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
December 31, 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.
7,259,396 shares of Common Stock, $.01 par value as of January 25, 1999.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Included herein is the following unaudited financial information:
Consolidated Balance Sheets as of December 31,1998 and March 31,1998.
Consolidated Statements of Income for the three and nine month periods
ended December 31, 1998 and 1997.
Consolidated Statements of Cash Flows for the nine month periods ended
December 31, 1998 and 1997.
Notes to Consolidated Financial Statements.
<PAGE>
SUNRISE INTERNATIONAL LEASING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, March 31,
1998 1998
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 657,000 $ 2,140,000
Accounts receivable, less allowance for doubtful accounts
of $600,000 and $260,000 2,548,000 3,413,000
Income taxes receivable -- 672,000
Inventory held for sale 214,000 207,000
Loans receivable, less allowance for possible losses of $1,147,000
and $1,105,000 2,390,000 3,328,000
Investment in leasing operations:
Direct financing leases 18,230,000 27,200,000
Operating leases, less accumulated depreciation of
$31,365,000 and $24,646,000 62,214,000 49,687,000
Equipment held for lease 2,356,000 4,262,000
Initial direct costs 259,000 451,000
------------------------------------
Total investment in leasing operations 83,059,000 81,600,000
------------------------------------
Furniture and fixtures, less accumulated depreciation
of $617,000 and $658,000 226,000 326,000
Other assets 909,000 2,254,000
------------------------------------
Total Assets $ 90,003,000 $ 93,940,000
====================================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Financing arrangements:
Notes payable $ 17,726,000 $ 6,661,000
Securitized borrowings 1,527,000 7,532,000
Discounted lease rentals 16,301,000 25,476,000
Notes payable to King Management Corporation 12,114,000 14,986,000
------------------------------------
Total financing arrangements 47,668,000 54,655,000
Accounts payable / accrued liabilities 2,442,000 2,955,000
Customer deposits 3,810,000 1,587,000
Accrued income taxes 953,000 --
Deferred tax liability 3,735,000 3,735,000
------------------------------------
Total Liabilities 58,608,000 62,932,000
COMMITMENTS AND CONTINGENCIES (Note 6)
SHAREHOLDERS' EQUITY
Common stock, $.01 par value, 17,500,000 shares authorized
7,825,000 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 27,793,000 27,655,000
Retained earnings 5,719,000 3,275,000
------------------------------------
33,590,000 31,008,000
Common stock in treasury, at cost - 566,400 shares (2,195,000) __
------------------------------------
Total Equity 31,395,000 31,008,000
------------------------------------
Total Liabilities and Equity $ 90,003,000 $ 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 Nine Months
Ended December 31, Ended December 31,
1998 1997 1998 1997
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Operating leases $ 10,548,000 $ 8,826,000 $ 28,705,000 $ 25,062,000
Direct financing leases 679,000 1,134,000 2,228,000 3,811,000
Equipment sales 1,865,000 3,338,000 5,435,000 6,759,000
Interest Income -- 46,000 15,000 183,000
Fee income 61,000 168,000 235,000 450,000
-------------------------------------------------------------------------
Total Revenues 13,153,000 13,512,000 36,618,000 36,265,000
COSTS AND EXPENSES
Depreciation 6,967,000 5,246,000 18,344,000 14,199,000
Interest 926,000 1,350,000 2,897,000 4,236,000
Provision for lease and loan losses 726,000 280,000 1,555,000 895,000
Cost of equipment sold 1,679,000 3,142,000 5,101,000 6,599,000
Compensation expense 806,000 1,160,000 2,403,000 2,995,000
Other operating expenses 568,000 733,000 2,105,000 2,213,000
-------------------------------------------------------------------------
Total Costs and Expenses 11,672,000 11,911,000 32,405,000 31,137,000
-------------------------------------------------------------------------
INCOME BEFORE PROVISION
FOR INCOME TAXES 1,481,000 1,601,000 4,213,000 5,128,000
PROVISION FOR INCOME TAXES 540,000 766,000 1,769,000 2,459,000
-------------------------------------------------------------------------
NET INCOME $ 941,000 $ 835,000 $ 2,444,000 $ 2,669,000
=========================================================================
NET INCOME PER COMMON
Basic $ 0.12 $ 0.11 $ 0.32 $ 0.35
=========================================================================
Fully Diluted $ 0.12 $ 0.11 $ 0.31 $ 0.35
=========================================================================
WEIGHTED AVERAGE NUMBER
OF COMMON
SHARES OUTSTANDING
Basic 7,585,000 7,788,000 7,736,000 7,616,000
=========================================================================
Fully Diluted 7,625,000 7,794,000 7,767,000 7,631,000
=========================================================================
</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>
Nine Months
Ended December 31,
1998 1997
-----------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income 2,444,000 $ 2,669,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for lease and loan losses 1,555,000 895,000
Depreciation and amortization 18,609,000 15,044,000
Stock options issued to non-employees 40,000 --
Change in operating assets and liabilities:
Accounts receivable 370,000 (710,000)
Income taxes receivable 672,000 1,245,000
Other assets 1,271,000 (2,052,000)
Inventory held for sale (7,000) 149,000
Accounts payable / Accrued Liabilities (513,000) (4,037,000)
Customer deposits 2,224,000 561,000
Accrued income taxes 953,000 1,849,000
-----------------------------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 27,618,000 15,613,000
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment for lease (31,788,000) (25,866,000)
Principal portion of direct financing leases collected 10,850,000 18,754,000
Principal portion of loans receivable collected 938,000 2,893,000
Purchase of furniture and fixtures (18,000) (96,000)
-----------------------------------
NET CASH USED IN INVESTING ACTIVITIES (20,018,000) (4,315,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on notes payable 34,380,000 31,649,000
Payments on notes payable (23,316,000) (24,708,000)
Payments on securitized borrowings (5,850,000) (9,264,000)
Proceeds from discounted lease financing 4,192,000 10,327,000
Payments on discounted lease financing (13,367,000) (19,310,000)
Payments on participations in loans receivable (435,000)
Proceeds from note payable to related party 4,295,000 --
Payments on note payable to related party (7,321,000) --
Proceeds from exercise of stock options 99,000 --
Purchase of treasury stock (2,195,000) --
-----------------------------------
NET CASH USED IN FINANCING
ACTIVITIES (9,083,000) (11,741,000)
-----------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,483,000) (443,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,140,000 2,191,000
-----------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 657,000 $ 1,748,000
===================================
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid 1,646,000 2,368,000
Income taxes paid (received) 28,000 (655,000)
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 NINE MONTH PERIOD ENDED DECEMBER 31, 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 December 31, 1998 and
March 31, 1998 and the results of operations and cash flows for the nine
months ended December 31, 1998 and 1997. All such adjustments are of a
normal and recurring nature.
Certain amounts in the financial statements and notes thereto have been
reclassified to conform to fiscal 1999 classifications. These changes had
no impact on previously reported results of operations or shareholders
equity.
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 impacted the Company's
financial position and results of operations as reflected by the difference
between basic earnings per share and fully diluted earnings per share for
the nine months ended December 31, 1998 as presented on the Company's
Consolidated Statements of Income.
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 for the fiscal year ending March 31,
1999. 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 completed its analysis of the effects of this standard,
however adoption of this standard is not expected to have a material impact
on the financial position or the results of operations of the Company.
2. INCOME TAXES
Income tax expense has been provided based on management's estimate of the
annualized effective tax rate of 42% for fiscal 1999, and 48% for fiscal
1998.
3. LOANS RECEIVABLE
Loan Portfolio Activity and Allowance for Possible Loan Losses
As of December 31, 1998 and March 31, 1998, the Company's recorded
investment in impaired loans and the related valuation allowances were as
follows:
<PAGE>
December 31, 1998 March 31, 1998
Recorded Valuation Recorded Valuation
Investment Allowance Investment Allowance
-------------------------------------------------
Impaired loans $3,537,000 $1,147,000 $4,433,000 $1,105,000
=================================================
4. DISCOUNTED LEASE RENTALS
Discounted lease rentals consist of the following:
December 31, March 31,
1998 1998
--------------------------
Non-recourse $15,733,000 $23,697,000
Recourse 568,000 1,779,000
--------------------------
$16,301,000 $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. At December 31, 1998, the entire $25 million
line was available to be drawn. The loan balance outstanding as of quarter
end was $17.7 million. Advances under the line bear interest at prime,
(7.75% at December 31, 1998) and are collateralized by substantially all
otherwise unsecured assets of the Company. This line of credit facility
matured October 31, 1998 and was renewed for another twelve month period
ending October 31, 1999.
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 December 31, 1998, the Company
was 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
December 31, 1998 the outstanding balance on this loan was $1.5 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 on July 31, 1998.
Financing arrangement with The King Management Corporation
On June 16, 1997, the Company entered into a financing agreement with The
King Management Corporation (King Management) which was extended in June
1998. Under the financing agreement, 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
December 31, 1998, King Management has provided fundings totaling
$19,767,000, with a balance outstanding of $12,114,000 at December 31,
1998. The notes bear interest at prime minus 0.25% (7.50% at December 31,
1998), and are secured by certain leases and leased equipment.
<PAGE>
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.
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.
<PAGE>
Results of Operations for the Three and Nine Months Ended December 31, 1998 and
1997
Total revenue from leasing activity increased approximately $1,267,000 (12.7%)
and $2,060,000 (7.1%) for the three and nine month periods ended December 31,
1998, respectively, as compared to the corresponding periods in fiscal 1998. The
revenue increases came from a $1.7 million (19.5%) and a $3.6 million (14.5%)
increase in operating lease revenue for the three and nine month periods ended
December 31, 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 $455,000 (40.1%) and $1,583,000 (41.5%) for
the three and nine month periods ended December 31, 1998, respectively, as
compared to the corresponding periods in fiscal 1998.
Total leasing revenues were as follows (dollar amounts in millions):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended December 31, Ended December 31,
1998 1997 1998 1997
------------------------------ -------------------------------
Amount % Amount % Amount % Amount %
------------------------------ -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Leasing Revenues:
Vendor $ 8.8 79% $ 7.0 70% $ 23.7 77% $ 20.2 70%
Direct 2.4 21 3.0 30 7.2 23 8.7 30
------------------------------ -------------------------------
Total $ 11.2 100% $ 10.0 100% $ 30.9 100% $ 28.9 100%
============================== ===============================
As a percent of total revenues 85.4% 73.7% 84.5% 79.6%
==== ==== ==== ====
</TABLE>
Margins from leasing activities (leasing revenue less depreciation and interest
expense) were 29.7% and 31.3% compared to 33.8% and 36.2% for the three and nine
month periods of fiscal 1999 and fiscal 1998, respectively. Leasing margins for
the quarter and nine month periods were impacted by acceleration of depreciation
on certain lease equipment, which is expected to impact margins in the future.
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 decreased $1,473,000 (44.1%) and $1,324,000 (19.6%)
for the three and nine month periods of fiscal 1999, respectively, as compared
to the corresponding periods in fiscal 1998. The gross margins on equipment
sales were 10.0% and 6.1% of sales revenue for the three and nine month periods
of fiscal 1999, respectively, compared to gross margins of 5.9% and 2.4% for the
corresponding periods in fiscal 1998. The margin increases are primarily
attributable to the use of accelerated depreciation on certain lease equipment.
Interest income decreased $46,000 (100.0%) and $168,000 (91.8%) for the three
and nine month periods of fiscal 1999, respectively, as compared to the
corresponding periods in fiscal 1998. These decreases are directly attributable
to the reduction of nonimpaired loans.
Fee income decreased $107,000 (63.7%) and $215,000 (47.8%) for the three and
nine month periods of fiscal 1999, respectively, as compared to the same periods
in fiscal 1998.
Depreciation expense for the three and nine month periods ended December 31,
1998 increased $1.7 million (32.8%) and $4.1 million (29.2%), respectively, over
the same periods in fiscal 1998. This increase was due to the continued increase
in vendor operating leases, as well as the acceleration of depreciation on
specific vendor programs.
Interest expense decreased $424,000 (31.4%) and $1,339,000 (31.6%) for the three
and nine 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 The King Management and other financing commitments.
The provision for lease and loan losses increased $446,000 (159.3%) and $660,000
(73.7%) for the three and nine month periods of fiscal 1999, respectively, as
compared to the corresponding periods in fiscal 1998. This is due to a building
of reserves for unrecognized losses in recognition of the increased risk
resulting from changes in the Company's underwriting policies.
<PAGE>
Compensation expense decreased $354,000 (30.5%) and $592,000 (19.8%) for the
three and nine month periods ended December 31, 1998, respectively, as compared
to the same periods in fiscal 1998. The decrease is directly attributable to a
decrease in the number of employees as compared to prior fiscal periods.
Other operating expense decreased $165,000 (22.5%) and $108,000 (4.9%) for the
three and nine month periods ended December 31, 1998, respectively, as compared
to the previous periods in fiscal 1998.
Income tax provision as a percentage of income before taxes was 36.5% and 42.0%
for the three and nine month periods ended December 31, 1998, respectively and
48.0% for the corresponding periods in fiscal 1998. The Company's effective tax
rate was reduced from 45% to 42% in the three month period ended December 31,
1998 resulting in a positive impact of $80,000 for the three month period ended
December 31, 1998. The reduction in the estimated effective tax rate for fiscal
1999 compared to fiscal 1998 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 December 31, 1998, the Company had total borrowings outstanding of
$47.7 million, of which 33.0% were nonrecourse. At March 31, 1998, the Company
had total borrowings outstanding of $54.7 million, of which 43.4% were
nonrecourse.
As of December 31, 1998, the Company had a total investment in leasing
operations of $83.0 million, as compared to $81.6 million at March 31, 1998. The
increase in investment in leasing operations is due to the growth in the
investment in operating leases, which was partially offset by a decrease in
direct finance leases.
Net cash provided by operating activities was $27.6 million for the nine month
period of fiscal 1999. The Company expects to fund future cash requirements
through internally generated funds as well as borrowings under various credit
facilities.
Equipment expenditures (net of disposals) of $31.8 million for the nine 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
current 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 December 31, 1998, the Company had available a $25 million line of bank
credit subject to a borrowing base limitation of $25 million. Of this amount,
$17.7 million had been utilized as of December 31, 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 December 31, 1998, the Company was in compliance
with the terms of this agreement. The interest rate is at prime. This line of
credit facility matured October 31, 1998 and was renewed for another twelve
month period ending October 31, 1999.
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 $1.5 million remains outstanding as of December 31, 1998.
<PAGE>
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. The agreement provides that 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. Since the
inception of this financing agreement, King Management has made direct loans to
Sunrise totaling $19,767,000, of which $12,114,000 remained outstanding as of
December 31, 1998. In the third quarter of fiscal 1999, under the lease
participation provision of this agreement, King Management purchased leases in
the amount of $3,638,000. Leases purchased by King Management from inception of
the agreement through December 31, 1998 total $13,364,000. 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. During the quarter ended
December 31, 1998, the Company repurchased 566,400 shares at a total cost of
$2,195,000. The repurchased shares are being held as treasury stock on the
Company's balance sheet. The Company believes it has adequate borrowing capacity
to continue to fund the 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
certain 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 cost associated with this effort is 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 in the process of obtaining assurances from such
vendors that their systems and products are Year 2000 compliant. The Company has
advised 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 its ability 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 December 31,
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,
this additional vendor leasing business has been slow to develop and 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 lease rates
which are lower than they have been in the past. These changes have resulted in
an increased level of transaction and portfolio risk for the Company and an
increasing 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.
Risk of Additional Loan and Lease Write-Offs. While the Company believes that
its current reserves are adequate, it continues to monitor a particular
restructured loan and lease, as to which the Company has a book value of $ 2.9
million. The Company has reviewed its position relative to the collateral and
guaranty and currently 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
financing will be available to meet all of its future leasing requirements.
Major Customers/Vendors. At December 31, 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. 64.6 % and 63.1% of the Company's leasing revenue for the
three and nine months ended December 31, 1998, respectively, was generated
through two vendor leasing programs. During the second quarter, the largest
vendor, representing 48.5 % of the Company's leasing revenue for the nine months
ended December 31, 1998, 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, and there was no decrease in equipment purchases during
the third quarter, 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 would be 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.
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 completed its
analysis of the effects of this standard, however adoption of this standard is
not expected to have a material impact on the financial position or the results
of operations of the Company.
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 - 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
December 31, 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: January 27, 1999 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
December 31, 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 Second Amendment to Amended and Restated Credit Agreement dated
November 26, 1997 by and between Sunrise Leasing Corporation, the
Company and First Bank National Association (now known as U.S. Bank
National Association).
10.2 Third Amendment to Amended and Restated Credit Agreement dated October
30, 1998 by and between Sunrise Leasing Corporation, the Company and
U.S. Bank National Association.
10.3 Amended and Restated Revolving Credit Note dated October 30, 1998 in
the principal amount of $25,000,000 by Sunrise Leasing Corporation and
the Company in favor of U.S. Bank National Association.
11.1 Per Share Earnings Computations
27.0 Financial Data Schedule (filed with electronic version only)
SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
This SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this
"Amendment"), made and entered into as of November 26, 1997 is by and between
SUNRISE LEASING CORPORATION, a Minnesota corporation ("SLC"), SUNRISE
INTERNATIONAL LEASING CORPORATION, a Delaware corporation ("SILC"), as successor
by merger to SUNRISE RESOURCES, INC., a Minnesota corporation ("SRI") (SLC and
SILC are collectively referred to as the "Borrower"), and FIRST BANK NATIONAL
ASSOCIATION, a national banking association (the "Lender").
RECITALS
A. SLC, SRI, as predecessor by merger to SILC, and the Lender are
parties to an Amended and Restated Credit Agreement dated as of April 1, 1996,
as amended by a First Amendment to Amended and Restated Credit Agreement dated
as of October 1, 1996 and First Amendment to Credit Agreement dated as of
September 30, 1997 (as so amended, the "Credit Agreement") which provides for
credit accommodations up to a maximum amount of Twenty Five Million and no/100
Dollars ( $25,000,000.00).
B. SLC, SRI, as predecessor by merger to SILC, and the Lender are
parties to a Joint Amended and Restated Security Agreement dated as of April 1,
1996 (the "Security Agreement"), pursuant to which SLC and SRI granted security
interests in favor of the Lender in certain of their assets to secure the
indebtedness and obligations arising under the Credit Agreement.
C. The Borrower and the Lender have agreed to amend the Credit
Agreement upon the terms and conditions herein set forth.
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Certain Defined Terms. Unless otherwise defined herein, each
capitalized term used herein shall have the meaning ascribed thereto in the
Credit Agreement.
Section 2. Amendment to Credit Agreement. Subject to Section 4 hereof,
the Credit Agreement is amended as follows:
(a) The first sentence of Section 4.1 is amended by deleting
"Minnesota" where it appears therein and substituting "its
incorporation" therefor.
(b) The second sentence of Section 4.4 is amended by deleting
"December 31, 1995" where it appears therein and substituting "October
17, 1997" therefor.
(c) Section 4.17 is amended in its entirety to read as
follows:
<PAGE>
4.17 Subsidiaries. SILC has no Subsidiaries other
than SLC and Sunrise Financial Resources, Inc., a Minnesota
corporation. SLC has no Subsidiaries other than Sunrise
Funding Corporation I, a Minnesota corporation.
Section 3. Default and Waiver.
3.1 Maintenance of Corporate Existence; Consolidation; Merger;
Subsidiaries. Under Section 6.2 of the Credit Agreement, SRI agreed to
maintain and preserve its corporate existence. Under Section 7.1 of the
Credit Agreement, SRI agreed not to consolidate or merge into or with
any other entity. Under Section 7.6 of the Credit Agreement, SRI agreed
not to permit any material change in the ownership of the Borrower.
Under Section 7.7 of the Credit Agreement, SRI agreed not to create any
new subsidiaries. SRI, without the consent of the Lender, (i) changed
its state of incorporation from Minnesota to Delaware (the "Change of
State of Incorporation"), (ii) formed a wholly owned subsidiary named
Sunrise International Leasing Corporation, a Delaware corporation
("SILC") (the "Formation of Subsidiary"), (iii) merged SRI into SILC
(the "Merger"), and (iv) changed its name to Sunrise International
Leasing Corporation (the "Name Change").
3.2 Waiver. The Lender hereby waives compliance by SRI with
the requirements described in Section 3.1 hereof for the period ending
on October 17, 1997, and consents to (i) the Change of State of
Incorporation, (ii) the Formation of Subsidiary, (iii) the Merger and
(iv) the Name Change. The Borrower agrees that the waivers and consents
set forth in this Section 3.2 shall be limited to the precise meaning
of the words as written herein and shall not be deemed (a) to be a
consent to any waiver or modification of any other term or condition of
the Credit Agreement, or of any of the terms or conditions described in
Section 3.1 hereof for any period ending on any date except October 17,
1997, or (b) to prejudice any right or remedy that the Lender may now
have or may in the future have under or in connection with the Credit
Agreement. The Borrower acknowledges and agrees that the waivers and
consents set forth in this Section 3.2 is provided by the Lender as an
accommodation to the Borrower. The waivers and consents set forth
herein shall not be deemed to be, a course of action with respect
thereto upon which the Borrower may rely in the future, and the
Borrower hereby expressly waives any claim to such effect.
Section 4. Conditions to Effectiveness of this Amendment. This
Amendment shall be effective as of October 17, 1997, provided that the Lender
shall receive this Amendment, duly executed by the Borrower and provided further
that the following conditions are satisfied:
(a) After giving effect to this Amendment, the representations
and warranties of the Borrower in Articles 4 and 5 of the Credit
Agreement shall be true and correct as though made on the date hereof,
except for changes that are permitted by the terms of such agreement.
- 2 -
<PAGE>
(b) No Event of Default or Unmatured Event of Default shall
have occurred and be continuing.
(c) The Lender shall have received the Assumption Agreement
attached hereto as Exhibit A and dated as of even date herewith (the
"Assumption Agreement"), duly executed by SILC and acknowledged by SLC,
and all conditions to the effectiveness thereof shall have been
satisfied.
Section 5. Representations, Warranties, Authority, No Adverse Claim.
5.1 Reassertion of Representations and Warranties, No Default.
The Borrower hereby represents that on and as of the date hereof and
after giving effect to this Amendment and the waiver set forth in
Section 3.2 hereof, (a) all of the representations and warranties
contained in the Credit Agreement are true, correct and complete in all
respects as of the date hereof as though made on and as of such date,
except for changes permitted by the terms of the Credit Agreement, and
(b) there will exist no Unmatured Event of Default or Event of Default
under the Credit Agreement as amended by this Amendment on such date
which has not been waived by the Lender.
5.2 Authority, No Conflict, No Consent Required. The Borrower
represents and warrants that the Borrower has the power and legal right
and authority to enter into this Agreement and the Assumption Agreement
(collectively, the "Amendment Documents") and has duly authorized as
appropriate the execution and delivery of the Amendment Documents and
other agreements and documents executed and delivered by the Borrower
in connection herewith or therewith by proper corporate, and none of
the Amendment Documents nor the agreements contained herein or therein
contravene or constitute a default under any agreement, instrument or
indenture to which the Borrower is a party or a signatory or a
provision of the Borrower's Certificate of Incorporation, Bylaws or any
other agreement or requirement of law, or result in the imposition of
any Lien on any of its property under any agreement binding on or
applicable to the Borrower or any of its property except, if any, in
favor of the Lender. The Borrower represents and warrants that no
consent, approval or authorization of or registration or declaration
with any Person, including but not limited to any governmental
authority, is required in connection with the execution and delivery by
the Borrower of the Amendment Documents or other agreements and
documents executed and delivered by the Borrower in connection
therewith or the performance of obligations of the Borrower therein
described, except for those which the Borrower has obtained or provided
and as to which the Borrower has delivered certified copies of
documents evidencing each such action to the Lender.
5.3 No Adverse Claim. The Borrower warrants, acknowledges and
agrees that no events have been taken place and no circumstances exist
- 3 -
<PAGE>
at the date hereof which would give the Borrower a basis to assert a
defense, offset or counterclaim to any claim of the Lender with respect
to the Borrower's obligations under the Credit Agreement as amended by
this Amendment.
Section 6. Affirmation of Credit Agreement, Further References,
Affirmation of Security Interest. The Lender and the Borrower each acknowledge
and affirm that the Credit Agreement, as hereby amended, is hereby ratified and
confirmed in all respects and all terms, conditions and provisions of the Credit
Agreement, except as amended by this Amendment, shall remain unmodified and in
full force and effect. All references in any document or instrument to the
Credit Agreement are hereby amended and shall refer to the Credit Agreement as
amended by this Amendment. The Borrower confirms to the Lender that the
Borrower's obligations under the Credit Agreement, as amended by this Amendment,
are and continue to be secured by the security interest granted by the Borrower
in favor of the Lender under the Security Agreement and made by the Borrower in
favor of the Lender, and all of the terms, conditions, provisions, agreements,
requirements, promises, obligations, duties, covenants and representations of
the Borrower under such documents and any and all other documents and agreements
entered into with respect to the obligations under the Credit Agreement are
incorporated herein by reference and are hereby ratified and affirmed in all
respects by the Borrower.
Section 7. Merger and Integration, Superseding Effect. This Amendment,
from and after the date hereof, embodies the entire agreement and understanding
between the parties hereto and supersedes and has merged into this Amendment all
prior oral and written agreements on the same subjects by and between the
parties hereto with the effect that this Amendment, shall control with respect
to the specific subjects hereof and thereof.
Section 8. Severability. Whenever possible, each provision of this
Amendment and the other Amendment Documents and any other statement, instrument
or transaction contemplated hereby or thereby or relating hereto or thereto
shall be interpreted in such manner as to be effective, valid and enforceable
under the applicable law of any jurisdiction, but, if any provision of this
Amendment, the other Amendment Documents or any other statement, instrument or
transaction contemplated hereby or thereby or relating hereto or thereto shall
be held to be prohibited, invalid or unenforceable under the applicable law,
such provision shall be ineffective in such jurisdiction only to the extent of
such prohibition, invalidity or unenforceability, without invalidating or
rendering unenforceable the remainder of such provision or the remaining
provisions of this Amendment, the other Amendment Documents or any other
statement, instrument or transaction contemplated hereby or thereby or relating
hereto or thereto in such jurisdiction, or affecting the effectiveness, validity
or enforceability of such provision in any other jurisdiction.
Section 9. Successors. The Amendment Documents shall be binding upon
the Borrower and the Lender and their respective successors and assigns, and
shall inure to the benefit of the Borrower and the Lender and the successors and
assigns of the Lender.
- 4 -
<PAGE>
Section 10. Legal Expenses. The Borrower agrees to reimburse the
Lender, upon execution of this Amendment, for all reasonable out-of-pocket
expenses (including attorneys' fees and legal expenses of Dorsey & Whitney LLP,
counsel for the Lender) incurred in connection with the Credit Agreement,
including in connection with the negotiation, preparation and execution of the
Amendment Documents and all other documents negotiated, prepared and executed in
connection with the Amendment Documents, and in enforcing the obligations of the
Borrower under the Amendment Documents, and to pay and save the Lender harmless
from all liability for, any stamp or other taxes which may be payable with
respect to the execution or delivery of the Amendment Documents, which
obligations of the Borrower shall survive any termination of the Credit
Agreement.
Section 11. Headings. The headings of various sections of this
Amendment have been inserted for reference only and shall not be deemed to be a
part of this Amendment.
Section 12. Counterparts. The Amendment Documents may be executed in
several counterparts as deemed necessary or convenient, each of which, when so
executed, shall be deemed an original, provided that all such counterparts shall
be regarded as one and the same document, and either party to the Amendment
Documents may execute any such agreement by executing a counterpart of such
agreement.
Section 13. Governing Law. THE AMENDMENT DOCUMENTS SHALL BE GOVERNED BY
THE INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT
OF LAW PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO
NATIONAL BANKS, THEIR HOLDING COMPANIES AND THEIR AFFILIATES.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
- 5 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date and year first above written.
BORROWER: SUNRISE LEASING
CORPORATION
By
Its
SUNRISE INTERNATIONAL
LEASING CORPORATION, as
successor by merger to SUNRISE
RESOURCES, INC.
By
Its
LENDER: FIRST BANK NATIONAL
ASSOCIATION
By
Its
THIRD AMENDMENT TO AMENDED
AND RESTATED CREDIT AGREEMENT
This THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this
"Amendment"), made and entered into as of October 30, 1998 is by and between
SUNRISE LEASING CORPORATION, a Minnesota corporation ("SLC"), SUNRISE
INTERNATIONAL LEASING CORPORATION, a Delaware corporation ("SILC") (SLC and SILC
are collectively referred to as the "Borrower"), and U.S. BANK NATIONAL
ASSOCIATION, f/k/a First Bank National Association, a national banking
association (the "Lender").
RECITALS
A. SLC, SILC, and the Lender are parties to an Amended and Restated
Credit Agreement dated as of April 1, 1996, as amended by a First Amendment to
Amended and Restated Credit Agreement dated as of October 1, 1996, as amended by
a First Amendment to Credit Agreement dated as of September 30, 1997 and as
amended by a Second Amendment to Amended and Restated Credit Agreement dated as
of November 26, 1997 (as so amended, the "Credit Agreement") which provides for
credit accommodations up to a maximum amount of Twenty Five Million and no/100
Dollars ( $25,000,000.00).
B. SLC, SILC, and the Lender are parties to a Joint Amended and
Restated Security Agreement dated as of April 1, 1996 (the "Security
Agreement"), pursuant to which SLC and SILC granted security interests in favor
of the Lender in certain of their assets to secure the indebtedness and
obligations arising under the Credit Agreement.
C. The Borrower and the Lender have agreed to amend the Credit
Agreement upon the terms and conditions herein set forth.
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Certain Defined Terms. Unless otherwise defined herein, each
capitalized term used herein shall have the meaning ascribed thereto in the
Credit Agreement.
Section 2. Amendment to Credit Agreement. Subject to Section 3 hereof,
the Credit Agreement is amended as follows:
2.1 Amended Definitions. Section 1 of the Credit Agreement is
amended by deleting the definitions of "Advance," "LLC Component," "SLC
Component," "Tangible Net Worth" and "Termination Date" as they appear
therein and substituting thereof the following definitions in the
appropriate alphabetical order:
"Advance" any portion of the advances made by the
Bank under the Revolving Credit Commitment as to which the
Borrowers elected one of the available interest rate
<PAGE>
options and, if applicable, an Interest Period. An Advance may
be maintained as a Eurodollar Rate Advance or a Reference Rate
Advance.
"Net Worth" means, at any date, the sum of the common
stock, preferred stock, additional paid-in capital, and
retained earnings of the Borrower (excluding treasury stock),
calculated on a consolidated basis.
"ILC Component" means the permitted and eligible
borrowing available of the ILC portion of the Borrower's
business.
"SLC Component" means the permitted and eligible
borrowing available to the SLC portion of the Borrower's
business.
"Termination Date" means the earlier of (a) October
31, 1999 or (b) the date upon which the obligation of the Bank
to make Advances is terminated pursuant to Section 8.2.
2.2 Amended Definition of Eligible Lease Section 1 of the
Credit Agreement is further amended by deleting clause (k) thereof and
the proviso clause at the end thereof and substituting in lieu thereof
the following:
(k) is assignable, contains monthly or quarterly payments, and
(i) with respect to Leases in the SLC Component, no payment of rent by
the lessee of such Lease under any Lease with the Borrower (including
such Lease) is more than sixty (60) days past due and (ii) with respect
to Leases in the ILC Component, no payment of rent by the lessee of
such Lease under any Lease with the Borrower (including such Lease) is
more than ninety (90) days past due;
provided, however, unless otherwise approved by the Bank in writing,
with respect to all Leases made by the Borrower to any particular
lessee, the Bank will not advance more than $2,500,000 in the aggregate
upon such Leases to such lessee.
2.3 New Definitions. Section 1 of the Credit Agreement is
further amended by inserting the following new definitions in Section 1
in the appropriate alphabetical order:
"Adjusted Eurodollar Rate": With respect to each
Interest Period applicable to a Eurodollar Rate Advance, the
rate (rounded upward, if necessary, to the next one hundredth
of one percent) determined by dividing the Eurodollar Rate for
such Interest Period by 1.00 minus the Eurodollar Reserve
Percentage.
"Applicable Margin": With respect to:
(a) Reference Rate Advances -- 0.00%.
- 2 -
<PAGE>
(b) Eurodollar Rate Advances -- 2.00%.
"Board": The Board of Governors of the Federal
Reserve System or any successor thereto.
"Eurodollar Business Day": A Business Day which is
also a day for trading by and between banks in United States
dollar deposits in the interbank Eurodollar market and a day
on which banks are open for business in New York City.
"Eurodollar Rate": With respect to each Interest
Period applicable to a Eurodollar Rate Advance, the average
offered rate for deposits in United States dollars (rounded
upward, if necessary, to the nearest 1/16 of 1%) for delivery
of such deposits on the first day of such Interest Period, for
the number of days in such Interest Period, which appears on
the Telerate page 3750 as of 11:00 a.m., London time (or such
other time as of which such rate appears) two Eurodollar
Business Days prior to the first day of such Interest Period,
or the rate for such deposits determined by the Bank at such
time based on such other published service of general
application as shall be selected by the Bank for such purpose
(including without limitation the Reuters Screen LIBO page);
provided, that in lieu of determining the rate in the
foregoing manner, the Bank may determine the rate based on
rates at which United States dollar deposits are offered to
the Bank in the interbank Eurodollar market at such time for
delivery in Immediately Available Funds on the first day of
such Interest Period in an amount approximately equal to the
Advance by the Bank to which such Interest Period is to apply
(rounded upward, if necessary, to the nearest 1/16 of 1%).
"Reuters Screen LIBO page" means the display designated as
page "LIBO" on the Reuters Monitor Money Rate Screen (or such
other page as may replace the LIBO page on such service for
the purpose of displaying London interbank offered rates of
major banks for United States dollar deposits), and "Telerate
page 3750" means the display designated as such on Telerate
system Incorporated (or such other page as may replace page
3750 or that service for the purpose of displaying London
interbank offered rates of major banks for U.S. Dollar
deposits).
"Eurodollar Rate Advance": A portion of the Advances
with respect to which the interest rate is determined by
reference to the Adjusted Eurodollar Rate.
"Eurodollar Reserve Percentage": As of any day, that
percentage (expressed as a decimal) which is in effect on such
day, as prescribed by the Board for determining the maximum
reserve requirement (including any basic, supplemental or
emergency reserves) for a member bank of the Federal Reserve
System, with deposits comparable in amount to those held by
the Bank, in respect of "Eurocurrency Liabilities" as such
term is defined in Regulation D of the Board. The rate of
interest applicable to any outstanding Eurodollar Rate Advance
shall be adjusted automatically on and as of the effective
date of any change in the Eurodollar Reserve Percentage.
- 3 -
<PAGE>
"Interest Period": With respect to each Eurodollar
Rate Advance, the period commencing on the date of such
Eurodollar Rate Advance or on the last day of the immediately
preceding Interest Period, if any, applicable to an
outstanding Eurodollar Rate Advance and ending one, two, three
or six months thereafter, as the Borrower may elect in the
applicable notice of borrowing, continuation or conversion;
provided that:
(a) Any Interest Period that would otherwise end on a
day which is not a Eurodollar Business Day shall be extended
to the next succeeding Eurodollar Business Day unless such
Eurodollar Business Day falls in another calendar month, in
which case such Interest Period shall end on the next
preceding Eurodollar Business Day;
(b) Any Interest Period that begins on the last
Eurodollar Business Day of a calendar month (or a day for
which there is no numerically corresponding day in the
calendar month at the end of such Interest Period) shall end
on the last Eurodollar Business Day of a calendar month; and
(c) Any Interest Period that would otherwise end
after the scheduled maturity of the Revolving Credit Note
shall end on the scheduled maturity of the Revolving Credit
Note.
"Reference Rate Advances": A portion of the Advances
with respect to which the interest rate is determined by
reference to the Reference Rate.
2.4 Interest Rates, Etc. Section 2.4 of the Credit Agreement
is amended in its entirety as follows:
Section 2.4 Interest Rates; Interest Payments;
Default Interest. Interest shall accrue and be payable on the
Advances as follows:
(a) Subject to paragraph (iii) below, each Eurodollar
Rate Advance shall bear interest on the unpaid principal
amount thereof during the Interest Period applicable thereto
at a rate per annum equal to the sum of (i) the Adjusted
Eurodollar Rate for such Interest Period, plus (ii) the
Applicable Margin.
(b) Subject to paragraph (iii) below, each Reference
Rate Advance shall bear interest on the unpaid principal
amount thereof at a varying rate per annum equal to the sum of
(i) the Reference Rate, plus (ii) the Applicable Margin.
(c) After an Event of Default, the Advances shall
bear interest until paid in full (i) during the balance of any
Interest Period applicable to any Eurodollar Rate Advance, at
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<PAGE>
a rate per annum equal to the sum of the rate applicable to
such Eurodollar Rate Advance plus 3.75%, and (ii) otherwise,
at a rate per annum equal to the sum of (A) the Reference
Rate, plus (B) the Applicable Margin for Reference Rate
Advances, plus (C) 3.75%.
(d) Interest shall be payable (i) with respect to
each Eurodollar Rate Advance having an Interest Period of
three months or less on the last day of the Interest Period
applicable thereto; (ii) with respect to any Eurodollar Rate
Advance having an Interest Period greater than three months on
the last day of the Interest Period applicable thereto and on
each day that would have been the last day of the Interest
Period for such Eurodollar Rate Advance had successive
Interest Periods of three months duration been applicable to
such Eurodollar Rate Advance; (iii) with respect to Reference
Rate Advances, on the first day of each calendar month; (iv)
with respect to the Advances generally, upon any permitted
prepayment (on the amount prepaid); and (v) with respect to
the Advances generally, upon Maturity.
(e) The unpaid principal balance of the Advances from
time to time outstanding shall bear interest computed on the
basis of actual days elapsed in a year of 360 days.
(f) For purposes of determining any interest rate
hereunder or under any other Loan Document which is based on
the Reference Rate, such interest shall change as and when the
Reference Rate shall change.
(g) Whenever any payment to be made hereunder by or
to the Bank or the holder(s) of the Revolving Credit Note
shall otherwise be due on a day which is not a Business Day,
such payment shall be made on the next succeeding Business
Day, and such extension of time shall be included in computing
the fees or interest payable on such next succeeding Business
Day.
(h) No provision of this Credit Agreement or the
Revolving Credit Note shall require the payment or permit the
collection of interest in excess of the rate permitted by
applicable law.
2.5 Borrowing Procedure. Section 2.5 of the Credit Agreement
is deleted in its entirety and the following is substituted in lieu
thereof:
Section 2.5 Manner of Borrowing. In order to obtain
an Advance, the Borrower shall deliver to the Bank a written
request for such Advance. Such request must be given so as to
be received by the Bank not later than 2:30 P.M. (Minneapolis
time) three Eurodollar Business Days prior to the requested
advance date if the Advance is requested as a Eurodollar Rate
Advance and not later than 2:30 P.M. (Minneapolis time) on the
requested advance date if the Advance is requested as a
Reference Rate Advance. Each request for an Advance shall be
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<PAGE>
irrevocable and shall be deemed a representation by the
Borrower that on the requested advance date and after giving
effect to the requested Advance the applicable conditions
specified in Section 3 have been and will be satisfied. If the
Bank permits Borrower to request Advances verbally, the Bank
shall be entitled to rely on the authority of the person
claiming to be an authorized representative of the Borrower
without further inquiry. Each request for an Advance hereunder
shall specify (i) the requested advance date, (ii) the amount
of the Advance to be made on such date which shall be in a
minimum amount of $100,000 or, if more, an integral multiple
thereof, (iii) whether such Advance is to be funded as a
Reference Rate Advance or Eurodollar Rate Advance, and (iv) in
the case of a Eurodollar Rate Advance, the duration of the
initial Interest Period applicable thereto. The Borrower shall
not have more than three (3) Eurodollar Rate Advances
outstanding at any time. Unless the Bank determines that any
applicable condition specified in Section 3 has not been
satisfied, the Bank will, on the requested advance date,
deposit in the Borrower's account no. 160233811373 maintained
at the Bank, the amount of the requested Advance.
2.6 Non-Use Fee. Section 2.8 of the Credit Agreement is
deleted in its entirety and the following is substituted in lieu
thereof:
Section 2.8 Non-Use Fee. The Borrower shall pay the
Bank a non-use fee ("Non-Use Fee") calculated at the rate of
three-eighths of one percent (0.375%) per annum on the daily
average unused portion of the Revolving Credit Commitment. The
Non-Use Fee shall be due and payable in arrears on the last
day of each calendar quarter hereafter.
2.7 Additional Provisions. The following new sections are
added immediately following Section 2.9 of the Credit Agreement:
Section 2.10 Optional Prepayments. The Borrower may
prepay Reference Rate Advances, in whole or in part, at any
time, without premium or penalty. Any such prepayment must be
accompanied by accrued and unpaid interest on the amount
prepaid. Each partial prepayment shall be in a minimum amount
of $100,000 or, if more, an integral multiple thereof. Except
upon an acceleration following an Event of Default, the
Borrower may pay Eurodollar Rate Advances only on the last day
of the Interest Period applicable thereto, subject in all
cases to the provisions of Section 2.15. Amounts paid or
prepaid on the Advances may be reborrowed, subject to the
terms and conditions hereof.
Section 2.11 Conversions and Continuations. On the
terms and subject to the limitations hereof, the Borrower
shall have the option at any time and from time to time to
convert all or any portion of the Advances into Reference Rate
Advances or Eurodollar Rate Advances, or to continue a
Eurodollar Rate Advance as such; provided, however, that a
Eurodollar Rate Advance may be converted or continued only on
the last day of the Interest Period applicable thereto and no
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<PAGE>
portion of the Advances may be converted or continued as a
Eurodollar Rate Advance if an Event of Default has occurred
and is continuing on the proposed date of continuation or
conversion. Portions of the Advances may be converted to, or
continued as, Eurodollar Rate Advances only in amounts of
$100,000 or an integral multiple thereof, and the Borrower
shall be entitled to have no more than three (3) Eurodollar
Rate Advances outstanding at any time. The Borrower shall give
the Bank written notice of any continuation or conversion of
any portion of the Advances and such notice must be given so
as to be received by the Bank not later than 11:00 A.M.
(Minneapolis time) two Eurodollar Business Days prior to
requested date of conversion or continuation in the case of
the continuation or, or conversion to, a Eurodollar Rate
Advance and not later than 11:00 A.M. (Minneapolis time) on
the date of the requested continuation of a Reference Rate
Advance. Each such notice shall specify (a) the amount to be
continued or converted, (b) the date for the continuation or
conversion (which must be (i) the last day of the preceding
Interest Period for any continuation of Eurodollar Rate
Advances, (ii) a Eurodollar Business Day in the case of
conversions to Eurodollar Rate Advances, and (iii) a Business
Day in the case of continuations as Reference Rate Advances),
and (c) in the case of conversions to or continuations as
Eurodollar Rate Advances, the Interest Period applicable
thereto. Any notice given by the Borrower under this Section
shall be irrevocable. If the Borrower shall fail to notify the
Bank of the continuation of any Eurodollar Rate Advance within
the time required by this Section, such Eurodollar Rate
Advance shall, on the last day of the Interest Period
applicable thereto, automatically be converted into a
Reference Rate Advance of the same principal amount.
Section 2.12 Interest Rate Not Ascertainable, Etc. If, on or
prior to the date for determining the Adjusted Eurodollar Rate in
respect of the Interest Period for any Eurodollar Rate Advance, the
Bank determines (which determination shall be conclusive and binding,
absent error) that:
(a) deposits in dollars (in the applicable amount)
are not being made available to the Bank in the relevant
market for such Interest Period, or
(b) the Adjusted Eurodollar Rate will not adequately
and fairly reflect the cost to the Bank of funding or
maintaining Eurodollar Rate Advances for such Interest Period,
the Bank shall forthwith give notice to the Borrower of such
determination, whereupon the obligation of the Bank to make or
continue, or to convert any portion of the Advances to,
Eurodollar Rate Advances, shall be suspended until the Bank
notifies the Borrower that the circumstances giving rise to
such suspension no longer exist. While any such suspension
continues, all further Advances by the Bank shall be made with
an interest rate option to which such suspension does not
apply. No such suspension shall affect the interest rate then
in effect during the applicable Interest Period for any
Eurodollar Rate Advances outstanding at the time such
suspension is imposed.
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<PAGE>
Section 2.13 Increased Cost. If any Regulatory Change:
(a) shall subject the Bank to any tax, duty or other
charge with respect to its Eurodollar Rate Advances, the
Revolving Credit Note, its obligation to make Eurodollar Rate
Advances or shall change the basis of taxation of payment to
the Bank of the principal of or interest on Eurodollar Rate
Advances or any other amounts due under this Agreement in
respect of Eurodollar Rate Advances or its obligation to make
Eurodollar Rate Advances (except for changes in the rate of
tax on the overall net income of the Bank imposed by the
jurisdiction in which the Bank's principal office is located);
or
(b) shall impose, modify or deem applicable any
reserve, special deposit, capital requirement or similar
requirement (including, without limitation, any such
requirement imposed by the Board, but excluding with respect
to any Eurodollar Rate Advance any such requirement to the
extent included in calculating the applicable Adjusted
Eurodollar Rate) against assets of, deposits with or for the
account of, or credit extended by, the Bank or shall impose on
the Bank or on the United States market for certificates of
deposit or the interbank Eurodollar market any other condition
affecting its Eurodollar Rate Advances, the Revolving Credit
Note or its obligation to make Eurodollar Rate Advances;
and the result of any of the foregoing is to increase the cost to the
Bank of making or maintaining any Eurodollar Rate Advance, or to reduce
the amount of any sum received or receivable by the Bank under this
Agreement or under the Revolving Credit Note, then, within 30 days
after demand by the Bank, the Borrower shall pay to the Bank such
additional amount or amounts as will reasonably compensate the Bank for
such increased cost or reduction. The Bank will promptly notify the
Borrower of any event of which it has knowledge, occurring after the
date hereof, which will entitle the Bank to compensation pursuant to
this Section. A certificate of the Bank claiming compensation under
this Section, setting forth the additional amount or amounts to be paid
to it hereunder and stating in reasonable detail the basis for the
charge and the method of computation, shall be conclusive in the
absence of error. In determining such amount, the Bank may use any
reasonable averaging and attribution methods. Failure on the part of
the Bank to demand compensation for any increased costs or reduction in
amounts received or receivable with respect to any Interest Period
shall not constitute a waiver of the Bank's rights to demand
compensation for any increased costs or reduction in amounts received
or receivable in any subsequent Interest Period.
Section 2.14 Illegality. If any Regulatory Change shall make
it unlawful or impossible for the Bank to make, maintain or fund any
Eurodollar Rate Advance, the Bank shall notify the Borrower, whereupon
the obligation of the Bank to make or continue, or to convert any
portion of the Advances to, Eurodollar Rate Advances shall be suspended
until the Bank notifies the Borrower that the circumstances giving rise
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<PAGE>
to such suspension no longer exist. If the Bank determines that it may
not lawfully continue to maintain any Eurodollar Rate Advances to the
end of the applicable Interest Periods, all of the Eurodollar Rate
Advances shall be automatically converted to Reference Rate Advances as
of the date of the Bank's notice, and upon such conversion the Borrower
shall indemnify the Bank in accordance with Section 2.15.
Section 2.15 Funding Losses. The Borrower shall compensate the
Bank, upon its written request, for all losses, expenses and
liabilities (including any interest paid by the Bank to lenders of
funds borrowed by it to make or carry Eurodollar Rate Advances to the
extent not recovered by the Bank in connection with the re-employment
of such funds and including loss of anticipated profits) which the Bank
may sustain: (i) if for any reason, other than a default by the Bank, a
funding of a Eurodollar Rate Advance does not occur on the date
specified therefor in the Borrower's request or notice as to such
portion of the Advances, or (ii) if, for whatever reason (including,
but not limited to, acceleration of the maturity of the Advances
following an Event of Default), any repayment of a Eurodollar Rate
Advance, or a conversion pursuant to Section 2.11, occurs on any day
other than the last day of the Interest Period applicable thereto. The
Bank's request for compensation shall set forth the basis for the
amount requested and shall be final, conclusive and binding, absent
error.
Section 2.16 Discretion of Bank as to Manner of Funding. The
Bank shall be entitled to fund and maintain its funding of Eurodollar
Rate Advances in any manner it may elect, it being understood, however,
that for the purposes of this Agreement all determinations hereunder
(but excluding determinations that the Bank may elect to make from the
Telerate System, Inc. screen) shall be made as if the Bank had actually
funded and maintained each Eurodollar Rate Advance during the Interest
Period for such portion of the Advances through the issuance of its
certificates of deposit, or the purchase of deposits, having a maturity
corresponding to the last day of the Interest Period and bearing an
interest rate equal to the Adjusted Eurodollar Rate plus the Applicable
Margin for such Interest Period.
Section 2.8 Minimum Net Worth. Section 6.14 of the Credit Agreement is
deleted in its entirety and the following is substituted in lieu thereof:
Section 6.14. Minimum Net Worth. Maintain at all times on a
consolidated basis a minimum Net Worth of not less than $25,000,000.00
plus 75% of the Borrower's cumulative positive quarterly net income
commencing with the fiscal quarter ended September 30, 1998, with no
deductions for quarterly losses, plus 100% of the net proceeds of any
other increase in the equity of the Borrower.
Section 2.9 Minimum Interest Coverage. Section 6.15 of the Credit
Agreement is deleted in its entirety and the following is substituted in lieu
thereof:
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<PAGE>
Section 6.15. Minimum Interest Coverage. Maintain the ratio of
earnings before interest, taxes, amortization and depreciation to
interest expense of not less than 4.75 to 1.00 calculated as of the end
of each fiscal quarter of the Borrower and determined on a rolling four
quarter basis.
Section 2.10 Ratio of Recourse Debt to Net Worth. Section 6.16 of the
Credit Agreement is deleted in its entirety and the following is substituted in
lieu thereof:
Section 6.16 Ratio of Recourse Debt to Net Worth. Maintain at
all times the ratio of the Borrower's senior recourse debt to its Net
Worth of not more than 3.50 to 1.00.
Section 2.11 Amended Borrowing Base Certificate. Exhibit A to the
Credit Agreement is deleted and Exhibit A to this Amendment is substituted in
lieu thereof.
Section 2.12 Amended Compliance Certificate. Exhibit D to the Credit
Agreement is deleted and Exhibit B to this Amendment is substituted in lieu
thereof.
Section 3. Conditions to Effectiveness of this Amendment. This
Amendment shall be effective as of the date first above written, provided that
the following conditions are satisfied:
(a) The Lender shall have received this Amendment, duly
executed by the Borrower.
(b) The Lender shall have received the Amended and Restated
Revolving Credit Note attached hereto as Exhibit C, duly executed by
the Borrower (the "Amended Revolving Credit Note"), which note shall
constitute the Revolving Credit Note all for purposes under the Credit
Agreement.
(c) The Lender shall have received a copy of the resolutions
of the Board of Directors of each Borrower authorizing the execution,
delivery and performance by the Borrower of this Amendment, the Amended
Revolving Credit Note certified by an officer thereof, together with a
certificate of an officer of the Borrower (i) certifying as to the
incumbency and the true signatures of the officers authorized to
execute this Amendment and the Amended Revolving Credit Note on behalf
of such Borrower and (ii) certifying that the articles of incorporation
and bylaws of each Borrower have not been modified since copies of such
documents were previously provided to the Lender.
(d) The Lender shall have received (i) good standing
certificates for each Borrower dated not more than 10 days prior to the
date of this Amendment and issued by the state of incorporation of such
Borrower and (ii) certificates of authority to do business as a foreign
corporation dated not more than 10 days prior to the date of this
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<PAGE>
Amendment of each Borrower in each jurisdiction in which the nature of
the Borrower's business in such jurisdiction would require such a
certificate of authority.
(e) such other conditions reasonably required by the Lender
and its counsel.
(f) After giving effect to this Amendment, the representations
and warranties of the Borrower in Sections 4 and 5 of the Credit
Agreement shall be true and correct as though made on the date hereof,
except for changes that are permitted by the terms of such agreement.
(g) No Event of Default or Unmatured Event of Default shall
have occurred and be continuing.
Section 4. Representations, Warranties, Authority, No Adverse Claim.
4.1 Reassertion of Representations and Warranties, No Default.
The Borrower hereby represents that on and as of the date hereof and
after giving effect to this Amendment, (a) all of the representations
and warranties contained in the Credit Agreement are true, correct and
complete in all respects as of the date hereof as though made on and as
of such date, except for changes permitted by the terms of the Credit
Agreement, and (b) there will exist no Unmatured Event of Default or
Event of Default under the Credit Agreement as amended by this
Amendment on such date which has not been waived by the Lender.
4.2 Authority, No Conflict, No Consent Required. The Borrower
represents and warrants that the Borrower has the power and legal right
and authority to enter into this Agreement and the Revolving Credit
Note (collectively, the "Amendment Documents") and has duly authorized
as appropriate the execution and delivery of the Amendment Documents
and other agreements and documents executed and delivered by the
Borrower in connection herewith or therewith by proper corporate
action, and none of the Amendment Documents nor the agreements
contained herein or therein contravene or constitute a default under
any agreement, instrument or indenture to which the Borrower is a party
or a signatory or a provision of the Borrower's Certificate of
Incorporation, Bylaws or any other agreement or requirement of law, or
result in the imposition of any Lien on any of its property under any
agreement binding on or applicable to the Borrower or any of its
property except, if any, in favor of the Lender. The Borrower
represents and warrants that no consent, approval or authorization of
or registration or declaration with any Person, including but not
limited to any governmental authority, is required in connection with
the execution and delivery by the Borrower of the Amendment Documents
or other agreements and documents executed and delivered by the
Borrower in connection therewith or the performance of obligations of
the Borrower therein described, except for those which the Borrower has
obtained or provided and as to which the Borrower has delivered
certified copies of documents evidencing each such action to the
Lender.
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<PAGE>
4.3 No Adverse Claim. The Borrower warrants, acknowledges and
agrees that no events have been taken place and no circumstances exist
at the date hereof which would give the Borrower a basis to assert a
defense, offset or counterclaim to any claim of the Lender with respect
to the Borrower's obligations under the Credit Agreement as amended by
this Amendment.
Section 5. Affirmation of Credit Agreement, Further References,
Affirmation of Security Interest. The Lender and the Borrower each acknowledge
and affirm that the Credit Agreement, as hereby amended, is hereby ratified and
confirmed in all respects and all terms, conditions and provisions of the Credit
Agreement, except as amended by this Amendment, shall remain unmodified and in
full force and effect. All references in any document or instrument to the
Credit Agreement are hereby amended and shall refer to the Credit Agreement as
amended by this Amendment. The Borrower confirms to the Lender that the
Borrower's obligations under the Credit Agreement, as amended by this Amendment,
are and continue to be secured by the security interest granted by the Borrower
in favor of the Lender under the Security Agreement and made by the Borrower in
favor of the Lender, and all of the terms, conditions, provisions, agreements,
requirements, promises, obligations, duties, covenants and representations of
the Borrower under such documents and any and all other documents and agreements
entered into with respect to the obligations under the Credit Agreement are
incorporated herein by reference and are hereby ratified and affirmed in all
respects by the Borrower.
Section 6. Merger and Integration, Superseding Effect. This Amendment,
from and after the date hereof, embodies the entire agreement and understanding
between the parties hereto and supersedes and has merged into this Amendment all
prior oral and written agreements on the same subjects by and between the
parties hereto with the effect that this Amendment, shall control with respect
to the specific subjects hereof and thereof.
Section 7. Severability. Whenever possible, each provision of this
Amendment and the other Amendment Documents and any other statement, instrument
or transaction contemplated hereby or thereby or relating hereto or thereto
shall be interpreted in such manner as to be effective, valid and enforceable
under the applicable law of any jurisdiction, but, if any provision of this
Amendment, the other Amendment Documents or any other statement, instrument or
transaction contemplated hereby or thereby or relating hereto or thereto shall
be held to be prohibited, invalid or unenforceable under the applicable law,
such provision shall be ineffective in such jurisdiction only to the extent of
such prohibition, invalidity or unenforceability, without invalidating or
rendering unenforceable the remainder of such provision or the remaining
provisions of this Amendment, the other Amendment Documents or any other
statement, instrument or transaction contemplated hereby or thereby or relating
hereto or thereto in such jurisdiction, or affecting the effectiveness, validity
or enforceability of such provision in any other jurisdiction.
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<PAGE>
Section 8. Successors. The Amendment Documents shall be binding upon
the Borrower and the Lender and their respective successors and assigns, and
shall inure to the benefit of the Borrower and the Lender and the successors and
assigns of the Lender.
Section 90. Legal Expenses. The Borrower agrees to reimburse the
Lender, upon execution of this Amendment, for all reasonable out-of-pocket
expenses (including attorneys' fees and legal expenses of Dorsey & Whitney, LLP,
counsel for the Lender) incurred in connection with the Credit Agreement,
including in connection with the negotiation, preparation and execution of the
Amendment Documents and all other documents negotiated, prepared and executed in
connection with the Amendment Documents, and in enforcing the obligations of the
Borrower under the Amendment Documents, and to pay and save the Lender harmless
from all liability for, any stamp or other taxes which may be payable with
respect to the execution or delivery of the Amendment Documents, which
obligations of the Borrower shall survive any termination of the Credit
Agreement.
Section 10. Headings. The headings of various sections of this
Amendment have been inserted for reference only and shall not be deemed to be a
part of this Amendment.
Section 11. Counterparts. The Amendment Documents may be executed in
several counterparts as deemed necessary or convenient, each of which, when so
executed, shall be deemed an original, provided that all such counterparts shall
be regarded as one and the same document, and either party to the Amendment
Documents may execute any such agreement by executing a counterpart of such
agreement.
Section 12. Governing Law. THE AMENDMENT DOCUMENTS SHALL BE GOVERNED BY
THE INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT
OF LAW PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO
NATIONAL BANKS, THEIR HOLDING COMPANIES AND THEIR AFFILIATES.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date and year first above written.
BORROWER: SUNRISE LEASING CORPORATION
By
Its
SUNRISE INTERNATIONAL LEASING
CORPORATION
By
Its
LENDER: U.S. BANK NATIONAL ASSOCIATION
f/k/a First Bank National Association
By
Its
S-1
EXHIBIT C TO THIRD AMENDMENT
TO AMENDED AND RESTATED
CREDIT AGREEMENT
AMENDED AND RESTATED REVOLVING CREDIT NOTE
$25,000,000 Minneapolis, Minnesota
October 30, 1998
FOR VALUE RECEIVED, the undersigned, SUNRISE INTERNATIONAL LEASING
CORPORATION, a Delaware corporation, and SUNRISE LEASING CORPORATION, a
Minnesota corporation (jointly and severally, the "Borrower") promise to pay to
the order of U.S. BANK NATIONAL ASSOCIATION, a national banking association (the
"Bank"), its successors and assigns, at its banking office at U.S. Bank Place,
601 Second Avenue South, Minneapolis, Minnesota 55402-4302, or such other place
as the holder hereof may designate in writing from time to time, the principal
sum of TWENTY-FIVE MILLION AND NO/100 DOLLARS ($25,000,000), or so much thereof
as may be advanced from time to time pursuant to that certain Amended and
Restated Credit Agreement dated April 1, 1996, between the Borrower and the Bank
(as originally executed and as may be amended, modified, supplemented or
restated from time to time, the "Amended Credit Agreement"), in lawful money of
the United States, together with interest from the date hereof on the unpaid
balance hereof from time to time at the rates and in the manner set forth in the
Amended Credit Agreement. This Note and all accrued and unpaid interest thereon
shall be due and payable in full on Maturity.
This Note is the Revolving Credit Note issued pursuant to the terms and
provisions of the Amended Credit Agreement and this Note and the holder hereof
are entitled to all of the benefits provided for in the Amended Credit
Agreement, or are referred to therein. Reference is made to the Amended Credit
Agreement for a statement of the terms and conditions under which this
indebtedness was incurred and is to be repaid and under which the due date of
this Note may be accelerated. The provisions of the amended Credit Agreement are
hereby incorporated by reference with the same force and effect as if fully set
forth herein. Except as otherwise defined herein, capitalized terms used in this
Note shall have the meanings given to them in the Amended Credit Agreement.
This Note is secured by a Joint Restated and Amended Security Agreement
dated April 1, 1996 executed by the Borrower in favor of the Bank. This Note is
subject to certain mandatory and permissive prepayments, as set forth in the
Amended Credit Agreement.
If an Event of Default, as defined in the Amended Credit Agreement or
any other agreement made by any party in connection with this Note, shall occur,
the Bank or other holder may, without notice, demand, presentment for payment
and notice of nonpayment, all of which Borrower hereby expressly waives, declare
the indebtedness evidenced hereby and all other indebtedness and obligations of
the Borrower to the Bank or holder hereof immediately due and payable and the
Bank or other holder hereof may, without notice, immediately exercise any right
of setoff and enforce any lien or security interest securing payment hereof. The
foregoing shall be in addition to the rights of acceleration that may be
provided in any loan agreement, security agreement, mortgage and/or other
writing relating to the indebtedness evidenced hereby. If this Note is placed
with any attorney(s) for collection upon any default, the Borrower agrees to pay
to the Bank or holder, its reasonable attorneys' fees and all lawful costs and
expenses of collection, whether or not a suit is commenced.
Time is of the essence. No delay or omission on the part of the Bank or
other holder hereof in exercising any right or remedy hereunder shall operate as
a waiver of such right or of any other right or remedy under this Note or any
other document or agreement executed in connection herewith. All waivers by the
Bank must be in writing to be effective and a waiver on any occasion shall not
be construed as a bar to or a waiver of any similar right or remedy on a future
occasion.
Any deposits or other sums at any time credited by or due from the Bank
to any maker, endorser or guarantor hereof and any securities or other property
of any maker, endorser, or guarantor hereof in the possession of the Bank or
other holder of this Note may at all times be held and treated as collateral
security for the payment of this Note. The Bank or other holder hereof may apply
or set off such deposits or other sums against the obligations hereunder at any
time in case of makers, but only with respect to matured liabilities in the case
of endorsers or guarantors.
This Note is issued in substitution for, but not payment of, (a) that
certain Revolving Credit Note dated as of February 29, 1996, payable to the
order of the Bank, in the original principal amount of $25,000,000 and (b) that
certain Renewal Revolving Credit Note dated as of April 1, 1996, payable to the
order of the bank, in the original principal amount of $25,000,000.
THIS NOTE REPRESENTS A LOAN NEGOTIATED, EXECUTED AND TO BE PERFORMED IN
THE STATE OF MINNESOTA AND SHALL BE CONSTRUED, INTERPRETED AND GOVERNED BY THE
SUBSTANTIVE LAWS (BUT NOT THE LAW OF CONFLICTS) OF SAID STATE, GIVING EFFECT TO
LAWS GOVERNING NATIONAL BANKS.
THE BORROWER HEREBY CONSENTS TO THE PERSONAL JURISDICTION OF THE STATE
AND FEDERAL COURTS LOCATED IN THE STATE OF MINNESOTA IN CONNECTION WITH ANY
CONTROVERSY RELATED TO THIS NOTE, WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS
IS NOT CONVENIENT AND AGREES THAT ANY LITIGATION INSTIGATED BY THE BORROWER
AGAINST THE BANK IN CONNECTION WITH THIS NOTE SHALL BE VENUED IN EITHER THE
DISTRICT COURTS OF HENNEPIN COUNTY, MINNESOTA, OR THE UNITED STATES DISTRICT
COURT FOR THE DISTRICT OF MINNESOTA, FOURTH DIVISION.
IN WITNESS WHEREOF, the Borrower has executed and delivered this Note
to the Bank as of the day and year first above written.
SUNRISE LEASING CORPORATION,
a Minnesota corporation
By
Its
SUNRISE INTERNATIONAL
LEASING CORPORATION,
a Delaware corporation
By
Its
ACKNOWLEDGMENT
STATE OF __________ )
) ss.
COUNTY OF ________ )
The foregoing Amended and Restated Revolving Credit Note was
acknowledged before me this ____ day of , 1998, by , as the of Sunrise Leasing
Corporation, a Minnesota corporation, on behalf of said corporation, and as the
of Sunrise International Leasing Corporation, a Delaware corporation, on behalf
of said corporation.
[SEAL]
Notary Public
EXHIBIT 11.1
SUNRISE INTERANATIONAL LEASING CORPORATION AND SUBSIDIARIES
PER SHARE EARNINGS COMPUTATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, 1998 December 31, 1998
1998 1997 1998 1997
----------------------------------------------------------
<S> <C> <C> <C> <C>
Basic Earnings Per Share:
Weighted average number of
common shares outstanding 7,585,000 7,788,000 7,736,000 7,616,000
----------------------------------------------------------
Net income $ 941,000 $ 835,000 $2,444,000 $2,669,000
==========================================================
Net income per common and
common equivalent share $ 0.12 $ 0.11 $ 0.32 $ 0.35
==========================================================
Fully Dilutive Earnings Per Share:
Weighted average number of 7,585,000 7,788,000 7,736,000 7,616,000
Common stock equivalents
from assumed exercise of
options and warrants 40,000 6,000 31,000 15,000
----------------------------------------------------------
Total shares 7,625,000 7,794,000 7,767,000 7,631,000
==========================================================
Net income $ 941,000 $ 835,000 $2,444,000 $2,669,000
==========================================================
Net income per common
and common equivalent share $ 0.12 $ 0.11 $ 0.31 $ 0.35
==========================================================
</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> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 657,000
<SECURITIES> 0
<RECEIVABLES> 6,685,000
<ALLOWANCES> 1,747,000
<INVENTORY> 214,000
<CURRENT-ASSETS> 89,777,000
<PP&E> 843,000
<DEPRECIATION> 617,000
<TOTAL-ASSETS> 90,003,000
<CURRENT-LIABILITIES> 58,608,000
<BONDS> 0
0
0
<COMMON> 78,000
<OTHER-SE> 31,317,000
<TOTAL-LIABILITY-AND-EQUITY> 90,003,000
<SALES> 36,618,000
<TOTAL-REVENUES> 36,618,000
<CGS> 32,405,000
<TOTAL-COSTS> 32,405,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,213,000
<INCOME-TAX> 1,769,000
<INCOME-CONTINUING> 2,444,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,444,000
<EPS-PRIMARY> .32
<EPS-DILUTED> .31
</TABLE>
