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, 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 October 20, 1998.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Included herein is the following unaudited financial information:
Consolidated Balance Sheets as of September 30,1998 and March 31,1998.
Consolidated Statements of Operations for the three and six month
periods ended September 30, 1998 and 1997.
Consolidated Statements of Cash Flows for the six month periods ended
September 30, 1998 and 1997.
Notes to Consolidated Financial Statements.
<PAGE>
SUNRISE INTERNATIONAL LEASING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, March 31,
1998 1998
--------------- --------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,066,000 $ 2,140,000
Accounts receivable, less allowance for doubtful accounts
of $564,000 and $260,000 1,070,000 3,413,000
Income taxes receivable -- 672,000
Inventory held for sale 184,000 207,000
Loans receivable, less allowance for possible losses of $1,132,000
and $1,105,000 2,317,000 3,328,000
Investment in leasing operations:
Direct financing leases 21,107,000 27,200,000
Operating leases, less accumulated depreciation of
$29,838,000 and $24,646,000 57,386,000 49,687,000
Equipment held for lease 1,886,000 4,262,000
Initial direct costs 325,000 451,000
--------------- ----------------
Total investment in leasing operations 80,704,000 81,600,000
--------------- ----------------
Furniture and fixtures, less accumulated depreciation
of $601,000 and $658,000 254,000 326,000
Other assets 2,213,000 2,254,000
--------------- ----------------
Total Assets $ 87,808,000 $ 93,940,000
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Financing arrangements:
Notes payable $ 8,598,000 $ 6,661,000
Securitized borrowings 2,190,000 7,532,00
Discounted lease rentals 19,571,000 25,476,000
Notes payable to King Management Corporation 15,042,000 14,986,000
--------------- ----------------
Total financing arrangements 45,401,000 54,655,000
-------------- ----------------
Accounts payable 748,000 1,457,000
Accrued liabilities 4,857,000 3,085,000
Accrued income taxes 438,000 --
Deferred tax liability 3,735,000 3,735,000
--------------- ----------------
Total Liabilities 55,179,000 62,932,000
--------------- ----------------
COMMITMENTS AND CONTINGENCIES (Note 6)
SHAREHOLDERS' EQUITY
Common stock, $.01 par value, 17,500,000 shares authorized
7,823,000 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 27,773,000 27,655,000
Retained earnings 4,778,000 3,275,000
--------------- --------------
Total Shareholders' Equity 32,629,000 31,008,000
--------------- --------------
Total Liabilities and Shareholders' Equity $ 87,808,000 $ 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 Six Months
Ended September 30, Ended September 30,
--------------------------------- -----------------------
1998 1997 1998 1997
----------------- ------------- --------------- ----------
<S> <C> <C> <C> <C>
REVENUES
Operating leases $ 9,420,000 $ 8,316,000 $ 18,156,000 $ 16,236,000
Direct financing leases 704,000 1,288,000 1,549,000 2,678,000
Equipment sales 1,872,000 1,763,000 3,571,000 3,420,000
Interest Income 14,000 67,000 14,000 137,000
Fee income 61,000 194,000 175,000 282,000
--------------- --------------- --------------- ---------------
Total Revenues 12,071,000 11,628,000 23,465,000 22,753,000
--------------- --------------- --------------- ---------------
COSTS AND EXPENSES
Depreciation 5,911,000 4,621,000 11,377,000 8,953,000
Interest 931,000 1,395,000 1,971,000 2,886,000
Provision for lease and loan losses 416,000 345,000 829,000 615,000
Cost of equipment sold 1,704,000 1,807,000 3,423,000 3,457,000
Compensation expense 812,000 872,000 1,597,000 1,836,000
Other operating expenses 836,000 745,000 1,537,000 1,479,000
--------------- --------------- --------------- ---------------
Total Costs and Expenses 10,610,000 9,785,000 20,734,000 19,226,000
--------------- --------------- --------------- ---------------
INCOME BEFORE PROVISION
FOR INCOME TAXES 1,461,000 1,843,000 2,731,000 3,527,000
PROVISION FOR INCOME TAXES 658,000 885,000 1,229,000 1,692,000
--------------- --------------- --------------- ---------------
NET INCOME $ 803,000 $ 958,000 $ 1,502,000 $ 1,835,000
=============== =============== =============== ===============
NET INCOME PER COMMON
Basic and Diluted $ 0.10 $ 0.12 $ 0.19 $ 0.24
============== =============== =============== ==============
WEIGHTED AVERAGE NUMBER
OF COMMON
SHARES OUTSTANDING
Basic 7,820,000 7,856,000 7,812,000 7,586,000
============== =============== =============== ===============
Fully Diluted 7,846,000 7,856,000 7,839,000 7,586,000
============== =============== =============== ===============
</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,
1998 1997
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income 1,502,000 $ 1,835,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for lease and loan losses 829,000 615,000
Depreciation and amortization 11,565,000 9,358,000
Stock options issued to non-employees 26,000 --
Change in operating assets and liabilities:
Accounts receivable 2,014,000 (41,000)
Income taxes receivable 672,000 1,245,000
Other assets (22,000) 98,000
Inventory held for sale 23,000 (135,000)
Accounts payable (709,000) (2,407,000)
Accrued liabilities 1,773,000 (912,000)
Accrued income taxes 438,000 1,100,000
--------------- ---------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 18,111,000 10,756,000
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment for lease (21,363,000) (18,666,000)
Principal portion of direct financing leases collected 10,334,000 13,914,000
Principal portion of loans receivable collected 1,011,000 1,876,000
Purchase of furniture and fixtures (7,000) (52,000)
---------------- ----------------
NET CASH USED IN INVESTING ACTIVITIES (10,025,000) (2,928,000)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on notes payable 19,130,000 22,999,000
Payments on notes payable (17,194,000) (16,132,000)
Payments on securitized borrowings (5,341,000) (6,313,000)
Proceeds from discounted lease financing 2,813,000 4,492,000
Payments on discounted lease financing (8,717,000) (12,278,000)
Payments on participations in loans receivable (401,000)
Proceeds from note payable to related party 4,295,000
Payments on note payable to related party (4,238,000) --
Stock option exercises 92,000 --
--------------- ---------------
NET CASH USED IN FINANCING
ACTIVITIES (9,160,000) (7,633,000)
---------------- ----------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,074,000) 195,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,140,000 2,191,000
--------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,066,000 $ 2,386,000
=============== ===============
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid 1,083,000 1,621,000
Income taxes paid (received) 28,000 (700,000)
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 PERIOD ENDED SEPTEMBER 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 September 30, 1998
and March 31, 1998 and the results of operations and cash flows for the six
months ended September 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.
In June 1998, the Financial Accounting Standards Board released SFAS No.
133 "Accounting for Derivative Instruments and Hedging Activities", which
will be effective for the Company beginning April 1, 2000. SFAS No. 133
establishes new accounting and reporting standards for the derivative
instruments embedded in other contracts, and for hedging activities. The
Company has not yet completed its analysis of the effect, if any, this
standard will have on future operating results.
2. INCOME TAXES
Income tax expense has been provided based on management's estimate of the
annualized effective tax rate of 45% for the six months ended September 30,
1998, and 48% for the six months ended September 30, 1997.
3. LOANS RECEIVABLE
Loan Portfolio Activity and Allowance for Possible Loan Losses
As of September 30, 1998 and March 31, 1998, the Company's recorded
investment in impaired loans and the related valuation allowances were as
follows:
<TABLE>
<CAPTION>
September 30, 1998 March 31, 1998
------------------------------------ ------------------------
Recorded Valuation Recorded Valuation
Investment Allowance Investment Allowance
<S> <C> <C> <C> <C>
Impaired loans $ 3,449,000 $ 1,132,000 $ 4,433,000 $ 1,105,000
================ ============== =============== ==============
</TABLE>
<PAGE>
4. DISCOUNTED LEASE RENTALS
Discounted lease rentals consist of the following:
September 30, March 31,
1998 1998
--------------- ---------------
Non-recourse $ 18,657,000 $ 23,697,000
Recourse 914,000 1,779,000
--------------- ---------------
$ 19,571,000 $ 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 $25.0 million at September 30, 1998. The
loan balance outstanding as of quarter end was $8.6 million. Advances under
the line bear interest at prime, (8.5% at September 30, 1998) and are
collateralized by substantially all otherwise unsecured assets of the
Company. This line of credit facility matures on October 31, 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 and
prohibits the payment of dividends. As of September 30, 1998, the Company
is in compliance with the terms of this agreement.
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, 1998 the outstanding balance on this loan was $2.2 million.
Securitization
During fiscal year 1997, the Company entered into an agreement with a
subsidiary of Dougherty Dawkins, Inc. which placed $20 million of notes
issued by the Company to private institutional investors. The remaining
note balances of $1,528,000 were paid in full July 31, 1998.
Financing arrangement with The King Management Corporation
On June 16, 1997, the Company entered into a financing arrangement with The
King Management Corporation (King Management). The agreement was extended
in June 1998. Under the financing arrangement, for the period from July 1,
1997 through June 30, 2000, King Management 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 the period from June 16, 1997 through
September 30,1998, King Management has provided fundings totaling
$19,767,000 with a balance outstanding of $15,042,000 at September 30,
1998. The notes bear interest at prime minus 0.25% (8.25% at September 30,
1998), and are secured by certain leases and lease equipment.
In consideration for the commitment described above and other services, the
Company agreed to allow King Management 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 King Management and are not included in the Company's
balance sheet.
<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. 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.
Results of Operations for the Three and Six Months Ended September 30, 1998 and
1997
Total revenue from leasing activity increased approximately $520,000 (5.4%) and
$791,000 (4.2%) for the three and six month periods ended September 30, 1998,
respectively, as compared to the corresponding periods in fiscal 1998. The
revenue increase came from a $1.1 million (13.3%) and a $1.9 million (11.8%)
increase in operating lease revenue for the three and six month periods ended
September 30, 1998, respectively, as compared to the previous fiscal year. The
increase in operating lease revenues was partially offset by a decrease in
direct financing lease revenue of $584,000 (45.3%) and $1,129,000 (42.2%) for
the three and six month periods ended September 30, 1998, respectively, as
compared to the corresponding periods in fiscal 1998.
<PAGE>
Total leasing revenues were as follows (dollar amounts in millions):
<TABLE>
<CAPTION>
Three Months Six Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
------------- ------------- -------------- ------------
Amount % Amount % Amount % Amount %
------- ---- ------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Leasing Revenues:
Vendor $ 7.7 76% $ 6.8 71% $ 14.9 76% $ 13.2 70%
Direct 2.4 24 2.8 29 4.8 24 5.7 30
------- ---- ------ ---- ------ ---- ------ ----
Total $ 10.1 100% $ 9.6 100% $ 19.7 100% $ 18.9 100%
======= ==== ====== ==== ====== ==== ====== ====
As a percent of total revenues 83.7% 82.6% 84.0% 83.1%
===== ===== ===== =====
</TABLE>
Margins from leasing activities (leasing revenue less depreciation and interest
expense) were 32.4% compared to 37.3% and 32.3% compared to 37.4% for the three
and six month periods of fiscal 1999 and fiscal 1998, respectively. Leasing
margins for the quarter and six month periods were impacted by acceleration of
depreciation on certain lease equipment. Margins also fluctuate from period to
period based upon the mix of direct financing and operating leases, the extent
to which the Company finances leases with internally generated funds, and the
mix and age of direct finance and operating leases in the portfolio.
Revenue from equipment sales increased $109,000 (6.2%) and $151,000 (4.4%) for
the three and six month periods ended September 30, respectively, as compared to
the corresponding periods in fiscal 1998. The gross margins on equipment sales
were 9.0% and 4.1% of sales revenue for the three and six month periods of
fiscal 1999, respectively, compared to negative gross margins of (2.5%) and
(1.1%) for the corresponding periods in fiscal 1998.
Interest income decreased $53,000 (79.1%) and $123,000 (89.8%) for the three and
six month periods of fiscal 1999, respectively, as compared to the corresponding
periods in fiscal 1998.
Fee income decreased $133,000 (68.6%) and $107,000 (37.9%) for the three and six
month periods of fiscal 1999, respectively, as compared to the same periods in
fiscal 1998.
Depreciation expense for the three and six month periods ended September 30,
1998 increased $1.3 million (27.9%) and $2.4 million (27.1%), respectively, over
the same periods in fiscal 1998. This increase was due to the continued increase
in vendor operating leases, as well as accelerating the depreciation on a
specific vendor program and increasing the amount of depreciation relative to
interim rents.
Interest expense decreased $464,000 (33.3%) and $915,000 (31.7%) for the three
and six month periods of fiscal 1999, respectively, as compared to the
corresponding periods 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 $71,000 (20.6%) and $214,000
(34.8%) for the three and six month periods of fiscal 1999, respectively, as
compared to the corresponding periods in fiscal 1998. This is due to increasing
efforts to reserve for unrecognized losses in an increased risk environment.
Compensation expense decreased $60,000 (6.9%) and $239,000 (13.0%) for the three
and six month periods ended September 30, 1998, respectively, as compared to the
same periods in fiscal 1998. The decrease is directly attributable to a decrease
in employees as compared to the prior fiscal periods.
<PAGE>
Other operating expense increased $91,000 (12.2%) and $58,000 (3.9%) for the
three and six month periods ended September 30, 1998, respectively, 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 and six month periods ended September 30, 1998 and 48.0% for the
corresponding periods 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 which were incurred in fiscal 1998.
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. Where appropriate, upon commencement of an equipment lease, the
Company attempts to assign the remaining lease payment stream to a financial
institution on a discounted, nonrecourse basis. The discounted lease proceeds
received by the Company are used to reduce borrowings under the Company's credit
lines. At September 30, 1998, the Company had total borrowings outstanding of
$45.4 million, of which 41.2% were nonrecourse. At March 31, 1998, the Company
had total borrowings outstanding of $54.7 million, of which 43.4% were
nonrecourse.
As of September 30, 1998, the Company had a total investment in leasing
operations of $80.7 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, which was partially offset by growth in the investment in
operating leases.
Net cash provided by operating activities was $18.1 million for the six 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 $21.4 million for the six 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.
Liquidity and Financing Sources
As of June 30, 1998, the Company had available a $25 million line of bank credit
subject to a borrowing base limitation of $25.0 million. Of this amount, $8.6
million had been utilized as of September 30, 1998. Advances under the line are
collateralized by substantially all of the Company's assets. This credit
facility also requires compliance with certain financial covenants, including
the maintenance of certain liquidity and net worth ratios and prohibits the
payment of dividends. As of September 30, 1998, the Company is in compliance
with the terms of this agreement. The interest rate is at prime. The Company's
line of credit matures on October 31, 1998. The Company believes this credit
facility will be renewed on terms similar to the current facility.
During fiscal year 1997, the Company entered into an agreement with a subsidiary
of Dougherty Dawkins, Inc. which placed $20 million of notes issued by the
Company to private institutional investors. The remaining note balances of
$1,528,000 were paid in full July 31, 1998.
During the first quarter of fiscal 1998, the Company entered into a
Discretionary Revolving Credit Agreement with National City Bank of Minneapolis.
In May 1997, the Company originally borrowed $5.5 million under this credit
facility, and $2.2 million remains outstanding as of September 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
<PAGE>
participate in specific percentages of vendor lease transactions consummated
during the agreement term noted above. Since the inception of this financing
agreement, King Management has made direct loans to Sunrise totaling
$19,767,000, of which $15,042,000 remained outstanding as of September 30, 1998.
In the second quarter of fiscal 1999, under the lease participation provision of
this agreement, King Management purchased leases in the amount of $2,819,000.
Leases purchased from inception of the agreement through September 30, 1998
total $9,726,000. In June 1998, the Company extended the term of its agreement
with King Management through June 30, 2000. In addition, King Management's
financing commitment has been expanded to include financing of direct leases
with terms of two years or shorter.
On October 13, 1998 the Company announced that its Board had approved a stock
repurchase program under which the Company had allocated up to $5 million to
purchase its common stock at suitable market prices. The Company believes it has
adequate borrowing capacity to fund this stock repurchase without inhibiting its
capacity to fund pending and future lease equipment purchases.
The Company continues to monitor 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 would be material.
Year 2000 Compliance
The Company is currently expending resources to review its internal use computer
systems in order to identify and modify those systems that are not Year 2000
compliant. The costs associated with this effort are not incremental to the
Company, but represents a reallocation of existing resources. The Company
believes any modifications deemed necessary will be made on a timely basis and
does not believe that the cost of such modifications will have a material effect
on the Company's operating results.
In addition, the Company faces risks to the extent that suppliers of leased
equipment purchased by the Company and others with whom the Company transacts
business do not have business systems or products that comply with the Year 2000
requirements. The Company is beginning the process of obtaining assurances from
such vendors that their systems and products are Year 2000 compliant. The
Company also plans to advise the Company's customers that they should seek
certification for equipment under lease from the vendor to assure that their
equipment is Year 2000 compliant.
Additionally, the Company is in the process of evaluating the need for
contingency plans with respect to Year 2000 requirements. The necessity of any
contingency plan must be evaluated on a case-by-case basis and will vary
considerably in nature depending on the Year 2000 issue it may need to address.
Although the Company believes that the cost of Year 2000 modifications for
internal-use systems are not material, there can be no assurance that the
various factors relating to the Year 2000 compliance issues, including the
ability of the Company's suppliers to provide the Company with products that are
Year 2000 compliant, will not have a material adverse effect on the Company's
business, operating results or financial position.
<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 from those projected. 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-offs 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 September 30,
1998, the Company had only two significant vendor leasing programs, although it
has signed agreements with several other vendors. 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 over the long term.
During fiscal year 1998, in order to broaden the base of potential lessees, the
Company 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 a restructured loan
and lease, as to which the Company has a book value of $ 3.1 million. The
Company has reviewed its position relative to the collateral and guaranty and
believes that they adequately support the Company's present book value. While
lease payments are being received on a monthly basis, there is no assurance that
such payments will continue on an uninterrupted basis.
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 September 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. 62.3 % of the Company's leasing revenue for the three and
six months ended September 30, 1998 was generated through two vendor leasing
programs. During the quarter, the largest vendor, representing 47.2 % of the
Company's leasing revenue for the six months ended September 30, 1998 has
informed the Company that the vendor intends to enter the leasing business and
write leases on its own behalf. While the vendor advised the Company that it
would continue to utilize the Company in the vendor's niche markets, there is no
assurance how long this utilization will continue.
<PAGE>
If this change results in a termination of the Company's relationship or a
reduction in the Company's volume of purchases, the Company would continue to
realize declining revenues attributable to this vendor's equipment for a period
of one to three years. To the extent that the Company is unable to replace that
vendor's declining volume with leasing business from other vendors, the
Company's future financial results would 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. 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.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk.
None.
<PAGE>
PART II-OTHER INFORMATION
ITEM 1. Legal Proceedings - None.
ITEM 2. Changes in Securities - None.
ITEM 3. Defaults on Senior Securities - None.
ITEM 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its Annual Meeting on September 17, 1998.
(b) Proxies for the Annual Meeting were solicited pursuant to
Regulation 14A under the Securities Exchange Act of 1934.
There was no solicitation in opposition to management's
nominees as listed in the proxy statement, and all of such
nominees were elected.
The shareholders set the number of directors at four (4) by a
vote of 6,511,558 shares in favor, with 5,056 shares voted
against and 9,300 shares abstaining. The following persons
were elected to serve as directors of the Company until the
next annual meeting of shareholders with the following votes:
Number of Number of
Nominee Votes For Votes Withheld
Peter J. King 6,509,537 16,377
Donald R. Brattain 6,515,614 10,300
Thomas R. King 6,515,414 10,500
Jeffrey G. Jacobsen 6,512,614 13,300
The shareholders approved the grant to Peter J. King of a
stock option to purchase 400,000 by a vote of 4,250,653 shares
in favor, with 613,285 shares voted against, 25,133 shares
abstaining and 1,636,843 shares present for determining the
quorum but which lacked authority to vote on this matter
(broker non-votes).
The shareholders approved an amendment to the Company's 1991
Stock Option Plan to (i) increase shares reserved from 750,000
to 1,000,000, (ii) increase formula grants to outside
directors upon initial election from 10,000 to 15,000 shares,
(iii) permit discretionary grants to outside directors and
(iv) change definition of a committee to make the Plan
consistent with the revised Rule 16b-3 under the Securities
Exchange Act of 1934, by a vote of 4,671,458 shares in favor,
with 202,558 shares voted against, 15,233 shares abstaining
and 1,636,665 shares present for determining the quorum but
which lacked authority to vote on this matter (broker
non-votes).
ITEM 5. Other Information - None.
ITEM 6. Exhibits and Reports on Form 8-K.
a. Exhibits
See Exhibit Index immediately following the signature page.
b. Form 8-K
There have been no Current Reports on Form 8-K filed on behalf
of the Company during the quarter ended September 30, 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: October 22, 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, Chief Financial Officer
(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
September 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* 1991 Stock Option Plan, as amended through June 23, 1998
11.1 Per Share Earnings Computations
27.0 Financial Data Schedule (filed with electronic version only)
* Management contract or other compensation plan
EXHIBIT 10.1
SUNRISE INTERNATIONAL LEASING CORPORATION
1991 STOCK OPTION PLAN
(as amended through June 23, 1998)
SECTION 1.
DEFINITIONS
As used herein, the following terms shall have the meanings indicated
below:
(a) The "Company" shall mean Sunrise International Leasing
Corporation, a Delaware corporation.
(b) A "Subsidiary" shall mean any corporation of which fifty
percent (50%) or more of the total voting power of outstanding stock is
owned, directly or indirectly in an unbroken chain, by the Company.
(c) "Common Stock" shall mean the Common Stock of the Company,
subject to adjustment as described in Section 12.
(d) The "Plan" shall mean the Sunrise International Leasing
Corporation 1991 Stock Option Plan, as amended hereafter from time to
time, including the forms of Option Agreements as they may be modified
by the Board from time to time.
(e) The "Optionee" for purposes of Section 9 shall mean an
employee of the Company or any Subsidiary to whom an incentive stock
option has been granted under the Plan. For purposes of Section 10, the
"Optionee" shall mean the director, officer, employee, advisor or
consultant of the Company or any Subsidiary to whom a nonqualified
stock option has been granted.
(f) "Committee" shall mean a Committee of two or more
directors who shall be appointed by and serve at the pleasure of the
Board. As long as the Company's securities are registered pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended, then, to
the extent necessary for compliance with Rule 16b-3, or any successor
provision, each of the members of the Committee shall be a
"Non-Employee Director." For purposes of this Section 1(f)
"Non-Employee Director" shall have the same meaning as set forth in
Rule 16b-3, or any successor provision, as then in effect, of the
General Rules and Regulations under the Securities Exchange Act of
1934, as amended.
(g) The "Internal Revenue Code" shall mean the Internal
Revenue Code of 1986, as amended from time to time.
<PAGE>
(h) "Non-Employee Directors" shall mean members of the Board
who are not employees of the Company or of any Subsidiary.
SECTION 2.
PURPOSE
The purpose of the Plan is to promote the success of the Company by
facilitating the employment and retention of competent personnel and by
furnishing incentive to officers, directors, employees and consultants upon
whose efforts the success of the Company will depend to a large degree.
It is the intention of the Company to carry out the Plan through the
granting of stock options which will qualify as "incentive stock options" under
the provisions of Section 422 of the Internal Revenue Code, and through the
granting of nonqualified stock options pursuant to Section 10 of this Plan.
Adoption of this Plan shall be and is expressly subject to the condition of
approval by the shareholders of the Company within twelve (12) months before or
after the adoption of the Plan by the Board of Directors.
SECTION 3.
EFFECTIVE DATE OF PLAN
The Plan shall be effective as of the date it is adopted by the Board
of Directors of the Company.
SECTION 4.
ADMINISTRATION
The Plan shall be administered by the Board of Directors of the Company
(the "Board") or, to the extent empowered by the Board, by a Stock Option
Committee (hereinafter referred to as the "Committee" and as defined in Section
1(f) of this Plan) which may be appointed by the Board from time to time. The
Board shall have all of the powers vested in it under the provisions of the
Plan, including but not limited to exclusive authority (where applicable and
within the limitations described herein, and except with respect to the
automatic grants of options pursuant to Section 17 of this Plan) to determine,
in its sole discretion, whether an incentive stock option or nonqualified stock
option shall be granted, the individuals to whom, and the time or times at
which, options shall be granted, the number of shares subject to each option and
the option price, terms and conditions of each option. The Committee shall have
such powers as are granted to it by the Board. The Board, or the Committee if so
empowered by the Board, shall have full power and authority to administer and
interpret the Plan, to make and amend rules, regulations and guidelines for
administering the Plan, to prescribe the form and conditions of the respective
stock option agreements (which may vary from Optionee to Optionee) evidencing
<PAGE>
each option and to make all other determinations necessary or advisable for the
administration of the Plan. The Board's interpretation of the Plan, or the
Committee's interpretation if so empowered by the Board, and all actions taken
and determinations made by the Board pursuant to the power vested in it
hereunder, or by the Committee to the extent empowered by the Board, shall be
conclusive and binding on all parties concerned. No member of the Board or the
Committee shall be liable for any action taken or determination made in good
faith in connection with the administration of the Plan.
In the event the Board appoints a Committee as provided hereunder, any
action of the Committee with respect to the administration of the Plan shall be
taken pursuant to a majority vote of the Committee members or pursuant to the
written resolution of all Committee members.
SECTION 5.
PARTICIPANTS
Except with respect to the options granted to Non-Employee Directors
pursuant to Section 17 of the Plan, the Board, or the Committee if so empowered
by the Board, shall from time to time, at its discretion and without approval of
the shareholders, designate those directors (including Non-Employee Directors),
officers, employees, consultants or advisors of the Company or of any Subsidiary
to whom nonqualified stock options shall be granted; provided, however, that
consultants or advisors shall not be eligible to receive stock options hereunder
unless such consultant or advisor renders bona fide services to the Company or
Subsidiary and such services are not in connection with the offer or sale of
securities in a capital-raising transaction. The Board, or the Committee if so
empowered by the Board, shall also designate those employees of the Company or
of any Subsidiary to whom incentive stock options shall be granted.
The Board, or the Committee if so empowered by the Board, may grant
additional incentive stock options or nonqualified stock options to some or all
participants then holding options or may grant such options solely or partially
to new participants. In designating participants, the Board, or the Committee if
so empowered by the Board, shall also determine the number of shares to be
optioned to each such participant.
SECTION 6.
STOCK
The Stock to be optioned under this Plan shall consist of authorized
but unissued shares of Common Stock. One Million (1,000,000) shares of Common
Stock shall be reserved and available for options under the Plan; provided,
however, the total number of shares of Common Stock reserved for options under
this Plan shall be subject to adjustment as provided in Section 12 of the Plan.
In the event that any outstanding option under the Plan for any reason expires
or is terminated prior to the exercise thereof, the shares of Common Stock
allocable to the unexercised portion of such option shall continue to be
reserved for options under the Plan and may be optioned hereunder.
<PAGE>
SECTION 7.
DURATION OF PLAN
Incentive stock options may be granted pursuant to this Plan from time
to time during a period of ten (10) years from the earlier of the date the Plan
is approved by the Board of Directors or the date it is approved by the
shareholders of the Company. Nonqualified stock options may be granted pursuant
to the Plan from time to time after the date the Plan is adopted by the Board of
Directors and until the Plan is discontinued or terminated by the Board.
SECTION 8.
PAYMENT
Optionees may pay for shares upon exercise of options granted pursuant
to this Plan with cash, a certified check, or, if authorized by the Board of
Directors or the Committee, in the form of Company stock.
SECTION 9.
TERMS AND CONDITIONS OF INCENTIVE STOCK OPTIONS
Each incentive stock option granted pursuant to the Plan shall be
evidenced by a written stock option agreement (the "Option Agreement"). The
Option Agreement shall be in such form as may be approved from time to time by
the Board or the Committee (if so empowered by the Board) and may vary from
Optionee to Optionee; provided, however, that each Optionee and each Option
Agreement shall comply with and be subject to the following terms and
conditions:
(a) Number of Shares and Option Price. The Option Agreement
shall state the total number of shares covered by the incentive stock
option. The option price per share shall not be less than one hundred
percent (100%) of the fair market value of the Common Stock per share
on the date the Board, or the Committee if so empowered by the Board,
grants the option; provided, however, that, if an Optionee owns stock
possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or of its parent or any
Subsidiary, the option price per share of an incentive stock option
granted to such Optionee shall not be less than one hundred ten percent
(110%) of the fair market value of the Common Stock per share on the
date of the grant of the option. For purposes hereof, if such stock is
then reported in the national market system or is listed upon an
established exchange or exchanges, "fair market value" of the Common
Stock per share shall be the highest closing price of such stock in
such national market system or on such stock exchange or exchanges on
the date the option is granted or, if no sale of such stock shall have
occurred on that date, on the next preceding day on which there was a
sale of stock. If such stock is not so reported in the national market
system or listed upon an exchange, "fair market value" shall be the
mean between the "bid" and "asked" prices quoted by a recognized
specialist in the Common Stock of the Company on the date the option is
granted, or if there are no quoted "bid" and "asked" prices on such
<PAGE>
date, on the next preceding date for which there are such quotes. If
such stock is not publicly traded as of the date the option is granted,
the "fair market value" of the Common Stock shall be determined by the
Board, or the Committee if so empowered by the Board, in its sole
discretion by applying principles of valuation with respect to all such
options. The Board, or the Committee if so empowered by the Board,
shall have full authority and discretion in establishing the option
price and shall be fully protected in so doing.
(b) Term and Exercisability of Incentive Stock Option. The
term during which any incentive stock option granted under the Plan may
be exercised shall be established in each case by the Board, or the
Committee if so empowered by the Board, but in no event shall any
incentive stock option be exercisable during a term of more than ten
(10) years after the date on which it is granted. The Option Agreement
shall state when the incentive stock option becomes exercisable and
shall also state the maximum term during which the option may be
exercised. In the event an incentive stock option is exercisable
immediately, the manner of exercise of the option in the event it is
not exercised in full immediately shall be specified in the Option
Agreement. The Board, or the Committee if so empowered by the Board,
may accelerate the exercise date of any incentive stock option granted
hereunder which is not immediately exercisable as of the date of grant.
(c) Other Provisions. The Option Agreement authorized under
this Section 9 shall contain such other provisions as the Board, or the
Committee if so empowered by the Board, shall deem advisable,
including, without limitation, rights of repurchase and transfer
restrictions with respect to any shares acquired by the Optionee
pursuant to the exercise of the option. Any such Option Agreement shall
contain such limitations and restrictions upon the exercise of the
option as shall be necessary to ensure that such option will be
considered an "Incentive Stock Option" as defined in Section 422 of the
Internal Revenue Code or to conform to any change therein.
(d) Holding Period. The sale or other disposition of any
shares of Common Stock acquired by an Optionee pursuant to the exercise
of an option described above shall be eligible for the favorable
taxation treatment of Section 421(a) of the Internal Revenue Code if no
disposition of such shares is made by the Optionee within two (2) years
from the date of the granting of the option under which the shares were
acquired nor within one year after the acquisition of such shares
pursuant to the exercise of such option, or such other periods as may
be prescribed by the Internal Revenue Code. In the event of an
Optionee's death, such holding period shall not be applicable pursuant
to Section 421(c)(1) of the Internal Revenue Code.
<PAGE>
SECTION 10.
TERMS AND CONDITIONS OF NONQUALIFIED STOCK OPTIONS
Each nonqualified stock option granted pursuant to the Plan shall be
evidenced by a written Option Agreement. The Option Agreement shall be in such
form as may be approved from time to time by the Board or the Committee (if so
empowered by the Board), and may vary from Optionee to Optionee; provided,
however, that each Optionee and each Option Agreement shall comply with and be
subject to the following terms and conditions:
(a) Number of Shares and Option Price. The Option Agreement
shall state the total number of shares covered by the nonqualified
stock option. Unless otherwise determined by the Board of Directors, or
the Committee if so empowered by the Board, the option price per share
shall be equal to one hundred percent (100%) of the fair market value
of the Common Stock per share on the date the Board or the Committee
grants the option; provided, that in no event shall the option price be
equal to less than eighty-five percent (85%) of such fair market value
on the date of grant. For purposes hereof, the "fair market value" of a
share of Common Stock shall have the same meaning as set forth under
Section 9(a) herein.
(b) Term and Exercisability of Nonqualified Stock Option. The
term during which any nonqualified stock option granted under the Plan
may be exercised shall be established in each case by the Board, or the
Committee if so empowered by the Board. The Option Agreement shall
state when the nonqualified stock option becomes exercisable and shall
also state the maximum term during which the option may be exercised.
In the event a nonqualified stock option is exercisable immediately,
the manner of exercise of the option in the event it is not exercised
in full immediately shall be specified in the stock option agreement.
The Board, or the Committee if so empowered by the Board, may
accelerate the exercise date of any nonqualified stock option granted
hereunder which is not immediately exercisable as of the date of grant.
(c) Withholding. In the event the Optionee is required under
the Option Agreement to pay to the Company, or make arrangements
satisfactory to the Company respecting payment of, any federal, state,
local or other taxes required by law to be withheld with respect to the
option's exercise, the Board or the Committee may, in its discretion
and pursuant to such rules as it may adopt, permit the Optionee to
satisfy such obligation, in whole or in part, by electing to have the
Company withhold shares of Common Stock otherwise issuable to the
Optionee as a result of the option's exercise equal to the amount
required to be withheld for tax purposes. Any stock elected to be
withheld shall be valued at its "fair market value," as provided under
Section 9(a) hereof, as of the date the amount of tax to be withheld is
determined under applicable tax law. The Optionee's election to have
shares withheld for this purpose shall be made on or before the date
the option is exercised or, if later, the date that the amount of tax
to be withheld is determined under applicable tax law. Such election
shall also comply with such rules as may be adopted by the Board or the
Committee to assure compliance with Rule 16b-3, as then in effect, of
the General Rules and Regulations under the Securities Exchange Act of
1934, if applicable.
<PAGE>
(d) Other Provisions. The Option Agreement authorized under
this Section 10 shall contain such other provisions as the Board, or
the Committee, as the case may be, shall deem advisable.
SECTION 11.
TRANSFER OF OPTION
No option shall be transferable, in whole or in part, by the Optionee
other than by will or by the laws of descent and distribution and, during the
Optionee's lifetime, the option may be exercised only by the Optionee. If the
Optionee shall attempt any transfer of any option granted under the Plan during
the Optionee's lifetime, such transfer shall be void and the option, to the
extent not fully exercised, shall terminate.
SECTION 12.
RECAPITALIZATION, SALE, MERGER, EXCHANGE
CONSOLIDATION OR LIQUIDATION
In the event of an increase or decrease in the number of shares of
Common Stock resulting from a subdivision or consolidation of shares or the
payment of a stock dividend or any other increase or decrease in the number of
shares of Common Stock effected without receipt of consideration by the Company,
the number of shares of Common Stock covered by each outstanding option and the
price per share thereof shall be equitably adjusted by the Board of Directors to
reflect such change. Additional shares which may be credited pursuant to such
adjustment shall be subject to the same restrictions as are applicable to the
shares with respect to which the adjustment relates.
In the event of the sale by the Company of substantially all of its
assets and the consequent discontinuance of its business, or in the event of a
merger, exchange, consolidation or liquidation of the Company, the Board of
Directors may, in connection with the Board's adoption of the plan for sale,
merger, exchange, consolidation or liquidation, provide for one or more of the
following: (i) the acceleration of the exercisability of any or all outstanding
options; (ii) the complete termination of this Plan and cancellation of
outstanding options not exercised prior to a date specified by the Board (which
date shall give Optionees a reasonable period of time in which to exercise the
options prior to the effectiveness of such sale, merger, exchange, consolidation
or liquidation); and (iii) the continuance of the Plan with respect to the
exercise of options which were outstanding as of the date of adoption by the
Board of such plan for sale, merger, exchange, consolidation or liquidation and
provide to Optionees holding such options the right to exercise their respective
options as to an equivalent number of shares of stock of the corporation
succeeding the Company by reason of such sale, merger, exchange, consolidation
or liquidation. The grant of an option pursuant to the Plan shall not limit in
any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge, exchange or consolidate or to dissolve, liquidate, sell
or transfer all or any part of its business or assets.
<PAGE>
SECTION 13.
INVESTMENT PURPOSE
No shares of Common Stock shall be issued pursuant to the Plan unless
and until there has been compliance, in the opinion of Company's counsel, with
all applicable legal requirements, including without limitation, those relating
to securities laws and stock exchange listing requirements. As a condition to
the issuance of Common Stock to Optionee, the Board, or the Committee if so
empowered by the Board, may require Optionee to (a) represent that the shares of
Common Stock are being acquired for investment and not resale and to make such
other representations as the Board, or the Committee if so empowered by the
Board, shall deem necessary or appropriate to qualify the issuance of the shares
as exempt from the Securities Act of 1933 and any other applicable securities
laws, and (b) represent that Optionee shall not dispose of the shares of Common
Stock in violation of the Securities Act of 1933 or any other applicable
securities laws. Company reserves the right to place a legend on any stock
certificate issued upon exercise of an option granted pursuant to the Plan to
assure compliance with this Section 13.
SECTION 14.
RIGHTS AS A SHAREHOLDER
An Optionee (or the Optionee's successor or successors) shall have no
rights as a shareholder with respect to any shares covered by an option until
the date of the issuance of a stock certificate evidencing such shares (except
as otherwise provided in Section 12 above). No adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property), distributions or other rights for which the record date is prior to
the date such stock certificate is actually issued (except as otherwise provided
in Section 12).
SECTION 15.
AMENDMENT OF THE PLAN
The Board of Directors of the Company may from time to time, insofar as
permitted by law, suspend or discontinue the Plan or revise or amend it in any
respect; provided, however, that no such revision or amendment shall impair the
terms and conditions of any option which is outstanding on the date of such
revision or amendment to the material detriment of the Optionee without the
consent of the Optionee. Notwithstanding the foregoing, no such revision or
amendment shall, (i) materially increase the number of shares subject to the
Plan except as provided in Section 12 hereof, (ii) change the designation of the
class of employees eligible to receive options, (iii) decrease the price at
which options may be granted, or (iv) materially increase the benefits accruing
to Optionees under the Plan, unless such revision or amendment is approved by
the shareholders of the Company. Furthermore, the Plan may not, without the
approval of the shareholders, be amended in any manner that will cause incentive
stock options to fail to meet the requirements of "Incentive Stock Options" as
<PAGE>
defined in Section 422 of the Internal Revenue Code. In addition to and
notwithstanding the foregoing, the provisions of Section 17 below shall not be
amended more than once every six months, other than to comport with changes in
the Internal Revenue Code, the Employee Retirement Income Security Act, or the
rules thereunder.
SECTION 16.
NO OBLIGATION TO EXERCISE OPTION
The granting of an option shall impose no obligation upon the Optionee
to exercise such option. Further, the granting of an option hereunder shall not
impose upon the Company or any Subsidiary any obligation to retain the Optionee
in its employ or as a director for any period.
SECTION 17.
GRANTING OF OPTIONS TO NON-EMPLOYEE DIRECTORS
(a) Upon Joining Board. Each Non-Employee Director of the
Company who is elected for the first time as a director of the Company
shall, as of the date of such election, automatically be granted an
option to purchase 15,000 shares of the Common Stock at an option price
per share equal to 100% of the fair market value of the Common Stock on
such date. Such option shall be exercisable to the extent of: 2,000
shares on the date of grant, 2,500 shares on the first anniversary of
the date of grant, 3,000 shares on the second anniversary of the date
of grant, 3,500 shares on the third anniversary of the date of grant
and 4,000 shares on the fourth anniversary of the date of grant.
(b) Upon Re-election to Board. Each Non-Employee Director who,
on and after November 11, 1992, the date of approval of this Section by
the Board, is re-elected as a director of the Company or whose term of
office continues after a meeting of shareholders at which directors are
elected shall, as of the date of such re-election or shareholder
meeting, automatically be granted an option to purchase 2,000 shares of
the Common Stock at an option price per share equal to 100% of the fair
market value of the Common Stock on the date of such re-election or
shareholder meeting; provided that a Non-Employee Director who received
an option pursuant to subsection (a) above shall not be entitled to
receive an option pursuant to this subsection (b) until at least twelve
months after such Non-Employee Director's initial election to the
Board. Options granted pursuant to this subsection (b) shall be
immediately exercisable in full.
(c) General. No director shall receive more than one option to
purchase 2,000 shares pursuant to this Section 17 in any one fiscal
year. All options granted pursuant to this Section 17 shall be
designated as non-qualified options and shall be subject to the same
terms and provisions as are then in effect with respect to granting of
non-qualified options to officers and employees of the Company except
that the option shall expire on the earlier of (i) three months after
the optionee ceases to be a director (except by disability or death)
and (ii) ten (10) years after the date of grant. Notwithstanding the
foregoing, in the event of the disability or death of a Non-Employee
Director, any option granted to such Non-Employee Director may be
exercised at any time within twelve months of the disability or death
of such Non-Employee Director or on the date on which the option, by
its terms expires, whichever is earlier.
EXHIBIT 11.1
SUNRISE INTERANATIONAL LEASING CORPORATION AND SUBSIDIARIES
PER SHARE EARNINGS COMPUTATIONS
<TABLE>
<CAPTION>
Six Months Ended
September 30, 1998
1998 1997
--------------- ----------
<S> <C> <C>
Basic Earnings Per Share:
Weighted average number of
common shares outstanding 7,812,000 7,586,000
=============== ===============
Net income $ 1,502,000 $ 1,835,000
=============== ===============
Net income per common and
common equivalent share $ 0.19 $ 0.24
=============== ===============
Fully Dilutive Earnings Per Share:
Weighted average number of 7,812,000 7,586,000
Common stock equivalents
from assumed exercise of
options and warrants 27,000 --
--------------- ---------------
Total shares 7,839,000 7,586,000
=============== ===============
Net income $ 1,502,000 $ 1,835,000
=============== ===============
Net income per common
and common equivalent share $ 0.19 $ 0.24
============== ===============
</TABLE>
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> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 1,066,000
<SECURITIES> 0
<RECEIVABLES> 5,083,000
<ALLOWANCES> 1,696,000
<INVENTORY> 184,000
<CURRENT-ASSETS> 87,554,000
<PP&E> 855,000
<DEPRECIATION> 601,000
<TOTAL-ASSETS> 87,808,000
<CURRENT-LIABILITIES> 55,179,000
<BONDS> 0
0
0
<COMMON> 78,000
<OTHER-SE> 32,551,000
<TOTAL-LIABILITY-AND-EQUITY> 87,808,000
<SALES> 23,465,000
<TOTAL-REVENUES> 23,465,000
<CGS> 20,734,000
<TOTAL-COSTS> 20,734,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,731,000
<INCOME-TAX> 1,229,000
<INCOME-CONTINUING> 1,502,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,502,000
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
