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
June 30, 1998 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
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.
7,822,796 shares of Common Stock, $.01 par value as of August 7, 1998.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Included herein is the following unaudited financial information:
Consolidated Balance Sheets as of June 30, 1998 and March 31, 1998.
Consolidated Statements of Operations for the three month periods
ended June 30, 1998 and 1997.
Consolidated Statements of Cash Flows for the three month periods
ended June 30, 1998 and 1997.
Notes to Consolidated Financial Statements.
<PAGE>
SUNRISE INTERNATIONAL LEASING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
<TABLE>
<CAPTION>
June 30, March 31,
1998 1998
--------------- --------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,912,000 $ 2,140,000
Accounts receivable, less allowance for doubtful accounts
of $376,000 and $260,000 426,000 3,413,000
Income taxes receivable 200,000 672,000
Inventory held for sale 132,000 207,000
Loans receivable, less allowance for possible losses of $1,120,000
and $1,105,000 2,962,000 3,328,000
Investment in leasing operations:
Direct financing leases 24,303,000 27,200,000
Operating leases, less accumulated depreciation of
$26,640,000 and $24,646,000 52,344,000 49,687,000
Equipment held for lease 2,076,000 4,262,000
Initial direct costs 405,000 451,000
--------------- ----------------
Total investment in leasing operations 79,128,000 81,600,000
--------------- ----------------
Furniture and fixtures, less accumulated depreciation
of $601,000 and $658,000 293,000 326,000
Other assets 2,398,000 2,254,000
--------------- ----------------
Total Assets $ 87,451,000 $ 93,940,000
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Financing arrangements:
Notes payable $ 8,039,000 $ 6,661,000
Securitized borrowings 4,077,000 7,532,00
Discounted lease rentals 21,817,000 25,476,000
Notes payable to King Management Corporation 12,975,000 14,986,000
--------------- ----------------
Total financing arrangements 46,908,000 54,655,000
-------------- ----------------
Accounts payable 851,000 1,457,000
Accrued liabilities 4,101,000 3,085,000
Accrued income taxes 78,000 --
Deferred tax liability 3,735,000 3,735,000
--------------- ----------------
Total Liabilities 55,673,000 62,932,000
--------------- ----------------
COMMITMENTS AND CONTINGENCIES (Note 6)
SHAREHOLDERS' EQUITY
Common stock, $.01 par value, 17,500,000 shares authorized
7,810,000 shares issued and outstanding, respectively 78,000 78,000
Capital stock, undesignated, $.01 par value,
2,500,000 shares authorized, none issued or outstanding -- --
Additional paid-in capital 27,725,000 27,655,000
Retained earnings 3,975,000 3,275,000
--------------- --------------
Total Shareholders' Equity 31,778,000 31,008,000
--------------- --------------
Total Liabilities and Shareholders' Equity $ 87,451,000 $ 93,940,000
================ ==============
</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
Ended June 30,
1998 1997
--------------- ---------------
<S> <C> <C>
REVENUES
Operating leases $ 8,735,000 $ 7,920,000
Direct financing leases 845,000 1,390,000
Equipment sales 1,699,000 1,658,000
Interest Income -- 70,000
Fee income 114,000 87,000
--------------- ---------------
Total Revenues 11,393,000 11,125,000
--------------- ---------------
COSTS AND EXPENSES
Depreciation 5,466,000 4,332,000
Interest 1,039,000 1,491,000
Provision for lease and loan losses 413,000 270,000
Cost of equipment sold 1,718,000 1,650,000
Compensation expense 785,000 964,000
Other operating expenses 701,000 734,000
--------------- ---------------
Total Costs and Expenses 10,122,000 9,441,000
--------------- ---------------
INCOME FROM OPERATIONS
BEFORE PROVISION
FOR INCOME TAXES 1,271,000 1,684,000
PROVISION FOR INCOME TAXES 572,000 807,000
--------------- --------------
NET INCOME $ 699,000 $ 877,000
=============== ==============
NET INCOME PER COMMON SHARE
BASIC $ 0.09 $ 0.12
=============== ==============
FULLY DILUTED $ 0.09 $ 0.12
=============== ==============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING - BASIC 7,804,000 7,291,000
=============== ==============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING - DILUTED 7,840,000 7,291,000
=============== ==============
</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>
Three Months
Ended June 30,
1998 1997
--------------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 699,000 $ 877,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for lease and loan losses 413,000 270,000
Depreciation and amortization 5,949,000 4,588,000
Stock option exercises 58,000
Stock options issued to non-employees 12,000
Stock issued for arbitration settlement 2,022,000
Change in operating assets and liabilities:
Accounts receivable 2,822,000 (1,049,000)
Income taxes receivable 472,000 1,245,000
Other assets (217,000) 21,000
Inventory held for sale 75,000 (4,000)
Accounts payable (606,000) 670,000
Accrued liabilities 1,016,000 (1,799,000)
Accrued income taxes 78,000 230,000
--------------- ---------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 10,771,000 7,071,000
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment for lease (8,131,000) (11,346,000)
Principal portion of direct financing leases collected 4,518,000 6,540,000
Principal portion of loans receivable collected 366,000 661,000
Purchase of furniture and fixtures (6,000) (9,000)
---------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES (3,253,000) (4,154,000)
---------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on notes payable 9,050,000 8,000,000
Payments on notes payable (7,672,000) (8,872,000)
Proceeds from securitized borrowings -- 5,499,000
Payments on securitized borrowings (3,454,000) (3,298,000)
Proceeds from discounted lease financing 834,000 1,420,000
Payments on discounted lease financing (4,493,000) (6,145,000)
Payments on participations in loans receivable -- (124,000)
Payments on note payable to related party (2,011,000) --
--------------- ---------------
NET CASH USED IN FINANCING
ACTIVITIES (7,746,000) (3,520,000)
---------------- ----------------
NET INCREASE IN CASH AND CASH EQUIVALENTS (228,000) (603,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,140,000 2,191,000
--------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,912,000 $ 1,588,000
=============== ===============
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid 551,000 821,000
Income taxes paid (received) 21,000 --
</TABLE>
See notes to financial statements.
<PAGE>
SUNRISE INTERNATIONAL LEASING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTH PERIOD ENDED JUNE 30, 1998 and 1997 (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 June 30, 1998 and
March 31, 1998 and the results of operations and cash flows for the three
months ended June 30, 1998 and 1997. All such adjustments are of a normal
and recurring nature.
These statements should be read in conjunction with the Consolidated
Financial Statements and the notes thereto, and "Management's Discussion
and Analysis of Financial Condition and Results of Operations"contained in
the Company's Annual Report on Form 10-K for the fiscal year ended March
31, 1998, 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 fully diluted earnings per share. The Company
adopted SFAS No. 128 in fiscal 1998 and it has had no 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 and final
determination of future reporting segments.
Comprehensive income, as defined by SFAS No. 130, Reporting Comprehensive
Income, for the periods presented are equivalent to net income.
2. INCOME TAXES
Income tax expense has been provided based on management's estimate of the
annualized effective tax rate of 45% for the three months ended June 30,
1998, and 48% for the three months ended June 30, 1997.
3. LOANS RECEIVABLE
Loans by Collateral Type
The composition of the loans receivable portfolio by collateral type was as
follows:
June 30, March 31,
1998 1998
----------- -----------
Real estate loans -- 99,000
Non-accrual loans 4,141,000 4,393,000
----------- -----------
4,141,000 4,492,000
Less:
Allowance for possible loan losses (1,120,000) (1,105,000)
Unearned fees from loan origination (59,000) (59,000)
----------- -----------
$ 2,962,000 $ 3,328,000
=========== ===========
<PAGE>
Loan Portfolio Activity and Allowance for Possible Loan Losses
As of June 30, 1998 and March 31, 1998, the Company's recorded investment
in impaired and other loans and the related valuation allowances was as
follows:
<TABLE>
<CAPTION>
June 30, 1998 March 31, 1998
Recorded Valuation Recorded Valuation
Investment Allowance Investment Allowance
<S> <C> <C> <C> <C>
Impaired loans -
Nonaccrual $ 3,916,000 $ 895,000 $ 4,168,000 $ 880,000
Other 225,000 225,000 225,000 225,000
Performing loans -- -- 99,000 --
------------- ----------- ------------ ----------
$ 4,141,000 $ 1,120,000 $ 4,492,000 $1,105,000
============= =========== ============ ==========
</TABLE>
4. DISCOUNTED LEASE RENTALS
Discounted lease rentals consist of the following:
June 30, March 31,
1998 1998
--------------- ---------------
Non-recourse $ 20,534,000 $ 23,697,000
Recourse 1,283,000 1,779,000
--------------- ---------------
$ 21,817,000 $ 25,476,000
=============== ===============
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 $23.8 million at June 30, 1998. The loan
balance outstanding as of quarter end was $8.0 million. Advances under the
line bear interest at prime, (8.5% at June 30, 1998) and are collateralized
by substantially all otherwise unsecured assets of the Company. This line
of credit facility matures on September 30, 1998. The Company believes this
credit facility will be renewed on terms similar to the current facility.
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 of June 30, 1998, the Company is in compliance with
the 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 June
30, 1998 the outstanding balance on this loan was $2.5 million.
Securitization
On October 31, 1996, the Company entered into an agreement with a
subsidiary of Dougherty Dawkins, Inc. to place up to $20 million of notes
issued by the Company to private institutional investors. 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. As of June 30, 1998, the outstanding balance on the
transaction was $1,528,000.
Financing arrangement with King Management Corporation
On June 16, 1997, the Company entered into a financing arrangement with KMC
which was extended in June 1998. Under the financing arrangement, for the
period from July 1, 1997 through June 30, 2000, KMC has committed to
provide or assist the Company in arranging whatever financing is necessary
to enable the Company to grow its vendor leasing business unencumbered by
the availability of financing. During fiscal 1998, under the financing
arrangement, KMC provided two fundings totaling $15,472,000. The balance
outstanding was $12,975,000 at June 30, 1998. The notes bear interest at
prime minus 0.25% (8.25% at March 31, 1998), and are secured by lease
equipment.
In consideration for the commitment described above and other services, the
Company agreed to allow KMC to participate in specific percentages of
vendor leasing transactions consummated during the period from July 1, 1997
through June 30, 2000. Specific leases are identified as the property of
KMC and are not included in the Company's portfolio. In the first quarter
of 1999, King Management purchased leases in the amount of $1,915,000.
Total purchased leases from inception of the agreement through June 30,
1998 are $6,884,000.
<PAGE>
7. RELATED PARTY
Management Agreement
Pursuant to an agreement by and among the Company, Mr. Peter King and The
King Management Corporation ("King Management"), a corporation which is
controlled by Mr. King, dated June 16, 1997, as amended on June 23, 1998
(the "Management Agreement"), it was agreed that Mr. King or King
Management would provide certain management services to the Company through
June 30, 2000. Pursuant to the Management Agreement, Mr. King is an
employee of the Company and will serve as Chairman of the Board and Chief
Executive Officer until June 30, 2000 at a salary of $200,000 per year.
Pursuant to the management agreement, Mr. King was granted stock options to
purchase an aggregate of 541,506 shares at $3.375 per share, on June 23,
1998, Mr. King was granted (i) a fully vested seven-year nonqualified stock
option to purchase 250,000 shares at $3.25 per share under the Company's
1991 Stock Option Plan and (ii) a seven-year nonqualified cliff vesting
stock option to purchase 400,000 shares at $3.25 per share outside of the
Company's 1991 Stock Option Plan. The cliff vesting options vest after six
years if Mr. King continues to be an employee of the Company. Vesting is
accelerated if the Company's Common Stock attains certain agreed closing
average stock prices, as reflected in the Nasdaq Market System, for a
period of ten consecutive business days, as follows: 125,000 shares at
$5.00, 125,000 shares of $6.00 and 150,000 shares at $7.00. The Management
Agreement provides that Mr. King and/or King Management will provide
certain services to the Company, including but not limited to working with
management on current and prospective vendor relationships, monitoring
problem leases and loans, assisting the Company on meeting financing
requirements and working with the Company's bankers.
Pursuant to the Management Agreement, King Management has provided the
Company access to, certain of its employees, including Jeffrey Jacobsen, a
director of the Company and its Executive Vice President. These employees
have been expending at least 85% of their time on Sunrise matters from
April 1, 1998 through June 30, 1998. For these services, King Management
has been paid $125,000. Two King Management employees, including Mr.
Jacobsen, became full-time employees of the Company on June 23, 1998. Three
King Management employees continue to provide services to the Company for
which the Company will be reimbursed. Employees of the Company may also
provide services to King Management for which the King Management may be
reimbursed. Upon joining the Company as an employee on June 23, 1998, Mr.
Jacobsen received ten-year options to purchase 100,000 shares of Common
Stock and the second King Management employee received options to purchase
10,000 shares. In addition, options for 17,000 shares have been granted to
the three other King Management employees providing services to the Company
and who remain King Management employees. All of these options have an
exercise price of $3.25 per share. Pursuant to the Management Agreement,
King Management has agreed to provide subordinated debt financing, direct
financing and/or other financial assistance to the Company for a period of
three 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. King Management has agreed to provide to the
Company the use of its balance sheet resources to enable the Company to
meet its vendor leasing program financing requirements.
<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 primarily consists of late fees collected on past due
accounts.
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>
Results of Operations for the Three Months Ended June 30, 1998 and 1997
Total revenue from leasing activity increased approximately $270,000 (2.9%) for
the three months ended June 30, 1998, as compared to the corresponding period in
fiscal 1998. The majority of the revenue increase came from a $815,000 (10.3%)
increase in operating lease revenue for the three month period ended June 30,
1998, as compared to the previous fiscal year. The increase in operating lease
revenues was offset by a decrease in direct financing lease revenue of $545,000
(39.2%) for the three month period ended June 30, 1998, as compared to the
corresponding period in fiscal 1998. 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):
Three Months
Ended June 30,
1998 1997
-------------- -------------
Amount % Amount %
Leasing Revenues:
Vendor $ 7.1 74% $ 6.4 69%
Direct 2.5 26 2.9 31
------ --- ------ ---
Total $ 9.6 100% $ 9.3 100%
====== ==== ====== ====
As a percent of total revenues 84.1% 83.7%
===== =====
Margins from leasing activities (leasing revenue less depreciation and interest
expense) were 32.1% and 37.5% for the three month period of fiscal 1999 and
fiscal 1998, 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. Leasing margins for the quarter were impacted by changes in
management's estimates relative to depreciation on a specific vendor program and
depreciation relative to interim rents.
In order to limit the impact of any interest rate fluctuations on its leasing
transactions, the Company continually monitors its lease rate factors relative
to interest rates on borrowed funds. The lease rate factors are adjusted
periodically on new leases to correspond to any change in interest rates on
borrowed funds supporting the related transactions.
Revenue from equipment sales increased $41,000 for the three-month period ended
June 30, as compared to the corresponding period in fiscal 1998. The gross
margin loss on equipment sales were 1.1% of sales revenue for the three month
period of fiscal 1999, compared to gross margin income 0.5 for the corresponding
period in fiscal 1998.
Interest income decreased $70,000 (100%) for the three month period of fiscal
1999 as compared to the corresponding period in fiscal 1998. 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 $27,000 (31.0%) for the three month period of fiscal 1999
as compared to the same period in fiscal 1998. This increase is due to an
increase in the collection of late fees.
Total costs and expenses increased $681,000 for the three month period of fiscal
1999 as compared to the corresponding period in fiscal 1998. The decrease in
interest expense reflects lower average borrowings during the period, as well as
the lower cost of borrowing under King Management's financing commitment.
Depreciation expense for the three month period ended June 30, 1998 increased
$1.1 million (26.2%) over the same period in fiscal 1998. This increase was due
to the continued increase in vendor operationg leases, as well as accelerating
the depreciation on a specific vendor program and increasing the amount of
depreciation relative to interim rents.
<PAGE>
Interest expense decreased $452,000 (30.3%) for the three month period of fiscal
1999 as compared to the corresponding period in fiscal 1998. The decrease in
interest expense reflects lower average borrowings during the period, as well as
lower cost of borrowing under King Management's financing commitment.
The provision for lease and loan losses increased $143,000 (53.0%). This is due
to increasing efforts to reserve for unrecognized losses in an increased risk
environment.
Cost of equipment sold increased $68,000 (4.1%) for the three month period of
fiscal 1999 as compared to the corresponding period in fiscal 1998.
Compensation expense decreased $179,000 (18.6%) for the three month period ended
June 30, 1998 as compared to the same period in fiscal 1998. The decrease is the
result of fewer employees as compared to the prior fiscal period.
Other operating expense decreased $33,000 (4.5%) for the three month period
ended June 30, 1998, as compared to the previous periods in fiscal 1998.
Income tax provision as a percentage of income before taxes was 45.0% for the
three month period ended June 30, 1998 and 48.0% for the corresponding period in
fiscal 1998. The reduction in the effective tax rate results primarily from the
absence, in the current period, of non-deductible shareholder arbitration costs.
Liquidity and Capital Resources
General
The Company uses a combination of its credit lines and internally generated cash
flows to finance, on an interim basis, the acquisition of revenue generating
equipment. Generally, upon commencement of an SLC original equipment 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
limits its risk, if any, to its equity investment in the loan or equipment. The
discounted lease proceeds received by the Company are used to reduce borrowings
under the Company's credit lines. Where the Company finances the equipment cost
either internally or on a recourse basis, the Company assumes the entire risk on
its investment in the loan or equipment.
At June 30, 1998, the Company had total borrowings outstanding of $46.9 million,
of which 43.7% were nonrecourse. At March 31, 1998, the Company had total
borrowings outstanding of $54.7 million, of which 43.4% were nonrecourse.
As of June 30, 1998, the Company had a total investment in leasing operations of
$79.1 million, as compared to $81.6 million at March 31, 1998. The 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.
Net cash provided by operating activities was $10.6 million for the three month
period of fiscal 1999. The Company expects to fund future requirements through
internally generated funds, as well as borrowings under various credit
facilities.
Equipment expenditures (net of disposals) of $8.1million for the three month
period of fiscal 1999 were financed through cash flows from operations, 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.
<PAGE>
Liquidity and Financing Sources
As of June 30, 1998, the Company had available a $25 million line of credit
subject to a borrowing base limitation of $23.8 million. Of this amount, $8.0
million had been utilized as of June 30, 1998. Advances under the line are
collateralized by substantially all of the Company's assets and 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 of June 30, 1998, the
Company is in compliance with the revised terms of these agreements. 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 matures on September 30, 1998. The Company
believes this credit facility will be renewed on terms similar to the current
facility.
On October 31, 1996, the Company entered into an agreement with a subsidiary of
Dougherty Dawkins, Inc. to place up to $20 million of notes issues by the
Company to private institutional investors. 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. As of June
30, 1998, the outstanding balance on the transaction was $1,528,000.
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. In May 1997, the Company borrowed $5.5
million under this credit facility, and $2.5 million remains outstanding as of
June 30, 1998.
During fiscal 1998, the Company entered into an agreement with King Management
wherein King Management agreed to provide funding for approved vendor leasing
programs, including making direct loans, and providing certain subordinations
and arranging financing packages for the period July 1, 1997 through June 30,
1999. Any direct financing utilized will be on terms as attractive as any other
financing facility utilized by the Company. In consideration for the financing
commitment, and other services, the Company agreed to allow King Management to
participate in specific percentages of vendor lease transactions consummated
during the agreement term noted above. King Management made direct loans to
Sunrise totaling $15,472,000, of which $12,975,000 were outstanding as of June
30, 1998. In the first quarter of fiscal 1999, King Management purchased leases
in the amount of $1,915,000. Total purchased leases from inception of the
agreement through June 30, 1998 are $6,884,000. Subsequent to March 31, 1998,
the Company has extended the term of this agreement for one additional year
through June 30, 2000, and King Management's financing commitment has been
extended to include financing of direct leases with terms of two years or
shorter.
The Company continues to monitor several problem leases and loans. While there
are leases and 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 in Risk of Additional Loan and Lease
Write-offs below , would be material or that they would create new covenant
violations on current facilities or otherwise limit or reduce the Company's
access to credit.
Year 2000 Compliance
The Company's internal systems require certain minimal modifications. The
Company expects these to be completed on a timely basis and does not believe
that the cost of modifications will have a material effect on the Company's
operating results. The Company has not begun inquiry procedures of third party
vendor customer compliance. In the event the Company's systems are not compliant
and third party vendors cannot timely provide the Company with products,
services or systems that meet the year 2000 requirements, the Company's
operating results could be materially adversely affected.
<PAGE>
Outlook
Certain statements contained in this Outlook section and other sections of this
document are forward looking, based on current expectations, and actual results
may differ materially. The forward looking statements, 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 including the Company's reliance on a few large vendors for
its business, its ability to cope with accelerating obsolescence, and to
remarket its off-lease equipment at prices that are equal to or better than its
book value. In addition to the factors discussed above which could cause actual
results to differ from those projected other factors which could cause actual
results to differ from expected include the following:
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 business. The Company's
ability to expand its vendor business is dependent upon successfully servicing
existing vendor accounts and attracting new vendor accounts. As of June 30,
1998, the Company had only two significant vendor leasing programs although it
has signed agreements for eight other vendor leasing programs. While the Company
believes it has the ability and capacity to develop large vendor leasing
programs, other than the two it is currently servicing, there is no assurance
that it will be successful in this regard or that it will be able to generate
acceptable revenue growth.
In order to broaden the base of potential lessees the Company has redefined its
underwriting policies. These policy changes result in a greater focus on very
short-term leases (1-2 year), expanding its business with customers that
traditionally are of lower credit quality, and accepting significantly larger
transactions from credit worthy customers at rates which are lower than usual.
These changes will result in an increased level of transaction and portfolio
risk for the Company and an increased reliance on recourse financing.
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. 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.
Risk of Additional Loan and Lease Write-Offs. While the Company believes that
its current reserves are adequate, it continues to monitor closely a
restructured loan and a material lease, as to which the Company has a book value
of $3.6 million and a remaining investment of $9.5 million. While lessee
payments are being received on a monthly basis there is no assurance that such
payments will continue on an uninterrupted basis or that the Company is
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 may 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 Company's ability to finance revenue producing assets. The King
Management Corporation's financing commitment, as well as continued reduction in
the amount of non-performing assets, have enhanced the Company's ability to
obtain required financing. While the Company has been successful in obtaining
required recourse and non-recourse financing to date, there is no assurance that
all required financing will be available in the future.
Major Customers/Vendors. At June 30, 1998 and March 31,1998, no leases
outstanding to any individual lessee exceeded 5% of the total lease portfolio,
except in cases where the leases had been discounted without recourse to a
financial institution.
However, 59.8% of the Company's total revenue for the three months ended June
30, 1998 was generated through two vendor leasing programs. Should either of
these programs terminate, the Company would continue to realize related revenues
for a period of up to three years. If the Company is unable to replace this
business, the Company's future financial results would be materially and
adversely affected.
<PAGE>
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, the
high technology equipment which comprises the bulk of the Company's lease
portfolio is subject to rapid technological obsolescence typical of the computer
industry.
During the past fiscal year, the Company has experienced losses on a specific
vendor program and established reserves to cover anticipated losses in future
periods. In addition, the company has accelerated the depreciation on new
equipment acquisitions from this vendor program. The trend towards shortened
product life cycles will continue to add additional risk to maintaining
historical leasing margins.
Accounting Changes. SFAS No. 131, "Disclosure about Segments of the Enterprise
and Related Information" was issued in June 1997 and must be adopted by the
Company no later than fiscal 1999. The statement establishes standards which
redefine how operating segments are determined and requires public companies to
report financial and descriptive information about reportable operating
segments.
The Company has not completed the process of evaluating the effect of SFAS No.
131, but does not believe the new accounting pronouncement will significantly
effect the Company's financial condition or operating results.
<PAGE>
PART II-OTHER INFORMATION
ITEM 1. Legal Proceedings - None.
ITEM 2. Changes in Securities - Pursuant to the June 23, 1998 amendment of
an agreement dated June 16, 1997 among the Company, The King Management
Corporation and Peter King, Chairman and Chief Executive Officer of the
Company, the Company granted to Mr. King a seven-year nonqualified
stock option to purchase 400,000 shares of the Company's Common Stock
at $3.25 per share, which option will become exercisable on June 23,
2004 if Mr. King is still employed by the Company; provided however,
that the vesting of such option will be accelerated if the price of the
Company's Common Stock reaches certain targets. The option was issued
in reliance upon the exemption provided in Section 4(2) of the
Securities Act.
ITEM 3. Defaults on Senior Securities - None
ITEM 4. Submission of Matters to a Vote of Security Holders - None.
ITEM 5. Other Information - None.
ITEM 6. Exhibits and Reports on Form 8-K.
a. Exhibits
See Exhibit Index immediately following the signature page.
b. Form 8-K
There have been no Current Reports on Form 8-K filed on behalf
of the Company during the quarter ended June 30, 1998.
<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: August 14, 1998 By: /s/ Peter J. King
Peter J King, Chairman of the Board,
Chief Executive Officer and Director
(principal executive officer)
By: /s/ Jeffrey G. Jacobsen
Jeffrey G. Jacobsen, Executive Vice President
(principal financial officer)
By: /s/ James C. Teal
James C. Teal, Corporate 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
June 30, 1998
SUNRISE INTERNATIONAL LEASING CORPORATION
Exhibit
Number Description
3.1 Certificate of Incorporation, -- incorporated by reference to Exhibit
3.1 to the Company's Quarterly Report Form 10-Q for the quarter ended
September 30, 1997
3.2 Bylaws--incorporated by reference to Exhibit 3.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1997
4.1 Specimen of Common Stock Certificate--incorporated by reference to
Exhibit 4.1 to the Company's Quarterly Report Form 10-Q for the quarter
ended September 30, 1997
10.1* Agreement dated June 16, 1997 among the Company, Peter J. King and The
King Management Corporation
11.1 Per Share Earnings Computations
27.0 Financial Data Schedule (filed with electronic version only)
AGREEMENT
Effective Date: June 23, 1998
Parties:
Sunrise International Leasing Corporation ("Sunrise" or the "Company")
5500 Wayzata Blvd., Suite 725
Golden Valley, Minnesota 55416
Peter J. King ("King")
The King Management Corporation
5500 Wayzata Blvd., Suite #750
Golden Valley, MN 55416
The King Management Corporation ("King Management")
5500 Wayzata Blvd., Suite #750
Golden Valley, MN 55416
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.
C. King Management is a private corporation doing business in the State
of Minnesota, and is a well-financed company with experience and expertise in
all aspects of the equipment leasing business.
D. Sunrise's 1997 annual report on Form 10-K identified certain
liquidity problems which, if they had materialized, would have placed the
Company in default of its loan agreements and would have severely affected its
ability to borrow funds to support its vendor programs which, in turn, would
have jeopardized its vendor program business.
E. In June 1997, Sunrise appointed King as its Chairman of the Board.
In May 1998, King also was appointed Chief Executive Officer ("CEO") of the
Company.
F. Since June 16, 1997, King Management has provided Sunrise certain
financial and other services pursuant to an agreement dated as of the same date.
<PAGE>
G. King Management has participated with Sunrise in Sunrise's vendor
programs and has provided substantial assistance to Sunrise in financing such
programs.
H. The parties believe it is in the best interests of the Company to
continue their working relationship and are desirous of extending such
relationship through June 30, 2000, and amending their agreement in various
other respects.
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. Peter King
a. Capacity. Peter King has previously been appointed by the
Sunrise Board of Directors to serve as Sunrise's Chairman of
the Board and CEO, and as such will continue to be an officer
and employee of Sunrise. In his service as Chairman and CEO,
King will report to and be subject to the direction of
Sunrise's Board of Directors.
b. Duties. King's duties will be those duties customarily
performed by a Chairman and CEO. King's responsibilities will
be related to the general management of the day-to-day
business affairs of Sunrise and presiding at all meetings of
the Board of Directors and shareholders of Sunrise.
c. Term. King's employment as CEO will continue until June 30,
2000, and shall continue thereafter subject to the mutual
agreement of both parties. The termination of King's
employment as CEO will not affect King's service as a director
of Sunrise, which is subject to shareholder approval, or his
service as Chairman, which is subject to the discretion of the
Board of Directors.
d. Compensation. Effective April 1, 1998, Peter King will receive
a salary equal to $200,000 a year, subject to the usual
payroll deductions, payable in accordance with the Company's
normal payroll practices. Mr. King will receive, in his
discretion, those additional benefits which the Company makes
available to officers. In addition, Mr. King will be granted,
effective as of June 23, 1998, two separate non-qualified
options to purchase the Company's Common Stock. The first
option is immediately exercisable in full and will cover
250,000 shares and is granted in consideration of Mr. King's
willingness to assume the responsibilities and duties as CEO
of the Company. The option term will be ten years and will be
exercisable at a price of $3.25 per share. The second option
will cover 400,000 shares and will be a "cliff-vesting
option." Vesting will be accelerated in increments of 125,000
shares, 125,000 shares and 150,000 shares when the average
closing price of the Company's Common Stock over a period of
ten business days, as determined by reference to the National
Market System, attains $5.00, $6.00 and $7.00, respectively.
The term of this option will be seven years and will be
exercisable at a price of $3.25 per share. The options will be
evidenced by formal option agreements.
<PAGE>
2. The King Management Corporation. King Management will continue to
provide the following benefits and services to Sunrise through the term
of this Agreement:
a. provide sufficient subordinated debt to Sunrise to cover any
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 Sunrise 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 Management will work closely with the Company to enhance
the Company's future prospects, including, but not limited to,
generally assisting the Company to finance its vendor business
until June 30, 2000. Direct financing provided to Sunrise will
be at terms at least as favorable as those which could be
obtained from other sources.
3. Access to the Other Party's Employees. King Management has provided
Sunrise access to five of its employees who, since April 1, have
devoted varying amounts of time to Sunrise matters. Two of those
employees, Jeffrey Jacobsen and James Teal, became employees of Sunrise
as of June 23, 1998. The other three employees continue to be King
Management employees working on Sunrise matters with the consent of
Sunrise. King Management employees providing services to Sunrise may be
changed from time to time, but only with the prior approval of Sunrise.
Sunrise retains the ongoing right to discontinue using the services of
any or all King Management employees upon 90 days notice to King
Management.
From time to time, King Management may also seek to use the expertise
and services of Sunrise employees, and Sunrise agrees to permit the
reasonable use of such employees, subject to the condition that the
business of Sunrise is not materially impacted.
4. Allocation of Costs of Employees Working for Both Parties. The Company
will pay to King Management on or about July 1, 1998, the approximate
sum of $125,000 to cover the cost of the services of five King
Management employees rendering serves to the Company in varying amounts
from April 1, 1998 through June 30, 1998. On October 1, 1998, and every
three months thereafter, King Management will bill Sunrise for the
reasonable costs related to the agreed services continuing to be
provided to Sunrise by King Management employees in the previous
three-month period.
Without its prior written agreement, Sunrise assumes no responsibility
for the payment of any salary, bonuses, personal insurance, automobile
expenses or other perquisites provided by King Management to its
employees. However, as of June 23, 1998, options covering 110,000
<PAGE>
shares of Sunrise Common Stock have been granted to the two King
Management employees who have become Sunrise employees and options
covering 17,000 shares of Sunrise Common Stock have been granted to the
other three King Management employees continuing to provide services to
Sunrise while employed by King Management.
In the event that Sunrise employees provide future services, King
Management will compensate Sunrise on generally the same terms as King
Management is being compensated as described above in this Section 4.
5. Vendor Program Sharing. For the period beginning April 1, 1998,
continuing throughout the remaining term of this Agreement, 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 program and the Sun Demo program and 25% of other
similar high risk leasing programs and risk pools as agreed upon by the
parties hereto from time to time 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 to reflect the agreed sharing percentages. 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 leases.
6. Non-Solicitation. During the term of this Agreement and any extension
of this Agreement, neither King Management nor King will, on behalf of
King Management, 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 with King Management 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 or
an officer of the Company, he has a duty of loyalty to it, which
prevents him from using his position as a director or officer of
Sunrise to directly profit on Sunrise business other than as expressly
agreed pursuant to this Agreement.
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; and King
Management will not hire any Sunrise employees without the consent of
Sunrise nor will King Management solicit, attempt to solicit, interfere
or attempt to interfere with Sunrise's relationship with its customers
or potential customers.
<PAGE>
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.
7. Indemnification
a. General. Sunrise shall indemnify and hold harmless King
Management and its directors, officers, employees and agents,
from and against any claims or actions, including all costs
and expenses incident thereto, and judgments or settlements
arising therefrom, by reason of any action taken by King
Management, or its directors, officers, employees and agents
in fulfillment of King Management's or King's obligations
under this Agreement; provided, however, that the
indemnification provided pursuant to the terms of this Section
7a shall not apply in instances in which King Management, its
directors, officers, employees, agents or representatives, are
finally judicially determined (i) not to have reasonably
believed that they were acting in good faith, or (ii) to have
committed an act or omission constituting fraud, gross
negligence or intentional wrongdoing. The Company shall have
no further obligation to King Management or its employees
under the provisions of this Section 7a if the liability or
claim of King Management or its employees has been paid in
full by any insurance maintained by King Management or the
Company or any other party.
If Sunrise employees provide future services to King
Management, King Management will provide the same
indemnification terms to Sunrise as provided by Sunrise to
King Management in the preceding paragraph.
b. Further Agreements. Sunrise further agrees, unless its
obligations hereunder are being fulfilled by an insurance
company under the circumstances contemplated in this Section 7
hereof:
(1) to defend promptly and diligently, at the Company's
expense, any claim, action or proceeding brought
against King Management, or its directors, officers,
employees, agents or representatives, and the
Company, or any of them, arising out of or connection
with any of the occurrences or events referred to in
Section 7a hereof.
<PAGE>
(2) That King Management, or its directors, officers,
employees, agents or representatives shall not be
liable to third parties and shall be indemnified and
held harmless by the Company in respect of any debts,
liabilities or obligations incurred pursuant to this
Agreement, or arising in the reasonable and ordinary
course of the Company's business or by virtue of the
management services provided for the Company pursuant
to this Agreement.
(3) That all provisions of this Section 7 shall survive
the expiration or termination of this Agreement.
(4) In the event Sunrise employees provide future
services to King Management, King Management hereby
agrees to the same covenants made by Sunrise in this
Section 7b.
8. Insurance.
a. Insurance to be Maintained by Sunrise. The Company, at its
expense and at all times during the initial term of this
Agreement and any extension thereof, shall procure and
maintain such insurance reasonably requested by King
Management, if any, which is customary or appropriate to cover
risks assumed by King Management or its employees in carrying
out their responsibilities hereunder. Such insurance shall be
written with a reputable insurance company or companies
authorized to conduct business in Minnesota. At King
Management's request, each insurance policy maintained by the
Company shall name King Management as a co-insured, and
contain a provision requiring the insurance company to notify
King Management of any cancellation. The Company assumes all
risks in connection with the adequacy of any insurance or
self-insurance program.
b. Insurance to be Maintained by King Management. King Management
on its own behalf shall maintain such other insurance as King
Management shall deem appropriate for its protection against
claims, liabilities and losses which may be asserted or
incurred, arising in the course of King Management's
performance or the performance of King Management employees of
their duties hereunder; provided, however, that the failure of
King Management to obtain insurance pursuant to this Section
8b shall not be a defense to any claim by King Management for
compensation, reimbursement or indemnification under the
provisions of this Agreement.
c. In the event Sunrise employees provide future services to King
Management, King Management agrees to maintain the insurance
described in Section 8a above, and Sunrise agrees to maintain
the insurance described in Section 8b above.
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.
<PAGE>
10. 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 their relationship with Sunrise.
11. 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.
c. Death or Disability. By the Company upon the death or total
disability of King. However, 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
rights of King Management so long as King Management fulfills
the financing obligations of this Agreement.
12. 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.
<PAGE>
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. 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.
e. Entire Agreement. This Agreement 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 INTERNATIONAL LEASING CORPORATION
By: /s/ Peter J. King
Its: Chairman of the Board
THE KING MANAGEMENT CORPORATION
By: /s/ Peter J. King
Its Chairman of the Board
/s/ Peter J. King
Peter J. King
EXHIBIT 11.1
SUNRISE INTERANATIONAL LEASING CORPORATION AND SUBSIDIARIES
PER SHARE EARNINGS COMPUTATIONS
Three Months Ended
June 30, 1998
1998 1997
---------- ----------
Basic Earnings Per Share:
Weighted average number of
common shares outstanding 7,804,000 7,291,000
========== ==========
Net income $ 699,000 $ 877,000
========== ==========
Net income per common and
common equivalent share $ 0.09 $ 0.12
========== ==========
Fully Dilutive Earnings Per Share:
Weighted average number of 7,804,000 7, 291,000
Common stock equivalents
from assumed exercise of
options and warrants 36,000 --
---------- ----------
Total shares 7,840,000 7,291,000
========== ==========
Net income $ 699,000 $ 877,000
========== ==========
Net income per common
and common equivalent share $ 0.09 $ 0.12
========== ==========
Net income per common and common equivalent share is computed using the weighted
average number of shares outstanding during each period.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 1,912,000
<SECURITIES> 0
<RECEIVABLES> 4,884,000
<ALLOWANCES> 1,496,000
<INVENTORY> 132,000
<CURRENT-ASSETS> 84,760,000
<PP&E> 894,000
<DEPRECIATION> 601,000
<TOTAL-ASSETS> 87,451,000
<CURRENT-LIABILITIES> 55,673,000
<BONDS> 0
0
0
<COMMON> 78,000
<OTHER-SE> 31,700,000
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<SALES> 11,393,000
<TOTAL-REVENUES> 11,393,000
<CGS> 10,122,000
<TOTAL-COSTS> 10,122,000
<OTHER-EXPENSES> 0
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<INCOME-PRETAX> 1,271,000
<INCOME-TAX> 572,000
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 699,000
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
