $5,500,000 funding
on a term loan with National City Bank of Minneapolis. This term loan is
secured by certain leases of the Company. These funds were used to reduce
the debt outstanding under the Company's bank line of credit. As of
September 30, 1997 the outstanding balance on this loan was $4.8 million.
Securitization
On October 31, 1996, the Company, Sunrise Leasing Corporation ("Sunrise
Leasing") and Sunrise Funding Corporation I (a newly formed wholly-owned
special purpose subsidiary of Sunrise Leasing)("Sunrise Funding"), entered
into an agreement with a subsidiary of Dougherty Dawkins, Inc. to place up
to $20 million of notes issued by Sunrise Funding to private institutional
investors. Dougherty Dawkins, Inc. is an investment banking firm of which a
former director of the Company is Vice Chairman. The notes are secured by
certain leases contributed to Sunrise Funding by Sunrise Leasing. This
securitization facility was closed on November 8, 1996, with an initial
funding of $13,000,000 and subsequent advance of $7.0 million was funded on
January 31, 1997.
6. COMMITMENTS AND CONTINGENCIES
Litigation
On June 17, 1997, a decision was released by the arbitrator on these
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"). ILC shareholders were denied rescission and
reformation of the merger agreement as well as relief on five other claims.
They were however granted relief on one count of breach of warranty and
awarded damages of 560,257 additional shares of Sunrise International
Leasing Corporation common stock. This award, valued at $1,891,000, was
charged as an expense for fiscal 1997. Additionally, certain ILC
shareholders were awarded repayment of attorneys' fees payable in the form
of 38,818 additional shares of Sunrise International Leasing Corporation
common stock. This award valued at $131,000 was also charged as an expense
for fiscal 1997. These proceedings were conducted under an agreement of
binding arbitration and therefore no further disputes or settlements with
the Company are expected to arise in connection with the merger agreement.
<PAGE>
7. RELATED PARTY
Employment Agreement
On June 16, 1997, the Company entered into an agreement (the "Agreement")
with Peter J. King and The King Management Corporation ("King Management"),
a corporation which is controlled by Mr. King, whereby Mr. King would
become Chairman of the Board and an employee of the Company and whereby Mr.
King and King Management would provide certain services for the Company.
The term of the agreement is from June 16, 1997 through June 15, 1999 and
entitles Mr. King to receive a salary of $10,000 per month for his services
as a director and employee of the Company. In addition, Mr. King received
(i) a five-year option to purchase 270,753 shares of the Company's Common
Stock at $3.375 per share, which option is immediately exercisable, and
(ii) a five-year option to purchase 270,753 shares of the Company's Common
Stock at $3.375 per share, which option will become exercisable on June 16,
2001 if Mr. King is still employed by the Company; provided, however, that
the vesting of such option will be accelerated prior to June 16, 1999 if
certain conditions are met.
Also pursuant to this agreement with Peter J. King and King Management,
King Management will provide subordinated debt financing, direct financing
and/or other financial assistance to the Company for a period of two years
in consideration of King Management's right to participate as lessor to the
extent of 25% of certain higher-risk vendor leasing programs and risk pools
and to the extent of 15% of all other vendor leasing programs of the
Company.
As of September 30, 1997, King Management had under this agreement
purchased 62 leases with a cost of $1,388,000. Had these leases been
recorded on the Company's books, $95,000 of additional revenue would have
been recognized for the three months ended September 30, 1997.
8. SUBSEQUENT EVENT
On October 17, 1997, Sunrise Resources, Inc. merged with and into a
newly-formed Delaware subsidiary named Sunrise International Leasing
Corporation, thereby changing the Company's state of incorporation to
Delaware and the Company's name to Sunrise International Leasing
Corporation.
<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) fee income; and (v) interest
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 and
depreciation expense 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.
Fee Income. Fee income consists principally of fees earned 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.
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.
<PAGE>
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, 1997.
Results of Operations for the Three and Six Months Ended September 30, 1997 and
1996
Total revenue from leasing activity increased approximately $1.4 million (17.3%)
and $2.8 million (17.6%) for the three and six-month periods ended September 30,
1997, as compared to the corresponding periods in fiscal 1997. The majority of
the revenue increase came from a $2.2 million (35.4%) and a $4.4 million (36.2%)
increase in operating lease revenue for the three and six-month periods ended
September 30, 1997, as compared to the previous fiscal year. The increase in
operating lease revenues was offset by a decrease in direct financing lease
revenue of $758,000 (37.0%) and $1.5 million (36.6%) for the three and six-month
periods ended September 30, 1997, as compared to the corresponding periods in
fiscal 1997. The increase in operating lease revenue and the decrease in direct
finance revenue are a result of the Company's continuing effort to expand and
focus on the vendor leasing business. Operating lease revenue was, and will
continue to be, affected by King Management's right to participate as lessor to
the extent of 15% or 25% of the Company's vendor lease programs. See Note 7 to
Consolidated Financial Statements.
Total leasing revenues were as follows (dollar amounts in millions):
<TABLE>
<CAPTION>
Three Months Six Months
Ended September 30, Ended September 30,
--------------------------------- ---------------------------------
1997 1996 1997 1996
--------------- --------------- --------------- ---------------
Amount % Amount % Amount % Amount %
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Leasing Revenues:
Vendor $ 6.8 71% $ 4.7 57% $ 13.2 70% $ 8.9 55%
Direct 2.8 29 3.5 43 5.7 30 7.2 45
------- ------ ------ ----- ------- ---- ------- -----
Total $ 9.6 100% $ 8.2 100% $ 18.9 100% $ 16.1 100%
======= ==== ====== ==== ======= ==== ======= ====
As a percent of total revenues 82.6% 76.2% 83.1% 75.1%
===== ===== ===== =====
</TABLE>
Margins from leasing activities (leasing revenue less depreciation and interest
expense) were 37.3% and 37.4% and 35.5% and 36.9% for the three and six month
periods of fiscal 1998 and fiscal 1997, 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. 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.
<PAGE>
Revenue from equipment sales decreased $551,000 (23.8%) and $1.4 million (28.8%)
for the three and six month periods ended September 30, 1997. This decrease is
primarily a result of lower off-lease sales from the direct customer leasing
business. The gross margins of this activity were (1.0%) and (1.1%) of sales
revenue for the three and six month periods of fiscal 1998, compared to 18.5%
and 15.3% for the corresponding period in fiscal 1997. This decrease in gross
margins was specifically attributable to one vendor program which experienced
off-lease sale losses during the period. Gross margins will 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 $111,000 (62.4%) and $260,000 (65.5%) for the three
and six month periods of fiscal 1998 as compared to the corresponding period in
fiscal 1997. This decrease was caused by the continuing liquidation of the SFR
loan portfolio which coincided with the Company's decision to discontinue its
commercial and asset-based lending services.
Fee income increased $137,000 (236.2%) and $159,000 (129.3%) for the three and
six month periods of fiscal 1998 as compared to the same period in fiscal 1997.
This increase is due to the additional servicing fees received on the
securitization that began on November 1, 1996.
Total costs and expenses increased $827,000 (9.2%) and $1.7 million (9.7%) for
the three and six month periods of fiscal 1998 as compared to the corresponding
period in fiscal 1997.
Depreciation expense for the three and six month period ended September 30, 1997
increased $939,000 (25.5%) and $2,115,000 (30.1%) over the same period in fiscal
1997. This increase was due to an increase in vendor equipment leases as
depicted in the above table, the majority of which are operating leases.
Interest expense decreased $208,000 (13.0%) and $427,000 (12.9%) for the three
and six month periods of fiscal 1998 as compared to the corresponding period in
fiscal 1997. This decrease in interest expense is due to the reduction in
interest expense from discounted leases.
Cost of equipment sold decreased $78,000 (4.1%) and $608,000 (15.0%) for the
three and six month periods of fiscal 1998 as compared to the corresponding
period in fiscal 1997. This decrease was primarily due to decreased sale
activity in the direct leasing business during the first six months of fiscal
1998.
Compensation expense decreased $131,000 (13.1%) for the three months ended
September 30, 1997 as compared to the same period in fiscal 1997. Compensation
expense for the six month period ended September 30, 1997 showed a $52,000
(2.9%) increase over the previous fiscal year. These fluctuations are due to
slightly higher compensation for the six-month period in fiscal 1998 and the
timing of certain accruals.
Other operating expense increased $165,000 (28.4%) and $378,000 (34.3%) for the
three and six month periods ended September 30, 1997, as compared to the
previous periods in fiscal 1997. The majority of this increase was due to the
acceleration of amortization of some capitalized funding expenses.
Income tax provision as a percentage of income before taxes was 48.0% for both
the three and six month periods ended September 30, 1997 and 1996.
<PAGE>
Liquidity and Capital Resources
General
In the leasing business the Company uses a combination of its credit lines,
other financing sources and internally generated cash flows to finance, on an
interim basis, and the acquisition of equipment for lease. Generally, upon
commencement of an end-user 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 credit lines. An
increasing percentage of leases and loans originated since fiscal 1995 were
required to be funded by recourse obligations. In this type of financing, the
Company assumes the entire risk on its investment in the loan or equipment.
At September 30, 1997, the Company had total borrowings outstanding of $61.3
million, of which 42.6% were nonrecourse. At March 31, 1997, the Company had
total borrowings outstanding of $69.4 million, of which 44.3% were nonrecourse.
As of September 30, 1997, the Company had a total investment in leasing
operations of $91.3 million, as compared to $96.0 million at March 31, 1997. The
slight decrease in investment in leasing operations is due to the decrease in
direct finance leases as a result of the reduction of the direct customer
leases. 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 $10.8 million for the first
six-month period of fiscal 1998. Increases in depreciation and amortization,
which were due to increases in the Company's operating lease portfolio, offset
decreases of $2.4 million in accounts payable and $912,000 in accrued
liabilities. The Company expects to fund future 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 $18.7 million for the first six month period of fiscal
1998 were financed through $10.8 million of cash flows from operations, through
the discounting of $5.5 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.
Inflation has not been a significant factor in the Company's business in any of
the periods presented.
Liquidity and Financing Sources
As of September 30, 1997, the Company had available a $25 million line of
credit. Of this amount, $15.4 million had been utilized as of September 30,
1997. 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 as of September 30, 1997 and
was renewed under identical terms for another twelve month period ending
September 30, 1998.
This credit facility requires compliance with financial covenants, including the
maintenance of certain liquidity and net worth ratios, prohibits the payment of
dividends and requires compliance with other financial covenants. As a result of
fourth quarter charges for lease and loans losses and related events, as of
March 31, 1997, the Company did not meet certain financial and other covenants
contained in credit agreements with certain lenders. The lenders have
subsequently modified the financial covenants or waived the events of
noncompliance. As of November 12, 1997, the Company is in compliance with the
revised terms of these agreements.
<PAGE>
During the first quarter of fiscal 1998, the Company's Sunrise Leasing
Corporation subsidiary entered into a Discretionary Revolving Credit Agreement
with National City Bank of Minneapolis. The agreement provides for discretionary
loan advances up to $5.5 million based on eligible equipment leases. Advances
under the agreement are secured by the eligible equipment leases and are repaid
over the term, up to 48 months, of such eligible equipment leases with interest
at 3.25% above the yield on U.S. Treasury securities of equivalent term. The
credit facility is also guaranteed by Sunrise International Leasing Corporation.
In May 1997, the Company borrowed $5.5 million under this credit facility, and
$4.8 million remains outstanding as of September 30, 1997.
Based on its projected cash flow from operations, completion of the Securitized
Facility and its recent success in obtaining additional discount financing and
the commitment of King Management Corporation to assist the Company in meeting
its financing requirements, the Company believes that it will be able to finance
its anticipated equipment purchasing commitments in fiscal 1998.
Over the past year or more, the Company has continued to monitor several problem
leases and loans. While there continue to be several loans payable to the
Company which could force the Company to take additional write-offs, management
does not currently believe that any such write-offs, other than the loan
described below, 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. During fiscal 1997, a lessee, which has a lease and
loan agreement with remaining investment totaling $8.3 million, did not fulfill
its commitments in an already restructured lease and loan agreement by failing
to increase its monthly payments from $159,000 to $199,000 in November, 1996.
The lessee has not paid the incremental monthly rent of $40,000 despite demand
and is currently in default. As a result of this default and the lessee's
request to restructure its payments, management recorded a reserve of $3,161,000
against this transaction in the fourth quarter of fiscal 1997. Any restructuring
is subject to the approval of a federal government agency and the Company's
claims against the assets and collateral may be subject to prior claims of the
federal government. As a result, the remaining $5.1 million of net book value as
of September 30, 1997 is significantly undercollateralized. While the Company
believes the lessee will continue to make the $159,000 monthly payments in
fiscal 1998 and that certain loan and lease guarantees are valid, if the lessee
ceases making any payments and the Company is unsuccessful in asserting its
claims under the guarantees, the Company would be required to write off the
remaining lease and loan balance which as of September 30, 1997 was $5.1
million. This would have a materially adverse affect on the Company's financial
statements and its future cash flow would be reduced by the monthly payments for
the total remaining amount of the agreement. The lessee has made the $159,000
monthly payments through October 1997.
<PAGE>
Outlook
The statements contained in this Outlook section are based on current
expectations. Certain of these statements are forward looking and actual results
may differ materially. The forward looking statements contained in this Outlook,
in particular the statements regarding growth of the Company's vendor leasing
business, the Company's ability to finance its business, and management's belief
that any future loan or lease write-off will not be material, involve a number
of risks and uncertainties in addition to the factors discussed above which
could cause actual results to differ from those projected, including the
following:
Highly Competitive Industry. The 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 to grow at an acceptable rate is dependent
to a great extent on the expansion of its vendor leasing programs. As of
September 30, 1997, the Company has only two significant vendor leasing programs
and has signed agreements for ten 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 Loan and Lease Write-Offs. While the Company believes that
its current reserves are adequate, it continues to monitor closely several loans
and a material lease, including a significant casino loan and lease currently in
default, as to which the Company has a book value of $5.1 million as of
September 30, 1997 and a remaining investment of $8.3 million. There is no
assurance that such loans or such lease will not go into default or that they
are adequately secured. Any future losses on such loans and lease incurred in
excess of the Company's reserves would likely materially affect the Company's
future earnings and cash flows, and will cause the Company to be in violation of
one or more of its covenants under its credit agreements with its financing
sources.
Financing. The Company's growth and profitability are dependent to a great
extent on the willingness of banks and other financial institutions to lend the
Company money to finance the purchase of equipment to be leased. To date, the
Company has financed its equipment and vendor leasing businesses primarily
through the sale of equity to the public, cash flow from operations, bank lines
of credit, non-recourse discount lease financing, recourse discount lease
financing and a securitization of certain lease receivables and related
residuals. The Company normally seeks to fund its traditional equipment business
with non-recourse discount financing. There is no assurance that banks will be
willing to continue to finance the Company's equipment leasing transactions on a
non-recourse basis, and any adverse change in the willingness of banks to
finance the Company's lease transactions on a non-recourse basis could affect
the Company's future equipment leasing revenue. The Company's vendor leasing
business to date has been financed with internally-generated cash flow, bank
lines of credit and a significant securitization program. The Company will seek
to finance its future vendor leasing business in part with similar
securitization programs. To the extent such financing programs are not
available, the Company will assume a significantly higher degree of risk because
the lender has direct recourse against the Company for the amount of any
default. A default on a lease with a significant lease balance could have a
material adverse impact on the Company.
<PAGE>
Major Customers/Vendors. Total investments in leases and loans receivables to
customers considered highly leveraged or with cash flows from operations
inadequate to service existing obligations were $25,755,000 or 26.8% of the
portfolio as of September 30, 1997. 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 which
would result in a significant reduction in cash flow.
In addition, 53.2% of the Company's total leasing revenue for the period ended
September 30,1997 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. However, if the Company were unable to
replace this lost business, the Company's future financial results could be
materially and adversely affected.
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.
<PAGE>
PART II-OTHER INFORMATION
- --------------------------------------------------------------------------------
ITEM 1. Legal Proceedings - None.
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
Merger
On October 17, 1997 Sunrise Resources, Inc. merged with and into
Sunrise International Leasing Corporation, a newly formed subsidiary
of the Company incorporated under the laws of the State of Delaware.
As a result of the merger, the Company's state of incorporation has
effectively been changed to Delaware, and the Company's name has been
changed to Sunrise International Leasing Corporation. The merger was
approved by the Company's shareholders at a meeting on October 17,
1997.
Change of Accountants
Effective November 12, 1997, Arthur Andersen LLP ("AA") was dismissed.
The Company has engaged Deloitte & Touche LLP ("D&T") as the Company's
independent public accountants.
During the Company's two most recent fiscal years and the subsequent
interim period through November 12, 1997, there were no disagreements
with AA on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures, which
disagreements if not resolved to AA's satisfaction would have caused
them to make reference in connection with their opinion to the subject
matter of the disagreement. The audit reports of AA on the
consolidated financial statements of the Company as of March 31, 1997
and 1996 and for the three years ended March 31, 1997 did not contain
any adverse opinion or disclaimer of opinion, nor were they qualified
or modified as to uncertainty, audit scope, or accounting principles.
During the Company's two most recent fiscal years and the subsequent
interim period through November 12, 1997, neither the Company nor
anyone on its behalf consulted D&T regarding (i) the application of
accounting principles to a specified transaction, completed or
proposed, or the type of audit opinion that might be rendered on the
Company's financial statements, in connection with which any written
report or oral advice was provided by D&T to the Company which was an
important factor considered by the Company in reaching a decision as
to the accounting, auditing or financial reporting issue; or (ii) any
matter that was either the subject of a disagreement or a reportable
event (as described in Regulation S-K Item 304(a)(1)).
The Company's decision to change independent public accountants was
recommended by the Company's Board of Directors on October 17, 1997.
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, 1997.
<PAGE>
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 INTERNATIONAL LEASING CORPORATION
Date: November 12, 1997 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)
<PAGE>
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, 1997
SUNRISE INTERNATIONAL LEASING CORPORATION
Exhibit
Number Description
3.1 Certificate of Incorporation
3.2 Bylaws
4.1 Specimen of Common Stock Certificate
10.1* Agreement dated June 16, 1997 among the Company, Peter
J. King and The King Management Corporation
10.2* Nonqualified Stock Option Agreement dated June 18, 1997
between the Company and Peter J. King (accelerated
vesting upon performance)
10.3* Nonqualified Stock Option Agreement dated June 18, 1997
between the Company and Peter J. King (fully vested)
11.1 Per Share Earnings Computations
16.0 Letter from Arthur Andersen LLP
27.0 Financial Data Schedule (filed with electronic version
only)
* Management contract or other compensation plan
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
SUNRISE INTERNATIONAL LEASING CORPORATION
ARTICLE 1 - NAME
1.1) The name of the corporation is Sunrise International Leasing
Corporation.
ARTICLE 2 - REGISTERED OFFICE AND AGENT
2.1) The registered office of the corporation is located at 1013 Centre
Road, Wilmington, County of New Castle, DE 19805. The name of its registered
agent at such address is Corporation Service Company.
ARTICLE 3 - PURPOSES
3.1) The nature of the business or purposes to be conducted or promoted by
the corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of Delaware.
ARTICLE 4 - CAPITAL STOCK
4.1) The aggregate number of shares the corporation has authority to issue
shall be 20,000,000 shares, which shall have a par value of $.01 per share and
which shall consist of 17,500,000 shares of Common Stock and 2,500,000 shares of
Preferred Stock. The Board of Directors of the corporation is authorized to
establish from the shares of Preferred Stock, by resolution adopted and filed in
the manner provided by law, one or more classes or series and to fix the powers,
relative rights and preferences of each such class or series.
4.2) No holder of shares of the corporation of any class now or hereafter
authorized has any preferential or preemptive right to subscribe for, purchase
or receive any shares of the corporation of any class now or hereafter
authorized, or any options or warrants for such shares, which may at any time be
issued, sold or offered for sale by the corporation.
4.3) No holder of shares of the corporation of any class now or hereafter
authorized shall be entitled to cumulative voting.
4.4) The Board is further authorized to issue shares of one class or series
to holders of that class or series or to holders of another class or series to
effectuate share dividends or splits.
<PAGE>
ARTICLE 5 - MEETINGS AND BOOKS
5.1) Meetings of the stockholders may be held outside the State of
Delaware, as the Bylaws may provide. No action shall be taken by the
stockholders by written consent without a meeting.
5.2) The books of the corporation may be kept (subject to any provision
contained in the statutes) outside the State of Delaware at such place or places
as may be designated from time to time by the Board of Directors or in the
Bylaws of the corporation.
ARTICLE 6 - INCORPORATOR
6.1) The name and mailing address of the incorporator are as follows:
John F. Wurm
1100 International Centre
900 Second Avenue South
Minneapolis, Minnesota 55402
ARTICLE 7 - LIMITATION OF DIRECTOR LIABILITY
7.1) A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except a director shall be liable to the extent provided by
applicable law (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit. If the Delaware
General Corporation Law is hereafter amended to authorize the further
elimination or limitation of the liability of a director, then the liability of
a director of the corporation shall be so further eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing provisions of this Article 7 by the
stockholders of the corporation shall not adversely affect any right or
protection of a director of the corporation existing at the time of such repeal
or modification.
ARTICLE 8 - INDEMNIFICATION
8.1) The corporation shall indemnify, to the fullest extent authorized or
permitted by law as now enacted or hereafter amended, any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was a director,
officer, employee or agent of the corporation or by reason of the fact that such
person, at the request of the corporation, is or was serving any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, as a director, officer, employee or agent.
<PAGE>
8.2) The corporation shall, to the fullest extent authorized or permitted
by law as now enacted or hereafter amended, pay the expenses (including
attorneys' fees) incurred by persons identified in the preceding Section 8.1 in
defending such action, suit or proceeding in advance of the final disposition of
the same.
8.3) The rights conferred on any person pursuant to this Article 8 shall
not be exclusive of any other rights which such person may have or hereafter
acquire under any statutes, Bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise.
8.4) The Board of Directors may authorize the purchase and maintenance of
insurance for the purpose of such indemnification or other rights granted
pursuant to this Article 8, against expense liability or loss, whether or not
the corporation would have the power to indemnify such persons against such
expense, liability or loss under the Delaware General Corporation Law, as now
enacted or hereafter amended.
8.5) The indemnification and advancement of expenses provide by, or granted
pursuant to, this Article 8 shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
ARTICLE 9 - BYLAWS
9.1) The Board of Directors is expressly authorized to make and alter
Bylaws of this corporation, subject to the power of the stockholders to change
or repeal such Bylaws and subject to any other limitations on such authority
provided by the General Corporation Law of Delaware.
The undersigned, being the incorporator hereinbefore named, for the purpose
of forming a corporation pursuant to the General Corporation Law of the State of
Delaware, does make this Certificate, hereby declaring and certifying that this
is his act and deed and the facts herein stated are true, and accordingly has
hereunto set his hand this 27th day of August, 1997.
/s/ John F. Wurm
John F. Wurm
<PAGE>
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
PARENT CORPORATION
INTO
SUBSIDIARY CORPORATION
(Pursuant to Section 253 of the General
Corporation Law of Delaware)
Sunrise Resources, Inc., a Minnesota corporation (the "Company"), does
hereby certify:
FIRST: That the Company is incorporated pursuant to the Business
Corporation Act of the State of Minnesota.
SECOND: That the Company owns all of the outstanding shares of each class
of the capital stock of Sunrise International Leasing Corporation, a Delaware
corporation ("Subsidiary").
THIRD: That the Company, by the following resolutions of its Board of
Directors, duly adopted on the 28th day of August, 1997, determined to merge
itself into Subsidiary on the conditions set forth in such resolutions:
RESOLVED, that Sunrise Resources, Inc., a Minnesota corporation (the
"Company"), merge itself into the wholly-owned subsidiary, Sunrise
International Leasing Corporation, a Delaware corporation ("Subsidiary"),
subject to approval by a majority of the outstanding stock of this
corporation.
FURTHER RESOLVED, that the Merger Agreement be and hereby is
authorized and approved by the Board.
FURTHER RESOLVED, that subsequent to approval of the Merger by the
shareholders of the Company, one share of Common Stock of Subsidiary, as
the surviving corporation, shall be issued in exchange for each share of
the issued and outstanding Common Stock of the Company, such Common Stock
being the only authorized and outstanding class of capital stock of the
Company as of the date hereof;
FURTHER RESOLVED, that the President of the Company, be and hereby is
authorized to execute for and on behalf of the Company the Merger Agreement
in substantially the form reviewed and approved by the Board, with such
changes therein as such officer may approve, such approval to be
conclusively evidenced by his execution and delivery of the Merger
Agreement.
<PAGE>
FURTHER RESOLVED, that the officers of the Company be and they hereby
are authorized to make, execute and acknowledge a certificate of ownership
and merger setting forth a copy of the resolution to merge the Company into
Subsidiary and the date of adoption thereof and, subject to shareholder
approval, to file the same in the office of the Secretary of State of the
State of Delaware.
FURTHER RESOLVED, that the officers of the Company, upon the approval
of the Merger by the Company's shareholders, shall take such further action
and execute, deliver, file and record such documents, certificates and
other instruments as shall be required by law and as they shall deem
necessary or advisable to carry out the intent and purpose of the Merger
Agreement.
FOURTH: That the proposed Merger has been adopted, certified, executed and
acknowledged by the Company in accordance with the laws of the State of
Minnesota.
IN WITNESS WHEREOF, the Company has caused this certificate to be signed by
Errol F. Carlstrom, its President, and Jeffrey G. Jacobsen, its Secretary, this
17th day of October, 1997.
SUNRISE RESOURCES, INC., a Minnesota
corporation
By /s/ Errol F. Carlstrom
Errol F. Carlstrom, President
ATTEST:
By /s/ Jeffrey G. Jacobsen
Jeffrey G. Jacobsen, Secretary
EXHIBIT 3.2
BYLAWS
OF
SUNRISE INTERNATIONAL LEASING CORPORATION
ARTICLE 1.
OFFICES
1.1) Offices. The registered office of the corporation shall be located
1013 Centre Road, in the City of Wilmington, State of Delaware. The corporation
may also have offices and places of business at such other places, within or
without the State of Delaware, as the Board of Directors may from time to time
determine or the business of the corporation may require.
ARTICLE 2.
MEETINGS OF STOCKHOLDERS
2.1) Time and Place. The annual meeting and all special meetings of
stockholders may be held at such time and place within or without the State of
Delaware as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
2.2) Annual Meetings. The annual meeting of stockholders shall be held on
such day of such month of each year as shall be determined by the Board of
Directors or, if the Board shall fail to act, by the President. At the annual
meeting the stockholders, voting as provided in the Certificate of Incorporation
or by law or in these Bylaws, shall elect directors and shall transact such
other business as may properly be brought before the meeting.
2.3) Special Meetings. Special meetings of the stockholders entitled to
vote shall be called by the Secretary at any time upon request of the Chairman
of the Board, the President, or the Board of Directors (acting upon majority
vote). In addition, special meetings of the stockholders entitled to vote may be
called by a shareholder or shareholders holding ten percent (10%) or more of the
voting power of all shares entitled to vote who shall demand such special
meeting by giving written notice of demand to the President, Secretary,
Treasurer, Chairman of the Board or any other director specifying the purposes
of the meeting.
2.4) Notice. Written notice of the place, date and hour of any annual or
special meeting of stockholders shall be given personally or by mail to each
stockholder entitled to vote thereat, at such shareholder's address as it
appears on the records of the corporation, not less than ten (10) nor more than
sixty (60) days prior to the meeting. Notice of any special meeting shall state
the purpose or purposes for which the meeting is called.
<PAGE>
2.5) Stockholder List. The officer who has charge of the stock ledger of
the corporation shall prepare, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for at least ten (10)
days prior to the meeting, at a place within the city where the meeting is to be
held. The list shall also be produced at the time and place of the meeting, and
open for inspection by any stockholder during the meeting.
2.6) Quorum and Adjourned Meetings. The holders of a majority of all shares
outstanding and entitled to vote, represented either in person or by proxy,
shall constitute a quorum for the transaction of business at any annual or
special meeting of the stockholders. In case a quorum is not present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat present in person or represented by proxy shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented; provided, however,
if the adjournment is for more than thirty (30) days or if after the adjournment
a new record date is set for the adjourned session, notice of any such adjourned
session shall be given in the manner heretofore described. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the original meeting.
2.7) Voting. At each meeting of the stockholders, every stockholder having
the right to vote shall be entitled to vote in person or by proxy. Except as
otherwise provided by law or the Certificate of Incorporation, each stockholder
of record shall be entitled to one (1) vote for each share of stock having
voting power standing in his name on the books of the corporation. Except as
otherwise provided by law, the Certificate of Incorporation or these Bylaws, all
matters shall be determined by vote of a majority of the shares present or
represented at such meeting and voting on such questions.
2.8) Order of Business. The suggested order of business at the annual
meeting and, to the extent appropriate, at all other meetings of the
stockholders shall, unless modified by the presiding chairman, be:
(a) Call of roll
(b) Proof of due notice of meeting or waiver of notice
(c) Determination of existence of quorum
(d) Reading and disposal of any unapproved minutes
(e) Annual reports of officers and committees
(f) Election of directors
(g) Unfinished business
(h) New business
(i) Adjournment.
<PAGE>
ARTICLE 3.
DIRECTORS
3.1) Number, Qualification and Term of Office. The Board of Directors shall
consist of one or more members. The number of members of the first Board (if not
named in the Certificate of Incorporation) shall be determined by the
incorporator. Thereafter, such number shall be fixed from time to time by action
of the stockholders or the Board of Directors and may be increased or decreased
by the stockholders or the directors. Each director shall hold office until his
successor shall have been elected and qualified or until such director's earlier
death, resignation, disqualification, removal or otherwise.
3.2) Vacancies on Board of Directors. If a vacancy on the Board of
Directors occurs by reason of death, resignation, disqualification, removal or
otherwise, or if a newly created directorship results from an increase in the
number of directors, such vacancy may be filled for the unexpired term by a
majority of the directors then in office although less than a quorum, or by the
sole remaining director. Each person so elected shall be a director until such
director's successor is elected by the stockholders, who may make such election
at their next annual meeting or any special meeting duly called for that
purpose.
3.3) Quorum and Voting. A majority of the total number of directors shall
constitute a quorum for the transaction of business; provided, however, that if
any vacancies exist by reason of death, resignation, disqualification, removal
or otherwise, a majority of the remaining directors shall constitute a quorum
for the purpose of filling of such vacancies. Except as otherwise required by
law or the Certificate of Incorporation, the vote of a majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors.
3.4) Board Meeting; Place and Notice. Meetings of the Board of Directors
may be held from time to time at any place within or without the State of
Delaware that the Board of Directors may designate. In the absence of
designation by the Board of Directors, Board meetings shall be held at the
principal executive office of the corporation, except as may be otherwise
unanimously agreed orally, or in writing, or by attendance. Any director may
call a Board meeting by giving notice to all directors of the date and time of
the meeting, which notice shall be given in sufficient time for the convenient
assembly of the directors thereat. The notice need not state the purpose of the
meeting, and may be given by mail, telephone, telegram, or in person. If a
meeting schedule is adopted by the Board, or if the date and time of a Board
meeting has been announced at a previous meeting, no notice is required.
3.5) Compensation. Directors and members of any committee of the Board
shall receive only such compensation therefor as may be determined from time to
time by resolution of the Board of Directors. Nothing herein contained shall be
construed to exclude any director from serving the corporation in any other
capacity and receiving proper compensation therefor.
<PAGE>
3.6) Committees of the Board. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
to consist of one or more of the directors, each of which, to the extent
provided in such resolution, shall have and may exercise the authority of the
Board in the management of the business of the corporation, and may authorize
the seal of the corporation to be affixed to all papers which may require it. In
the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not such member or members constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
3.7) Order of Business. The suggested order of business at any meeting of
the Board of Directors shall, to the extent appropriate and unless modified by
the presiding chairman, be:
(a) Roll call
(b) Proof of due notice of meeting or waiver of notice,
or unanimous presence and declaration by President
(c) Determination of existence of quorum
(d) Reading and disposal of any unapproved minutes
(e) Reports of officers and committees
(f) Election of officers
(g) Unfinished business
(h) New business
(i) Adjournment.
ARTICLE 4.
OFFICERS
4.1) Number and Designation. The Board of Directors shall elect a
President, a Secretary and a Treasurer, and may elect or appoint a Chairman of
the Board, one or more Vice Presidents and such other officers and agents as it
may from time to time determine. Any number of offices may be held by the same
person.
4.2) Election, Term of Office and Qualifications. Unless otherwise provided
at the time of election or appointment, each officer shall hold office until
such officer's successor is elected or appointed and shall qualify or until such
officer's earlier death or resignation; provided, however, that any officer may
be removed with or without cause by the affirmative vote of a majority of the
entire Board of Directors (without prejudice, however, to any contract rights of
such officer).
4.3) Vacancies in Offices. If there be a vacancy in any office of the
corporation, by reason of death, resignation, removal or otherwise, such vacancy
may be filled for the unexpired term by the Board of Directors.
<PAGE>
4.4) Chairman of the Board. The Board of Directors may, in its discretion,
elect one of its number as Chairman of the Board. Unless the Board shall
otherwise decide, the Chairman shall preside at all meetings of the stockholders
and of the Board and shall exercise general supervision and direction over the
more significant matters of policy affecting the affairs of the corporation,
including particularly its financial and fiscal affairs. The Chairman of the
Board may call a meeting of the Board whenever the Chairman deems it advisable.
4.5) President. The President shall have general active management of the
business of the corporation. In the absence of the Chairman of the Board, the
President shall preside at all meetings of the stockholders and Board of
Directors. Unless otherwise determined by the Board of Directors, the President
shall be the chief executive officer of the corporation and shall see that all
orders and resolutions are carried into effect. The President shall be a member
of all standing committees and shall perform all duties usually incident to the
office of President and such other duties as may from time to time be assigned
to the President by the Board.
4.6) Vice President. Each Vice President shall have such powers and shall
perform such duties as may be specified in these Bylaws or prescribed by the
Board of Directors. In the event of absence or disability of the President, the
Board of Directors may designate a Vice President or Vice Presidents to succeed
to the powers and duties of the President until a successor President has been
appointed and qualified.
4.7) Secretary. The Secretary shall be secretary of and shall attend all
meetings of the stockholders and Board of Directors. The Secretary shall act as
clerk and shall record all the proceedings of such meetings in the minute book
of the corporation. The Secretary shall give proper notice of meetings of
stockholders and directors. The Secretary may, with the Chairman of the Board,
President or Vice President, sign all certificates representing shares of the
corporation and shall perform the duties usually incident to the Secretary's
office and such other duties as may be prescribed by the Board of Directors from
time to time.
4.8) Treasurer. The Treasurer shall keep accurate accounts of all moneys of
the corporation received or disbursed, and shall deposit all moneys, drafts and
checks in the name of and to the credit of the corporation in such banks and
depositories as the Board of Directors shall designate from time to time. The
Treasurer shall have power to endorse for deposit the funds of the corporation
as authorized by the Board of Directors. The Treasurer shall render to the
Chairman of the Board, President and the Board of Directors, whenever required,
an account of all of the Treasurer's transactions as Treasurer and statements of
the financial condition of the corporation, and shall perform the duties usually
incident to such office and such other duties as may be prescribed by the Board
of Directors from time to time.
4.9) Other Officers. The Board of Directors may appoint one or more
Assistant Secretaries, one or more Assistant Treasurers, and such other
officers, agents and employees as the Board may deem advisable. Each officer,
agent or employee so appointed shall hold office at the pleasure of the Board
and shall perform such duties as may be assigned by the Board, Chairman of the
Board or President.
<PAGE>
ARTICLE 5.
SHARES AND THEIR TRANSFER
5.1) Certificates of Stock. Every owner of stock of the corporation shall
be entitled to a certificate, in such form as the Board of Directors may
prescribe, certifying the number of shares of stock of the corporation owned by
such stockholder. The certificates for such stock shall be numbered (separately
for each class) in the order in which they shall be issued and shall be signed
in the name of the corporation by the Chairman of the Board, President or a Vice
President, and by the Secretary, Assistant Secretary, Treasurer, or Assistant
Treasurer. Any signature upon a certificate may be a facsimile. Certificates on
which a facsimile signature of a former officer, transfer agent, or registrar
appears may be issued with the same effect as if such person were an officer,
transfer agent, or registrar on the date of issue.
5.2) Stock Record. As used in these Bylaws, the term "stockholder" shall
mean the person, firm or corporation in whose name outstanding shares of capital
stock of the corporation are currently registered on the stock record books of
the corporation. The corporation shall keep, at its principal executive office
or at another place or places within the United States determined by the Board,
a share register not more than one year old containing the names and addresses
of the stockholders and the number and classes of shares held by each
stockholder. The corporation shall also keep at its principal executive office
or at another place or places within the United States determined by the Board,
a record of the dates on which certificates representing shares were issued.
Every certificate surrendered to the corporation for exchange or transfer shall
be cancelled and no new certificate or certificates shall be issued in exchange
for any existing certificate until such existing certificate shall have been so
cancelled (except as provided for in Section 5.4 of this Article 5).
5.3) Transfer of Shares. Transfer of shares on the books of the corporation
may be authorized only by the stockholder named in the certificate (or the
stockholder's legal representative or duly authorized attorney-in-fact) and upon
surrender for cancellation of the certificate or certificates for such shares.
The stockholder in whose name shares of stock stand on the books of the
corporation shall be deemed the owner thereof for all purposes as regards the
corporation; provided, that when any transfer of shares shall be made as
collateral security and not absolutely, such fact, if known to the corporation
or to the transfer agent, shall be so expressed in the entry of transfer; and
provided, further, that the Board of Directors may establish a procedure whereby
a stockholder may certify that all or a portion of the shares registered in the
name of the stockholder are held for the account of one or more beneficial
owners.
5.4) Lost Certificates. In the event any stockholder claims that a
certificate of stock has been lost, stolen or destroyed, a duplicate certificate
may be issued in place thereof, upon such terms, including receipt of a bond
sufficient to indemnify the corporation against any claim that may be made
against it on account of the alleged loss, theft or destruction of such
certificate, as the Board of Directors may prescribe.
<PAGE>
5.5) Treasury Stock. Treasury stock shall be held by the corporation
subject to disposal by the Board of Directors in accordance with the Delaware
General Corporation Law, the Certificate of Incorporation and these Bylaws, and
shall not have voting rights nor participate in dividends.
ARTICLE 6.
GENERAL PROVISIONS
6.1) Record Dates. In order to determine the stockholders entitled to
notice of and to vote at a meeting, or entitled to receive payment of a dividend
or other distribution, the Board of Directors may fix a record date which shall
not be less than ten (10) days nor more than sixty (60) days preceding the date
of such meeting or distribution. In the absence of action by the Board, the
record date for determining stockholders entitled to notice of and to vote at a
meeting shall be at the close of business on the day preceding the day on which
notice is given, and the record date for determining stockholders entitled to
receive a distribution shall be at the close of business on the day on which the
Board of Directors authorizes such distribution.
6.2) Dividends. Subject to the provisions of law and of the Certificate of
Incorporation, the Board of Directors may declare dividends from the surplus or,
if there is no surplus, the net profits of the corporation whenever and in such
amounts as, in its opinion, the condition of the affairs of the corporation
shall render it advisable.
6.3) Surplus and Reserves. Subject to the provisions of law, the Board of
Directors in its discretion may use and apply any of the capital or surplus of
the corporation to purchase or acquire any of the shares of the capital stock of
the corporation in accordance with law, or any of its bonds, debentures, notes,
scrip or other securities or evidences of indebtedness, or from time to time may
set aside from its surplus or net profits such sums as it, in its absolute
discretion, may think proper as a reserve fund to meet contingencies, for the
purpose of maintaining or increasing the property or business of the
corporation, or for any other purpose it may think conducive to the best
interests of the corporation.
6.4) Fiscal Year. The fiscal year of the corporation shall be established
by the Board of Directors.
6.5) Seal. The corporation shall have such corporate seal or no corporate
seal as the Board of Directors shall from time to time determine.
6.6) Securities of Other Corporations.
(a) Voting Securities Held by the Corporation. Unless
otherwise ordered by the Board of Directors, the President shall have full power
and authority on behalf of the corporation (i) to attend and to vote at any
meeting of security holders of other companies in which the corporation may hold
securities; (ii) to execute any proxy for such meeting; and (iii) to execute a
written action in lieu of a meeting of such other company. At such meeting, by
such proxy or by such writing in lieu of meeting, the President shall possess
and may exercise any and all rights and powers incident to the ownership of such
securities that the corporation might have possessed and exercised if it had
been present. The Board of Directors may, from time to time, confer like powers
upon any other person or persons.
<PAGE>
(b) Purchase and Sale of Securities. Unless otherwise ordered
by the Board of Directors, the President shall have full power and authority on
behalf of the corporation to purchase, sell, transfer or encumber any and all
securities of any other company owned by the corporation which represent not
more than ten percent (10%) of the outstanding securities of such other company,
and may execute and deliver such documents as may be necessary to effectuate
such purchase, sale, transfer or encumbrance. The Board of Directors may, from
time to time, confer like powers upon any other person or persons.
ARTICLE 7.
MEETINGS
7.1) Waiver of Notice. Whenever any notice whatsoever is required to be
given by these Bylaws, the Certificate of Incorporation or any of the laws of
the State of Delaware, a waiver thereof in writing, signed by the person or
persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the actual required notice. Attendance by
a person at a meeting shall constitute a waiver of notice of such meeting except
when the person attends a meeting for the express purpose of objecting at the
beginning of the meeting to the transaction of any business because the meeting
is not lawfully called or convened.
7.2) Participation by Conference Telephone. Members of the Board of
Directors, or any committee designated by the Board, may participate in a
meeting of the Board of Directors or of such committee by means of conference
telephone or similar communications equipment whereby all persons participating
in the meeting can hear and communicate with each other, and participation in a
meeting pursuant to this Section shall constitute presence in person at such
meeting.
7.3) Consents. Any action of the Board of Directors or any committee of the
Board which may be taken at a meeting thereof, may be taken without a meeting if
authorized by a writing signed by all of the directors or by all of the members
of such committee, as the case may be. No action shall be taken by the
stockholders by written consent without a meeting.
<PAGE>
ARTICLE 8.
AMENDMENTS
8.1) Power to Amend. The Board of Directors shall have power to amend,
repeal or adopt Bylaws, subject to the power of the stockholders to change or
repeal such Bylaws and subject to any other limitations on such authority of the
Board provided by the General Corporation Law of Delaware.
The undersigned, Secretary of Sunrise International Leasing Corporation
hereby certifies that the foregoing Bylaws were duly adopted as the Bylaws of
the corporation by the first Board of Directors on August 28, 1997.
/s/ Jeffrey G. Jacobsen
Jeffrey G. Jacobsen, Secretary
COMMON STOCK COMMON STOCK
[LOGO]
SUNRISE INTERNATIONAL LEASING CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP 86769K 10 5
See reverse for certain definitions
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF THE PAR VALUE OF $.01 EACH OF THE
COMMON STOCK OF
- ------------------- -----------------
- ------------------- SUNRISE INTERNATIONAL LEASING CORPORATION -----------------
- ------------------- -----------------
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney on surrender of this certificate properly endorsed.
This certificate is not valid unless countersigned by the Transfer Agent and
Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
COUNTERSIGNED AND REGISTERED:
NORWEST BANK MINNESOTA, N.A.
(MINNEAPOLIS, MINNESOTA)
TRANSFER AGENT AND REGISTRAR
BY: AUTHORIZED SIGNATURE
Dated:
/s/ Jeffrey G. Jacobsen /s/ Errol Carlstrom
SECRETARY PRESIDENT
<PAGE>
The corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative, participating,
optional, or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
right.
The following abbreviations when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C> <C> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ______________ Custodian ______________
(Cust) (Minor)
TEN ENT -- as tenants by the entireties under Uniform Transfers to Minors
JT TEN -- as joint tenants with right of Act __________ _______________________
survivorship and not as tenants (State)
in common
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received ________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
---------------------------------------
_______________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_____________________________________________________________________ Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________ Attorney to transfer
the said stock on the books of the within-named Corporation with full power of
substitution in the premises.
Dated __________________
_____________________________________________________
_____________________________________________________
NOTICE THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER
SIGNATURE GUARANTEED BY:
AGREEMENT
Effective Date:
June 16, 1997
Parties:
Sunrise Resources, Inc. ("Sunrise" or "Company")
5500 Wayzata Blvd., Suite 725
Golden Valley, Minnesota 55416
Peter J. King ("King")
The King Management Corporation
950 Piper Jaffray Plaza
444 Cedar Street
St. Paul, MN 55101-2129
The King Management Corporation ("King Management")
950 Piper Jaffray Plaza
444 Cedar Street
St. Paul, MN 55101-2129
Recitals:
A. Sunrise is a public company engaged primarily in the business of leasing
computer equipment;
B. King has unique experience, skill and expertise in the leasing business,
especially in the development of vendor leasing programs and business
strategies; and
C. Sunrise's 1997 annual report on Form 10-K report identified certain
liquidity problems which, if they materialize, would place the Company in
default of its loan agreements and severely affect it ability to borrow funds to
support its vendor programs which, in turn, would jeopardize its vendor program
business.
D. Sunrise is desirous of appointing King as its Chairman of the Board and
an officer/employee of the Company and having King provide certain services, and
King is desirous of serving as the Company's Chairman of the Board and providing
such services to Sunrise, subject to the terms and conditions set forth herein.
In addition, the parties have asked that King Management provide certain
services to Sunrise and participate with Sunrise in its vendor programs.
<PAGE>
Agreement:
In consideration of the mutual covenants contained herein, and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. Chairmanship. On the assumption that the terms and conditions of this
Agreement are acceptable to King and the Agreement has been signed by the
parties hereto, the Board of Directors will appoint King to serve as the
Company's Chairman of the Board and to serve on certain Board committees. King's
duties as Chairman will include, but not be limited to, determining the agenda
for meetings of directors, interfacing with the Chief Executive Officer and
generally ensuring that the directors are well-informed, board meetings are
productive and well run and the Company and the Company's management are
adhering to policies set by the Board. King will be an officer and employee of
the Company, and in that capacity will provide additional services described in
Section 2 below and he will cause his affiliate, King Management, to perform the
services described in Section 3 below.
2. Officer and Employee.
a. Services. King shall assist Sunrise as follows:
(1) analyze its current business and business opportunities;
(2) assist the development and implementation of fiscal 1998 and
1999 plans;
(3) analyze personnel needs;
(4) work with Errol Carlstrom on current and prospective vendor
relationships;
(5) monitor problem leases and loans;
(6) assess desirability of continuing non-vendor side of leasing
business;
(7) work with management on financing requirements and bank
relationships; and,
(8) as may be otherwise directed by the Board of Directors.
In performing such services, King will be responsible to and
report to Sunrise's Board of Directors.
b. Term. Subject to the termination provisions of Section 9 of
this Agreement, King's service as an employee shall commence
as of June 16, 1997, and shall continue through June 30,
1999. The continuation of the employment of King after June
30, 1999, is subject to the mutual written agreement of both
parties. If either party should desire to renew this
relationship, such party shall give the other party written
notice of such desire at least thirty (30) days prior to the
end of the term of this Agreement. The termination of this
Agreement will not affect King's service as a Director of
the Company or his position as a Chairman of the Board. King
will continue in his position as a director of the Company
until his successor has been elected by the shareholders of
the Company, and he will serve as its Chairman at the
discretion of the Directors of the Company.
<PAGE>
c. Time. There is no specific time commitment required of King
in the fulfillment of his duties and responsibilities
hereunder.
d. Company Policies. King shall abide by all policies of
Sunrise as such policies may be amended from time to time by
Sunrise.
3. The King Management Corporation. King Management and/or King will, in
addition to the services described in Section 2a above, provide the following
during the period beginning on July 1, 1997 and ending on June 30, 1997 or until
such earlier time as the Board determines such financing commitment is no longer
necessary:
a. sufficient subordinated debt to Sunrise to cover its net
worth financial covenant deficiency, if necessary to obtain
funding for its vendor programs;
b. utilize the balance sheet and borrowing resources of King
Management to provide funding for approved vendor programs,
including making direct loans, providing certain
subordinations and arranging financing packages by utilizing
King Management's balance sheet, if necessary; and
c. King will work closely with the Company to enhance the
Company's future prospects, including but not limited to,
assisting the Company's efforts to finance its vendor
business in fiscal 1998 and fiscal 1999. Direct financing
provided to Sunrise will be at terms at least as attractive
as the financing provided by the Dougherty Dawkins program,
or any other financing vehicle utilized by Sunrise in
accordance with the vendor program being financed.
4. Cash Compensation. For his services as a director and employee of the
Company, King will receive the sum of $10,000 per month which will be subject to
withholding and all other payroll taxes. This payment shall have no affect on
any other obligation of the Company to King arising out of the 1995 merger
between International Leasing Corporation and the Company.
5. Stock Options. To induce King to become an employee of the Company, King
will receive two separate non-qualified stock option grants. The first stock
option grant will be for 270,753 shares of the Company's common stock, at an
exercise price of $3.325 per share, the fair market value on the date of grant.
The option term will be five years and the options will be immediately vested in
full. Neither this option nor the option described below will be granted under
an existing stock option plan. The option will be evidenced by a stock option
agreement in the form of the agreement attached hereto as Exhibit B.
<PAGE>
The second option grant will be for 270,753 shares of the Company's common
stock, at an exercise price of $3.375 per share. The option term will be fully
vested after four years, assuming that King continues to be an employee of the
Company as of the vesting date. The right to exercise the options will be
accelerated to two years if there has been no interruption of the Company's
ability to obtain funding for its vendor programs through King Management or
through conventional funding sources, or prior to two years if the financial
affairs of Sunrise improve to a point where the Board of Directors determines
that the King and King Management commitments are no longer required. If the
conditions for acceleration are met, the options will be exercisable by King or
his representative even if King is no longer living or has voluntarily retired
from the Company with the approval of the Company's Board of Directors. The
stock option will be evidenced by a stock option agreement in the form of the
agreement attached hereto as Exhibit C.
6. Vendor Program Sharing. For two year period, King Management will be
allocated a specific percentage of the vendor transactions consummated during
the term of this Agreement as follows: 25% of the Sun 1% H.P. type program and
of other similar high risk leasing programs and risk pools as described in the
attached Exhibit A and 15% of leases from all other vendor programs. King
Management agrees to purchase equipment and take assignments on vendor lease
transactions up to but not over the agreed percentage levels described above on
a non-discriminatory basis and subject to the terms and conditions of any and
all agreements with the particular vendor, as amended from time to time. Sunrise
will consummate all lease transactions and make the appropriate assignments to
King Management. King Management will pay for the equipment it purchases
according to the terms and conditions of the applicable vendor program and be
responsible for the administration of it own lease. The parties agree to review
the additional costs of operating the vendor business on a shared basis and to
arrive at a fair rate of compensation if the parties agree that Sunrise has
assumed more of the overhead burden than is appropriate after taking into
consideration other services which may be provided by King and King Management.
7. Non Solicitation. During the term of this Agreement and any extension of
this Agreement, neither King Management nor King will, without the express
written consent of the Company, conduct any equipment leasing business with
current vendor customers of the Company in the United States or other areas the
parties may agree upon or with customers which the Company is soliciting or has
expressed an interest in soliciting, except as contemplated by this Agreement.
Neither King Management nor King will contact such customers directly with
respect to vendor program business pursuant to this Agreement without the
consent of the Company. Apart from this Agreement, King understands that as long
as he serves as a director of the Company, he has a duty of loyalty to it, which
prevents him from using his position as a director of Sunrise to make personal
profit or gain.
<PAGE>
During the term of this Agreement and any extension thereof, neither King
Management nor King will directly or indirectly, solicit any of Sunrise's
present or future employees for the purpose of hiring them or inducing them to
leave their employment with Sunrise; or solicit, attempt to solicit, interfere
or attempt to interfere with Sunrise's relationship with its customers or
potential customers.
Notwithstanding the foregoing, this Agreement is not intended to prohibit
and does not prohibit either King Management or king from engaging in any form
of leasing business or any other business. The intent of this Agreement is to
ensure that the parties understand that while King Management will participate
in the Company's vendor leasing transactions during the term of this Agreement
and any extension thereof, the vendor customers with whom the transactions are
negotiated (as they relate to vendor programs) are the customers of Sunrise and
not King Management or King. The Company understands, however, that King's
relationships with the several Sunrise vendors precedes that of Sunrise and
nothing in this Agreement shall prevent King from maintaining and/or expanding
those relationships so long as the terms of this Agreement are carried out.
8. Nondisclosure of Confidential Information -- King Management and King.
King Management and King agree not to directly or indirectly use or disclose
confidential information for the benefit of anyone other than the Company,
except as permitted by the Software License Agreement dated February 13, 1995,
between the Company and King Holding Corporation. "Confidential Information"
means the information or compilation of information regarding Sunrise that King
or King Management learns or has learned or develops or has developed during the
course of his employment or as a director of the Company that derives economic
value from not being generally known, or readily ascertainable by proper means
by other persons who can obtain economic value from its disclosure or use.
9. Nondisclosure of Confidential Information and Solicitation -- Sunrise.
King Management markets and has under development certain software and asset
management programs that are not equipment leasing programs. Because of the
proximity and commonality of certain customers and potential customers that
Sunrise does not currently sell to, Sunrise agrees to keep confidential any
information it becomes aware of relative to King Management's businesses, and
agrees not to solicit or compete with King in the businesses that King offers or
interfere with its business relationships.
10. Termination. This Agreement may be terminated pursuant to any of the
following provisions:
a. Mutual Agreement. By mutual written agreement executed by both
parties.
b. Default. By either party, effective immediately upon delivery of
written notice to the other party, if the other party breaches
any of its obligations under this Agreement; provided that if
such breach is curable, such notice shall not be effective until
the breaching party fails to correct such breach or default
within a period of thirty (30) days after delivery of such
written notice. If such breach is not curable, the Agreement
shall terminate immediately upon delivery of such notice of
breach.
<PAGE>
c. Death or Disability. By the Company upon the death or total
disability of King. A termination of this Agreement will not, in
and of itself, affect the options granted to King hereunder -
King's options rights will be determined by applicable option
agreements - nor will it affect the sharing right so long as King
and/or King Management fulfills the financing obligations of this
Agreement.
11. General Provisions.
a. Severability and Interpretation. In the event that a provision of
this Agreement is held invalid, the remaining provisions shall
nonetheless be enforced in accordance with their terms. Further,
in the event that any provision is held to be overbroad as
written, such provision shall be deemed amended to narrow its
application to the extent necessary to make the provision
enforceable according to applicable law and shall be enforced as
amended.
b. Notices. Any notice required or permitted to be given under this
Agreement shall be deemed effective when received if delivered by
hand, telecopy, telex or telegram or three (3) days after
depositing if placed in the U.S. mails for delivery by registered
or certified mail, return receipt requested, postage prepaid and
addressed to the appropriate party at the address set forth on
the first page of this Agreement. Such address may be changed by
giving written notice to the other party of such different
address pursuant to the provisions of this section.
c. Nonassignment. Neither King nor King Management shall assign,
transfer or sell all or any part of his/its rights or obligations
hereunder without the prior consent of Sunrise, which consent
shall not be unreasonably withheld. However, the options granted
in Section 5 hereof may be exercised by his representative in the
event of his death or disability if the terms of the controlling
option agreements are met. This Agreement shall be binding upon
and inure to the benefit of any successor or assignee of Sunrise
and of any permitted successors and assigns of King or King
Management as provided above.
d. Controlling Law. This Agreement shall be deemed to have been made
in the State of Minnesota and shall be governed by and construed
in accordance with the laws of the State of Minnesota.
<PAGE>
e. Entire Agreement. This Agreement, together with the exhibits
hereto, constitutes the entire Agreement between the parties and
supersedes any and all prior and contemporaneous oral or written
understandings between the parties relating to the subject matter
hereof, except the Consulting and Noncompetition Agreement dated
February 13, 1995 between Sunrise and King will continue in
effect.
The parties have executed this Agreement in the manner appropriate to each
to be effective the day and year entered on the first page hereof.
SUNRISE RESOURCES, INC.
By: /s/ Errol Carlstrom
Its: CEO
THE KING MANAGEMENT CORPORATION
By: /s/ Jeffrey G. Jacobsen
Its: President
/s/ Peter J. King
Peter J. King
<PAGE>
EXHIBIT A
DESCRIPTION OF SUN 1% H.P. PROGRAM AND
HIGH RISK LEASING PROGRAMS AND RISK POOLS
1. The H.P. 1% type program is a vendor program primarily based on substantial
equipment discounts in order to subsidize a rate factor for the end-users.
2. High risk vendor programs are primarily 6 and 12 months leases where the
Company must assume a substantial residual position or other longer-term
programs where residual risks are substantially greater than its usual
level and/or where the renewals beyond the initial term is severely limited
due to the nature of the program. (This excludes the Sun Demo program which
is an established proven program.)
3. Risk pools involve substantial risks in part because the vendor is willing
to provide only limited recourse to Sunrise.
NONQUALIFIED STOCK OPTION AGREEMENT
SUNRISE RESOURCES, INC.
THIS AGREEMENT is made effective as of this 18th day of June, 1997 by and
between Sunrise Resources, Inc. a Minnesota corporation (the "Company"), and
Peter J. King ("Optionee").
W I T N E S S E T H:
WHEREAS, Optionee on the date hereof serves as the Chairman of the Board of
the Company and as an officer and employee;
WHEREAS, in consideration of Optionees past services to the Company, the
reliance of his continuing to serve the Company in his capacity as Chairman of
the Board and his providing certain services set forth in an agreement between
the Company and Peter King and the King Management Corporation, the Company
wishes to grant a non-qualified incentive stock option to Optionee to purchase
shares of the Company's Common Stock; and
WHEREAS, the Company's Board of Directors has authorized the grant of a
non-qualified stock option to Optionee and has determined that, as of the
effective date of this Agreement, the fair market value of the Company's Common
Stock is $3.375 per share;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto agree as follows:
1. Grant of Option. The Company hereby grants to Optionee on the date set
forth above (the "Date of Grant"), the right and option (the "Option") to
purchase all or portions of an aggregate of Two Hundred Seventy Thousand Seven
Hundred Fifty-three (270,753) shares of Common Stock at a per share price of
$3.375 on the terms and conditions set forth herein which the Company deems to
be the fair market value of the stock as of June 18, 1997. This Option is a
nonqualified stock option and will not be treated as an incentive stock option,
as defined under Section 442, or any successor provision, of the Internal
Revenue Code of 1986, as amended (the "Code"), and the regulations thereunder.
2. Duration and Exercisability.
a. Except as otherwise provided in Paragraph 2(d) below, the term during
which this Option may be exercised shall terminate on June 18, 2002. Unless any
of the events set forth in Paragraph 2(c) occur, this Option shall not be
exercisable until June 18, 2001, at which time the Option shall become
exercisable to the extent of one hundred percent (100%) of the total number of
shares granted if Optionee meets the conditions of Paragraph 2(d). Once the
Option becomes exercisable to the extent of one hundred percent (100%) of the
aggregate number of shares specified in Paragraph 1 above, Optionee may continue
to exercise this Option under the terms and conditions of this Agreement until
the termination of the Option as provided herein. If Optionee does not purchase
upon an exercise of this Option the full number of shares which Optionee is then
entitled to purchase, Optionee may purchase upon any subsequent exercise prior
to this Option's termination such previously unpurchased shares in addition to
those Optionee is otherwise entitled to purchase.
<PAGE>
b. During the lifetime of Optionee, this Option shall be exercisable only
by Optionee or by Optionee's guardian or other legal representative, and shall
not be assignable or transferable by Optionee, in whole or in part, other than
by will or by the laws of descent and distribution. If Optionee attempts to
transfer any part of this Option during his lifetime, such transfer shall be
void and this Option shall, to the extent not fully exercised, terminate.
c. Notwithstanding the provisions of Paragraph 2(a) above, this Option
shall become immediately exercisable in full on June 18, 1999, if there has been
no interruption of the Company's ability to obtain funding for its vendor
programs through King Management or through conventional sources. If the
financial affairs of the Company improve to a point where the Board of Directors
determines that Optionee's and King Management's commitment (as defined in an
agreement between Optionee and the Company dated June 16, 1997) is no longer
required, this Option shall become immediately exercisable in full on the
earlier of June 18, 1999, and the date of such determination. If the
exercisability of this Option is accelerated under this Paragraph 2(c), this
Option may thereafter be exercised by Optionee at any time prior to the
expiration of the option term by Optionee; provided, however, that if Optionee
becomes totally disabled or dies prior to exercising this Option, this Option
may be exercised at any time prior to June 18, 2002, or within 180 days of
Optionee's death or total disability, whichever is later, by Optionee's
guardian, personal representative or his estate. To the extent this Option is
not exercised prior to expiration or within such 180-day period, whichever is
applicable, all rights under this Option shall be forfeited.
d. If the exercisability of this Option does not accelerate under Paragraph
2(c) above, this Option will become immediately exercisable in full on June 18,
2001, if on such date Optionee continues to serve as the Chairman of the Board
and as an officer and employee of the Company. If Optionee becomes totally
disabled or dies after June 18, 2001, and has not exercised this Option, this
Option may be exercised at any time prior to June 18, 2002, or within 180 days
after Optionee's death or total disability, whichever is later, by Optionee's
guardian, personal representative or his estate. To the extent this Option is
not exercised prior to expiration or within such 180-day period, whichever is
applicable, all rights under this Option shall be forfeited.
3. Manner of Exercise.
a. This Option may be exercised only by Optionee (or other proper party in
the event of death or disability) by delivering within the Option Period written
notice of exercise to the Company at its principal office. The notice shall
state the number of shares as to which the Option is being exercised and shall
be accompanied by payment in full of the Option price for all shares designated
in the notice. The exercise of the Option shall be deemed effective upon receipt
of such notice by the Company and the appropriate payment that complies with the
terms of this Agreement. The Option may be exercised with respect to any number
or all of the shares as to which it can then be exercised and, if partially
exercised, may be so exercised as to the unexercised shares any number of times
during the Option period as provided herein.
<PAGE>
b. Payment of the Option price by Optionee shall be in the form of cash, or
check As soon as practicable after the effective exercise of all or any part of
the Option, Optionee shall be recorded on the stock transfer books of the
Company as the owner of the shares purchased, and the Company shall deliver to
Optionee one or more duly issued stock certificates evidencing such ownership.
For purposes of this Agreement, "previously acquired shares of Common Stock"
shall include shares of Common Stock that are already owned by Optionee at the
time of exercise.
4. Miscellaneous.
a. This Agreement shall not confer on Optionee any right with respect to
continuance of employment by the Company or service as Chairman nor will it
interfere in any way with the right of the Company to terminate such employment.
Optionee shall have no rights as a shareholder with respect to shares subject to
this Option until such shares have been issued to Optionee upon exercise of this
Option.
b. Optionee agrees that, if an acquisition of the Company through the sale
of substantially all of the Company's assets and the consequent discontinuance
of its business or through a merger, consolidation, exchange, reorganization,
reclassification, extraordinary dividend, divestiture or liquidation of the
Company is treated as a "pooling of interests" under generally accepted
accounting principles and Optionee is an "affiliate" of the Company or any
Subsidiary (as defined in applicable legal and accounting principles) at the
time of such change of control transaction, Optionee will comply with all
requirements of Rule 145 of the Securities Act of 1933, as amended, and the
requirements of such other legal or accounting principles, and will execute any
documents necessary to ensure such compliance.
c. The Administrator may require that the certificates for any shares of
Common Stock purchased by Optionee (or, in the case of death, Optionee's
successors) shall bear an appropriate legend to reflect the fact that the shares
are not freely tradeable.
d. Certain changes in the number or character of the Common Stock of the
Company (through sale, merger, consolidation, exchange, reorganization,
divestiture (including a spin-off), liquidation, recapitalization, stock split,
stock dividend or otherwise) shall result in an appropriate adjustment,
reduction or enlargement by the Board of Directors, to reflect any such changes,
in Optionee's rights with respect to any unexercised portion of the Option
(i.e., Optionee shall have such "anti-dilution" rights under the Option with
respect to such events, but shall not have "preemptive" rights).
<PAGE>
e. The Company shall at all times during the option term reserve and keep
available such number of shares as will be sufficient to satisfy the
requirements of this Agreement.
f. The Company may take such action as it deems appropriate to insure that
all applicable federal and state payroll, income or other taxes are withheld
from any amounts payable by the Company to Optionee. If the Company is unable to
withhold such federal and state taxes, for whatever reason, Optionee hereby
agrees to pay to the Company an amount equal to the amount the Company would
otherwise be required to withhold under federal or state law. Optionee may,
subject to the approval and discretion of the Board of Directors or such other
administrative rules it may deem advisable, elect to have all or a portion of
such tax withholding obligations satisfied by delivering shares of the Company's
Common Stock having a fair market value equal to such obligations.
g. At the request of the Optionee, the Company agrees that it will register
the Option and the underlying shares of Common Stock with the Securities and
Exchange Commission on a Form S-8 Registration Statement, or any successor
registration statement.
h. This Agreement shall bind and inure to the benefit of the Company and
its successors and assigns and Optionee and any successor or successors of
Optionee permitted herein.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
SUNRISE RESOURCES, INC.
By Special Committee of the Board of Directors
/s/ Thomas R. King
Thomas R. King
/s/ Donald R. Brattain
Donald R. Brattain
OPTIONEE:
/s/ Peter J. King
Peter J. King
NONQUALIFIED STOCK OPTION AGREEMENT
SUNRISE RESOURCES, INC.
THIS AGREEMENT is made effective as of the 18th day of June 1997 by and
between Sunrise Resources, Inc., a Minnesota corporation (the "Company"), and
Peter J. King ("Optionee").
W I T N E S S E T H:
WHEREAS, Optionee on the date hereof serves as the Chairman of the Board of
Directors ("Chairman") and as an officer and director of the Company;
WHEREAS, in consideration of Optionee's past services to the Company and
his agreeing to serve the Company in his capacity as Chairman, the Company
wishes to grant a non-qualified stock option to Optionee to purchase shares of
the Company's Common Stock; and
WHEREAS, the Company's Board of Directors has authorized the grant of a
non-qualified stock option to Optionee and has determined that, as of the
effective date of this Agreement, the fair market value of the Company's Common
Stock was $3.375 per share;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto agree as follows:
1. Grant of Option. The Company hereby grants to Optionee as of the date
set forth above (the "Date of Grant"), the right and option (the "Option") to
purchase all or portions of an aggregate of Two Hundred Seventy Thousand Seven
Hundred Fifty-three (270,753) shares of Common Stock at a per share price of
$3.375, on the terms and conditions set forth herein, which the Company deems to
be the fair market value of the stock as of June 18, 1997. This Option is a
nonqualified stock option and will not be treated as an incentive stock option,
as defined under Section 422, or any successor provision, of the Internal
Revenue Code of 1986, as amended (the "Code"), and the regulations thereunder.
2. Duration and Exercisability.
a. The term during which this Option may be exercised shall terminate on
June 18, 2002, unless terminated earlier under the provisions of Paragraphs 2(c)
or 2(d) below. This Option shall be immediately exercisable in full. Optionee
may continue to exercise this Option under the terms and conditions of this
Agreement until the termination of the Option as provided herein. If Optionee
does not purchase upon an exercise of this Option the full number of shares
which Optionee is then entitled to purchase, Optionee may purchase upon any
subsequent exercise prior to this Option's termination such previously
unpurchased shares.
<PAGE>
b. During the lifetime of Optionee, the Option shall be exercisable only by
Optionee or by Optionee's guardian or other legal representative, and shall not
be assignable or transferable by Optionee, in whole or in part, other than by
will or by the laws of descent and distribution. If Optionee attempts to
transfer any part of this Option during his lifetime, such transfer shall be
void and this Option shall, to the extent not fully exercised, terminate.
c. If Optionee dies while in the employ of the Company, this Option must be
exercised within twelve months following his death by his personal
representative or the person or persons to whom Optionee's rights have passed by
his will or by the laws of descent and distribution. To the extent this Option
is not exercised within the one-year period following his death, all rights
under this Option shall be forfeited.
d. If Optionee ceases to be an employee of the Company due to his total
disability, this Option must be exercised by Optionee or his duly-appointed
guardian within twelve months following his termination of employment. To the
extent Optionee or his duly-appointed guardian does not exercise this Option
within the one-year period, all rights under this Option shall be forfeited.
3. Manner of Exercise
a. The Option may be exercised only by Optionee (or other proper party in
the event of Optionee's death or incapacity) by delivering within the option
period written notice of exercise to the Company at its principal office. The
notice shall state the number of shares as to which the Option is being
exercised and shall be accompanied by payment in full of the option price for
all shares designated in the notice. The exercise of the Option shall be deemed
effective upon receipt of such notice by the Company and the appropriate payment
that complies with the terms of this Agreement. The Option may be exercised with
respect to any number or all of the shares as to which it can then be exercised
and, if partially exercised, may be so exercised as to the unexercised shares
any number of times during the Option period as provided herein.
b. Payment of the option price by Optionee shall be in the form of cash,
personal check or previously acquired shares of Common Stock of the Company, or
any combination thereof; provided, however, that the Board may, in its sole
discretion, limit the form of payment to cash or personal check and may exercise
its discretion any time prior to the termination of this Option or upon any
exercise of this Option by Optionee. Any stock so tendered as part of such
payment shall be valued at its fair market value. As soon as practicable after
the effective exercise of all or any part of the Option, Optionee shall be
recorded on the stock transfer books of the Company as the owner of the shares
purchased, and the Company shall deliver to Optionee one or more duly issued
stock certificates evidencing such ownership. For purposes of this Agreement,
"previously acquired shares of Common Stock" shall include shares of Common
Stock that are already owned by Optionee at the time of exercise.
<PAGE>
4. Miscellaneous.
a. This Agreement shall not confer on Optionee any right with respect to
continuance of employment by the Company or service as Chairman nor will it
interfere in any way with the right of the Company to terminate such employment.
Optionee shall have no rights as a shareholder with respect to shares subject to
this Option until such shares have been issued to Optionee upon exercise of this
Option.
b. Optionee agrees that, if an acquisition of the Company through the sale
of substantially all of the Company's assets and the consequent discontinuance
of its business or through a merger, consolidation, exchange, reorganization,
reclassification, extraordinary dividend, divestiture or liquidation of the
Company is treated as a "pooling of interests" under generally accepted
accounting principles and Optionee is an "affiliate" of the Company or any
Subsidiary (as defined in applicable legal and accounting principles) at the
time of such change of control transaction, Optionee will comply with all
requirements of Rule 145 of the Securities Act of 1933, as amended, and the
requirements of such other legal or accounting principles, and will execute any
documents necessary to ensure such compliance.
c. The Administrator may require that the certificates for any shares of
Common Stock purchased by Optionee (or, in the case of death, Optionee's
successors) shall bear an appropriate legend to reflect the fact that the shares
are not freely tradeable.
d. Certain changes in the number or character of the Common Stock of the
Company (through sale, merger, consolidation, exchange, reorganization,
divestiture (including a spin-off), liquidation, recapitalization, stock split,
stock dividend or otherwise) shall result in an appropriate adjustment,
reduction or enlargement by the Board of Directors, to reflect any such changes,
in Optionee's rights with respect to any unexercised portion of the Option
(i.e., Optionee shall have such "anti-dilution" rights under the Option with
respect to such events, but shall not have "preemptive" rights).
e. The Company shall at all times during the option term reserve and keep
available such number of shares as will be sufficient to satisfy the
requirements of this Agreement.
f. The Company may take such action as it deems appropriate to insure that
all applicable federal and state payroll, income or other taxes are withheld
from any amounts payable by the Company to Optionee. If the Company is unable to
withhold such federal and state taxes, for whatever reason, Optionee hereby
agrees to pay to the Company an amount equal to the amount the Company would
otherwise be required to withhold under federal or state law. Optionee may,
subject to the approval and discretion of the Board of Directors or such other
administrative rules it may deem advisable, elect to have all or a portion of
such tax withholding obligations satisfied by delivering shares of the Company's
Common Stock having a fair market value equal to such obligations.
<PAGE>
g. At the request of the Optionee, the Company agrees that it will register
the Option and the underlying shares of Common Stock with the Securities and
Exchange Commission on a Form S-8 Registration Statement, or any successor
registration statement.
h. This Agreement shall bind and inure to the benefit of the Company and
its successors and assigns and Optionee and any successor or successors of
Optionee permitted by Paragraphs 2(c) and 2(d) above.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
SUNRISE RESOURCES, INC.
By Special Committee of the Board of Directors
/s/ Thomas R. King
Thomas R. King
/s/ Donald R. Brattain
Donald R. Brattain
OPTIONEE:
/s/ Peter J. King
Peter J. King
EXHIBIT 11.1
SUNRISE INTERANATIONAL LEASING CORPORATION AND SUBSIDIARIES
PER SHARE EARNINGS COMPUTATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
------------------------------------ ----------------------------------
1997 1996 1997 1996
----------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
Primary Earnings Per Share:
Weighted average number of
common shares outstanding 7,788,000 7,189,000 7,506,000 7,189,000
Common stock equivalents from
assumed exercise of options and
warrants 68,000 33,000 80,000 13,000
---------------- -------------- --------------- ---------------
Total shares 7,856,000 7,222,000 7,586,000 7,202,000
================ ============== =============== ===============
Net income $ 958,000 $ 926,000 $ 1,835,000 $ 2,019,000
================ ============== =============== ===============
Net income per common and
common equivalent share $ 0.12 $ 0.13 $ 0.24 $ 0.28
================ ============== ============== ===============
Fully Dilutive Earnings Per Share:
Weighted average number of
common shares outstanding 7,788,000 7,189,000 7,506,000 7,189,000
Common stock equivalents
from assumed exercise of
options and warrants 68,000 33,000 80,000 13,000
--------------- -------------- -------------- ---------------
Total shares 7,856,000 7,222,000 7,586,000 7,202,000
================ ============== =============== ===============
Net income $ 958,000 $ 926,000 $ 1,835,000 $ 2,019,000
================ ============== =============== ===============
Net income per common
and common equivalent share $ 0.12 $ 0.13 $ 0.24 $ 0.28
================ ============== ============== ===============
</TABLE>
Net income per common and common equivalent share is computed using the weighted
average number of shares outstanding during each period.
Arthur Andersen LLP
45 South Seventh Street
Minneapolis MN 55402-1611
612 332 1111
November 12, 1997
Securities and Exchange Commission
Mail Stop 9-5
450 Fifth Street Northwest
Washington, D.C. 20549
Dear Ladies and Gentlemen:
We have read and agree with the comments in Part 2, Item 5 of Form 10-Q of
Sunrise International Leasing Corporation and Subsidiaries for the quarter ended
September 30, 1997.
Very truly yours,
/s/ Arthur Andersen LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-Q FOR THE PERIOD ENDED 9-30-97 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 2,386,000
<SECURITIES> 0
<RECEIVABLES> 11,094,000
<ALLOWANCES> 3,813,000
<INVENTORY> 523,000
<CURRENT-ASSETS> 101,501,000
<PP&E> 999,000
<DEPRECIATION> 617,000
<TOTAL-ASSETS> 103,144,000
<CURRENT-LIABILITIES> 72,529,000
<BONDS> 0
0
0
<COMMON> 78,000
<OTHER-SE> 30,537,000
<TOTAL-LIABILITY-AND-EQUITY> 103,144,000
<SALES> 22,753,000
<TOTAL-REVENUES> 22,753,000
<CGS> 19,226,000
<TOTAL-COSTS> 19,226,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,527,000
<INCOME-TAX> 1,692,000
<INCOME-CONTINUING> 1,835,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,835,000
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
