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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b)
OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
Sunpoint Securities, Inc.
(Name of Small Business Issuer in Its Charter)
Texas 75-2294508
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
Van R. Lewis, III
Chairman and Chief Executive Officer
911 W. Loop 281
Third Floor
Longview, Texas 75604
(Address of Principal Executive Offices) (Zip Code)
(903) 759-3530
(Issuer's Telephone Number)
Securities to be registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class to be so Registered Which Each Class Is to be Registered
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Series A Common Stock Chicago Stock Exchange, Incorporated
Securities to be registered under Section 12(g) of the Act:
None
Exhibit Index on Page 70
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TABLE OF CONTENTS
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Page No.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS..................................................................................... 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION................................................... 13
ITEM 3. DESCRIPTION OF PROPERTY..................................................................................... 27
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.............................................. 28
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS............................................... 29
ITEM 6. EXECUTIVE COMPENSATION...................................................................................... 35
item 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................................................. 37
ITEM 8. DESCRIPTION OF SECURITIES................................................................................... 39
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON SUNPOINT'S COMMON EQUITY AND OTHER SHAREHOLDER MATTERS..................... 42
ITEM 2. LEGAL PROCEEDINGS........................................................................................... 43
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS............................................................... 44
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES..................................................................... 44
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS................................................................... 47
PART F/S FINANCIAL STATEMENTS AS OF OCTOBER 31, 1998 AND 1997 AND INDEPENDENT AUDITOR'S REPORT AND
UNAUDITED FINANCIAL STATEMENTS AS OF APRIL 30, 1999 AND 1998................................................ 50
PART III
ITEM 1. INDEX TO EXHIBITS........................................................................................... 70
ITEM 2. DESCRIPTION OF EXHIBITS..................................................................................... 71
Signature Page.......................................................................................................... 72
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PART I - FORM 10-SB
ITEM 1: DESCRIPTION OF BUSINESS
BUSINESS DEVELOPMENT
General Description
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Sunpoint Securities, Inc. ("Sunpoint") operates as a full service, retail
securities broker/dealer that provides securities transactions processing and
other clearing services to customers throughout the United States. Sunpoint
maintains a fully disclosed relationship with Pershing Division, Donaldson,
Lufkin & Jenrette Securities Corporation for customer accounts whose aggregate
value exceeds Sunpoint's Securities Investor Protection Corporation ("SIPC")
coverage. Sunpoint has no correspondent clearing arrangements at present and,
therefore, does not offer these services. Management intends to offer these
services as soon as regulatory approval can be obtained. Sunpoint holds no
inventory and does not make markets in any securities. Management anticipates
offering on-line account information access to customers by October 1999.
All transactions processed originate through Sunpoint's registered
representatives who are licensed with and regulated by the National Association
of Securities Dealers, Inc. (the "NASD"). These registered representatives are
associated with Sunpoint by written registered representative agreements (that
either Sunpoint or the representative may terminate at any time) as independent
contractors.
The principal office of Sunpoint Securities, Inc. is located at 911 W. Loop 281,
Third Floor, Longview, Texas 75604, telephone number (903) 759-3530.
Development of Sunpoint
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Sunpoint was incorporated on September 25, 1989, as Lewis Financial Group, Inc.,
a Texas Corporation, and obtained the right to do business in Texas under the
assumed name "Sun Financial Group." On September 25, 1990, the Articles of
Incorporation were subsequently amended to change the name of the corporation to
Sunpoint Securities, Inc. In September 1995, Sunpoint obtained the right to do
business in Texas under the assumed name "Advanced Financial Services." Sunpoint
obtained this assumed name in connection with its sales of fixed insurance-based
products. There was and is a Texas corporation named Advanced Financial
Services, Inc., which is not and never was owned, operated, or controlled by
Sunpoint. Sunpoint included and includes the employees of Advanced Financial
Services, Inc. among its independent registered representatives and serves as
the broker/dealer through which commissions for insurance-based variable product
sales by all of Sunpoint's registered representatives (including those with
Advanced Financial Services, Inc.) are processed.
In October 1996, Sunpoint entered into a Plan and Agreement of Merger with
Radair, Inc., a Nevada Corporation ("Radair") classified as a "debtor in
possession" pursuant to Chapter 11 of the United States Code. Pursuant to
Article 5.05 of the Texas Business Corporation
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Act, Radair was merged into Sunpoint effective upon issuance of the Certificate
of Merger on December 18, 1996.
The net effect of the merger of Radair was that approximately 38,802 shares of
Sunpoint's Series A Common Stock were issued to additional shareholders. Radair
was a new product development stage company attempting to design and manufacture
onboard weather radar for commercial planes. As a result of the merger, Sunpoint
assumed all debts and liabilities of Radair. All liquidated debts of Radair were
dissolved by issuance of Sunpoint's Series A Common Stock; however, to the
extent any potential noncreditor claims based on actions of Radair exist,
Sunpoint may be held liable. Sunpoint's merger with Radair allowed Sunpoint to
be traded on the NASDAQ bulletin board.
BUSINESS OF ISSUER
History of Business
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Since its incorporation in 1989, Sunpoint conducted business as a fully
disclosed broker/dealer. Sunpoint's business operations and revenue increased
each year by the acquisition of additional registered representatives, which
correspondingly increased the volume of trading, the types of products, and
total gross revenue each year.
In 1994, Mr. Lewis, Sunpoint's founder and controlling shareholder, began to
develop his vision of making Sunpoint a clearing broker/dealer and to achieve
utilization of wide-area, remote order entry technology, offer highly
competitive execution and clearing costs, and provide the highest quality of
service to registered representatives and their customers. From 1994 to 1997,
capital was raised, staff was trained, computer systems were installed, and
requisite memberships and approvals were obtained. By becoming a clearing
broker/dealer in June of 1997, Sunpoint was able to provide quality, efficient
clearing services utilizing remote order entry and account access to its
registered representatives.
By August of 1996, Sunpoint became a member of the Depository Trust Company
("DTC") and the National Securities Clearing Corporation ("NSCC") in New York.
The following month Sunpoint entered into a clearing arrangement with Pershing
Co., a member of the Options Clearing Corporation ("OCC"), to clear Sunpoint's
options trades and provide fully-disclosed services. During this same month,
Sunpoint entered into a relationship with Mercantile Bank and Trust of St.
Louis, Missouri, to provide settlement bank services. In July of 1997,
Sunpoint's Series A Common Stock became publicly traded on the NASDAQ bulletin
board as "SNPC."
In January of 1999, the Board of Directors was expanded from a sole director to
five directors. In the same month, application was made for listing of
Sunpoint's Series A Common Stock on the Chicago Stock Exchange, Incorporated.
That application is pending.
Sunpoint's Products and Services
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Sunpoint provides transactions processing and clearing services for securities
for registered representatives with primarily individual, retail customers.
Sunpoint's focus is in establishing a vehicle by which the independent
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registered representative can provide quality service and assistance to their
customer base. Sunpoint determines the product line made available to its
registered representatives and customers based on existing support levels and
regulatory requirements. The following products and/or services are made
available through Sunpoint:
. Stocks
. Corporate Debt Bonds
. Municipal Bonds
. Government Bonds and Notes
. Asset-Backed Securities
. Mortgage-Backed Securities
. Options
. Mutual Funds/Unit Investment Trusts
. Private Placements *
. Limited Partnerships *
. Certificates of Deposit
. New Issue Public Offerings
. Fixed and Variable Insurance Annuities
. Variable Life Insurance
. Financial Planning
. Retirement Plans
. Margin Loans
. Fee Based Investment Advisory Services *
* The sales volume of these products and services has greatly diminished in the
past few years due to changes in product mix.
Product Selection Method
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Sunpoint has established a product selection committee, comprised of principals
and department management of Sunpoint, with the mission to review current and
potential products to determine the following:
. Regulatory Requirements
. System and Support Requirements
. Suitability based on Investment Objectives
. Cost/Revenue Projections
. Exposure and Liability
The committee's goal is to analyze each current and potential product to
determine product viability within the current market conditions and the cost
and exposure to Sunpoint. Any new product, prior to its introduction to
Sunpoint's registered representatives and their customers, must be approved by
this committee. A due diligence checklist is now required for each proposed
product prior to its consideration by the committee for a selling agreement.
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Recent Changes in Products and Services
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As Sunpoint has developed, the principal products and services provided have
changed as set forth below.
Discontinued Products
The direct participation products, including limited partnerships and private
placements, have been severely curtailed as the clearing business has increased.
Since Fiscal 1997, Sunpoint has established a policy of offering no new limited
partnerships. Direct participation product sales do not utilize the fixed
investment in the clearing operation and expose Sunpoint to greater future
potential liabilities. Since the decrease in the direct participation business,
commission revenue has been replaced by increased commission revenue from sales
of stocks, bonds, options, mutual funds, and unit investment trusts; there has
been no material loss of revenue.
Sunpoint also has a limited history of offering commodities transactions through
a licensed affiliate from April 1995 to May 1997. These products were
discontinued due to lack of interest from registered representatives in the
commodities business and lack of sales by interested registered representatives.
Custodial Care of Retirement Accounts
Sunpoint was granted authorization by the Internal Revenue Service to become a
custodian for its retirement accounts in March 1998. Effective April 15, 1998,
the former trustee, City National Bank, no longer performed this function.
Sunpoint's accounting system, Phase 3, provides the maintenance and tax
reporting for retirement accounts. Sunpoint has utilized this portion of the
system since its conversion to self-clearing in June 1997. Sunpoint has also
established a relationship with Universal Pension, Inc. to provide advice on a
transaction-by-transaction basis relating to tax reporting requirements,
legislative rulings, and forms and to act as a specialist in consulting Sunpoint
in its capacity as a custodian.
Sunpoint absorbs all costs for maintaining the retirement accounts. This
includes setup and annual fees. This costs Sunpoint approximately $100,000 per
year with its existing customer base. As a result of Sunpoint's new status as
custodian for these accounts, Sunpoint now offers Roth Individual Retirement
Accounts ("IRAs"), Traditional IRAs, and Educational IRAs.
The net effect of this decision to offer free IRA accounts is the appeal it has
for customers. Most customers have a regular brokerage account in addition to
their IRA. IRA products allow Sunpoint to serve as a loss leader and is a good
selling point in recruiting registered representatives. When City National Bank
acted as Custodian for Sunpoint's IRAs, Sunpoint paid fees to the bank of
approximately $100,000. While offering free IRAs is a loss of potential revenue,
Sunpoint no longer incurs additional administrative expenses in obtaining this
service. Therefore, the actual impact on the financials from this Custodian
status has been minimal.
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Clearing Services
Sunpoint completed its conversion to a self-clearing environment in June 1997.
The purpose was threefold: (1) to reduce overall operating expenses with
continued growth, (2) to provide greater control in customer service and support
levels, and (3) to establish an environment in which Sunpoint has the freedom to
develop and support new and existing product lines. Sunpoint now offers its
registered representatives the ability to deal directly with back office
clearing and accounting staff, which results in more timely and efficient
transactions processing for the customers. Sunpoint currently offers clearing
services to its registered representatives.
Future Products and Services
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Correspondent Services
It is Sunpoint's intention to seek approval of the NASD and NSCC in 1999 to be
allowed to offer correspondent services. It was Sunpoint's intention to offer
correspondent services when the decision was made to convert to self-clearing.
Most self-clearing firms offer correspondent services resulting in increasing
transaction volume that generates lower unit fixed costs of providing products
or services. However, Sunpoint realizes that the size of the correspondents it
can service is directly related to Sunpoint's capital. With this in mind,
Sunpoint's target market for these services is the small broker/dealer that
averages fewer than 500 transactions per month.
Online Account Access
To be competitive in the securities industry, timely access to information is
crucial. Sunpoint, through its Management Information Systems Division ("MIS"),
will provide by the end of July, 1999, its registered representatives with the
following system support and functionality:
. On-line access to customer account activity and positions
. Quotation Services
Currently, Sunpoint is enhancing its computer systems to provide real-time
access to customer accounts through the Internet so that registered
representatives and their customers can view customer activity as it is updated
throughout the day as opposed to a batch-processing update of the prior day's
business. Management anticipates that this enhancement to existing services will
be available by the end of July, 1999.
Communications systems abilities are also being updated on a system-wide basis
to provide for email to encompass all registered representative locations and
the corporate office. Through the use of email, all reports currently printed
will be available to registered representatives on-line, which will enable the
customers to be provided with this information, when requested, on a more timely
basis.
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Principal Market
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Sunpoint competes with all retail broker/dealers and financial services
companies offering securities transactions to the public through a commissioned
sales force. Sunpoint offers a wide variety of products and services to retail
customers, including: stocks, corporate debt bonds, municipal bonds, government
bonds and notes, asset-backed securities, mortgage-backed securities, options,
mutual funds, and unit investment trusts, some private placements, some limited
partnerships, certificates of deposit, new issue public offerings, fixed and
variable life insurance, financial planning, retirement planning, margin loans,
and fee based investment advisory services. Sunpoint does not target any
particular niche product but rather competes for quality registered
representatives which provide products and services to primarily individual
retail customers.
Sunpoint has identified its target market in recruiting registered
representatives and established concise selection standards for profiling
potential registered representatives. This was accomplished in December of 1997.
To ensure the Sunpoint standards are maintained, a Broker Selection Committee
was established within the Recruiting and Compliance Departments. Parameters
were identified as to Sunpoint's risk tolerance. Standards were also established
to further identify what merits a continued relationship with Sunpoint. An
annual review is conducted by members of Management to determine if any
relationships will be terminated. This review encompasses production levels, as
well as operating and compliance factors.
Competitive Conditions
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Sunpoint's market is highly competitive. The principal factors affecting
competition in the securities brokerage industry are quality of services,
relative prices of services, range and selection of products offered, and the
courtesy and efficiency of back office customer accounting services. Sunpoint
competes with others in the financial services industry with respect to the
recruiting of new registered representatives and the retention of current
registered representatives. Sunpoint seeks out the association of quality
registered representatives who wish to operate in an independent environment.
Sunpoint competes for quality registered representatives by offering many
advantages of an independent broker/dealer, which include defining the type of
customer services offered, office space, and higher levels of technology.
Registered representatives are offered the quality services of a clearing firm
with direct access to back office personnel for timely and effective processing
of their customers' transactions which also enables the registered
representative to reduce the amount of processing charges applied to each
transaction. This results in higher compensation to the registered
representative while offering the same or lower costs to the customer. Sunpoint
also competes for quality registered representatives by offering a wide
selection of independent products which allows the registered representatives to
consider customer needs without regard to proprietary products. Finally,
Sunpoint offers several advantages many broker/dealers do not which include toll
free voice and fax lines to the home office, ability to access customer accounts
instantaneously (as of July, 1999), weekly pay on direct trades, a bond desk
with access to over 10,000 municipal, government, and corporate bonds, quality
due diligence and compliance oversight, ability to download lists of bonds,
email capability, and a website to assist in marketing efforts.
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Sunpoint also competes by lowering unit costs, which enables Sunpoint to provide
products and services at a lower cost. Management is attempting to lower these
unit costs through the identification and capitalization on economies of scale
in Sunpoint's operational and computer systems processes. In addition, Sunpoint
undertakes periodic reviews of all vendor and organizational relationships to
ensure cost competitive structures.
Lack of approval to offer correspondent services and present SIPC coverage are
limitations, which represent negative factors regarding Sunpoint's competitive
position.
Sunpoint competes directly with national and regional full service
broker/dealers and, to a lesser extent, with discount brokers, dealers,
investment advisers, and certain commercial banks. The financial services
industry has become considerably more concentrated as numerous securities firms
have either ceased operations or have been acquired by or merged into other
firms. Such mergers and acquisitions have increased competition from these
firms, many of which have significantly greater equity capital, financial, and
other resources than Sunpoint. Sunpoint expects competition from commercial
banks to increase as a result of recent legislative and regulatory initiatives
in the United States to remove or relieve certain restrictions on commercial
banks relating to the sale of securities.
Sunpoint also expects to face increasing competition from companies offering
electronic brokerage services, which is a rapidly developing industry. These
competitors may have lower costs or provide fewer services, and consequently may
be able to offer certain customers more attractive pricing or other terms, than
Sunpoint offers. In addition, disintermediation may occur as issuers attempt to
sell their securities directly to purchasers, including sales using electronic
media such as the Internet. To the extent that issuers and purchasers of
securities transact business without the assistance of financial intermediaries
such as Sunpoint, Sunpoint's operating results could be adversely affected.
Dependence on Key Customers
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In Management's opinion, no material part of the business of Sunpoint is
dependent upon a single customer or group of customers, the loss of any one of
which would have a materially adverse effect on Sunpoint, and no one customer or
group of affiliated customers accounts for as much as 10% of Sunpoint's
revenues.
Sunpoint, in its capacity as a retail self-clearing broker/dealer, extends
credit to its customers for margin accounts. There is risk that a customer will
default on payment of margin loans. Credit policies and margin maintenance
requirements are set by Sunpoint to minimize these risks. An in-house analysis
in October 1998 by the Financial Operations Principal indicated Sunpoint has 90%
of its margin accounts maintaining a debit balance of $50,000 or less. Only two
accounts, out of a total of 444 accounts, held a margin debit in excess of
$400,000.
Customers' securities transactions are effected on either a cash or margin
basis. Federal regulations prescribe the minimum original margin that must be
deposited by securities purchasers, and exchange regulations prescribe the
minimum margins that must be maintained by customers. Sunpoint imposes
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margin maintenance requirements that are equal to or exceed those required by
exchange regulations. Such requirements are intended to reduce the risk assumed
by Sunpoint that a market decline will reduce the value of a customer's
collateral below the amount of the customer's indebtedness before the collateral
can be sold.
Dependence on Technology
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Sunpoint's business is highly dependent on communications and information
systems, many provided from service vendors. Any failure or interruption of such
systems could cause delays in securities trading activities and an inability to
execute customer transactions, which could have a material adverse effect on
operating results of Sunpoint. Sunpoint does maintain a Disaster Recovery Plan
with off-site provisions for emergency operations if necessary. There can be no
assurance that Sunpoint will not suffer any such systems failure or
interruption, whether caused by an earthquake, fire, other natural disaster,
power or telecommunications failure, act of God, act of war, or otherwise. Also,
there is no guarantee that the back-up disaster procedures of Sunpoint and
capabilities in the event of any such failure or interruption will be adequate.
Year 2000 ("Y2K") Issues
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The "year 2000 issue" arises from the widespread use of computer programs that
rely on two-digit date codes to perform computations or decision-making
functions. Many of these programs may fail due to an inability to properly
interpret date codes beginning January 1, 2000. For example, such programs may
misinterpret "00" as the year 1900 rather than 2000. In addition, some
equipment, being controlled by microprocessor chips, may not deal appropriately
with the year "00."
Sunpoint is evaluating its computer systems to determine which modifications and
expenditures will be necessary to make its systems compatible with year 2000
requirements. Sunpoint believes that their systems will be year 2000 compliant
upon implementation of such modifications and intends to bring all of its
systems into compliance or have them replaced by September 1999. Sunpoint
currently estimates that the total cost of such modifications will not be
material to its operations. However, there can be no assurance that all
necessary modifications will be identified and corrected or that unforeseen
difficulties or costs will not arise. Sunpoint is highly reliant upon third
party vendors. Sunpoint has requested all of its vendors be year 2000 compliant
and has obtained representation letters to the effect that they will be
compliant by December 31, 1999. There can be no assurance that the systems of
other companies on which Sunpoint's systems rely will be modified on a timely
basis, or that the failure by another company to properly modify its systems
will not negatively impact the systems or operations of Sunpoint.
Government Regulation
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The securities industry is subject to extensive regulation by the United States
Securities and Exchange Commission (the "SEC"), state securities regulators, and
other governmental regulatory authorities. The SEC has been given by statute the
ultimate regulatory authority over the participants in the securities industry.
The exchanges and the NASD have been assigned regulatory authority over their
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members by the SEC. The designated examining authority for Sunpoint is the NASD.
Sunpoint is under the direction of the Dallas District of the NASD (District 6).
Areas of regulation include sales practices, capital requirements, record
keeping, customer protection, conduct of employees, and disputes arising between
Sunpoint and other dealers or customers. The SEC and NASD have authority to
conduct administrative proceedings which can result in fine, censure, civil
penalties, the issuance of cease-and-desist orders, the deregistration or
suspension of the noncompliant broker/dealer, the suspension or disqualification
of the broker/dealer's officers or employees, or other adverse consequences. New
rules or changes in existing rules can affect the operation and profitability of
Sunpoint. The stated purposes of regulation are protection of the customers and
to insure an orderly market and not protection of the creditors and shareholders
of broker/dealers.
The regulatory environment is also subject to change. Sunpoint may be adversely
affected as a result of new or revised legislation or regulations imposed by the
SEC, other federal or state governmental regulatory authorities, or the NASD.
Sunpoint also may be adversely affected by changes in the interpretation or
enforcement of existing laws and rules by designated examining authorities.
Sunpoint is registered as a broker/dealer and as an investment adviser with the
SEC. Sunpoint is registered as a broker/dealer in 50 states and the District of
Columbia, and, in addition, is registered as an investment adviser in certain
states that require such registration. Sunpoint is subject to extensive
regulation, primarily for the benefit of its customers, including minimum
capital requirements, which are promulgated and enforced by, among others, the
SEC, the NASD, and the securities administrators of the 50 states and the
District of Columbia.
Sunpoint is a member of the SIPC, which, in the event of liquidation of a
broker/dealer, provides protection for customers' securities accounts held by
Sunpoint of up to $500,000 for each eligible customer, subject to a limitation
of $100,000 for claims for cash balances.
As a broker/dealer and as a member firm of the NASD, Sunpoint is subject to the
Uniform Net Capital Rule (Rule 15c3-1) promulgated by the SEC which provides
that a broker/dealer doing business with the public must maintain certain net
minimum capital and shall not permit its aggregate indebtedness to exceed
certain specified limitations. The rule is designed to measure a firm's
financial integrity and liquidity. A broker/dealer may be required to reduce its
business and restrict withdrawal of subordinated capital if its net capital
drops below specified levels and also may be prohibited from expanding its
business or declaring cash dividends. In addition, failure to maintain the
required net capital may subject a broker/dealer to disciplinary actions by the
SEC, the NASD, and state securities administrators, including fines, censure,
suspension, or expulsion. The Uniform Net Capital Rule limits the uses Sunpoint
may make of its capital.
The Uniform Net Capital Rule requires the ratio of aggregate indebtedness, as
defined, to net capital not to exceed 15 to 1 and imposes certain restrictions
on operations. In computing net capital, various adjustments to net worth are
made with a view to exclude assets that are not readily convertible into cash
and with a view to a conservative statement of other assets, such as a firm's
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position in securities. Sunpoint may not be allowed to withdraw its subordinated
capital if its minimum net capital may then be less than 5% of aggregate debit
items as defined under the SEC's Uniform Net Capital Rule. Further, Sunpoint may
not permit equity capital to be withdrawn either by payment of dividends,
repurchase of stock, or other means, if its net capital would then be less than
5% of aggregate debit items as defined under the SEC's Net Capital Rule.
Sunpoint has elected to use the alternative method permitted by Rule 15c3-1 of
the Securities Exchange Act of 1934 ("Exchange Act"), which requires that
Sunpoint maintain minimum net capital, as defined, equal to the greater of
$250,000 or 2% of aggregate debit balances arising from customer transactions
(as defined). Compliance with the Uniform Net Capital Rule may limit those
operations of Sunpoint which may require the use of its capital, such as trading
activities and the managing of customer account balances, and also could
restrict Sunpoint's ability to pay dividends. See Note 6 of Notes to Financial
Statements for Year ended October 31, 1998. At April 30, 1999, Sunpoint had net
capital, computed in accordance with the Net Capital Rule, of $2,788,551 with a
required net capital of $382,911 resulting in an excess net capital of
$2,405,640.
Employees
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Sunpoint has both salaried employees and independent contractors. Salaried
employees numbered 66 full-time and 2 part-time as of May 31, 1999, and
virtually all work in the home office located in Longview, Texas. Sunpoint has
13 branch offices and 213 registered representatives (licensed by the NASD)
operating in all 50 states in the U.S. as of May 31, 1999. The registered
representatives are contracted pursuant to Independent Registered Representative
Agreements whereby the representative agrees to execute securities transactions
exclusively through Sunpoint in exchange for commission-based compensation.
Pursuant to these Independent Registered Representative Agreements, Sunpoint has
the right to refuse the account of any customer or to discontinue dealing with
any customer and both Sunpoint and the registered representative may terminate
the relationship at any time.
Sunpoint's business is dependent on the acquisition and retention of highly
skilled registered representatives. Sunpoint devotes considerable personnel and
capital resources to recruiting, training, and compensating such individuals.
While these efforts have resulted in increasing the average annual production
per representative from $31,712 in 1996 to $69,416 in 1998, there can be no
assurance that such recruiting efforts will be successful. There can be no
assurance that losses of key personnel due to such competition or otherwise will
not occur in the future.
REPORTS TO SECURITY HOLDERS
Until this Form 10-SB becomes effective, Sunpoint is not a reporting company as
defined under the Exchange Act. However, Sunpoint provides an annual report to
its shareholders. Sunpoint's shareholders are sent an annual audited statement
of financial condition prepared by independent public accountants and a midyear
unaudited statement of financial condition. Other information is sent to
shareholders as noteworthy events occur.
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The public may read and copy any materials Sunpoint has filed in the future with
the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The public may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
maintains an Internet site that contains reports, proxy, and information
statements and other information regarding issuers that file electronically with
the SEC. The address of that site is (http://www.sec.gov). Sunpoint's Internet
address is (http://www.sunpoint.com). -------------------
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW OF BUSINESS
Sunpoint operates as a full service retail securities broker/dealer, which
provides securities transactions processing (executes security trades upon
request) and other clearing services to customers of its independent registered
representatives throughout the United States.
DEPENDENCE ON REGISTERED REPRESENTATIVES
Sunpoint is entirely dependent upon the acquisition and retention of quality
registered representatives. Although Sunpoint's 213 registered representatives
entered into Registered Representative Agreements, none are bound to Sunpoint as
both Sunpoint and the registered representative may terminate the relationship
at anytime. Sunpoint attempts to retain its registered representatives by
offering direct access to transactions processing and quicker transaction
processing turn arounds; however, there can be no assurance that losses of
registered representatives due to competition will not occur.
CHANGES IN PRODUCTS AND SERVICES
The various financial products provided by Sunpoint are set forth in "Part I -
Item 1 -Description of Business." Please refer to Part I - Item 1 for a more
complete discussion of the changes in Sunpoint's products and services. The
following identifies certain changes in Sunpoint's product and service mix,
which have materially affected Sunpoint's financial position.
Discontinued Products
The direct participation products, including limited partnerships and private
placements, have been severely curtailed as the clearing business has increased
and Sunpoint has established a policy of offering no new limited partnerships.
Direct participation product sales do not utilize the fixed investment in the
clearing operation and expose Sunpoint to greater future potential liabilities.
Since loss of this direct participation commission, revenue has been replaced by
increased commission revenue from sales of stocks, bonds, options, mutual funds,
and unit investment trusts; there has been no loss of revenue as a result of
curtailing this business.
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Clearing Services
Sunpoint completed its conversion to a self-clearing environment in June 1997.
Sunpoint currently offers clearing services to its 213 registered
representatives.
Custodial Care of Retirement Accounts
Sunpoint was granted authorization by the Internal Revenue Service to become a
custodian for its retirement accounts in March 1998. Effective April 15, 1998,
the former trustee, City National Bank, no longer performed this function.
Sunpoint absorbs all costs for maintaining the retirement accounts. This
includes setup and annual fees. This costs Sunpoint approximately $100,000 per
year with its existing customer base. As a result of Sunpoint's new status as
custodian for these accounts, Sunpoint may now offer Roth IRAs, Traditional
IRAs, and Educational IRAs.
SELECTED FINANCIAL DATA
The following selected financial data for Fiscal Years Ended October 31, 1998
and 1997, are derived from audited financial statements of Sunpoint, which were
audited by independent certified public accountants. The following selected
financial data for the six month periods ended April 30, 1999 and 1998, are
derived from unaudited financial statements. In the opinion of Management, the
unaudited financial statements as of and for the six months ended April 30, 1999
and 1998, include all adjustments (consisting of normal, recurring adjustments)
necessary to present fairly the financial information included therein.
Results for the interim period are not necessarily indicative of results to be
expected during the remainder of the current Fiscal Year or for any future
period. The data should be read in conjunction with the audited financial
statements, unaudited financial statements, and selected notes and the following
discussion of results of operations.
14
<PAGE>
STATEMENTS OF INCOME FOR THE YEARS ENDED OCTOBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
FISCAL FISCAL
1998 1997
-------------- --------------
<S> <C> <C>
Revenues:
Securities Commissions $11,190,758 $ 8,066,526
Advisory Fees 190,753 32,639
Gains/Losses on Firm Securities Trading Account 303,220 48,703
Interest Income 905,004 146,281
Other Income 779,340 437,356
----------- -----------
Total Revenues $13,369,075 $ 8,731,505
Expenses:
Compensation and Benefits $ 7,543,224 $ 7,255,554
Commissions and Clearance Paid to all Other Brokers 419,446 628,026
Communications 1,106,010 995,444
Occupancy and Equipment Costs 1,001,689 816,695
Promotional Costs 249,505 523,795
Interest Expense 606,799 101,540
Losses in Error Account and Bad Debts 176,465 68,203
Regulatory Fees and Expenses 815,622 710,002
Other Expenses 704,250 774,602
----------- -----------
Total Expenses $12,623,010 $11,873,861
----------- -----------
Net Income (Loss) $ 746,065 $ 3,142,356)
=========== ===========
</TABLE>
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
FISCAL FISCAL
1998 1997
----------- -------------
<S> <C> <C>
Assets:
Cash $ 1,824,717 $ -
Cash Segregated under Federal and Other Regulations 2,288,846 234,474
Certificates of Deposit 87,312 969,310
Deposits with Clearing Organizations 2,012,343 661,485
Receivables from Brokers, Dealers, &
Clearing Organizations 159,709 538,158
Receivables from Related Parties 176,707 109,356
Receivables from Customers 9,869,573 6,411,159
Concessions Receivable 488,927 494,607
Secured Demand Note 542,500 -
Memberships in Exchanges Owned, at Cost 35,500 35,500
Furniture, Equipment, and Leasehold Improvements, at
Cost, Net of Accumulated Depreciation and
Amortization 290,554 433,851
Inventory - -
Other Assets 79,478 108,225
----------- -----------
Total Assets $17,856,166 $ 9,996,125
=========== ===========
Liabilities:
Bank Overdraft $ - $ 328,374
Payables to Brokers, Dealers, &
Clearing Organizations 10,207,912 6,624,471
Payables to Customers 3,386,976 1,289,617
Accounts Payable, Accrued Expenses,
& Other Liabilities 594,042 554,992
Commissions Payable 815,054 720,499
Notes Payable/Secured Demand Note 542,500 -
----------- -----------
Total Liabilities $15,546,484 $ 9,517,953
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
FISCAL FISCAL
1998 1997
----------------------------------
<S> <C> <C>
Stockholders' Equity
Series A Common Stock-No Par, $.01 Stated Value,
4,900,000 Shares Authorized, 3,792,064 Issued and
3,704,864 Outstanding at October 31, 1998, 2,579,922
Issued and Outstanding at October 31, 1997 $37,920 $25,790
Series B Common Stock-No Par, $.01 Stated Value,
100,000 Shares Authorized, 100,000 Issued and
Outstanding as of October 31, 1998 and October 31,
1997 1,000 1,000
Series A Convertible Preferred Stock-No Par Value, $.01
Stated Value, 125,000 Shares Authorized, 15,625
Shares Issued and Outstanding as of October 31,
1998 and 23,625 Shares Issued and Outstanding
as of October 31, 1997 156 236
Series B Convertible Preferred Stock-No Par Value, $.01
Stated Value, 50,000 Shares Authorized, 12,710 Shares
Issued and Outstanding as of October 31, 1998, 14,544
Shares Issued and Outstanding as of October 31, 1997 127 145
Series C Convertible Preferred Stock-No Par, $.01 Stated
Value, 360,000 Shares Authorized, 182,872 Shares
Issued and Outstanding at October 31, 1998 and
348,838 Shares Issued and Outstanding at October 31,
1997 1,830 3,489
Additional Paid-In Capital 6,083,783 4,684,270
Treasury Stock, At Cost (324,441) -
Retained Earnings (Deficit) (3,490,693) (4,236,758)
----------- -----------
Total Stockholders' Equity $ 2,309,682 $ 478,172
----------- -----------
Total Liabilities and Stockholders' Equity $17,856,166 $ 9,996,125
=========== ===========
</TABLE>
16
<PAGE>
UNAUDITED STATEMENTS OF INCOME FOR THE PERIODS ENDED APRIL 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------------------
<S> <C> <C>
Revenues
Securities Commissions $ 9,899,736 $4,681,877
Investment Advisory Fees 24,313 43,727
Gains or Losses on Firm Securities Trading Accounts 199,957 23,453
Interest Income 665,964 358,385
Other Income 640,015 353,948
----------- ----------
Total Revenue $11,429,985 $5,461,390
Expenses
Compensation and Benefits 920,377 674,575
Commissions and Clearance Paid to All Other Brokers 5,578,124 2,728,200
Communications 384,735 289,520
Occupancy and Equipment Costs 775,485 354,330
Promotional Costs 514,837 241,519
Interest Expense 459,919 249,727
Losses in Error Account and Bad Debts 58,144 11,682
Regulatory Fees and Expenses 339,018 113,346
Other Expenses 1,231,734 716,798
----------- ----------
Total Expenses $10,262,373 $5,379,697
Income Before Income Taxes 1,167,612 81,693
Provision for Income Taxes 0 0
----------- ----------
Net Income (Loss) $ 1,167,612 $81,693
=========== ==========
</TABLE>
UNAUDITED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
April 30, April 30,
1999 1998
------------------------
<S> <C> <C>
Assets
Cash $ 855,882 $ 634,284
Cash Segregated under Federal and Other Regulations 10,564,576 1,550,050
Certificates of Deposit 291,537 276,666
Deposits with Clearing Organizations 6,633,081 749,189
Receivables from Brokers, Dealers, and Clearing Organizations 669,537 276,382
Receivables from Related Parties 0 684,335
Receivables from Customers 13,220,497 8,451,930
Concessions Receivable 720,886 337,574
Secured Demand Note 542,500 539,000
Memberships in Exchanges Owned, At Cost 35,500 35,500
Furniture, Equipment, and Leasehold Improvements At Cost Net
Of Accumulated Depreciation and Amortization 275,972 370,068
Other Assets 66,302 69,852
----------- -----------
Total Assets $33,876,270 $13,974,830
=========== ===========
Liabilities
Payables to Brokers, Dealers, and Clearing Organizations 12,675,455 8,710,229
Payables to Customers 15,771,545 988,873
Accounts Payable, Accrued Expenses, and Other Liabilities 626,963 527,249
Commissions Payable 1,503,254 749,671
----------- -----------
$30,577,217 $10,976,022
Notes Payable/Secured Demand Note 542,500 539,000
----------- -----------
Total Liabilities $31,119,717 $11,515,022
=========== ===========
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
April 30, April 30,
1999 1998
-------------------------
<S> <C> <C>
Stockholders' Equity
Series A Common Stock-No Par, $.01 Stated Value,
4,900,000 Shares Authorized, 3,792,064 Issued and
3,520,400 Outstanding at April 30, 1999, 2,579,022
Both Issued and Outstanding at April 30, 1998 $37,920 $25,790
Series B Common Stock-No Par, $.01 Stated Value,
100,000 Shares Authorized, 100,000 Issued and
Outstanding as of April 30, 1999 and April 30,
1998 1,000 1,000
Series A Convertible Preferred Stock-No Par Value, $.01
Stated Value, 125,000 Shares Authorized, 15,625
Shares Issued and Outstanding as of April 30, 1999
and 23,625 Shares Issued and Outstanding as of
April 30, 1998 156 236
Series B Convertible Preferred Stock-No Par Value, $.01
Stated Value, 50,000 Shares Authorized, 0 Shares
Issued and Outstanding as of April 30, 1999, 12,710
Shares Issued and Outstanding as of April 30, 1998 0 127
Series C Convertible Preferred Stock-No Par, $.01 Stated
Value, 360,000 Shares Authorized, 182,872 Shares
Issued and Outstanding at April 30, 1999 and
182,872 Shares Issued and Outstanding at April 30,
1998 1,830 1,830
Additional Paid-In Capital 5,737,366 6,585,890
Treasury Stock, At Cost (698,638) -0-
Retained Earnings (Deficit) (2,323,081) (4,155,065)
----------- -----------
Total Stockholders' Equity $ 2,756,553 $ 2,459,808
----------- -----------
Total Liabilities and Stockholders' Equity $33,876,270 $13,974,830
=========== ===========
</TABLE>
RESULTS OF OPERATIONS
The following discussion contains trend information and other forward-looking
statements that involve a number of risks and uncertainties. Sunpoint's actual
future results could differ materially from its historical results of operations
and those discussed in the forward-looking statements. All period references are
to Sunpoint's Fiscal Years, ended October 1998, 1997, and the six month periods
ended April 30 of 1999 or 1998.
Certain statements included by reference in this Form 10-SB containing the words
"believes," "anticipates," "intends," "expects," and similar such words
constitute forward-thinking statements within the meaning of the Private
Securities Litigation Reform Act. Any forward-looking statements involve known
and unknown risks, uncertainties, and other factors that may cause actual
results, performance, or achievements of Sunpoint to be materially different
from any future results, performance, or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
impact of general economic conditions on the capital markets, changes in or
amendments to regulatory authorities capital requirements or other regulations
applicable to Sunpoint, fluctuations of interest rates, and increased levels of
competition. Given these uncertainties, undue reliance should not be placed on
forward-looking statements.
18
<PAGE>
Comparison of Year Ended
October 31, 1998, and Year Ended October 31, 1997
UNDERWRITING FEES
There were no underwriting fees received in Fiscal 1998. As discussed above,
Sunpoint has intentionally decreased its direct participation business.
INTEREST INCOME
Interest income in Fiscal 1998 was $905,004, with $767,280 coming from customer
margin debits. This increased significantly over Fiscal 1997 levels because
margin debits were minimal in the early months of conversion to self-clearing
resulting in only a small portion of the year earning significant margin
interest.
OTHER REVENUE
Other revenues include customer account fees, postage fee income, order flow
rebate, registration fees received, and administrative fees which increased
accordingly with the increase in the overall number of transactions.
INTEREST EXPENSE
Interest expense rose from $101,540 in Fiscal 1997 to $606,799 in Fiscal 1998.
Expense incurred in financing customer margin debits rose from $101,065 to
$570,844. Interest paid and accrued on the secured demand note in Fiscal 1998
was $35,000.
LOSSES IN ERROR ACCOUNT AND BAD DEBT
Losses in error account and customer write-offs increased from $68,203 in Fiscal
1997 to $176,465 in Fiscal 1998. Some of these losses were recovered by charging
the registered representatives, and this offset is reflected in less commission
expense.
REGULATORY FEES AND EXPENSES
Regulatory fees and expenses include the fidelity bond, surety bonds, SIPC
premium, NASD assessment, NASD arbitration charges, and registration fees to the
NASD and various states. Fiscal 1998 fees and expenses were $815,622 compared to
$710,002 in Fiscal 1997.
TOTAL REVENUES
Fiscal 1998 yielded total revenue of $13,369,075, an increase of 53% over Fiscal
1997 total revenue. The net profit from operations in Fiscal 1998 reached
$746,065, an all-time record high for Sunpoint. Sunpoint processed 102,273 trade
tickets in Fiscal 1998. A comparison of trade tickets processed between Fiscal
1996 (the last full year as a fully disclosed broker/dealer) and Fiscal 1998
reveals an annual increase of 68,866, or a 207% increase over Fiscal 1996 volume
of trading activity. The Fiscal 1998 gross revenue from the sale of stocks,
bonds, and options was 38% of total revenue, and gross revenue from the
19
<PAGE>
sale of mutual funds and variable annuities was 43% of total revenue. Gross
revenue from direct participation programs decreased from 10% to 3% from Fiscal
1997 to Fiscal 1998.
Growth in revenues is a function of increased quality of registered
representatives rather than number. In Fiscal 1997, Sunpoint had a high of 265
registered representatives with an average annual production of $31,722. In
Fiscal 1998, the number of registered representatives was 207 with the average
annual production increased to $69,416 - an increase of 119%. The gross revenue
per registered representative is a measure of the quality of registered
representatives based on their production levels.
In Fiscal 1996, Sunpoint's efforts on recruitment of quality registered
representatives resulted in a 49% growth rate in gross revenue. Fiscal 1997
efforts were primarily aimed at achieving and implementing self-clearing status.
These efforts are reflected in only a 4% growth rate for Fiscal 1997. The Fiscal
1998 growth rate of 53% reflects a renewed effort in growth of Sunpoint through
recruitment and retention of quality registered representatives.
NET INCOME
Profit for Fiscal 1998 was $746,065 with total gross revenue being $13,369,075,
yielding a profit margin of 5.6%.
DEPOSITS WITH CLEARING ORGANIZATIONS
Clearing deposits with fully disclosed accounts, omnibus accounts, DTC, and the
exchange are set at the beginning of the relationship by agreement and usually
do not fluctuate. The deposit with the NSCC fluctuates with a daily mark to
market based on a formula considering the amount of volatility and net purchases
and sales in the settling process. The required daily deposit is set by NSCC,
communicated to the broker/dealer, and wire transferred the same day in order to
limit NSCC's exposure to risk. Sunpoint's minimum NSCC deposit is $275,000 and
moves upwards from the minimum as the mark to market demands. The highest
required deposit was in excess of $1,600,000. At October 31, 1998, the NSCC
deposit was $383,388, and all other normal clearing deposits were $273,232, and
the amount on deposit in the Option Omnibus Account for customer requirements
was $1,350,000.
RECEIVABLES FROM BROKERS, DEALERS, & CLEARING ORGANIZATIONS
Receivables from brokers, dealers, and clearing organizations decreased from
$538,158 in Fiscal 1997 to $159,709 in Fiscal 1998. This represents fails to
deliver in the settlement process, dividends and interest receivable, and
receivables from deposits for borrowed securities. Dividends and interest
receivable are the result of checks in transit from payments received into
omnibus accounts. This is a timing issue and usually short-term in nature.
Sunpoint has had minimal stock borrowed. Successful networking of mutual funds
and generally more efficient processing of transactions have contributed to this
decline in fails to deliver.
20
<PAGE>
PAYABLES TO BROKERS, DEALERS, & CLEARING ORGANIZATIONS
Payables to brokers, dealers, and clearing organizations have increased from
$6,624,471 in Fiscal 1997 to $10,207,912 in Fiscal 1998. This represents fails
to receive in the settlement process and the margin loan to finance customer
debits. In Fiscal 1997 the margin loan was $5,320,698 and fails to receive were
$1,303,773. In Fiscal 1998 the margin loan was $9,672,725 and the fails to
receive were $531,576. The margin loan has increased normally with growth in
business. Fails to receive are not controlled by Sunpoint but rather by late
delivery from other brokers to Sunpoint. A large volume of incoming ACATs or
settlement activity and mutual fund networking problems cause increased fails to
receive. Having all the accounts transferred from the former clearing firm and
refining the mutual fund networking processing have made the balance of fails to
receive dependent upon settlement volume.
TOTAL ASSETS
Total assets vary significantly from month to month depending upon trading
volume, trading practices, and product type. Increased margin accounts and
increased option trading result in increased receivables from customers and
deposits with clearing organizations. Total assets for Fiscal 1998 were
$17,856,166 compared to $9,996,125 for Fiscal 1997.
PAYABLES TO CUSTOMERS
Payable to customers in Fiscal 1998 includes a total in customer credit balances
of $3,386,976 compared to $1,289,617 in Fiscal 1997. This represents both an
increase in the general level of business activity as well as an increase in the
Type 2 requirements accompanying option positions which hold the cash in the
customer account.
COMMISSIONS PAYABLE
Commissions payable increased from $720,499 in Fiscal 1997 to $815,054 in Fiscal
1998. This balance varies with the volume of trading activity and the type of
business being done during the period. Clearing business commissions are paid
once per month, after the last settlement date of the month. Sunpoint is on a
last calendar date settlement date. Commissions for direct business in mutual
funds, variable annuities, and direct participation programs are paid every
Friday as received from the vendor.
NOTES PAYABLES/SECURED NOTE
Sunpoint obtained a secured demand note from Mr. John O. Clayton (an
unaffiliated lender) in the principal amount of $542,500 on October 29, 1998.
Sunpoint pays Mr. Clayton interest monthly at the rate of 8%. The secured demand
note has a three-year term and matures December 29, 2000.
TOTAL LIABILITIES
Liabilities for Fiscal 1998, excluding the secured demand note with face value
of $542,500, were $15,003,984 compared to $9,517,953 for Fiscal 1997. Payables
to customers reflect customer credit balances which include Type 2 requirements
21
<PAGE>
for option positions. Payables to brokers, dealers, and clearing organizations
include the margin loan to finance customer debit balances. Both of these
liabilities can fluctuate with the volume and type of business activity.
STOCKHOLDERS' EQUITY
As of October 31, 1998, stockholders' equity was $2,309,682 as compared to the
stockholders' equity of $478,172 on October 31, 1997. This increase was
primarily due to net contribution to capital of $1,734,327 and retained earnings
of $746,065.
Comparison of Period Ended
April 30, 1999, and April 30, 1998
CASH SEGREGATED BY RULE, PAYABLES TO CUSTOMERS, AND DEPOSITS WITH CLEARING
ORGANIZATIONS
The increases in these three items are directly related. The line item "Payables
to Customers" represents all customer funds held by Sunpoint, which includes
free credit balances and cash requirements resulting from short sales and option
positions. Free credit balances appear in Type 1 accounts and are transitory, as
Sunpoint utilizes an external money market fund. Automatic sweeps from customer
accounts to money market investments occur within set parameters after a five-
day hold for the bank to recognize "good" funds. Short sale requirements appear
in Type 3 accounts, and option requirements appear in Type 2 accounts. Customer
credits are an important factor in the customer reserve calculation.
The customer reserve calculation is required by SEC Rule 15c3-3 and must be
performed weekly based on the business activity as of the previous Friday. The
rule requires the segregation of customer funds in a reserve account for
exclusive benefit of customers. All items which contain or relate to customer
funds or securities must be included in the calculation. Customer funds held on
deposit with the OCC are allowed as an offset to the required reserve balance.
The funds on deposit with the option omnibus account OCC requirements are
reflected as a part of the balance in "Deposits with Clearing Organizations." As
of April 30, 1999, the amount on deposit with OCC through Sunpoint's option
omnibus account was $5,800,000.
April 1999 "Payable to Customers" account balance includes approximately $14
million in Type 2 requirements. Type 3 credits have not significantly changed in
the last year of operation. The free credits are usually between $1 million and
$2 million. Free credits have increased only slightly and the amount is
dependent on daily cash deposits. The increase in free credit balances is
routine for the growth in Sunpoint's business activity. The increase in Type 2
requirements is explained by the increase in option business over the last year
of operation.
The account category "Cash Segregated Under Federal and Other Regulations" is
the customer reserve account balance. This calculation must be made on Monday
basedon Friday's business activity. As a rule of thumb, the total customer
22
<PAGE>
credit balances less the OCC deposit will approximate the amount which must be
on deposit in the customer reserve account. The increase in customer credits to
$15.7 million less the OCC deposit of $5.8 million approximately yields the
$10.5 million balance in the customer reserve. This approximation is cited only
to explain this growth of business during the previous year as evidenced by
increases in these account balances; the actual calculation is quite extensive.
Sunpoint's business activity has seen an increase in option transactions, as
evidenced by the increase in customer credit balances, primarily those in Type
2. This is attributable to general market conditions, as well as the association
of some new registered representatives who process more option transactions.
It is important to note that the balance of "Deposits with Clearing
Organizations" represents deposits with fully disclosed brokers, exchanges, the
DTC, and the NSCC. The fully disclosed, exchange, and DTC deposits have been set
at the beginning of the relationship by agreement and usually do not fluctuate.
The total of these deposits at April 30, 1999, was $277,284.
The deposit with the NSCC fluctuates with a daily mark to market based on a
formula considering the amount of volatility and net purchases and sales in the
settling process. The required daily deposit is set by NSCC, communicated to the
broker/dealer, and wire transferred the same day in order to limit NSCC's
exposure to risk. Sunpoint's minimum NSCC deposit is $275,000 by membership
agreement and moves upwards from the minimum as the mark to market demands. At
April 30, 1999, the required NSCC deposit was $555,797.
RECEIVABLES FROM BROKERS, DEALERS, & CLEARING ORGANIZATIONS
The April 30, 1999, balance in "Receivables From Brokers, Dealers, and Clearing
Organizations" was $669,537 as compared to the $276,382 from April 30, 1998.
This increase is due to normal growth in Sunpoint's business activity.
RECEIVABLES FROM CUSTOMERS, PAYABLES TO BROKERS, DEALERS, AND CLEARING
ORGANIZATIONS, AND COMMISSIONS PAYABLE
The increase from April 1998 to April 1999 in all three of these account
categories is attributable to ordinary growth of Sunpoint's business. At the end
of the second quarter 1999, Sunpoint held approximately 14,000 accounts. All
active accounts were moved to Sunpoint from the former clearing firm by November
1998. Many quality registered representatives have joined Sunpoint in this full
year of its clearing operation. Gross revenue and number of tickets processed
each month in Fiscal 1999 have exceeded that of the prior month.
One factor that affects the "Commissions Payable" account balance is the
relationship of the last day of the reporting month to a Friday. Sunpoint pays
commissions every Friday, so if the last day of the reporting month is Thursday,
the balance in "Commissions payable" would routinely be higher than other days.
23
<PAGE>
TREASURY STOCK AT COST
As of April 30, 1999, Sunpoint had 271,664 shares of treasury stock. As of this
date, the average price per share is $2.57. Pursuant to a public announcement in
the fall of 1998 of a planned buyback of 400,000 shares of Series A Common Stock
during Fiscal 1999, 184,464 shares have been repurchased and are included in the
271,664 shares.
LIQUIDITY AND CAPITAL RESOURCES
Internal Sources of Liquidity
- -----------------------------
Sunpoint funds its operations primarily through cash flow from operations
generated by commissions from executed trades and equity contributions.
Commissions range from 10 to 25% of each transaction depending on the type of
transaction and the volume production of the registered representative.
Management's plans for generating cash flow from operations in the future
consist primarily of continued growth in the average number of transactions per
registered representative.
Sunpoint maintains a highly liquid balance sheet, with the vast majority of
assets concentrated in cash, receivables from customers, receivables from
brokers, dealers, and clearing organizations, and commissions receivable.
Receivables from customers consist of margin loans collateralized by customer
securities. Receivables from brokers, dealers, and clearing organizations
consist of funds due in the settlement process and OCC option deposit
requirements for customer option positions. Commissions receivable are
commissions due to be paid to Sunpoint for its registered representatives'
transactions executed.
Because Sunpoint's assets are primarily commission-based, Sunpoint's total
assets and financial leverage can fluctuate significantly depending on volume of
activity. Total assets increased at April 30, 1999 to a record $33,876,270 over
total assets as of October 31, 1998, of $17,856,166 primarily due to increasing
the average production of the registered representatives.
External Sources of Liquidity
- -----------------------------
Sunpoint obtained a secured demand note from Mr. John O. Clayton (an
unaffiliated lender) in the principal amount of $525,000 on December 29, 1997.
Sunpoint pays Mr. Clayton interest monthly at the annual rate of 8%. As of April
30, 1999, the secured demand note has a three-year term and matures December 29,
2000. The demand note is secured as of April 30, 1999, by two corporate and 44
municipal bonds valued at $682,451 and money market funds of $5,537.80 for a
total principal amount of $687,988.80.
Factors Affecting Liquidity
- ---------------------------
Sunpoint monitors and evaluates the adequacy of its capital liquidity and
borrowing base on a daily basis in order to allow for flexibility in its funding
and to maintain liquidity. Sunpoint's financial condition is liquid, with
substantially all of its assets consisting of short-term collateralized
receivables arising from securities transactions and cash. The highly liquid
nature of these assets provides Sunpoint with flexibility in financing and
24
<PAGE>
managing its business. Sunpoint monitors liquidity by tracking asset levels and
funding availability to maintain flexibility to meet its financial commitments.
Liquidity and capital resources may be favorably affected by an increase in
revenues resulting in operating profits and reduction in processing costs or
operating expenses. Sunpoint is committed to growth through recruitment of
quality registered representatives and the increasing of cash flow from
operations by providing clearing services whenever possible. Clearing costs are
monitored, and Sunpoint is seeking better pricing arrangements from its present
and prospective vendors.
Liquidity and capital resources may be adversely affected by customers or other
broker/dealers defaulting on commitments, unfavorable judgements or rulings in
litigation or arbitration cases, reduction in volume of commission revenues, and
expending resources for the purchase of fixed assets. Credit and margin policies
of Sunpoint are designed and enforced with the goal of reducing credit risk from
customer default on margin loans. Sunpoint requires a minimum margin maintenance
level (percentage of margin loan retained by Sunpoint as collateral against the
margin loan) of 35% on all margin accounts. Regulation T extensions are rarely
given. Concentrated accounts are maintained at 50%. Most Internet stocks have a
maintenance level of 70%. Total debit balances are generally kept below 25% of
Sunpoint's net capital.
Liquidity is affected day-to-day by the clearing deposit required by the NSCC.
The daily deposit requirement is calculated by the NSCC Compliance Department
based on a formula which considers volatility of the pending transactions.
Additional deposits or refunds may be required as a result of the day's
activity. Sunpoint is required to have a minimum of $275,000 on deposit. As of
the date of this filing, the highest required deposit by Sunpoint at anytime was
approximately $1,600,000. Sunpoint has further agreed, as a condition of
membership with the NSCC, that it would maintain at all times excess net capital
above $500,000. Sunpoint is subject to the net capital requirements of both the
NASD and the Chicago Stock Exchange, Incorporated, which are designed to measure
the financial soundness and liquidity of broker/dealers. See Part I - Item 1
under the caption "Government Regulation." As of April 30, 1999, Sunpoint had
net capital, as defined, of $2,788,551 with a required net capital of $382,911
that resulted in an excess net capital of $2,405,640. Net Capital Requirements
may limit the uses Sunpoint can make of its capital.
Capital Expenditures
- --------------------
Sunpoint generally does not purchase fixed assets but chooses instead to lease
most equipment necessary in the business. Consequently, Sunpoint does not have,
nor does it expect to have, any material ongoing capital expenditures, except as
required to maintain capabilities of Sunpoint's computer systems. Sunpoint did
incur $433,394 in expenses in setting up and maintaining computer systems in
Fiscal 1998. Sunpoint generally anticipates expenditures of up to $250,000 every
year in order to maintain and upgrade Sunpoint's computer systems as necessary.
Management has recently purchased approximately 2.08 acres next to its
headquarters for the development of an office building. Sunpoint has spent
25
<PAGE>
approximately $40,000 in purchasing the land and has recently retained
architects to begin its design.
IMPACT OF INFLATION AND INTEREST RATES
The precise impact of inflation on clearing brokerage operations is difficult to
measure, but Management believes that continuation of present general levels of
inflation experienced in recent years will not have a significant effect on
Sunpoint's current and future operations. The financial statements and
accompanying notes appearing in Part III have been prepared in accordance with
generally accepted accounting principles, which require the measurement of
financial position and operating results in terms of historical dollars without
considering the changes in the relative purchasing power of money over time due
to inflation. Sunpoint's assets are primarily liquid in nature (cash and cash
equivalents and current receivables) and, therefore, not significantly affected
by inflation. Management believes that the cost of replacing furniture,
equipment, and leasehold improvements would not have a material effect on
operations. However, the rate of inflation may have a significant effect on
employee, communications, and occupancy costs, which may not be readily
recoverable in the price of services offered by Sunpoint.
Significant assets of Sunpoint are monetary in nature. As a result, interest
rates may have a greater impact on Sunpoint's performance than do the effects of
the general level of inflation. Interest rates do not necessarily move in the
same direction or to the same extent as the prices of goods and services.
OUTLOOK
Sunpoint's business is reliant upon the number of quality registered
representatives. Sunpoint is actively seeking to increase the production levels
per registered representative.
Over the past several years, Sunpoint has experienced significant growth in its
business and the number of its registered representatives, and it is
contemplated that Sunpoint will continue to experience similar growth in the
future. Such growth has required, and will continue to require, increased
investments in Management personnel, financial and Management systems, and
controls and facilities, which, in the absence of continued revenue growth,
would cause Sunpoint's operating margins to decline from current levels.
Sunpoint's business is also significantly affected by the levels of activity in
the securities markets, which, in turn, are affected by the level and trend of
interest rates, the general state of the economy, and the national and worldwide
political environments, among other factors.
A continuation of the relatively low interest rate environment should benefit
Sunpoint's commission revenues. An increasing interest rate environment,
however, could have some adverse impact on Sunpoint's business.
26
<PAGE>
LIMITS ON FORWARD-LOOKING STATEMENTS
Forward-looking statements contained in this Form 10-SB involve risks and
uncertainties, including, without limitation, the following: (1) Sunpoint's
strategies, objectives, expectations, and intentions are subject to change at
the discretion of Management; (2) Sunpoint's growth is dependent on the
continued acquisition and retention of quality registered representatives; and
(3) Sunpoint's business is highly competitive and the recent expansion of banks
and related financial institutions into the broker/dealer's already competitive
market could adversely affect Sunpoint's plans and results of operations.
ITEM 3: DESCRIPTION OF PROPERTY
Sunpoint's principal property and executive office is located in Longview,
Texas. The home office houses 68 employees and eight registered representatives.
Sunpoint leases approximately 24,808 rentable square feet of office space in the
Century Plaza Building at 911 West Loop 281, Third Floor, Longview, Texas 75604
(the "Headquarters"). Management has a right of first refusal for the leasing of
any suites becoming available on the third floor of this building. There are
currently five suites on the third floor not held by Sunpoint. The leases for
the principal executive offices expire in May 2002, and Management is confident
the leases will be renewed on similar terms or that Management will be able to
find similar offices at no material increase in cost.
Management does not intend to renovate the premises at this time. However,
Sunpoint purchased approximately 2.08 acres adjacent to the Headquarters for the
development of an office building for Sunpoint's Headquarters at the expiration
of the current lease in 2002 or earlier if Sunpoint is able to terminate its
lease at a negotiated price acceptable to Management. The property is
undeveloped but, in the opinion of Management, suitable for development of a
general office building. There are no liens or encumbrances on the property, and
Sunpoint has no debt owed relating to the purchase of the property.
Sunpoint has 13 additional offices located in four leased premises in New
Jersey, Florida, and Texas, the leases for which expire at various times.
Management is confident the various leases will be renewed on similar terms or
that Management will be able to find similar offices at no material increase in
cost. Management does not currently intend to renovate these premises.
Sunpoint believes that these facilities are adequate for the general office
purposes for which they are used and are well maintained. In the opinion of
Management, the properties are adequately covered by insurance.
Sunpoint is in the process of installing hand recognition security systems in
the Headquarters. The installation is complete and in the testing phase.
Sunpoint does not hold any real estate or related securities for investment
purposes.
27
<PAGE>
ITEM 4: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to any person
known to Sunpoint to be the beneficial owner of more than 5% of any class of
Sunpoint's outstanding capital stock as of the date of this filing. The
following person has sole voting and investment power with respect to the shares
of common stock which he or she beneficially owns:
Name and Amount and Nature
Address of Beneficial of Beneficial Percent of
Title of Class Owner Ownership Class*
- -------------------------------------------------------------------------------
Series A Common Stock Van R. Lewis, III 1,293,450 37%
911 W. Loop 281
Third Floor
Longview, Texas 75604
Series B Common Stock Van R. Lewis, III 100,000 100%
911 W. Loop 281
Third Floor
Longview, Texas 75604
Series A Convertible Sue Read 15,625 100%
Preferred Stock 2315 Brent Dr.
Big Springs, Texas 79720
Series C Convertible Mary Hatzenbuehler 11,808 7%
Preferred Stock 3311 Ambassador Row
Arlington, Texas 76013
Series C Convertible Jerry & Wanda Packwood 12,512 7%
Preferred Stock 2320 Denman
Stephanville, TX 76401
Series C Convertible Chester & Peggy Riggs 17,600 10%
Preferred Stock 4245 Clearlake Circle
Fort Worth, TX 76109
Series C Convertible Sunpt Securities Custodian 35,600 20%
Preferred Stock For Benefit of William
Sandlin IRA
911 W. Loop 281
Third Floor
Longview, Texas 75604
Series C Convertible Lindsey Vinson 10,800 6%
Preferred Stock 2710 Stemmons Freeway
Ste 200 N.
Dallas, Texas 75207
The following table sets forth certain information concerning the beneficial
ownership of Sunpoint's capital stock as of the date of this filing, with
respect to each director, executive officer, and directors and executive
officers as a group:
Name and Amount and Nature
Business Address of Beneficial Percent of
Title of Class of Beneficial Owner Ownership Class*
- -------------------------------------------------------------------------------
Series A Common Stock Van R. Lewis, III 1,293,450 37%
Series B Common Stock Van R. Lewis, III 100,000 100%
911 W. Loop 281
Third Floor
Longview, Texas 75604
Series A Common Stock Mary Ellen Wilder 13,000 less than 1%
911 W. Loop 281
Third Floor
Longview, Texas 75604
Series A Common Stock Marvin W. Sapaugh 14,000 less than 1%
911 W. Loop 281
Third Floor
Longview, Texas 75604
Series A Common Stock H. Wayne Smith 2,000 less than 1%
911 W. Loop 281
Third Floor
Longview, Texas 75604
Series A Common Stock Brett Hagen 29,280 1%
911 W. Loop 281
Third Floor
Longview, Texas 75604
28
<PAGE>
Name and Amount and Nature
Business Address of Beneficial Percent of
Title of Class of Beneficial Owner Ownership Class*
- -------------------------------------------------------------------------------
Series A Common Stock All Directors and 1,351,730 39%
Series B Common Stock Executive Officers 100,000 100%
as a group
(5 persons)
911 W. Loop 281
Third Floor
Longview, Texas 75604
. The percentages of class are based on 3,509,487 shares of Series A Common
Stock outstanding and 100,000 shares of Series B Common Stock outstanding
as of May 31, 1999.
There are no arrangements the operation of which would result in a change in
control of Sunpoint. None of the above persons have the right to acquire
additional securities pursuant to options, warrants, conversions or otherwise.
ITEM 5: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL
PERSONS
The following table sets forth information concerning the directors, executive
officers, and certain significant employees of Sunpoint as of the date of this
filing. Sunpoint's Board of Directors presently consists of five members. The
directors serve for one-year terms until the next annual meeting of stockholders
and/or until his or her successor, if there is to be one, is duly elected and
qualified. Three of Sunpoint's five executive officers serve on its Board of
Directors.
<TABLE>
<CAPTION>
Name Position(s) Age
----------------------------------------------------------------------------------
<S> <C> <C>
Van R. Lewis, III Board Chairman, President, 52
Chief Executive Officer
Marvin W. Sapaugh Director, Executive Vice President 59
Mary Ellen Wilder Director, Audit Committee 56
Member, Executive Vice President,
Chief Financial Officer, Secretary,
Financial Operations Principal
John C. Pope Director, Audit Committee Member 48
H. Wayne Smith Director 67
Richard Muffler Audit Committee Member 58
Brett W. Hagen Chief Operating Officer, 46
Branch Manager
Donald L. Katz Executive Vice President, 59
Compliance Officer
Dianne B. Childers Vice President, Compliance Officer 43
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
Name Position(s) Age
-------------------------------------------------------------------------
<S> <C> <C>
Denise D. Ponder Department Manager, Trading 44
Joseph P. Walsh Department Manager, Clearing Services 42
Tammy L. Jackson Recruiting Broker Development 34
Barry W. Gabriel Department Manager, Management 35
Information Systems
Mary Powers Consultant 44
</TABLE>
Van R. Lewis, III Mr. Lewis was the founder of Sunpoint in 1989 and has served
- -----------------
as the Chairman of the Board of Directors of Sunpoint since its incorporation in
1989. Mr. Lewis has served as President and Chief Executive Officer of Sunpoint
from September 1989 to June 1995 and from June 1997 to the present. There are no
arrangements or contracts relating to Mr. Lewis' position as a director or
officer of Sunpoint. Mr. Lewis holds no directorships in reporting companies.
Mr. Lewis was the 100% owner of InvestSmart, Inc., a broker/dealer, from July
1996 to July 1997.
In June 1994, Mr. Lewis was barred by the NASD, pursuant to a signed Acceptance,
Waiver and Consent to Censure Bar, from association with any NASD member as a
Financial and Operations Principal and was given a ten business day suspension
from association with any NASD member in any capacity for failure to comply
with Rules 15c3-1, 17A-3, 17A-5, and 15c2-4 which resulted in a net capital
violation.
In September 1994, Mr. Lewis was subject to an order by the Oklahoma Department
of Securities (Case No. 94-109) and the NASD. In April 1995, the Administrator
issued an amended order barring Mr. Lewis from conducting any activities subject
to the jurisdiction of the Oklahoma Securities Act for a period of six months
beginning September 1994 and ending March 1995. Pursuant to the order, Sunpoint
was suspended for five business days and Mr. Lewis was suspended for ten
business days from acting as a Financial and Operations Principal. Mr. Lewis was
barred from association with any broker/dealer or investment adviser in the
state of Oklahoma for six months due to violations of the net capital rule and
for offering securities in Oklahoma in violation of that rule and for engaging
in dishonest or unethical practices in the securities business.
Mr. Lewis' principal occupation is that of Chairman of the Board of Directors,
President, and Chief Executive Officer of Sunpoint. However, Mr. Lewis has also
founded and works for additional companies, most of which he owns a controlling
interest. The following table sets forth the organizations which Mr. Lewis has
founded, the nature of each business, his ownership interest, and the positions
he currently holds with each organization:
30
<PAGE>
<TABLE>
<CAPTION>
Date of Ownership
Incorporation Name of Organization Nature of Business Interest
- ------------- -------------------- ------------------ ---------
<S> <C> <C> <C>
11/4/97 Sunpoint Electric, Inc. Electrical contractor 100%
9/27/96 Sunpoint Institute of Aviation school 100%
Aeronautics, Inc.
1/4/96 Sunpoint Aviation, Inc. Airport terminal 100%
9/23/97 Sunpoint Printing, Inc. Printing services 100%
9/16/96 Sunpoint Completions, Inc. Airplane painting Sold
11/5/96 Sunpoint Air Transport, Inc. Airplane leasing 100%
4/30/96 Van Lewis III, Inc. Charters airplanes 100%
4/28/98 SP Electric Electrical contractor 49%
4/30/90 Sunpoint Insurance Agency, Inc. Sells insurance products 10%
Sunpoint The Cafe Ceased operations
7/15/98 Sunpoint Holdings Inc. No operations Sold
10/29/96 Tribal Smokeshop Inc. Sales of tobacco products Sold
11/18/97 Financial Firms Exchange, Realtor for brokers 100%
Inc.
Sunpoint Commodities Assisted Sunpoint 100%
in offering futures products
1/24/96 Sunpoint Automobiles, Inc. Auto repair Dissolved
1/26/95 Sunpoint Futures, Inc. Broker/dealer for sales of Dissolved
futures
9/11/95 Judy/Van Enterprises, Inc. Employment agency Dissolved
</TABLE>
Prior to incorporating Sunpoint in 1989, Mr. Lewis held the following positions
in the brokerage industry:
<TABLE>
<CAPTION>
Name of Firm Dates Worked Position
- ------------ ------------ --------
<S> <C> <C>
Linsco December 1988-August 1989 Salesman
American Benefits Corp. January 1988-May 1989 Salesman/Branch Manager
Lincoln Investment November 1987-September 1988 Branch Manager
Bradstreet Capital May 1987-October 1987 Assistant Sales Manager
Gov. & Sec. Corp. January 1987-May 1987 Registered Representative
</TABLE>
Mr. Lewis is a graduate of Northwestern State University with a Bachelor of
Science in Accounting. Mr. Lewis holds the following licenses: NASD Series 4,
7, 24, 53, and 63.
Marvin W. Sapaugh Mr. Sapaugh has served as a director of Sunpoint since
- -----------------
February 1999, and has served in the following capacities for Sunpoint: Vice
President Operations, November 1990 to June 1995; President and Chief Executive
Officer, July 1995 to June 1997; Senior Vice President, June 1997 to October
1998; and Executive Vice President, October 1998 to present. There are no
arrangements or contracts relating to Mr. Sapaugh's election as an officer or
31
<PAGE>
director. Mr. Sapaugh holds no directorships in reporting companies.
Mr. Sapaugh holds a Bachelor of Arts in Business Administration from Baylor
University. Mr. Sapaugh holds the following licenses: 24, 7, and 63.
Mary Ellen Wilder Ms. Wilder has served as a director of Sunpoint since
- -----------------
February 1999, has served as a member of the Board of Directors' Audit Committee
since February, 1999, and has served in the following capacities for Sunpoint:
Vice President of Accounting, September 1993 to August 1995; Vice President
Finance and Services, August 1995 to October 1998; and Executive Vice President,
October 1998 to present. Ms. Wilder has also served as Sunpoint's Financial
Operations Principal since September 1993. There are no arrangements or
contracts relating to Ms. Wilder's election as a director or officer of
Sunpoint. Ms. Wilder holds no directorships in reporting companies.
Since November 1992, Ms. Wilder has taught business law courses on a part-time
basis for the Convisor Duffy CPA Review Study Program. From May 1998 to June
1999, Ms. Wilder served as a Financial Operations Principal for InvestSmart,
Inc., a broker/dealer originally owned by Mr. Lewis and sold in March 1997.
In July 1998, the NASD suspended Ms. Wilder's Series 27 License (Financial
Operations Principal License) for ten days and fined her, jointly and severally
with Sunpoint, $50,000 for a net capital deficiency and a customer reserve
account deposit deficiency which occurred one month after Sunpoint became a
clearing broker/dealer and made her retest for her Series 27 license.
Ms. Wilder holds a Bachelor of Science from Lamar University and a Master of
Business Administration from the University of Texas at Tyler. Ms. Wilder has
also done post Baccalaureate work in accounting with various colleges and
universities. Ms. Wilder holds the following licenses: Certified Public
Accountant, Financial Operations Principal, and General Securities Principal.
John C. Pope Mr. Pope has served as a director and as a member of the Audit
- ------------
Committee of Sunpoint since joining Sunpoint in February, 1999. There are no
arrangements or contracts relating to his election as a director. Mr. Pope
holds no directorships in reporting companies.
Mr. Pope has been the sole owner of John C. Pope, CPA, a full service Certified
Public Accounting firm in Longview, Texas, which provides accounting and tax
services since 1991.
Mr. Pope holds a Bachelor of Business Administration in Accounting from the
University of Texas at Arlington and is licensed as a CPA.
H. Wayne Smith Mr. Smith has served as a director of Sunpoint since February,
- --------------
1999. There are no arrangements or contracts relating to Mr. Smith's election
as a director of Sunpoint. Mr. Smith holds no directorships with reporting
companies.
32
<PAGE>
From 1982 to the present, Mr. Smith has served as the President and majority
stockholder of Harris Industries, Inc., a Texas corporation established in 1952
as an iron foundry and pattern manufacturer.
Mr. Smith attended the University of Dallas at Irving, Texas, after earning a
certificate of completion from the Federal Business Institute of Tyler.
Richard Muffler Mr. Muffler has served as a member of the Board of Directors'
- ---------------
Audit Committee since February, 1999. Mr. Muffler has also served Sunpoint as a
registered representative since 1995. Prior to joining Sunpoint in June, 1995,
Mr. Muffler served as a Plant Controller for Stroh Brewery (Schlitz) from 1970
to 1994 where he was responsible for all accounting activities, budgeting, and
related matters.
Brett W. Hagen Mr. Hagen has served as the Chief Operating Officer of Sunpoint
- --------------
since January 1, 1999. There are no arrangements or contracts relating to Mr.
Hagen's election as an officer of Sunpoint. Mr. Hagen joined Sunpoint as a
registered representative in February of 1991.
Mr. Hagen holds a Bachelor of Science and a Master of Business Administration
from the Virginia Commonwealth University.
Donald L. Katz Mr. Katz has served as an Executive Vice President and as the
- --------------
head Compliance Officer for Sunpoint since December 1998. There are no
arrangements or contracts relating to Mr. Katz's election as an officer of
Sunpoint.
Prior to joining Sunpoint in December 1998, Mr. Katz served as a Consultant for
Advantage Securities from November to December 1998. Mr. Katz has served as a
Financial Principal for Sunbelt Securities, Inc. since November 1996. Mr. Katz
served as a Financial Principal for Institutional Capital Management Inc. from
November 1996 to January 1998. Mr. Katz served as a Financial Principal for
Institutional Capital Management Inc. from November 1996 to January 1998. Mr.
Katz served as a Consultant for B.C.R. Holding Corp. from November 1996 to June
1997. Mr. Katz served as a Director of Compliance for Texas Capital Securities,
Inc. from September 1994 to October 1997. Mr. Katz served as a Director of
Compliance for Block Trading Inc. from September 1994 to September 1998. Mr.
Katz served as a Municipal and Options Principal for Block Discount Trading,
Inc. from September 1994 to December 1994. Mr. Katz also served as a Financial
Principal and Director of Compliance for Murchison Investment Bankers, Inc. from
July 1991 to September 1994.
In October 1998, the Massachusetts Securities Division filed an administrative
complaint, Docket No. R-98-53, against Block Trading, Inc. ("BTI"); BTI's Chief
Executive Officer, Christopher Block; BTI's President, Jeffrey S. Burke
("Burke"); BTI's Chief Compliance Officer, Donald L. Katz ("Katz"); Supervisor
of BTI's Boston office, Jeffrey M. Bowman ("Bowman"); and an unregistered
individual, Adam Baruchowitz ("Baruchowitz") (collectively, the "Respondents").
The Division alleged that BTI, through its officers and agents, engaged in the
following activity: that BTI's marketing was deceptive; that BTI actively
promoted, encouraged, facilitated, and arranged loans for customers, apart from
margin loans; that BTI failed to establish and enforce a system to prevent
33
<PAGE>
commingling of activity among accounts and Baruchowitz's unlawful allocation of
trades; that BTI, through Katz, misrepresented its lending activity; that Bowman
effected unauthorized transactions in customer accounts; that BTI and Bowman
failed to report a customer complaint on Bowman's Form U-4 as required under 950
CMR 12.203(5)(a)(12); that BTI failed to respond to the subpoena issued by the
Division on September 14, 1998; and that BTI, Block, Burke, and Katz failed to
supervise Bowman's operation of the Boston office. The Division also alleged
that Baruchowitz unlawfully engaged in investment advisory activity without
being registered and engaged in the unlawful allocation of trades. For the
reasons set forth above, the Division requested that the Secretary revoke BTI's
registration as a broker/dealer in Massachusetts and to order BTI to cease and
desist from further violations of the Act; to order Block to cease and desist
from further violations of the Act; to order Burke to cease and desist from
further violations of the Act; to order Katz to cease and desist from further
violations of the Act; to retroactively revoke the registration of Bowman as an
agent of BTI and to order him to cease and desist from further violations of the
Act; to order Baruchowitz to cease and desist from transacting business in
Massachusetts as an investment adviser or as an investment adviser
representative and to cease and desist from further violations of the Act; and
order the imposition of administrative fines on each of the respondents. This
complaint is still pending.
Mr. Katz holds a Bachelor of Science in Commerce from Rider University and the
following licenses: Series 24, 27, 53, 4, and 7.
Dianne B. Childers Ms. Childers has served Sunpoint in the following capacities:
- ------------------
Director Account Administration, July 1992 to June 1995; Vice President
Operations, July 1995 to October 1997; and Vice President and Compliance Officer
since October 1997. There are no arrangements or contracts relating to the
election of Ms. Childers as an officer of Sunpoint. Ms. Childers joined
Sunpoint in July 1992 as an order entry clerk. In 1995, she was promoted to
Vice President where she supervised order entry and new accounts. In 1998, she
became a Compliance Officer.
Ms. Childers has some credits toward a Bachelor of Business Administration from
Jackson State Community College, has taken several courses from the American
Institute of Banking, is a Dale Carnegie Course graduate, and holds the
following licenses: Series 28, 53, 4, 24, and 7.
Denise D. Ponder Denise D. Ponder has served as the Department Manager,
- ----------------
Trading, for Sunpoint since December 1997. Prior to joining Sunpoint in May
1995, Ms. Ponder worked at BSC Securities L.C., from November 1992 to February
of 1995 as an order entry clerk. Previous securities experience included three
years with Merrill Lynch as a margin clerk.
Joseph P. Walsh Mr. Walsh has served as the Department Manager, Clearing
- ---------------
Services for Sunpoint since August 1997. Prior to joining Sunpoint in 1997, Mr.
Walsh served as an assistant operations manager of May Financial Corporation
from January 1997 to June 1997. His responsibilities centered on processing of
securities transactions for NASD broker/dealers. From September 1995 to
December 1996, he served in operations for Penson Financial Services, Inc., a
Texas broker/dealer, where he provided customer and dealer cashier services.
From May 1992 to September 1995, he served as a Manager of the Operations
34
<PAGE>
Department for First Southwest Company, a Texas broker/dealer, where he managed
a staff of 17 associates responsible for trade input and purchase and sales of
equities, fixed income, and mortgage backed securities, as well as new accounts,
mutual funds, government securities, and government companies and clearing, as
well as internal audit and reports.
Mr. Walsh holds an Associates Degree in Business Management and has taken the
following courses from the New York Institute of Finance: Introduction to Floor
Trading, Reorganization, and Registered Representative Preparatory Course.
Tammy L. Jackson Ms. Jackson has served as the Manager of Broker Development for
- ----------------
Sunpoint since 1996. Ms. Jackson served Sunpoint as the Director of Human
Resources from March 1994 to 1996. Her responsibilities included recruiting
quality registered representatives and ensuring a smooth transition in
transferring customer accounts.
Barry W. Gabriel Mr. Gabriel has served as Department Manager, Management
- ----------------
Information Systems since November 1996. From 1995 to November 1, 1996, Mr.
Gabriel served as a System Support Engineer for Intecom, Inc., which provides
phone systems to customers. Mr. Gabriel was responsible for technical support
and for data/original equipment manufacture product development. From 1994 to
1995, Mr. Gabriel worked as a communication systems engineer for the Sabre
Group, a subsidiary of American Airlines. Mr. Gabriel was responsible for
design and implementation of data network communications systems.
Mr. Gabriel holds a Bachelor of Science with an emphasis in telecommunications
from Texas A&M University and an Associates Degree in Electronics Technology
from Kilgore Junior College.
Mary Powers Ms. Powers served Sunpoint as an Executive Vice President from
- -----------
September 1997 to October 1998 and as a Special Consultant since October 1998.
Ms. Powers served as the President of Waterford Financial, Inc. from August 1993
to December 1998.
FAMILY RELATIONSHIPS
There are no family relationships among the above persons.
ITEM 6: EXECUTIVE COMPENSATION
The following Summary Compensation Table shows the compensation paid each of the
last three Fiscal Years to the Chief Executive Officer and the only executive
officer of Sunpoint as of the date of this filing who is expected to receive
aggregate remuneration in excess of $100,000 in Fiscal 1999:
35
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
-------------------------- -------------------------------------------------------
Awards Payouts
Other All
Annual Restricted Securities Other
Compen- Stock Underlying LTIP Compen-
Name & Principal Salary Bonus sation Awards Options/ Payouts sation
Position Year ($) ($) ($) ($) SARs(#) ($) ($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Van R. Lewis, III Fiscal '98 0 22,134 32,342 0 0 0 0
President & Chief Fiscal '97 49,000 0 67,803 0 500,000 0 0
Executive Officer Fiscal '96 14,292 0 68,309 0 100,000 0 0
Mary Ellen Wilder Fiscal '98 60,406 25,000 0 0 0 0 0
Executive Vice Fiscal '97 50,409 0 0 0 0 0 0
President & Chief Fiscal '96 38,011 0 0 0 0 0 0
Financial Officer
</TABLE>
OTHER ANNUAL COMPENSATION
Registered representatives that introduce new registered representatives to
Sunpoint are given "override commissions." The percentage commission is paid
out of the percentage of the revenue per transaction allocated to Sunpoint. The
percentage commissions are preset and vary by registered representative. Mr.
Van R. Lewis, III's override commission percentage varies between 2 and 5%.
During his travels across the United States on behalf of Sunpoint (recruiting
and monitoring registered representatives and spot checking on various
branches), Mr. Lewis sometimes incurs credit card bills which are primarily
expenses of Sunpoint with some personal expenses mixed in. Sunpoint pays these
bills where the majority of the expenses are Sunpoint related which results in
additional compensation to Mr. Lewis. Each year, these payments, along with the
override commissions, are aggregated as compensation to Mr. Lewis.
Sunpoint owns seven cars which are kept for the use of visiting registered
representatives, consultants, and occasionally for employees when the need
arises. The value of the use of these cars by the officers and directors is de
minimus, cannot be calculated with any certainty, and has not been included
above. Sunpoint also purchases the use of a house on behalf of visitors,
consultants, and traveling recruiters from Mr. Van R. Lewis. The value of the
use of this house to the above executives is not readily calculable although the
rentals paid by Sunpoint to date to Mr. Lewis total $9,000.
The values of the options granted in Fiscal 1996 and 1997 are not included in
the column "Other Annual Compensation" because of the lack of a public market
for the options.
AMENDMENT OF STOCK OPTION EXERCISE PRICE
Mr. Lewis was issued stock options for the purchase of 250,000 pre stock split
shares of Series A Common Stock in September 1997 in exchange for his services
in the Radair merger, which expired if not exercised by September 23, 1999.
Pursuant to the terms of the Stock Option Agreement, the number of shares
subject to the option were doubled by the stock split declared on September 23,
36
<PAGE>
1997. In August 1998, Sunpoint amended the post stock split exercise price from
$1 per share to $.01 per share in recognition of a contribution to capital on
Mr. Lewis' behalf by Sunpoint Insurance Agency, Inc., 10% owned by Mr. Lewis, in
the amount of $969,309.43 as of December 30, 1997.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Shares Unexercised In-The-Money
Acquired Options/SARs Options/SARs
on Value at FY-End(#) At FY-End ($)
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
- ------------------- ------------ ------------- -------------- --------------
<S> <C> <C> <C> <C>
Van R. Lewis, III 500,000 403,190.57 0/0 0/0
President and
Chief Executive
Officer
</TABLE>
VALUATION OF SHARES ACQUIRED ON EXERCISE
The value realized by Mr. Lewis upon exercise of the option in August 1998 was
approximately $403,191. The market value was approximately $1,375,000 (highest
price of calendar quarter $2.75 multiplied by the number of shares) less the
exercise price of $2,500 and less $969,309.43 paid on Mr. Lewis' behalf by
Sunpoint Insurance Agency, Inc., 10% owned by Mr. Lewis as of December 30, 1997.
COMPENSATION OF DIRECTORS
All of the executive officers and directors of Sunpoint are reimbursed for
reasonable out-of pocket expenses incurred. Sunpoint does not have any present
arrangements regarding compensation of directors for serving as directors. No
compensation for service as a director is presently contemplated. During 1999,
the directors were paid a one-time fee of $2,000 each.
EMPLOYMENT CONTRACTS
No executive officer of Sunpoint has an employment agreement. There are no
compensatory plans or arrangements with respect to any executive officer
relating to the resignation or retirement of any executive officer.
ITEM 7: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During Fiscal 1997, Mr. Lewis, the President and Chief Executive Officer of
Sunpoint, purchased furniture and computer equipment from Sunpoint at a book
value of $176,489 which, in Management's opinion, approximated fair market
value. These assets originally cost $196,132 and have accumulated depreciation
of $19,643.
During Fiscal 1997, Certificates of Deposit in the aggregate amount of
$1,078,665 owned by Sunpoint were loaned to Mr. Lewis, which most of them were
then loaned to related companies which pledged them against indebtedness.
37
<PAGE>
These loaned Certificates of Deposit were allocated as follows: Sunpoint
Aviation, Inc. borrowed the amount of $484,655; Van Lewis III, Inc. borrowed the
amount of $256,867; and Sunpoint Institute of Aeronautics borrowed the amount of
$227,787. During Fiscal 1997, Sunpoint Insurance Agency, Inc., 10% owned by Mr.
Lewis and 90% owned by an unrelated individual, paid $969,609.43 on behalf of
Mr. Lewis. During Fiscal 1998, Mr. Lewis paid Sunpoint $744,609 to reduce this
receivable. Sunpoint is currently owed $224,700. These Certificates of Deposit
were loaned to Mr. Lewis in recognition of his minimal annual salary prior to
Fiscal 1997, the cessation of his salary in Fiscal 1998, and the multiple
infusions of capital by Mr. Lewis since Sunpoint's incorporation in 1989.
During Fiscal 1997, Sunpoint purchased $5,299 in services from Sunpoint The
Cafe. Invoices totaling $5,299 were submitted and paid.
During Fiscal 1997, Sunpoint purchased $6,493 in services from Sunpoint
Insurance Agency, Inc. Invoices totaling $6,493 were submitted and paid.
During Fiscal 1998, Sunpoint purchased document and form printing services from
Sunpoint Printing, Inc., 100% owned by Mr. Lewis, in the total amount of
$108,290. Invoices totaling $108,290 were submitted and paid in full.
During Fiscal 1998, Sunpoint purchased airflight services and rental cars for
registered representative recruitment, travel of consultants, and travel of
compliance officers from Sunpoint Aviation, Inc. in the total amount of
$385,572. Although Sunpoint Aviation, Inc. was sold in February 1999, at the
time these services were provided, Sunpoint Aviation, Inc. was 100% owned by Mr.
Lewis. Invoices totaling $385,572 were submitted and paid in full.
During Fiscal 1998, Sunpoint purchased services for office repairs relating to
wiring of $774 from Sunpoint Electric, Inc., 100% owned by Mr. Lewis. An
invoice in the amount of $774 was submitted and paid in full.
During Fiscal 1998, Sunpoint Aviation, Inc., 100% owned by Mr. Lewis, borrowed
$42,625 from Sunpoint. This amount was repaid in Fiscal 1999.
In Fiscal 1998, Sunpoint Insurance Agency, Inc., 10% owned by Mr. Lewis,
borrowed $50,000 from Sunpoint. This amount was repaid in Fiscal 1999.
During Fiscal 1998, Judy/Van Enterprises, Inc., 100% owned by Judy Guess, a
former registered representative of Sunpoint, borrowed $15,000 from Sunpoint.
This amount was repaid in Fiscal 1999.
During Fiscal 1999, Sunpoint has leased use of a house to consultants and
visitors from Mr. Lewis. Invoices totaling $9,000 have been submitted and paid
during Fiscal 1999.
During Fiscal 1999, use of a motor home was purchased for travel in broker
recruitment and compliance from Mr. Lewis. Invoices in the amount of $28,157.80
have been submitted and paid in full.
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During Fiscal 1999, pursuant to Sunpoint's Disaster Recovery Plan, use of a
building was purchased from Van Lewis, Inc., 100% owned by Mr. Lewis. This
building is used by Sunpoint as a "hot site"' office location in case of any
disaster rendering the Headquarters office unusable. Invoices totaling $3,000
have been submitted and paid in full.
During Fiscal 1999, additional offsite storage capacity has been rented from Mr.
Lewis. Invoices in the amount of $875 have been submitted and paid in full.
As of May 31, 1999, Sunpoint purchased flight services and rental cars for use
in registered representative recruitment, travel of consultants, and travel of
compliance officers from Sunpoint Aviation, Inc. in the total amount of
$70,011.74. At the time of the purchase of these services, Sunpoint Aviation,
Inc. was 100% owned by Mr. Lewis.
As of May 31, 1999, Sunpoint purchased services for office repairs relating to
wiring of $15,037.78 from Sunpoint Electric, Inc., owned 100% by Mr. Lewis. An
invoice in the amount of $15,037.78 was submitted.
As of May 31, 1999, Sunpoint purchased document and form printing services from
Sunpoint Printing, Inc. in the total amount of $153,848. Mr. Lewis owns 100% of
Sunpoint Printing, Inc. Invoices totaling $153,848 were submitted.
As of June 11, 1999, Van Lewis III, Inc. 100% owned by Mr. Lewis, borrowed
$60,000 via a promissory note for working capital. The promissory note is due
in June, 2000.
ITEM 8: DESCRIPTION OF SECURITIES
As of the date of this filing, Sunpoint's authorized capital stock consists of
two series of common stock and two series of preferred stock, each with varied
rights. There are no series provisions in the charter or bylaws that would
delay, defer, or prevent a change in control of Sunpoint. Continental Stock
Transfer and Trust is the registrar and transfer agent for Sunpoint's common
stock while Sunpoint serves as its own transfer agent for Units and preferred
stock. Holders of the common stock are not liable to further calls or to
assessments by Sunpoint or for liabilities of Sunpoint imposed on Sunpoint's
stockholders under state statutes. Article VI of the Restated Bylaws of
Sunpoint provides that, before payment of dividends, Management may set aside
funds as determined in the sole discretion of the Board of Directors to meet
contingencies, equalizing dividends, repairing or maintaining any property, or
such other purpose determined by the Board of Directors to be in the best
interest of Sunpoint.
SERIES A COMMON STOCK
Sunpoint is authorized to issue 4.9 million shares of Series A Common Stock, no
par value, $.01 stated value determined by Sunpoint's Board of Directors with
3,509,487 shares outstanding as of May 31, 1999. There are 282,577 shares of
Series A Common Stock held as treasury stock as of May 31, 1999.
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Holders of the Series A Common Stock are entitled to one vote per share on
matters to be voted upon by the stockholders, to receive dividends when and as
declared by the Board of Directors of Sunpoint (after all accrued and unpaid
dividends on Series A and C Preferred Stock have been paid), and to share
ratably in the assets of Sunpoint available for distribution to stockholders in
the event of liquidation or dissolution after payment of liquidation preferences
to Series A and C Preferred stockholders. The Series A Common Stock has no
preemptive rights and no subscription, redemption, or conversion privileges.
The Series A Common Stock does not have cumulative voting rights, which means
that the holders of more than one-half of the voting shares (note that a share
of Series B Common Stock entitles the holder to 15 votes) voting for the
election of directors can elect all the directors. All of the outstanding
shares of Series A Common Stock are fully paid and not liable for further call
or assessment. No cash dividends have been declared for Sunpoint's Series A
Common Stock. A 2-for-1 stock split on Sunpoint's Series A Common Stock was
declared on September 23, 1997.
SERIES B COMMON STOCK
Sunpoint is authorized to issue 100,000 shares of Series B Common Stock, no par
value, $.01 stated value determined by Sunpoint's Board of Directors. As of the
date of this filing, 100,000 shares have been issued and are outstanding.
Shares of Series B Common Stock are equal in all respects to Series A Common
Stock except that each share of Series B Common Stock is entitled to 15 votes on
all matters to be voted upon by the stockholders.
SERIES A CONVERTIBLE PREFERRED STOCK
Sunpoint is authorized to issue 30,000 shares of Series A Convertible Preferred
Stock, no par value, $.01 stated value determined by Sunpoint's Board of
Directors. As of May 31, 1999, 15,625 shares were issued and outstanding. No
shares are held as treasury stock.
Holders of the Series A Convertible Preferred Stock are not entitled to vote on
matters to be voted upon by the stockholders. Holders of Series A Convertible
Preferred Stock are entitled to cumulative dividends when and as declared by
Sunpoint's Board of Directors of $.48 per share per annum. Dividends accrued
must be repaid but without interest before any distributions in respect of or
payments on account of the purchase or redemption of common stock or Series C
Convertible Preferred Stock. After the stocksplit in September 1997, shares of
Series A Convertible Preferred Stock are convertible on a 1-for-2 basis into
Series A Common Stock at the election of the holder. Beginning 24 months after
issuance, all outstanding Series A Convertible Preferred Stock are subject to
redemption at the option of Management for the cash price of $8 per share, plus
all accrued and unpaid dividends (without interest). In the event of a
liquidation or dissolution of Sunpoint, holders of Series A Convertible
Preferred Stock are entitled to a preference of $8 per share, plus all accrued
and unpaid dividends before distributions are made to holders of the common
stock or Series C Convertible Preferred Stock. All accrued dividends have been
paid.
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SERIES B CONVERTIBLE PREFERRED STOCK
Sunpoint is authorized to issue 50,000 shares of Series B Convertible Preferred
Stock. All shares of Series B Convertible Preferred Stock previously issued
were redeemed as of April 30, 1999.
SERIES C CONVERTIBLE PREFERRED STOCK
Sunpoint is authorized to issue 420,000 shares of Series C Convertible Preferred
Stock, no par value, $.01 stated value determined by Sunpoint's Board of
Directors. As of May 31, 1999, 182,872 shares were issued and outstanding.
Holders of the Series C Convertible Preferred Stock are not entitled to vote on
matters to be voted upon by the stockholders. Holders of Series C Convertible
Preferred Stock are entitled to cumulative dividends when and as declared by
Sunpoint's Board of Directors of $1 per share per annum. Dividends accrued must
be repaid but without interest before any distributions in respect of or
payments on account of the purchase or redemption of common stock. After the
stock split in September 1997, shares of Series C Convertible Preferred Stock
are convertible on a 1:2 basis into Series A Common Stock at the election of the
holder. Beginning 24 months after issuance, all outstanding Series C
Convertible Preferred Stock are subject to redemption at the option of
Management for the cash price of $10 per share, plus all accrued and unpaid
dividends (without interest). In the event of a liquidation or dissolution of
Sunpoint, holders of Series C Convertible Preferred Stock are entitled to a
preference of $10 per share, plus all accrued and unpaid dividends before
distributions are made to holders of the common stock. All rights of Series C
Convertible Preferred Stock are subject to satisfaction of all rights of Series
A Convertible Preferred shareholders first before payment of all accrued and
unpaid dividends due payable before distributions are made to the holders of the
common stock. All accrued dividends have been paid.
UNITS
In December 1995, Sunpoint offered and sold Units with each Unit representing
(pre stock split) 800 shares of Series C Convertible Preferred Stock, 200 shares
of Series A Common Stock, and 500 common stock warrants (each one of which
entitled the owner to purchase 1 share of Series A Common Stock at a prestock
split price of $10 per share [subsequently amended from a post stock split price
of $5 to $4]). A total of 92 investors purchased the Units. Subsequently, all
warrants were exercised or expired and, although physical Unit certificates
exist, no Units currently exist. All prior owners of Units now hold Series A
Common Stock and Series C Convertible Preferred Stock. The respective rights of
Series A Common Stock holders and Series C Convertible Preferred Stock holders
are set forth above.
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PART II - FORM 10-SB
ITEM 1: MARKET PRICE OF AND DIVIDENDS ON SUNPOINT'S COMMON EQUITY AND OTHER
SHAREHOLDER MATTERS
MARKET INFORMATION
In July of 1997, Sunpoint's Series A Common Stock, no par value, $.01 stated
value determined by Sunpoint's Board of Directors (the "Common Stock" for
purposes of this Item only), became publicly traded on the NASDAQ as "SNPC." In
September of 1997, the Board of Directors declared a 2-for-1 stock split of
Series A Common Stock. The following graph represents Sunpoint's Series A Common
Stock trading history for the past two Fiscal Years by calendar quarters, as
well as for the first quarter of Fiscal 1999. Sunpoint's Series B Common Stock
is not publicly traded.
HISTORY OF STOCK PRICE(1)
<TABLE>
<CAPTION>
Date High Price Low Price
---- ---------- ---------
<S> <C> <C>
Calendar 1999
Quarter 1 4.125 1.75
Calendar 1998
Quarter 4 3.5 .9375
Quarter 3 3.5 1
Quarter 2 4.75 2
Quarter 1 6 2.5
Calendar 1997
Quarter 4 6.125 2.5
Quarter 3 2.75 2.5
Quarter 2 N/A N/A
Quarter 1
Calendar 1996
Quarter 4 N/A N/A
Quarter 3 N/A N/A
Quarter 2 N/A N/A
Quarter 1 N/A N/A
</TABLE>
(1) It is important to note that the above quotations reflect inter-dealer
prices, without retail mark-up, mark-down, or commission and may not
necessarily represent actual transactions.
HOLDERS OF SUNPOINT'S COMMON STOCK
As of May 10, 1999, there were approximately 575 shareholders of record (shares
held in a street name for a number of multiple shareholders were included as one
shareholder of record) for Series A Common Stock and approximately one
shareholder of record for Sunpoint's Series B Common Stock.
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DIVIDENDS
Sunpoint has never declared cash dividends on its common stock and has no
immediate plans to do so. However, such a decision would be materially impacted
by the overall growth of Sunpoint's operations. Sunpoint did declare a 2-for-1
stock split on Series A Common Stock on September 23, 1997. Cash dividends may
not be distributed to the holders of Series A and B Common Stock until annually
accruing dividends of varying rates on Sunpoint's Series A and C Convertible
Preferred Stock are distributed. See Part I - Item 8 "Description of
Securities" for a more detailed discussion of the limitations on Sunpoint's
ability to issue cash dividends.
ITEM 2. LEGAL PROCEEDINGS
The following discussion sets forth existing and contemplated actions by
governmental bodies and pending litigation where damages sought are in excess of
10% of Sunpoint's assets.
The SEC commenced a formal investigation in December 1997 (In the Matter of
Sunpoint Securities, Inc. [FW-2051]) to determine whether any persons or
entities have engaged or are about to engage in violations of Sections 5(a),
5(c), and 17(a) of the Securities Act of 1933 ("1933 Act"), Sections 10(b) and
15(c)(1) of the Exchange Act and Rules 10b-5 and 15c-1 thereunder or have failed
to reasonably supervise persons who may have committed such violations within
the meaning of Section 15(b)(4) of the Exchange Act arising out of alleged
offerings of securities without registration or an exemption therefrom and/or
made untrue statements or omissions of material facts concerning the risks
associated with investments, suitability of investments, and/or the actual
prospects for the issuer. Sunpoint is in the preliminary stages of the
investigation, and no opinion can be offered as to any potential liability or
other adverse consequence to Sunpoint.
Sunpoint has an open issue relating to its Fiscal 1998 annual audit by the NASD
Regulation, Inc. (the "NASDR"). NASDR contacted Sunpoint regarding sales of
Notes issued by Sunpoint Air Transport, Inc., 100% owned by Mr. Lewis, in excess
of the aggregate offering amount disclosed. Sunpoint has issued a rescission
letter to all purchasers of the Notes offering a refund on or before July 18,
1999, of the principal amount of the Notes purchased, as well as all interest
due. While Sunpoint is currently discussing a settlement of this matter with
NASDR, no opinion can be offered as to any potential liability or other adverse
consequences.
Sunpoint is a defendant in Roderick Adderley Et. Al. v. Sunpoint, Et. Al. in the
---------------------------------------------
236th Judicial District Court in Tarrant County. The plaintiffs have sued for
negligent misrepresentations, negligence, breach of fiduciary duty/bad faith,
fraud/constructive fraud/fraudulent inducement/27.01 fraud/securities fraud
under the Texas Securities Act, violations of the Deceptive Trade Practices Act,
and conspiracy/course and scope/agency/vicarious liability arising as a result
of the sale of alleged securities of a group of companies "...going by the
general name `Avalon' that were controlled by a Sunpoint broker named Norman
Cornelius." The plaintiffs allege that representations "...about the financial
precariousness of the `Avalon' companies, the unsuitability of placing money of
this type into same, the risk of same, the amount of money being taken out by
the brokers, and the nature of the investments, were non-existent, misleading or
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false." The plaintiffs are seeking actual damages totaling $10,000,000 and
exemplary damages not to exceed $40,000,000, reasonable attorneys' fees, expert
witness fees, costs of court including those for depositions, and pre- and post
judgment interest as well as other relief to which they may be justly entitled.
Sunpoint is engaged in additional routine litigation and arbitration proceedings
incidental to the industry. None of these claims are for damages in the amount
of 10% of Sunpoint's assets.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
In 1997, Carmela Davis-Goodman, Sunpoint's prior independent auditor (the "Prior
Auditor"), resigned. There were no disagreements between Management and the
Prior Auditor relating to any financial statements provided by the Prior
Auditor. Management prepares Sunpoint's interim financials internally.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
The following discussion outlines all securities sold for cash or services
rendered during the previous three years. Unless otherwise described, all of
the securities sold or granted were issued pursuant to the authority granted by
the private offering exemption set forth in Section 4(2) of the 1933 Act and or
Regulation D promulgated thereunder. All shares issued were restricted and
contained a restrictive legend.
In October 1995, Sunpoint sold 190,000 warrants each for the purchase of 1 share
of Sunpoint's Series A Common Stock at an exercise price of $4.50 per warrant to
Mr. Edwin Allseitz at a price of $.90 per warrant which warrants expired if not
exercised by December 1998. In Fiscal 1997, Sunpoint amended the exercise price
to incent him to exercise from $4.50 to $3.50 and issued 190,000 shares of
Series A Common Stock upon his exercise of the warrants for total payment of
$665,000.
In November 1995, Sunpoint sold 100,000 warrants each for the purchase of 1
share of Series A Common Stock at an exercise price of $6 per warrant to Mr.
Larry Tyler at a price of $1 per warrant which warrants expired if not exercised
in December 1998. In Fiscal 1997, Sunpoint amended the exercise price to incent
him to exercise from $6 to $3.50 per warrant and issued 100,000 shares of Series
A Common Stock upon his exercise of the warrants for total payment of $350,000.
In December 1995, Sunpoint offered 450 Units for sale via a private placement
memorandum. Each Unit consisted of 800 shares of Series C Convertible Preferred
Stock, 200 shares of Series A Common Stock, and 500 warrants each for the
purchase of 1 share of Series A Common Stock at a post stock split exercise
price of $5 per warrant. 350 of the Units were offered at a cash price of
$10,000 each. 100 Units were offered to the holders of shares of Series A
Convertible Redeemable Preferred Stock of Stein, Shore Securities, Inc. ("Stein
Shore Shares") at the same price payable in shares of Stein Shore Stock at a
rate of $25,000 per Stein Shore Share. In June 1996, Sunpoint extended its
offering to sell 104.1 Units offered for cash and 50 Units offered for exchange
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with Stein Shore Shares (the unsold portion of the 450 Units) at the same price.
As a result of the offering (including the extension), 92 people purchased the
Units for cash at a price of $10,000 per Unit for a total price of $3,960,600. A
total of 13 people purchased the Units in exchange for Stein Shore Shares for a
total value of $970,300. The warrants had a pre stock split exercise price of
$10 per warrant and were also redeemable by Sunpoint at $10 per warrant. The
post stock split exercise price for the warrants offered as part of the Units
was subsequently amended from $5 to $4 per warrant in order to incent the Unit
holders to exercise their warrants. By calendar 1998, all warrants had been
exercised or had expired. During Fiscal 1997, 10,048 pre stock split warrants
sold as part of the Units were exercised (post stock split) for the purchase of
20,096 (post stock split) shares of Sunpoint's Series A Common Stock at an
average post stock split price of $3.03 per share for aggregate payments of
$163,880. The $163,880 also included payments of warrant exercise amounts due
for shares which were actually issued in Fiscal 1998. During Fiscal 1998,
122,619 pre stock split warrants sold as part of the Units were exercised (post
stock split) for the purchase of 245,238 shares of Sunpoint's Series A Common
Stock at an average post stock split price of $3.03 per share for aggregate
payment of $638,603.
In April 1996, Sunpoint sold 6,000 warrants each for the purchase of 1 share of
Series A Common Stock at an exercise price of $6 per warrant to Mr. Charles
Gussler at a price of $.90 per warrant which warrants expired if not exercised
by December 1998. In Fiscal 1997, Sunpoint amended the exercise price from $6
to $3.50 to incent him to exercise and issued 6,000 shares of Series A Common
Stock upon his exercise of the warrants for a total payment of $21,000.
In October 1996, Sunpoint issued a stock option to Mr. Lewis in exchange for
past and future services. The option granted Mr. Lewis the right to purchase up
to 100,000 shares of Sunpoint's Series B Common Stock at an exercise price of
$.01 per share. The option, if not exercised, would have expired on October 28,
2006. Mr. Lewis exercised the option and purchased 100,000 shares of Sunpoint's
Series B Common Stock in exchange for $1,000 in June 1997.
In December 1996, Sunpoint exchanged approximately 38,802 shares of its Common
Stock (now Series A) pursuant to a Plan and Agreement of Merger ("Merger
Agreement") with Radair a "debtor-in-possession" pursuant to Chapter 11 of the
United States Code. Pursuant to the Merger Agreement, Sunpoint issued shares of
its Series A Common Stock in exchange for cancellation of Radair debt on a 1
share for every $109 basis and for shares of Radair stock at a rate of 1 share
of the Series A Common Stock for every 4,015 shares of Radair.
In September 1997, in exchange for Mr. Lewis' services in the Radair merger,
Sunpoint issued a stock option to Mr. Lewis for the purchase of 250,000 shares
of Series A Common Stock at a pre stock split exercise price of $2 per share,
which, if not exercised, would have expired on September 23, 1999. In August
1998, Sunpoint amended the stock option exercise price to $.01 per share in
recognition of a contribution on behalf of Mr. Lewis by Sunpoint Insurance
Agency, Inc., 10% owned by Mr. Lewis, to capital in the amount of $969,309.43 as
of December 30, 1997. At this time, Mr. Lewis exercised the option and
purchased 250,000 shares of Sunpoint's Series A Common Stock for $2,500.
Section 2 of the Stock Option Agreement provided that the "...number of shares
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of...stock subject to this option shall be proportionately adjusted for any
changes in the stock structure of the Company due to stock dividends,...(or)
stock splits..." Pursuant to Section 2 of the Stock Option Agreement, Mr. Lewis
was owed an additional 250,000 shares that were erroneously never issued.
Accordingly, an additional 250,000 shares of Sunpoint's Series A Common Stock
were issued to Mr. Lewis as of June 1999.
In September 1997, the Series A Common Stock was split 2 for 1 which effectively
doubled the number of shares subject to conversion, redemption, options, and
warrants.
From October 1, 1997 through March 31, 1998, Sunpoint, in order to encourage
Unit holders to convert their Series C Convertible Preferred shares, modified
the conversion terms (already increased to 1:2 as a result of the stock split)
to 1:2 1/2. A total of 54 Unit holders converted Series C convertible
preferred shares resulting in the issuance of 107,085 and 436,856 shares of
Series A Common Stock in Fiscal 1997 and Fiscal 1998, respectively.
During Fiscal 1998, three holders of a total of 8,000 pre stock split shares of
Series A convertible preferred shares converted their shares into a total of
16,000 post stock split shares of Series A Common Stock.
During Fiscal 1998, one shareholder converted 1,834 shares of pre stock split
Series B convertible preferred shares into 3,668 post stock split shares of
Series A Common Stock.
In December 1995, Sunpoint issued 5,640 pre stock split warrants each for the
purchase of one share of Series A Common Stock at a post stock split exercise
price of $5 to Mr. Brett W. Hagen, Sunpoint's current Chief Operating Officer,
as a sales commission for selling Units which would have expired in December
1998 if not exercised. The exercise price was subsequently amended from $5 to
$4, as were all warrants sold as part of the Units, to incent the Unit holders
to exercise. In April 1998, Sunpoint issued 11,280 post stock split shares of
Sunpoint's Series A Common Stock as a result of his exercise of the 5,640 pre
stock split warrants and payment of $22,560 at an average post stock split
exercise price of $2 per warrant.
In December 1998, Sunpoint issued 3,000 options each for the purchase of 1
share of Series A Common Stock per option at a price of $1 less than the closing
price on the last trade day of the month to Mr. Dan Hundley. The options and
the price discount were given in exchange for Mr. Hundley's remaining with
Sunpoint through administrative difficulties which slowed and decreased sales
for his customers. In February 1999, Mr. Hundley exercised all of the options
and purchased 3,000 shares of Series A Common Stock at an exercise price of $1
per share for a total price of $3,000.
In February 1999, Sunpoint issued 10,001 options terminable in 90 days each for
the purchase of 1 share of Series A Common Stock per option at a price of $1
less than the closing price on the last trade date of the month to a group of
independent registered representatives in Rochester, New York (the "Rochester
Branch"), in consideration of the Rochester Group's reaching a trade volume of
3,150 in that month. The Rochester Branch allocated the options to three
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registered representatives. In April 1999, all three of the registered
representatives exercised the options at a price of $2.50 each for a total price
of $25,002.50 and 3,333, 3,334, and 3,334 shares of Series A Common Stock were
issued to Mr. Andrew Antonucci, Mr. Richard Dearcop, and Mr. Mathew BeauLieu,
respectively. In March 1999, Sunpoint issued 10,001 options terminable in 90
days each for the purchase of 1 share of Series A Common Stock per option at a
price of $1 less than the closing price on the last trade date of the month to
the Rochester Branch in consideration of the Rochester Branch's receiving a
trade volume of 3,150 for that month. The Rochester Branch allocated the options
to the registered representatives as before. In April 1999, each of the
registered representatives exercised the options at a price of $2.25 per share
for a total price of $22,502.25.
In March 1999, Sunpoint issued a Notice of Redemption of Series B Convertible
Preferred Stock ("Notice of Redemption") on April 19, 1999, at a price of $12
per share, plus accumulated but unpaid dividends. Pursuant to the terms of the
Series B Preferred Stock Subscription Agreements, holders of Series B Preferred
Stock were entitled to convert their shares into Series A Common Stock on a 1-
to-2 basis upon receiving a Notice of Redemption. The conversion rate of 1
share of Series B Preferred Stock to 2 shares of Series A Common Stock was also
amended at this time so that 5 shares of Sunpoint's Series A Common Stock was
offered under the Notice of Redemption for every 1 share of Series B Convertible
Preferred Stock to those holders who chose to convert instead of having their
shares redeemed. A total of 417 shares of Series B were converted into 2,085
shares of Series A Common Stock and 12,293 shares were redeemed by Sunpoint for
$147,516.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
INDEMNIFICATION BY STATUTE
Article 2.02-1 of the Texas Business Corporation Act (the "Act") empowers a
corporation to indemnify a person who is threatened to be made a named defendant
or respondent in a proceeding because the person is or was a director only if it
is determined that the person: (1) conducted himself in good faith; (2)
reasonably believed (a) in the case of conduct in his official capacity as a
director of the corporation, that his conduct was in the corporation's best
interest, and (b) in all other cases, that his conduct was at least not opposed
to the corporation's best interests; and (3) in the case of any criminal
proceeding, had no reasonable cause to believe his conduct was unlawful. A
director may not be indemnified in respect of a proceeding: (1) in which the
person is found liable on the basis that personal benefit was improperly
received by him; or (2) in which the person is found liable to the corporation.
The termination of a proceeding by judgment or otherwise (including settlement)
is not of itself determinative that the person did not meet the requirements of
the statute. That being said, a person may be indemnified against judgments,
penalties (including excise and similar taxes), fines, settlements, and
reasonable expenses actually incurred by the person in connection with the
proceeding; but if the person is found liable to the corporation or is found
liable on the basis that personal benefit was improperly received by the person,
the indemnification (1) is limited to reasonable expenses actually incurred by
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the person in connection with the proceeding and (2) shall not be made in
respect of any proceeding in which the person shall have been found liable for
willful or intentional misconduct in the performance of his duty to the
corporation.
Furthermore, Article 2.02-1 provides that a corporation shall indemnify a
director against reasonable expenses incurred by him in connection with a
proceeding in which he is a named defendant or respondent because he is or was a
director if he has been wholly successful, on the merits or otherwise, in the
defense of the proceeding. Article 2.02-1 further provides that an officer of
the corporation shall be indemnified as and to the same extent for a director
and is entitled to seek indemnification under those sections to the same extent
as a director.
Any indemnification of or advance of expenses to a director must be reported in
writing to the shareholders with or before the notice or waiver of notice of the
next shareholders' meeting and, in any case, within the 12-month period
immediately following the date of the indemnification or advance.
A corporation may purchase and maintain insurance or another arrangement on
behalf of any person who is or was a director, officer, employee, or agent of
the corporation, against any liability asserted against him and incurred by him
in such a capacity or arising out of his status as such a person, whether or not
the corporation would have the power to indemnify him against that liability
under Article 2.02-1. However, see page 49 regarding limitations on
indemnification for liabilities arising under the 1933 Act.
INDEMNIFICATION BY CONTRACT
Effective February 1999, Sunpoint obtained a Directors, Officers, and Corporate
Liability Insurance Policy from National Union Fire Insurance Company of
Pittsburgh, Pennsylvania (the "Policy"). Sunpoint has obtained insurance
coverage that insures and indemnifies Sunpoint and/or its officers and directors
for liabilities in the aggregate amount of $1,000,000 (less a retention payable
by Sunpoint of $50,000) for certain claims, including, but not limited to, those
relating to securities, Year 2000 liabilities, and the negligence, breach of
duty, or misstatement of Sunpoint's officers and directors. However, please see
page 49 regarding limitations on indemnification for liabilities arising under
the 1933 Act.
INDEMNIFICATION UNDER THE ARTICLES OF INCORPORATION
Sunpoint's Articles of Incorporation provide as follows:
"To the fullest extent permitted by applicable law, no director of the
Corporation shall be liable to the corporation or its shareholders for
monetary damages for an act or omission in such director's capacity as a
director of the corporation, except that this (provision) does not
eliminate or limit the liability as a director of the corporation for:
1. a breach of such director's duty of loyalty to the corporation or its
shareholders;
48
<PAGE>
2. an act or omission not in good faith that constitutes a breach of duty
of the director to the corporation or an act or omission that involves
intentional misconduct or knowing violation of the law;
3. a transaction which such director received an improper benefit, whether
or not the benefit resulted from an action taken within the scope of
such director's office; or
4. an act or omission for which the liability of such director is
expressly provided for by an applicable statute;
Any repeal or amendment of this (provision) by the shareholders of the
corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the corporation
existing at the time of such repeal or amendment. In addition to the
circumstances in which a director of the corporation is not personally
liable as set forth in the (above), a director shall not be liable to the
fullest extent permitted by any amendment to the Texas Miscellaneous
Corporation Laws Act or the Texas Business Corporation Act hereafter
enacted that further limits the liability of a director."
However, please see below regarding limitations on indemnification for
liabilities arising under the 1933 Act.
NO INDEMNIFICATION FOR VIOLATIONS REGARDING CAPITAL STOCK
Insofar as indemnification for liabilities arising under the 1933 Act may be
permitted to directors, officers, and controlling persons of Sunpoint pursuant
to the foregoing provisions, or otherwise, Sunpoint has been advised that, in
the opinion of the SEC, such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
Sunpoint of expenses incurred or paid by a director, officer, or controlling
person of Sunpoint in the successful defense of any action, suit, or proceeding)
is asserted by such director, officer, or controlling person in connection with
the securities being registered, Sunpoint will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question of whether such indemnification is
against public policy as expressed in the 1933 Act and will be governed by the
final adjudication of such issue.
49
<PAGE>
PART F/S FORM 10-SB
FINANCIAL STATEMENTS
SUNPOINT SECURITIES, INC.
Texas
FINANCIAL STATEMENTS
AS OF
OCTOBER 31, 1998 AND 1997
AND
INDEPENDENT AUDITOR'S REPORT
AND
UNAUDITIED FINANCIAL STATEMENTS
AS OF
APRIL 30, 1999 AND 1998
50
<PAGE>
INDEPENDENT AUDITOR'S REPORT
----------------------------
Board of Directors
Sunpoint Securities, Inc.
We have audited the accompanying statement of financial condition of Sunpoint
Securities, Inc., as of October 31, 1998, and the related statements of income,
changes in stockholders' equity and cash flows for the years ended October 31,
1998 and 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sunpoint Securities, Inc., as
of October 31, 1998 and the results of its operations and its cash flows for the
years ended October 31, 1998 and 1997 in conformity with generally accepted
accounting principles.
/s/ CHESHIER & FULLER, L.L.P.
Dallas, Texas
November 19, 1998
(except for Note 18 for which
the date is June 3, 1999)
51
<PAGE>
SUNPOINT SECURITIES, INC.
Statement of Financial Condition
<TABLE>
<CAPTION>
ASSETS
April 30,
1999
October 31, 1998 (Unaudited)
----------------- -----------
<S> <C> <C>
Cash $ 1,824,717 $ 855,882
Cash segregated under federal and other regulations 2,288,846 10,564,576
Certificates of deposit 87,312 291,537
Deposits with clearing organizations 2,012,343 6,633,081
Receivable from brokers, dealers and
clearing organizations 159,709 669,537
Receivable from related parties 176,707 -0-
Receivable from customers 9,869,573 13,220,497
Concessions receivable 488,927 720,886
Secured demand note 542,500 542,500
Memberships in exchanges owned, at cost
(market value $43,000 at October 31, 1998
and April 30, 1999) 35,500 35,500
Furniture, equipment and leasehold improvements,
at cost, net of accumulated depreciation
and amortization 290,554 275,972
Other receivables and advances 79,478 66,302
----------- -----------
$17,856,166 $33,876,270
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
52
<PAGE>
SUNPOINT SECURITIES, INC.
Statement of Financial Condition
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
April 30,
1999
October 31, 1998 (Unaudited)
---------------- ------------
<S> <C> <C>
Liabilities:
Payable to brokers, dealers and
clearing organizations $ 10,207,912 $ 12,675,455
Payable to customers 3,386,976 15,771,545
Accounts payable, accrued expenses,
and other liabilities 594,042 626,963
Commissions payable 815,054 1,503,254
----------- ------------
15,003,984 30,577,217
----------- ------------
Secured demand note 542,500 542,500
----------- ------------
Stockholders' equity: (Note 13)
Series A common stock, - no par, $.01 stated
value, 4,900,000 shares authorized, 3,792,064
issued and 3,704,864 outstanding at October 31,
1998, 3,792,064 issued and 3,520,400
outstanding at April 30, 1999 37,920 37,920
Series B common stock, - no par, $.01 stated
value, 100,000 shares authorized, 100,000
issued and outstanding at October 31, 1998 and
April 30, 1999. 1,000 1,000
Series A convertible preferred stock, - no par
value, $.01 stated value, 125,000 shares
authorized, 15,625 shares issued and outstanding
as of October 31, 1998 and April 30, 1999 156 156
Series B convertible preferred stock, - no par
value, $.01 stated value, 50,000 shares
authorized, 12,710 shares issued and outstanding
as of October 31, 1998, 0 shares issued and
outstanding at April 30, 1999 127 -0-
The accompanying notes are an integral part of these financial statements.
</TABLE>
53
<PAGE>
SUNPOINT SECURITIES, INC.
Statement of Financial Condition
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
April 30,
1999
October 31, 1998 (Unaudited)
------------------ -----------
<S> <C> <C>
Stockholders' equity: (Note 13), continued
Series C convertible preferred stock - no par,
$.01 stated value, 360,000 shares authorized,
182,872 shares issued and outstanding at
October 31, 1998 and April 30, 1999 1,830 1,830
------------ -----------
41,033 40,906
Additional paid-in capital 6,083,783 5,737,366
Treasury stock, at cost (324,441) (698,638)
Retained earnings (deficit) (3,490,693) (2,323,081)
------------ -----------
Total stockholders' equity 2,309,682 2,756,553
------------ -----------
$17,856,166 $33,876,270
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
54
<PAGE>
SUNPOINT SECURITIES, INC.
Statements of Income
<TABLE>
<CAPTION>
For the Years Ended For the Six Months Ended
October 31, April 30,
--------------------------- --------------------------
1998 1997 1999 1998
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues (unaudited) (unaudited)
Securities commissions $11,190,758 $ 8,066,526 $ 9,899,736 $4,681,877
Investment advisory fees 190,753 32,639 24,313 43,727
Gains or losses on firm securities
trading accounts 303,220 48,703 199,957 23,453
Interest income 905,004 146,281 665,964 358,385
Other income 779,340 437,356 640,015 353,948
----------- ----------- ----------- ----------
13,369,075 8,731,505 11,429,985 5,461,390
----------- ----------- ----------- ----------
Expenses
Compensation and benefits 7,543,224 7,255,554 920,377 674,575
Commissions and clearance paid
to all other brokers 419,446 628,026 5,578,124 2,728,200
Communications 1,106,010 995,444 384,735 289,520
Occupancy and equipment costs 1,001,689 816,695 775,485 354,330
Promotional costs 249,505 523,795 514,837 241,519
Interest expense 606,799 101,540 459,919 249,727
Losses in error account and bad debts 176,465 68,203 58,144 11,682
Regulatory fees and expenses 815,622 710,002 339,018 113,346
Other expenses 704,250 774,602 1,231,734 716,798
----------- ----------- ----------- ----------
12,623,010 11,873,861 10,262,373 5,379,697
----------- ----------- ----------- ----------
Income (loss) before income taxes 746,065 (3,142,356) 1,167,612 81,693
Provision for income taxes -0- -0- -0- -0-
----------- ----------- ----------- ----------
Net income (loss) $ 746,065 $(3,142,356) $ 1,167,612 $ 81,693
=========== =========== =========== ==========
Net income (loss) applicable to
common shareholders after
dividends on preferred stock $ 545,539 $(3,571,137) $ 1,068,584 $ 81,693
=========== =========== =========== ==========
Earnings (loss) per share applicable
to common shareholders $. 17 (1.75) $. 30 $. 03
=========== =========== =========== ==========
Earnings per share - applicable to
common shareholders
assuming dilution $. 13 N/A $. 27 $. 02
=========== =========== =========== ==========
Weighted average common
shares outstanding - basic 3,164,794 2,039,636 3,590,787 3,127,151
=========== =========== =========== ==========
Weighted average common
shares outstanding - diluted 4,362,632 N/A 4,013,649 4,324,989
=========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
55
<PAGE>
SUNPOINT SECURITIES, INC.
Statement of Changes in Stockholders' Equity
For the Years Ended October 31, 1998 and 1997
<TABLE>
<CAPTION>
Common Stock Common Stock Preferred Stock
Series A Series B Series A 6%
--------------------------- ------------------------ ---------------------------
Shares Dollars Shares Dollars Shares Dollars
--------------------------- ------------------------ ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 31, 1996 2,078,237 $ 20,782 - $ - 23,625 $ 236
Prior period adjustment
--------------------------- ----------------------- -----------------------
Restated balance at
October 31, 1996 2,078,237 20,782 - - 23,625 236
Issuance of stock for Radair 77,604 776
Exercise of warrants to
purchase common stock 316,096 3,161
Issuance of stock 100,000 1,000
Return of capital
(dividends paid)
Conversion of Preferred C
for common series A 107,085 1,071
Net loss
--------------------------- ----------------------- -----------------------
Balance at
October 31, 1997 2,579,022 25,790 100,000 1,000 23,625 236
Exercise of warrants to
purchase common series A 256,518 2,565
Conversion of Preferred C
for common series A 436,856 4,368
Conversion of Preferred A
for common series A 16,000 160 (8,000) (80)
Conversion of Preferred B
for common series A 3,668 37
Exercise of option -
purchase of common stock 500,000 5,000
Purchase of treasury stock
Return of capital (dividends paid)
Net income
--------------------------- ----------------------- -----------------------
Balance at
October 31, 1998 3,792,064 37,920 100,000 $1,000 15,625 $ 156
=========================== ======================= =======================
<CAPTION>
Preferred Stock Preferred Stock Additional
Series B 12% Series C 10% Paid-in Treasury
------------------------ ------------------------
Shares Dollars Shares Dollars Capital Stock
------------------------ ------------------------ --------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 31, 1996 14,544 $ 145 391,672 $ 3,917 $ 3,917,751 $ -
Prior period adjustment
------------------------ ------------------------ --------------------------------
Restated balance at
October 31, 1996 14,544 145 391,672 3,917 3,917,751 -
Issuance of stock for Radair (776)
Exercise of warrants to
purchase common stock 1,196,719
Issuance of stock
Return of capital
(dividends paid) (428,781)
Conversion of Preferred C
for common series A (42,834) (428) (643)
Net loss
------------------------ ------------------------ --------------------------------
Balance at
October 31, 1997 14,544 145 348,838 3,489 4,684,270 -
Exercise of warrants to
purchase common series A 636,038
Conversion of Preferred C
for common series A (165,966) (1,659) (2,709)
Conversion of Preferred A
for common series A (80)
Conversion of Preferred B
for common series A (1,834) (18) (19)
Exercise of option -
purchase of common stock 966,809
Purchase of treasury stock (324,441)
Return of capital (dividends paid) (200,526)
Net income
------------------------ ------------------------ --------------------------------
Balance at
October 31, 1998 12,710 $ 127 182,872 $ 1,830 $ 6,083,783 $ (324,441)
======================== ======================== ================================
<CAPTION>
Retained Total
Earnings Stockholders'
(Deficit) Equity
-----------------------------------
<S> <C> <C>
Balance at October 31, 1996 $ (525,446) $ 3,417,385
Prior period adjustment (568,956) (568,956)
-----------------------------------
Restated balance at
October 31, 1996 (1,094,402) 2,848,429
Issuance of stock for Radair -
Exercise of warrants to
purchase common stock 1,199,880
Issuance of stock 1,000
Return of capital
(dividends paid) (428,781)
Conversion of Preferred C
for common series A -
Net loss (3,142,356) (3,142,356)
-----------------------------------
Balance at
October 31, 1997 (4,236,758) 478,172
Exercise of warrants to
purchase common series A 638,603
Conversion of Preferred C
for common series A
Conversion of Preferred A
for common series A
Conversion of Preferred B
for common series A
Exercise of option -
purchase of common stock 971,809
Purchase of treasury stock (324,441)
Return of capital (dividends paid) (200,526)
Net income 746,065 746,065
-----------------------------------
Balance at
October 31, 1998 $(3,490,693) $ 2,309,682
===================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SUNPOINT SECURITIES, INC.
Statements of Cash Flows
<TABLE>
<CAPTION>
For the Years Ended For the Six Months Ended
October 31, April 30,
-------------------------- -------------------------
1998 1997 1999 1998
----------- ----------- ----------- -----------
Cash flows from operating activities (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net income (loss) $ 746,065 $(3,142,356) $ 1,167,612 $ 81,693
Adjustments to reconcile net income
(loss) to net cash provided (used)
by operating activities:
Depreciation/amortization 113,318 121,733 60,050 32,190
Change in assets and liabilities:
(Increase) decrease in receivable
from brokers, dealers and clearing organizations 378,449 (538,158) (509,828) 261,776
(Increase) decrease in deposits with clearing organizations (1,350,858) (646,485) (4,620,738) (87,704)
(Increase) decrease in receivables from customers (3,458,414) (6,411,159) (3,350,924) (2,040,771)
(Increase) decrease in receivable from related parties (67,351) (9,356) 176,707 (574,979)
(Increase) decrease in concession receivable 5,680 (5,831) (231,959) 157,033
(Increase) decrease in receivables and other assets 28,747 150,364 13,186 38,376
(Increase) decrease in trading inventory -0- 21,750 -0- -0-
(Increase) decrease in membership in exchanges -0- 6,000 -0- -0-
Increase (decrease) in payables to customers 11,770,085 1,289,617 12,384,569 (300,744)
Increase (decrease) in payable to brokers,
dealers and clearing organizations (6,089,285) 6,624,471 2,467,543 2,085,758
Increase (decrease) in accounts payable, accrued
expenses and other liabilities (65,768) 560,875 32,921 (460,936)
Increase (decrease) in commission payable 199,373 55,678 688,200 133,990
----------- ----------- ----------- -----------
Net cash provided (used) by operating activities 2,210,041 (1,922,857) 8,277,339 (674,318)
----------- ----------- ----------- -----------
Cash flows from investing activities
Sale of furniture and equipment 29,979 176,489 -0- 31,591
(Increase) decrease in certificates of deposits 881,998 (969,310) -0- -0-
Purchase of furniture, equipment and leasehold improvements -0- (113,888) (45,478) -0-
Collection on note receivables -0- 414,185 -0- -0-
----------- ----------- ----------- -----------
Net cash provided (used) by investing activities 911,977 (492,524) (45,478) 31,591
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
57
<PAGE>
SUNPOINT SECURITIES, INC.
Statements of Cash Flows
<TABLE>
<CAPTION>
For the Years Ended For the Six Months Ended
October 31, April 30,
------------------------ -------------------------
1998 1997 1999 1998
---------- ----------- ----------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Cash flows from financing activities
Treasury stock redeemed (324,441) -0- (374,197) -0-
Bank overdraft (paid back) incurred (328,374) 328,374 -0- -0-
Exercise (purchase) of warrants to purchase
common stock 638,603 1,199,880 (100,127) -0-
Issuance of common stock -0- 1,000 -0- -0-
Exercise of options and purchase
of common stock 971,809 -0- -0- 1,899,943
Return of capital (dividends paid) (200,526) (428,781) (99,028) -0-
Redemption of preferred stock -0- -0- (147,389) -0-
---------- ----------- ----------- ----------
Net cash provided (used) by financing activities 757,071 1,100,473 (720,741) 1,899,943
---------- ----------- ----------- ----------
Net increase in cash and cash equivalents 3,879,089 (1,314,908) 7,511,120 1,257,216
Cash and cash equivalents at beginning of year 234,474 1,549,382 4,200,875 1,203,784
---------- ----------- ----------- ----------
Cash and cash equivalents at end of year $4,113,563 $ 234,474 $11,711,995 $2,461,000
========== =========== =========== ==========
Supplemental schedule of cash flow information
Cash paid during the year for:
Income taxes $ -0- $ -0- $ -0- $ -0-
========== =========== =========== ==========
Interest $ 606,799 $ 101,540 $ 459,919 $ 249,727
========== =========== =========== ==========
Non-cash investing and financing activities
Increase in subordinated borrowings $ 542,500 $ -0- $ -0- $ 539,000
========== =========== =========== ==========
Increase in secured demand notes receivable $ 542,500 $ -0- $ -0- $ 539,000
========== =========== =========== ==========
</TABLE>
In December 1996, the Company issued 77,604 (post stock split) shares of its
Series A Common Stock pursuant to a plan and agreement of merger with Radair.
The accompanying notes are an integral part of these financial statements.
58
<PAGE>
SUNPOINT SECURITIES, INC.
Notes to the Financial Statements
Note 1 - General Information and Significant Accounting Policies
-------------------------------------------------------
Sunpoint Securities, Inc. ("Company") is registered as a broker/dealer
in securities under the Securities Exchange Act of 1934 and is a
member of the National Association of Securities Dealers, Inc. (the
"NASD"), the Chicago Stock Exchange, Incorporated, the Boston Stock
Exchange, Inc. and the National Securities Clearing Corporation. The
Company's customer base is located throughout the United States.
A summary of significant accounting policies of the company follows:
(a) Securities Transactions
-----------------------
Purchase and sales of securities and related commission revenues
and expenses are recorded on a trade date basis.
(b) Furniture, Equipment and Leasehold Improvements
-----------------------------------------------
Furniture, equipment and leasehold improvements are recorded at
cost. Depreciation is provided on a straight-line basis using
estimated useful lives of five to seven years. Leasehold
improvements are amortized over the lesser of the economic useful
life of the improvement or the term of the lease.
(c) Statement of Cash Flows
-----------------------
The Company considers all highly liquid short-term investments
with an original maturity of three months or less to be cash
equivalents.
(d) Estimates
----------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(e) Advertising
------------
Advertising costs are expensed as incurred.
59
<PAGE>
SUNPOINT SECURITIES, INC.
Notes to the Financial Statements
Note 1 - General Information and Significant Accounting Policies, continued
-------------------------------------------------------
(f) Benefits
--------
Compensated absences have not been accrued because the amount
cannot be reasonably determined.
(g) Income Taxes
------------
Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes
currently due plus deferred taxes related primarily to
differences between the basis of assets and liabilities for
financial and income tax reporting. Deferred taxes are also
recognized for operating losses that are available to offset
future taxable income, subject to a valuation allowance.
(h) Treasury Stock
--------------
The Company accounts for the purchase of treasury stock under the
cost method.
Note 2 - Fair Values of Financial Instruments
------------------------------------
The carrying amounts of cash, money market mutual funds, certificates
of deposits, receivables, payables and accrued expenses approximate
their fair values due to the short-term nature of the items.
Rates currently available to the Company for subordinated debt with
similar terms and remaining maturities are used to estimate fair value
of existing debt. Fair value approximates carrying value at October
31, 1998 and April 30, 1999.
Note 3 - Cash Segregated Under Federal and Other Regulations
---------------------------------------------------
At October 31, 1998 cash, totaling $2,288,846, was segregated in
special reserve accounts for the exclusive benefit of customers under
Rule 15c3-3 of the Securities Exchange Act of 1934 (the "Exchange
Act"). On November 2, 1998 an additional $700,000 was deposited to
meet the required reserve of $2,828,249 at October 31, 1998.
At October 31, 1997 cash, totaling $234,473, was segregated in special
reserve accounts for the exclusive benefit of customers under Rule
15c3-3 of the Exchange Act. On November 3, 1997 an additional
$900,000 was deposited to meet the required reserve of $1,057,940 at
October 31, 1997. On November 4, 1997, $637,031 was removed creating
a deficiency of $560,498.
60
<PAGE>
SUNPOINT SECURITIES, INC.
Notes to the Financial Statements
Note 4 - Memberships in Exchanges
------------------------
(a) Chicago Stock Exchange Membership
---------------------------------
The membership in the Chicago Stock Exchange, Incorporated. is
carried at a cost of $29,000 at October 31, 1998. The bid price
on October 31, 1998 was $46,000.
One seat on the Chicago Stock Exchange, Incorporated. was sold on
October 30, 1998, for $43,000 and on October 28, 1997 for
$35,000.
(b) Boston Stock Exchange
---------------------
The membership in the Boston Stock Exchange is carried at a cost
of $6,500 at October 31, 1998.
Note 5 - Lease Commitments
-----------------
The Company has entered into long-term lease commitments for office
space and equipment rental. The aggregate future minimum rentals
under these operating lease agreements are summarized as follows:
Year Ending Office Office
October 31, Equipment Space Total
----------- --------- ------- -----
1999 $219,614 $248,340 $467,954
2000 163,275 103,302 266,577
2001 87,137 21,267 108,404
2002 17,400 -0- 17,400
-------- -------- --------
$487,426 $372,909 $860,335
======== ======== ========
Rental expenses charged to operations for the years ended October 31,
1998 and 1997 were $338,310 and $337,375, respectively.
Note 6 - Net Capital Requirements
------------------------
Pursuant to the net capital provisions of Rule 15c3-1 of the Exchange
Act, the Company is required to maintain a minimum net capital as
defined under such provisions. The Company has elected to use the
alternative method, permitted by the rule, which requires that the
Company maintain minimum net capital, as defined, equal to the greater
of $250,000 or 2% of aggregate debit balances arising from customer
transactions, as defined. At October 31, 1998, the Company had net
capital of $2,105,456, which was 19.0% of aggregate debit balances and
$1,855,456 in excess of required net capital.
61
<PAGE>
SUNPOINT SECURITIES, INC.
Notes to the Financial Statements
Note 6 - Net Capital Requirements, continued
------------------------
At October 31, 1997, the Company had deficit net capital of
approximately $(1,220,064) and net capital requirements of
approximately $250,000.
Note 7 - Receivable From and Payable to Brokers, Dealers and Clearing
------------------------------------------------------------
Organizations
-------------
Receivables from and payable to brokers arise from the settlement of
securities transactions executed for customers or the Company.
The receivables are generally collected within thirty days and are
collateralized by securities in physical possession, on deposit or
receivable from customers or other brokers. The Company does business
with brokers that are generally located throughout the United States
that are members of the major securities exchanges.
Payable to brokers and dealers are as follows:
1998
-----------
Payable to brokers due upon the receipt of securities $ 535,186
Amount borrowed from brokers collateralized by
customer margin account securities with a fair
market value of $14,184,954 and bears interest at
7 3/4% 9,672,726
-----------
$10,207,912
===========
Note 8 - Receivable From and Payable to Customers
----------------------------------------
Receivable from and payable to customers arise from cash and margin
transactions executed by the Company on their behalf. Receivables are
collateralized by securities with market values in excess of the
amounts due. It is the policy of the Company to monitor the market
value of the collateral and request additional collateral when
required. Such collateral is not reflected in the accompanying
financial statements. Receivables are primarily from retail
customers.
Note 9 - Furniture, Equipment and Leasehold Improvements
-----------------------------------------------
The classes of furniture, equipment and leasehold improvements and the
related accumulated depreciation (amortization) are as follows:
62
<PAGE>
SUNPOINT SECURITIES, INC.
Notes to the Financial Statements
Note 9 - Furniture, Equipment and Leasehold Improvements, continued
-----------------------------------------------
1998
Cost
---------
Computer equipment $ 433,394
Other equipment 63,680
Furniture 1,714
Leasehold improvements 105,695
--------
604,483
Less: accumulated depreciation 313,929
--------
$ 290,554
=========
Depreciation expense was $113,318 and $121,733 for the years ended
October 31, 1998 and 1997, respectively and is shown in occupancy and
equipment cost.
Note 10 - Credit Risk
-----------
The Company has concentrations of credit risk arising from cash
deposits with banks in excess of federally insured limits.
Note 11 - Financial Instruments With Off-Balance Sheet Risk
-------------------------------------------------
In the normal course of business, the Company's activities involve the
execution, settlement and financing of various securities
transactions. These activities may expose the Company to off-balance-
sheet credit and market risks in the event the customer or
counterparty is unable to fulfill its contractual obligations. Such
risks may be increased by volatile trading markets.
The Company seeks to control the risks associated with its customer
activities by requiring customers to maintain margin collateral in
compliance with various regulatory and internal guidelines. The
Company monitors required margin levels daily and, pursuant to such
guidelines, requires customers to deposit additional collateral or to
reduce positions where necessary.
The Company arranges secured financing by pledging Company and unpaid
customer securities for securities loaned and, to satisfy margin
deposits of clearing organizations and other broker/dealers. In the
event the counterparty is unable to return such securities pledged,
the Company may be exposed to the risk of acquiring the securities at
prevailing market prices or holding collateral possessing a market
value less than that of the related pledged securities. The Company
seeks to control these risks by monitoring the market value of
securities pledged and requiring adjustments of collateral levels
where necessary.
63
<PAGE>
SUNPOINT SECURITIES, INC.
Notes to the Financial Statements
Note 12 - Commitments and Contingencies
-----------------------------
The Company agreed with the National Securities Clearing Corporation.
as a condition of membership that it would maintain at all times
excess net capital above $500,000.
Cause No. 236-169214-97, Adderly, et. al.; in the 236th Judicial
-----------------------------------------
District Court, Tarrant County, Texas is a suit claiming negligent
misrepresentation, negligence, breach of fiduciary duty, bad faith,
fraud, constructive fraud, fraudulent inducement, securities fraud,
violations of the Texas Deceptive Trade Practices Act Conspiracy,
etc. and seeks actual damages in excess of $10,000,000 and exemplary
damages not to exceed $40,000,000. Management is of the opinion that
the Company has meritorious defenses. Management plans to contest the
case vigorously. However, the Company has and will continue to
discuss an out-of-court settlement through its continuing mediation
with the Plaintiffs, to the extent such discussions can formally
resolve such matter. However, because of the number of Defendants in
the case, the Company is unable to predict (if an unfavorable outcome
occurs) what portion, if any, the Company would ultimately be
responsible to pay and whether the Company will be held jointly and
severally liable for the entire loss, if any. The Company is unable
to predict the amount of insurance proceeds, if any, which may be
paid on the Company's behalf. No amounts have been accrued in the
financial statements regarding this suit.
The SEC has commenced a formal investigation to determine whether any
persons or entities have engaged or are about to engage in violations
of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, as
amended (the "1933 Act"), and Sections 10(b) and 15(c)(1) of the
Exchange Act and Rules 10b-5 and 15c-1 thereunder or failing to
reasonably supervise persons who may have committed such violations
within the meaning of Section 15(b)(4) of the Exchange Act arising
out of alleged offerings of securities without registration or an
exemption therefrom and alleged untrue statements or omissions of
material facts concerning the risks associated with investments,
suitability of investments, and/or the actual prospects for the
issuer.
The Company is also in additional litigation in varying amounts. The
financial statements include a liability of $312,475 as of October
31, 1998 related to legal matters and arbitrations.
64
<PAGE>
SUNPOINT SECURITIES, INC.
Notes to the Financial Statements
Note 13 - Stockholders' Equity
--------------------
Series A Common Stock
Shares reflected as issued and outstanding include shares that
stockholders were entitled to receive that had not been issued as of
October 31, 1998. 87,200 shares are held in treasury stock at October
31, 1998 and 271,664 shares are held in treasury at April 30, 1999.
Series B Common Stock
The series B common stock is equal in all respects to all other shares
of common stock, except that each share is entitled to fifteen (15)
votes on all matters submitted to a vote of stockholders.
Rights of Preferred Stockholders
The Series A, B and C Preferred Stock issues have certain preferred
rights over any and all other series of stock now outstanding or which
may hereafter be issued by the Company with respect to payment of
dividends, payment on account of redemption, and payments upon
dissolution, liquidation, or winding up. The shares of Series A, B and
C Preferred Stock have no right to vote on any matter coming before a
vote or, or requiring action of, the equity holders of the Company,
except to the extent otherwise required by the Texas Business
Corporation Act or other applicable laws.
The holders of Series A, B and C Preferred Stock are entitled to
receive dividends out of funds legally available therefor (out of
surplus or earnings), at the rate of 6% and 12% per annum and $1 per
share, respectively, from the date of issuance. Such dividends are
payable on a calendar quarter basis if, as and when declared by the
Board of Directors, and are cumulative.
No dividends on the Common Stock or any other series of preferred
stock may be declared and paid unless dividends on the Series A, B and
C Preferred Stock have been currently paid and are not in arrears.
Before any payments in liquidation on shares of Common Stock or any
other series of preferred stock may be made, the holders of the Series
A, B and C Preferred Stock are entitled to receive, upon any voluntary
or involuntary liquidation, dissolution or winding up of the Company,
an amount equal to $8.00, $12.00 and $10.00 per share, respectively,
of Series A, B and C Preferred Stock held by each holder, plus an
amount equal to any accrued but unpaid dividends.
65
<PAGE>
SUNPOINT SECURITIES, INC.
Notes to the Financial Statements
Note 13 - Stockholders' Equity, continued
--------------------
The shares of Series A, B and C Preferred Stock are convertible at
the option of the holder at any time into Common Stock on a one-for-
two basis as a result of the stock split. The conversion ratio is
subject to adjustment upon the occurrence of certain events, such as
stock dividends and recapitalizations, in order to prevent dilution
of the conversion ratio.
Commencing the earlier of 24 months after issuance of the Series A,
B and C Preferred Stock or the commencement of a public offering for
the Common Stock, the Series A, B and C Preferred Stock will be
redeemable, in whole or in part at the option of the Company, at a
redemption price equal to $8.00, $12.00 or $10.00 per share,
respectively, plus accumulated but unpaid dividends.
Warrants Exercisable at $4
The Company has 89,293 of these warrants outstanding at October 31,
1998 which are exercisable for $4 toward the purchase of Series A
common stock through December 31, 1998. Each warrant is exercisable
for 2 shares of stock. The Company has the option to redeem these
warrants at the price of $8 per warrant at any time.
During the year ended October 31, 1998, 128,259 warrants were
exercised for $638,603 to purchase 256,518 shares of series A common
stock. During the year ended October 31, 1997, 306,048 warrants were
exercised for $1,199,880 to purchase 316,096 shares of Series A
common stock.
Capital Changes
---------------
Effective September 29, 1997 the Company's series A common stock was
split 2 for 1. All shares presented in these financial statements
are retroactively restated to reflect the capital structure changes.
Note 14 - Related Parties
---------------
The following related party transactions were paid during the years
ended October 31, 1998 and 1997:
66
<PAGE>
SUNPOINT SECURITIES, INC.
Notes to the Financial Statements
Note 14 - Related Parties, continued
----------------
1998 1997
------- ------
Sunpoint Printing, Inc. $108,290 $ 50,285
Sunpoint Electric, Inc. 774 6,533
Sunpoint Aviation, Inc. 385,572 48,993
Sunpoint The Cafe -0- 5,299
Sunpoint Insurance Agency -0- 6,493
-------- --------
$494,636 $117,603
======== ========
Sunpoint Printing, Inc. provides document and form printing.
Sunpoint Electric, Inc. provides office repairs for wiring. Sunpoint
Aviation, Inc. provides flights and rental cars for broker
recruitment, consultants' use and compliance meetings. Sunpoint The
Cafe provides food services. Sunpoint Insurance Agency provides
administrative services.
There was a receivable from the principal stockholder at October 31,
1998 of $64,082, as well as, receivables from entities owned by the
principal stockholder of $92,625.
During the year ended October 31, 1997 the principal shareholder
purchased furniture and computer equipment from the Company at net
book value of $176,489, which in management's opinion approximates
fair market value. These assets originally cost $196,132 less
accumulated depreciation of $19,643.
Sunpoint issued a stock option to its principal stockholder for the
purchase of 250,000 shares of Series A Common stock at an exercise
price of $2 per share, which, if not exercised, would expire on
September 23, 1999. In August 1998, Sunpoint amended the stock
option exercise price to $.01 per share in recognition of a
contribution to capital on behalf of the principal stockholder by a
related company in the amount of $969,309 as of December 30, 1997.
At this time, principal stockholder exercised the option and
purchased 250,000 shares of Sunpoint's Series A common stock for
$2,500. A total of $971,809 was paid with the exercise of the option
to purchase this stock. The Stock Option Agreement provided that the
"...number of shares of...stock subject to this option shall be
proportionately adjusted for any changes in the stock structure of
the Company due to stock dividends, ..(or) stock splits..." Pursuant
to the Stock Option Agreement, an additional 250,000 shares are
owed.
Certificates of Deposit of $87,312 owned by the Company at October
31, 1998 were pledged against debt of the principal stockholder or
entities controlled by the principal stockholder.
67
<PAGE>
SUNPOINT SECURITIES, INC.
Notes to the Financial Statements
Note 15 - Income Taxes
------------
Current income tax expense of $281,551 for the year ended October 31,
1998 was offset by the benefit of the net operating loss carryforward
from prior years.
At October 31, 1998, the Company had a net operating loss carryforward
of approximately $3,526,715 which may be offset against future taxable
income. The operating loss carryforward expires between 2004 and 2012.
The tax benefit of $1,325,142 has not been reported in these financial
statements because the Company believes there is at least a 50% chance
that the carryforwards will expire unused. Accordingly, the tax
benefit has been offset by a valuation allowance of the same amount.
The following reflects the changes in the tax benefit:
Deferred Deferred
Tax Asset Current Tax Asset
October 31, Period October 31,
1997 Changes 1998
---------- --------- ----------
Federal $ 1,453,851 $(254,767) $ 1,199,084
State 152,842 (26,784) 126,058
----------- --------- -----------
1,606,693 (281,551) 1,325,142
Valuation allowance (1,606,693) 281,551 (1,325,142)
----------- --------- -----------
Net $ -0 $ -0- $ -0-
=========== ========= ==========
Note 16 - Liabilities Subordinated to Claims of General Creditors
-------------------------------------------------------
Borrowings under subordination agreements at October 31, 1998 are as
follows:
Liabilities pursuant to secured demand
note collateral agreements - 8%, due
December 31, 2000, fully collateralized
by securities $ 542,500
=========
The Company paid $35,000 in interest during the year ending October
31, 1998.
The subordinated borrowings are covered by agreements approved by the
NASD and are thus available in computing net capital under the uniform
net capital rule of the Exchange Act. To the extent that such
borrowings are required for the Company's continued compliance with
minimum net capital requirements, they may not be repaid.
68
<PAGE>
SUNPOINT SECURITIES, INC.
Notes to the Financial Statements
Note 17 - Prior Period Adjustment
-----------------------
During the year ended October 31, 1996, research and development costs
were incorrectly capitalized resulting in the understatement of the
reported net loss in the Company's previously issued financial
statements. Retained earnings as of October 31, 1996 has been
restated to reflect the correction of this error as follows:
Retained Earnings
(Deficit)
-------------------
As previously reported,
October 31, 1996 $ (525,446)
Adjustments:
Write off of research and development costs (568,956)
------------
As restated, October 31, 1996 $(1,094,402)
============
Note 18 - Subsequent Events
-----------------
In April 1999, the NASD Regulation, Inc. (the "NASDR") contacted
the Company regarding an issue arising as a result of a
regulatory examination. The NASDR alleged that the Company had
"oversold" a debt offering of a related entity because the total
investment exceeded the total amount offered of $2,500,000. The
Company has issued a right of rescission to all existing
noteholders whereby each investor requesting rescission will
receive both the principal amount and all interest due on or
before July 18, 1999. As this matter is in informal preliminary
stages, legal counsel is unable to offer any opinion as to any
potential liability or other adverse consequence to the Company.
The additional 250,000 shares of Series A common stock related to
the stock option discussed in Note 14 was issued in June 1999.
69
<PAGE>
PART III - FORM 10-SB
<TABLE>
<CAPTION>
ITEM 1. INDEX TO EXHIBITS
Exhibit No. Description Page
- ----------- ------------ ----
<S> <C> <C>
2.1 Restated Articles of Incorporation of Sunpoint Securities, Inc. filed June 30, 1999 73
2.2 Restated Bylaws of Sunpoint Securities, Inc.......................................... 109
3.1 Sample Series A Common Stock Certificate............................................. 120
3.2 Sample Series A Convertible Preferred Stock Certificate.............................. 121
3.3 Sample Unit Certificate.............................................................. 122
6.1 Articles of Merger filed December 18, 1996........................................... 123
12.1 Consent of Carmela Davis-Goodman..................................................... 125
12.2 Consent of Independent Auditors Dated June 18, 1999.................................. 126
27 Financial Data Schedule.............................................................. 127
</TABLE>
70
<PAGE>
ITEM 2. DESCRIPTION OF EXHIBITS
Exhibits identified in the Index above are bound and included herewith.
71
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, Sunpoint
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
SUNPOINT SECURITIES, INC.
(Registrant)
Date: June 29, 1999 /s/ V. Lewis
By: -------------------------
Van R. Lewis, III
President & Chief Executive Officer
72
<PAGE>
Exhibit 2.1
(Stamp) Filed In The
Office of the Secretary
RESTATED of State of Texas
June 30, 1999
ARTICLES OF INCORPORATION Corporations Section
OF
SUNPOINT SECURITIES, INC.
I, the undersigned Officer of Sunpoint Securities, Inc., a Texas
Corporation (the "Corporation"), do, pursuant to Article 4.07 of the Texas
Business Corporation Act, hereby restate the Articles of Incorporation and all
amendments thereto that are in effect to date without any changes in any
provision thereof with the exception that the number of directors now
constituting the Board of Directors and the names and addresses of the persons
now serving are substituted in lieu of similar information concerning the
initial Board of Directors and the name and address of the incorporator are
omitted.
ARTICLE ONE
-----------
The name of the Corporation is Sunpoint Securities, Inc.
ARTICLE TWO
-----------
The period of its duration is perpetual.
ARTICLE THREE
-------------
The purpose or purposes for which the Corporation is organized is to
transact any and all lawful business for which corporations may be incorporated
under the Texas Business Corporation Act.
-1-
<PAGE>
ARTICLE FOUR
------------
The aggregate number of shares which the Corporation shall have authority
to issue is 5,500,000 at no par value. The shares which the Corporation shall
have authority to issue shall be of two classes, Common Stock and Preferred
Stock. The number of shares of Common Stock which the Corporation shall have
authority to issue is 5,000,000, and such shares are to be without par value.
The number of shares of Preferred Stock which the Corporation shall have
authority to issue is 500,000, and such shares are to be without par value. Of
the shares of Common Stock authorized for issuance, 100,000 shall be designated
as Series B Common Stock. The Series B Common Stock shall be equal in all
respects to all other shares of Common Stock, except that each share of Series B
Common Stock shall be entitled to fifteen (15) votes on all matters submitted to
a vote of stockholders.
ARTICLE FIVE
------------
The Board of Directors shall have authority to establish series of unissued
shares of Preferred Stock by fixing and determining the designations,
preferences, limitations, and relative rights, including voting rights, of the
shares of any series so established to the same extent that such designations,
preferences, limitations, and relative rights could be stated if fully set forth
in these Articles of Incorporation.
The 500,000 shares of Preferred Stock of the Corporation consist of three
Series established by Statements of Designation. The Board of Directors has
established a series of Preferred Stock designated Series A Convertible
Preferred Stock to consist of 30,000 shares with the designations, preferences,
-2-
<PAGE>
limitations, and relative rights of the shares of such series as established in
the Statement of Designation Series A Convertible Preferred Stock of the
Corporation filed May 11, 1995, a copy of which is attached hereto and
incorporated herein for all purposes as Exhibit A.
The Board of Directors has established a series of Preferred Stock
designated Series B Convertible Preferred Stock to consist of 50,000 shares with
the designations, preferences, limitations, and relative rights of the shares of
such series as established in the Statement of Designation Series B Convertible
Preferred Stock of the Corporation filed September 29, 1995, a copy of which is
attached hereto and incorporated herein for all purposes as Exhibit B.
The Board of Directors has established a series of Preferred Stock
designated Series C Convertible Preferred Stock to consist of 420,000 shares
with the designations, preferences, limitations, and relative rights of the
shares of such series as established in the Statement of Designation Series C
Convertible Preferred Stock of the Corporation filed December 14, 1995, a copy
of which is attached hereto and incorporated herein for all purposes as Exhibit
C.
ARTICLE SIX
-----------
The Corporation will not commence business until it has received for the
issuance of its shares consideration of the value of not less than $1,000.
-3-
<PAGE>
ARTICLE SEVEN
-------------
The address of its registered office is 911 West Loop 281, Suite 211,
Longview, Texas 75604, and the name of its registered agent at such address is
Van R. Lewis, III.
ARTICLE EIGHT
-------------
The number of directors is five (5) and the name and address of each
director is:
Van R. Lewis, III 911 W. Loop 281
Third Floor
Longview, Texas 75604
Marvin W. Sapaugh 911 W. Loop 281
Third Floor
Longview, Texas 75604
Mary Ellen Wilder 911 W. Loop 281
Third Floor
Longview, Texas 75604
John C. Pope 911 W. Loop 281
Third Floor
Longview, Texas 75604
H. Wayne Smith 911 W. Loop 281
Third Floor
Longview, Texas 75604
ARTICLE NINE
------------
Cumulative voting by any shareholder is hereby expressly prohibited.
-4-
<PAGE>
ARTICLE TEN
-----------
No shareholder of the Corporation shall have a preemptive right to acquire
additional, unissued, or treasury shares of the Corporation, or securities of
the Corporation convertible into or carrying a right to subscribe to or acquire
shares.
ARTICLE ELEVEN
--------------
To the fullest extent permitted by applicable law, no director of the
Corporation shall be liable to the Corporation or its shareholders for monetary
damages for an act or omission in such director's capacity as a director of the
Corporation, except that this Article XI does not eliminate or limit the
liability of a director of the Corporation for:
(1) A breach of such director's duty of loyalty to the Corporation or its
shareholders;
(2) An act or omission not in good faith that constitutes a breach of duty
of the director to the Corporation or an act or omission that involves
intentional misconduct or a knowing violation of the law;
(3) A transaction from which such director received an improper benefit,
whether or not the benefit resulted from an action taken within the
scope of such director's office; or
(4) An act or omission for which the liability of such director is
expressly provided for by an applicable statute.
Any repeal or amendment of this Article by the shareholders of the
Corporation shall be prospective only and shall not adversely affect any
limitation on the personal liability of a director of the Corporation existing
at the time of such repeal or amendment. In addition to the circumstances in
-5-
<PAGE>
which a director of the Corporation is not personally liable as set forth in the
foregoing provisions of this Article, a director shall not be liable to the
fullest extent permitted by any Amendment to the Texas Miscellaneous Corporation
Laws Act or the Texas Business Corporation Act hereafter enacted that further
limits the liability of a director.
ARTICLE TWELVE
--------------
Any action required by the Texas Business Corporation Act to be taken at
any annual or special meeting of shareholders, or any action which may be taken
at any annual or special meeting of shareholders, may be taken without a
meeting, without prior notice, and without a vote, if consent or consents in
writing, setting forth the action so taken, shall be signed by the holder or
holders of shares having not less than the minimum number of votes that would be
necessary to take such an action at a meeting at which the holders of all shares
entitled to vote on the action were present and voted.
IN WITNESS WHEREOF, I have hereunto set my hand this 24th day of June, 1999
/s/ V. Lewis
__________________________________
VAN R. LEWIS, III
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
-6-
<PAGE>
(stamp)
FILED
In the Office of the
Secretary of State of Texas
MAY 11, 1995
Corporations Section
STATEMENT OF DESIGNATION
SERIES A CONVERTIBLE PREFERRED STOCK
OF
SUNPOINT SECURITIES, INC.
Sunpoint Securities, Inc., pursuant to the provisions of Article 2.13 of
the Texas Business Corporation Act, hereby makes the following statement
relating to the establishment of a series of shares:
1. The name of the corporation is Sunpoint Securities, Inc.
2. A copy of the resolution establishing and designating the series and fixing
and determining the preferences, limitations, and relative rights thereof is as
follows:
RESOLVED that, pursuant to authority conferred upon the Board of
Directors by the Articles of Incorporation, as amended, of Sunpoint
Securities, Inc. (the "Corporation"), the Board of Directors hereby
establishes a series of Preferred Stock of the Corporation to consist of
125,000 shares, and fixes the designations, preferences, limitations and
relative rights of the shares of such series so established as follows:
(a) Designation. The designation of the series of Preferred Stock created
-----------
by this resolution shall be Series A Convertible Preferred Stock
(hereinafter called this "Series").
(b) Dividend Rate. Out of the surplus or net profits of the Corporation
-------------
legally available for dividends, the holder of shares of this Series
shall be entitled to receive, when and as declared by the Board of
Directors, dividends at the rate of $0.48 per share of such Series per
annum from the date of cumulation and continuing thereafter at such
rate so long as such share remains issued and outstanding. Dividends
shall be payable quarterly on the last day of March, June, September
and December in each year, commencing June 30, 1995 (each such day
being hereinafter called a dividend date and each quarterly period
ending, with a dividend date being hereinafter called a dividend
period), in each case from the date of cumulation (as hereinafter
described in this Section (b)) of this Series (provided, however,
that, if the date of cumulation of this Series shall be a date less
than 30 days prior to a dividend date, the dividend that would
otherwise be payable on such dividend date shall be payable on the
next succeeding dividend date); and such dividends upon the Preferred
Stock shall be cumulative (whether or not in any dividend period or
periods there shall be surplus or net profits of the Corporation
legally available for the payment of such dividends), so
Statement of Designation - Page 1
<PAGE>
that, if at any time dividends upon the outstanding Preferred Stock of
this Series at the respective per annum rates determined for this
Series from the date of cumulation thereof to the end of the then
current dividend period shall not have been paid in full or declared
and a sum sufficient for the payment in full thereof set apart for
such payment, the amount of the deficiency shall be fully paid, but
without interest, before any dividend shall be declared or paid upon
or set apart for, or any other distribution shall be ordered or made
in respect of, or any payment shall be made on account of the purchase
or redemption of, the Common Stock or any other series of Preferred
Stock ("Other Preferred Stock").
Any dividend on the Preferred Stock which is payable in respect of any
dividend period less than a full quarterly period shall be computed on
the basis of the actual number of days elapsed from the cumulation
date to the dividend date for such period assuming for such purposes a
360 day year consisting of 12 months of 30 days each.
The term `date of cumulation' as used herein which reference to shares
of this Series shall be deemed to mean the date on which such shares
of this Series are first issued.
(c) Conversion Rights. Each share of this Series shall be convertible into
-----------------
one share of Common Stock of the Corporation subject to the following
terms and conditions:
(1) The shares of this Series shall be convertible at the office of
the Corporation or at the office of any transfer agent for this
Series, and at such other office or offices, if any, as the Board
of Director may designate, into fully paid and nonassessable
shares of Common Stock of the Corporation.
(2) In order to convert shares of this Series into Common Stock
pursuant to this Section (c) the holder thereof shall surrender
at any office hereinabove mentioned the certificate or
certificates therefor, duly endorsed in blank or accompanied by
proper instruments of assignment and transfer thereof duly
endorsed in blank, together with any payment required by this
Section (c) and transfer tax stamps or funds therefor, if
required pursuant to paragraph (7) below, and give written notice
to the Corporation at said office that the holder elects to
convert such shares of this Series surrendered for conversion.
Statement of Designation - Page 2
<PAGE>
Any such written notice that the holder elects to convert such
shares of this Series surrendered for conversion which is given
to the Corporation at said office during the period from the
close of business on any record date for the payment of a
dividend on such share to the opening of business on the date for
payment of such dividend shall be accompanied by payment of an
amount equal to the dividend payable on such dividend payment
date on such shares of this Series being surrendered for
conversion. No payment or adjustment shall be made upon any
conversion on account of any dividends on the Common Stock issued
upon such conversion.
Shares of this Series shall be deemed to have been converted
pursuant to this Section (c) immediately prior to the close of
business on the date of the surrender of such shares for
conversion in accordance with the foregoing provisions, and the
person or persons entitled to receive the Common Stock issuable
upon such conversion shall be treated for all purposes as the
record holder or holders of such Common Stock at such time;
provided, however, that any such surrender on any date when the
stock transfer books of the Corporation shall be closed shall
constitute the person or persons in whose name or names the
certificates for such shares of Common Stock are to be issued as
the record holder or holders thereof for all purposes immediately
prior to the close of business on the next succeeding day on
which such stock transfer books are opened and such conversion
shall be at the conversion price in effect at such time on such
succeeding day. As promptly as practicable after such conversion
date, the Corporation shall issue and shall deliver at said
office a certificate or certificates for the number of shares of
Common Stock issuable upon such conversion, together with a cash
payment in lieu of any fraction of a share, as hereinafter
provided, to the person or persons entitled to receive the same.
(3) No fractional shares of Common Stock shall be issued upon
conversion of shares of this Series, but, instead of any fraction
of a share of Common Stock which would otherwise be issuable at
one time to the same holder in respect of the aggregate number of
shares in this Series converted, the Corporation shall pay a cash
adjustment of such fraction in an amount equal to the same
fraction of the Closing Price, as hereinafter described in
Statement of Designation - Page 3
<PAGE>
paragraph (8) below, of a share of Common Stock on the date on which
such shares of this Series were converted, or, if such date is not a
Trading Day, as hereinafter described in paragraph (8) below, on the
next Trading Day.
(4) The number of shares of Common Stock to be issued upon conversion of
shares of this Series shall be adjusted from time to time as follows:
(A) In case the Corporation shall (i) subdivide its outstanding
shares of Common Stock, (ii) combine its outstanding shares of
Common Stock into a smaller number of shares, (iii) issue any
shares by reclassification of its shares of Common Stock, or (iv)
cause any event described in clauses (A), (B) or (C) of paragraph
(5) below to occur, the number of shares of Common Stock to be
issued upon conversion of shares of this Series at the time of
the record date of such subdivision, combination,
reclassification or event described in clauses (A), (B) or (C) of
paragraph (5) below shall be adjusted, effective at the opening
of business on the business day next following such record date
so that the holder of any shares of this Series surrendered for
conversion after such record date shall be entitled to receive
the number of shares of capital stock of the Corporation which he
would have owned or been entitled to receive had such shares of
this Series been converted immediately prior to such time. If, as
a result of an adjustment made pursuant to this clause (A) the
holder of any share thereafter surrendered for conversion shall
become entitled to receive shares of two or more classes of
capital stock of the Corporation, the Board of Directors (whose
determination shall be conclusive) shall determine the
allocations of the adjusted Conversion Ratio between or among
shares of such classes of capital stock.
(B) In any case in which this paragraph (4) shall require that an
adjustment as a result of any event become effective at the
opening of business on the business day next following a record
date, the Corporation may elect to defer until after the
occurrence of such event: (i) issuing to the holder of any shares
Statement of Designation - Page 4
<PAGE>
of this Series converted after such record date and before
the occurrence of such event the additional shares of
capital stock issuable upon such conversion and (ii) paying
to such holder any amount in cash in lieu of fractional
shares of Common Stock pursuant to paragraph (3) above, and
in lieu of the shares the issuance of which is so deferred,
the Corporation shall issue or cause its transfer agents to
issue due bills or other appropriate evidence of the right
to receive such shares should such event occur.
(5) In case:
(A) the Corporation shall declare a dividend or any other
distribution on its Common Stock payable otherwise than in
cash out of its retained earnings; or
(B) the Corporation shall authorize the granting to the holders
of its Common Stock of rights to subscribe for or purchase
any shares of capital stock of any class or of any other
rights; or
(C) of any reclassification of the capital stock of the
Corporation (other than a subdivision or combination of its
outstanding shares of Common Stock); or
(D) of any consolidation or merger to which the Corporation is a
party and for which approval of any stockholders of the
Corporation is required, or of the sale or transfer of all
or substantially all of the assets of the Corporation; or
(E) of the voluntary or involuntary dissolution, liquidation or
winding up of the Corporation;
then the Corporation shall cause to be mailed to the transfer
agent or agent for the series and to the holders of record of the
outstanding shares of this Series, at least 20 days (or 10 days
in any case specified in clause (A) or (B) above) prior to the
applicable record date hereinafter specified, a notice stating
(i) the date on which a record is to be taken for the purpose of
such dividend, distribution or rights, or, if a record is not to
be taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distribution or rights
Statement of Designation - Page 5
<PAGE>
are to be determined, or (ii) the date on which such
reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders
of Common Stock of record shall be entitled to exchange their
shares of Common Stock for securities or other property
deliverable upon such reclassification, consolidation, merger,
sale, transfer, dissolution, liquidation or winding up.
(6) The Corporation shall at all times reserve and keep available,
free from pre-emptive rights, out of its authorized but unissued
Common Stock for the purpose of effecting the conversion of the
shares of this Series, the full number of shares of Common Stock
then deliverable upon the conversion of all shares of this Series
then outstanding, provided that nothing contained herein shall be
construed to preclude the Corporation from satisfying its
obligations in respect of the conversion of the shares by
delivery of purchased shares of Common Stock which are held in
the treasury of the Corporation.
(7) The Corporation shall pay any and all taxes that may be payable
in respect of the issuance or delivery of shares of Common Stock
on conversion of shares of this Series pursuant hereto. The
Corporation shall not, however, be required to pay any tax which
may be payable in respect of any transfer involved in the issue
and delivery of shares of Common Stock in a name other than that
in which the shares of this Series so converted were registered,
and no such issue or delivery shall be made unless and until the
person requesting such issue shall have paid to the Corporation
the amount of any such tax or shall have established, to the
satisfaction of the Corporation, that such tax shall have been
paid.
(8) As used in this Section (c), the term "Closing Price" on any day
shall mean the reported last sales price regular way on any
national exchange or the Composite Tape, or, in case no such
reported sale takes place on such day, the average of the
reported closing bid and asked price regular way on the principal
national securities exchange on which the Common Stock is listed
or admitted to trading, or, if not listed or admitted to trading
on any national securities exchange, the average of the closing
Statement of Designation - Page 6
<PAGE>
bid and asked price in the over-the-counter market as furnished
by any New York Stock Exchange member firm selected from time to
time by the Corporation for that purpose, or if no such
quotations are available, the fair market price as determined by
the Corporation (whose determination shall be conclusive), and
the term "Trading Day" shall mean a date on which the principal
national securities exchange on which the Common Stock is listed
is open for the transaction of business, or, if the Common Stock
is not listed or admitted to trading on any national securities
exchange, a date on which any New York Exchange member firm is
open for the transaction of business.
(9) If either of the following shall occur, namely: (a) any
consolidation or merger to which the Corporation is a party,
other than a consolidation or a merger in which consolidation or
merger the Corporation is a continuing corporation and which does
not result in any reclassification of or change (other than a
change in par value or from par value to no par value or from no
par value to par value, or as a result of a subdivision or
combination) in outstanding shares of the Common Stock, or (b)
any sale or conveyance to another corporation of the property of
the Corporation as an entirety or substantially as an entirety;
then the holder of each share of this Series then outstanding
shall have the right to convert such share only into the kind and
amount of shares of stock and other securities and property
receivable upon such consolidation, merger, sale or conveyance
subject to adjustments which shall be as nearly equivalent as may
be practicable to the adjustments provided for in paragraph (4)
above. The provisions of this paragraph (9) shall similarly apply
to successive consolidations, mergers, sales or conveyances.
(10) Notwithstanding anything elsewhere contained in this Certificate,
any funds which at any time shall have been deposited by the
Corporation or on its behalf with any paying agent for the
purpose of paying dividends on any of the shares of this Series
and which shall not be required for such purposes because of the
conversion of such shares, as provided in this Section (c),
shall, upon delivery to the paying agent of evidence satisfactory
to it of such conversion, after such conversion be repaid to the
Corporation by the paying agent.
Statement of Designation - Page 7
<PAGE>
(11) Any shares of this Series which shall at any time have been
converted into shares of Common Stock shall, after conversion,
have the status of authorized but unissued shares of Preferred
Stock, without designation as to series until such shares are
once more designated as part of a particular series by the Board
of Directors.
(d) Redemption
----------
(1) Commencing the earlier of (A) 24 months after issuance, or (B)
the commencement of a public offering for the Common Stock
pursuant to a registration statement filed with the Securities
and Exchange Commission, the shares of this Series will be
redeemable, in whole or part, at any time at the option of the
Corporation at the cash price equal to $8.00 per share of such
Series, plus all dividends accrued and unpaid as of the
redemption date. In the event that less than all of the
outstanding shares of this Series are at one time redeemed by the
Corporation, the shares to be redeemed shall be selected in such
manner as may be prescribed by the Board of Directors of the
Corporation, in its discretion. Notice of redemption of shares of
this Series shall be mailed to each holder of record of the
shares to be redeemed, at his address of record, not less than 30
days prior to the redemption date. For at least 30 days following
the notice of redemption and until two full business days prior
to the date of redemption, the holders of shares of this Series
shall have the right to convert shares of this Series into shares
of Common Stock, as described in Section (c) above. The notice of
redemption shall specify the date and place of redemption, the
redemption price, the date when shares of this Series cease to be
convertible, and if less than all the shares owned by the holder
are then to be redeemed, the number of shares thereof which are
to be redeemed. Unless default shall be made in the payment in
full of the redemption price and any accrued and unpaid
dividends, dividends on the shares called for redemption shall
cease to accrue on the redemption date, and all rights of the
holders of those shares shall cease on the redemption date,
except the right to convert to Common Stock any shares
theretofore tendered for conversion and except the right to
receive the amount payable upon redemption of the shares on
presentation and surrender of the respective certificates
representing the shares, and the shares shall not after the
Statement of Designation - Page 8
<PAGE>
redemption date be deemed to be outstanding. In case fewer than
all the shares represented by any such certificate are redeemed,
a new certificate shall be issued representing the unredeemed
shares without cost to the holder thereof.
(2) Any shares of this Series which shall at any time have been
redeemed shall, after such redemption, have the status of
authorized but unissued shares of Preferred Stock, without
designation as to series until such shares are once more
designated as part of a particular series by the Board of
Directors.
(3) The holders of this Series shall be entitled to receive the
redemption payments specified in this Section (d) if, when and as
such payments shall be authorized by the Board of Directors, out
of the assets of the Corporation legally available therefore.
(e) Liquidation Rights.
------------------
(1) Upon the liquidation, dissolution or winding up of the
Corporation, the holders of the shares of this Series shall be
entitled to receive out of the assets of the Corporation
available for distribution to its stockholders, before any
payment or distribution shall be made on the Common Stock or
Other Preferred Stock (as hereinbefore described in Section (b)
above), an amount equal to $8.00 per share of such Series, plus a
sum equal to all dividends (whether or not earned or declared) on
such shares accrued and unpaid thereon to the date of final
distribution.
(2) If upon any liquidation, dissolution or winding up of the
Corporation the amounts payable on or with respect to the
Preferred Stock of this Series are not paid in full, the holders
of shares of such Preferred Stock shall share ratably in any
distribution of assets according to the respective number of
shares of such Preferred Stock held by them.
(3) Neither the sale, lease or exchange (for cash, shares of stock,
securities or other consideration) of all or substantially all
the property and assets of the Corporation nor the merger or
consolidation of the Corporation into or with any other
corporation or the merger or consolidation of any other
Statement of Designation - Page 9
<PAGE>
corporation into or with the Corporation shall be deemed to be a
liquidation, dissolution or winding up of the Corporation for the
purposes of this Section (e).
(f) Voting Rights. Except as provided by law, the holders of shares of
-------------
this Series shall not have any right to vote for any purpose on any
matter whatsoever.
3. Such resolution was adopted on May 10, 1995.
4. Such resolution was duly adopted by all necessary action on the part of the
Corporation.
SUNPOINT SECURITIES, INC.
/s/ V. Lewis
By: ----------------------------
Van R. Lewis III, President
Statement of Designation - Page 10
<PAGE>
(stamp)
FILED
In the Office of the
Secretary of State of Texas
SEP 29, 1995
Corporations Section
STATEMENT OF DESIGNATION
SERIES B CONVERTIBLE PREFERRED STOCK
OF
SUNPOINT SECURITIES, INC.
Sunpoint Securities, Inc., pursuant to the provisions of Article 2.13 of
the Texas Business Corporation Act, hereby makes the following statement
relating to the establishment of a series of shares:
1. The name of the corporation is Sunpoint Securities, Inc.
2. A copy of the resolution establishing and designating the series and fixing
and determining the preferences, limitations, and relative rights thereof is as
follows:
RESOLVED that, pursuant to authority conferred upon the Board of
Directors by the Articles of Incorporation, as amended, of Sunpoint
Securities, Inc. (the "Corporation"), the Board of Directors hereby
establishes a series of Preferred Stock of the Corporation to consist of
50,000 shares, and fixes the designations, preferences, limitations and
relative rights of the shares of such series so established as follows:
(a) Designation. The designation of the series of Preferred Stock created
-----------
by this resolution shall be Series B Convertible Preferred Stock
(hereinafter called this "Series").
(b) Dividend Rate. Out of the surplus or net profits of the Corporation
-------------
legally available for dividends, the holder of shares of this Series
shall be entitled to receive, when and as declared by the Board of
Directors, dividends at the rate of $1.44 per share of such Series per
annum from the date of cumulation and continuing thereafter at such
rate so long as such share remains issued and outstanding. Dividends
shall be payable quarterly on the last day of March, June, September
and December in each year, commencing December 31, 1995 (each such day
being hereinafter called a dividend date and each quarterly period
ending, with a dividend date being hereinafter called a dividend
period), in each case from the date of cumulation (as hereinafter
described in this Section (b)) of this Series (provided, however,
that, if the date of cumulation of this Series shall be a date less
than 30 days prior to a dividend date, the dividend that would
otherwise be payable on such dividend date shall be payable on the
next succeeding dividend date); and such dividends upon the shares of
this Series shall be cumulative (whether or not in any dividend period
or periods there shall be surplus or net profits of the Corporation
legally available for the payment of such dividends), so that, if at
Statement of Designation - Page 1
<PAGE>
any time dividends upon the outstanding shares of this Series at the
respective per annum rates determined for this Series from the date of
cumulation thereof to the end of the then current dividend period
shall not have been paid in full or declared and a sum sufficient for
the payment in full thereof set apart for such payment, the amount of
the deficiency shall be fully paid, but without interest, before any
dividend shall be declared or paid upon or set apart for, or any other
distribution shall be ordered or made in respect of, or any payment
shall be made on account of the purchase or redemption of, the Common
Stock or any series of Preferred Stock other than the Series A
Convertible Preferred Stock or the shares of this Series ("Other
Preferred Stock").
Any dividend on the shares of this Series which is payable in respect
of any dividend period less than a full quarterly period shall be
computed on the basis of the actual number of days elapsed from the
cumulation date to the dividend date for such period assuming for such
purposes a 360 day year consisting of 12 months of 30 days each.
The term `date of cumulation' as used herein which reference to shares
of this Series shall be deemed to mean the date on which such shares
of this Series are first issued.
(c) Conversion Rights. Each share of this Series shall be convertible into
-----------------
one share of Common Stock of the Corporation subject to the following
terms and conditions:
(1) The shares of this Series shall be convertible at the office of
the Corporation or at the office of any transfer agent for this
Series, and at such other office or offices, if any, as the Board
of Director may designate, into fully paid and nonassessable
shares of Common Stock of the Corporation.
(2) In order to convert shares of this Series into Common Stock
pursuant to this Section (c) the holder thereof shall surrender
at any office hereinabove mentioned the certificate or
certificates therefor, duly endorsed in blank or accompanied by
proper instruments of assignment and transfer thereof duly
endorsed in blank, together with any payment required by this
Section (c) and transfer tax stamps or funds therefor, if
required pursuant to paragraph (7) below, and give written
Statement of Designation - Page 2
<PAGE>
notice to the Corporation at said office that the holder elects
to convert such shares of this Series surrendered for conversion.
Any such written notice that the holder elects to convert such
shares of this Series surrendered for conversion which is given
to the Corporation at said office during the period from the
close of business on any record date for the payment of a
dividend on such share to the opening of business on the date for
payment of such dividend shall be accompanied by payment of an
amount equal to the dividend payable on such dividend payment
date on such shares of this Series being surrendered for
conversion. No payment or adjustment shall be made upon any
conversion on account of any dividends on the Common Stock issued
upon such conversion.
Shares of this Series shall be deemed to have been converted
pursuant to this Section (c) immediately prior to the close of
business on the date of the surrender of such shares for
conversion in accordance with the foregoing provisions, and the
person or persons entitled to receive the Common Stock issuable
upon such conversion shall be treated for all purposes as the
record holder or holders of such Common Stock at such time;
provided, however, that any such surrender on any date when the
stock transfer books of the Corporation shall be closed shall
constitute the person or persons in whose name or names the
certificates for such shares of Common Stock are to be issued as
the record holder or holders thereof for all purposes immediately
prior to the close of business on the next succeeding day on
which such stock transfer books are opened and such conversion
shall be at the conversion price in effect at such time on such
succeeding day. As promptly as practicable after such conversion
date, the Corporation shall issue and shall deliver at said
office a certificate or certificates for the number of shares of
Common Stock issuable upon such conversion, together with a cash
payment in lieu of any fraction of a share, as hereinafter
provided, to the person or persons entitled to receive the same.
(3) No fractional shares of Common Stock shall be issued upon
conversion of shares of this Series, but, instead of any fraction
of a share of Common Stock which would otherwise be issuable at
one time to the same holder in respect of the aggregate number of
shares in this Series converted, the Corporation shall pay a
Statement of Designation - Page 3
<PAGE>
cash adjustment of such fraction in an amount equal to the same
fraction of the Closing Price, as hereinafter described in paragraph
(8) below, of a share of Common Stock on the date on which such shares
of this Series were converted, or, if such date is not a Trading Day,
as hereinafter described in paragraph (8) below, on the next Trading
Day.
(4) The number of shares of Common Stock to be issued upon conversion of
shares of this Series shall be adjusted from time to time as follows:
(A) In case the Corporation shall (i) subdivide its outstanding
shares of Common Stock, (ii) combine its outstanding shares of
Common Stock into a smaller number of shares, (iii) issue any
shares by reclassification of its shares of Common Stock, or (iv)
cause any event described in clauses (A), (B) or (C) of paragraph
(5) below to occur, the number of shares of Common Stock to be
issued upon conversion of shares of this Series at the time of
the record date of such subdivision, combination,
reclassification or event described in clauses (A), (B) or (C) of
paragraph (5) below shall be adjusted, effective at the opening
of business on the business day next following such record date
so that the holder of any shares of this Series surrendered for
conversion after such record date shall be entitled to receive
the number of shares of capital stock of the Corporation which he
would have owned or been entitled to receive had such shares of
this Series been converted immediately prior to such time. If, as
a result of an adjustment made pursuant to this clause (A) the
holder of any share thereafter surrendered for conversion shall
become entitled to receive shares of two or more classes of
capital stock of the Corporation, the Board of Directors (whose
determination shall be conclusive) shall determine the
allocations of the adjusted Conversion Ratio between or among
shares of such classes of capital stock.
(B) In any case in which this paragraph (4) shall require that an
adjustment as a result of any event become effective at the
opening of business on the business day next following a record
date, the Corporation may elect to defer until after the
Statement of Designation - Page 4
<PAGE>
occurrence of such event: (i) issuing to the holder of any shares
of this Series converted after such record date and before the
occurrence of such event the additional shares of capital stock
issuable upon such conversion and (ii) paying to such holder any
amount in cash in lieu of fractional shares of Common Stock
pursuant to paragraph (3) above, and in lieu of the shares the
issuance of which is so deferred, the Corporation shall issue or
cause its transfer agents to issue due bills or other appropriate
evidence of the right to receive such shares should such event
occur.
(5) In case:
(A) the Corporation shall declare a dividend or any other
distribution on its Common Stock payable otherwise than in cash
out of its retained earnings; or
(B) the Corporation shall authorize the granting to the holders of
its Common Stock of rights to subscribe for or purchase any
shares of capital stock of any class or of any other rights; or
(C) of any reclassification of the capital stock of the Corporation
(other than a subdivision or combination of its outstanding
shares of Common Stock); or
(D) of any consolidation or merger to which the Corporation is a
party and for which approval of any stockholders of the
Corporation is required, or of the sale or transfer of all or
substantially all of the assets of the Corporation; or
(E) of the voluntary or involuntary dissolution, liquidation or
winding up of the Corporation;
then the Corporation shall cause to be mailed to the transfer
agent or agent for the series and to the holders of record of the
outstanding shares of this Series, at least 20 days (or 10 days
in any case specified in clause (A) or (B) above) prior to the
applicable record date hereinafter specified, a notice stating
(i) the date on which a record is to be taken for the purpose of
such dividend, distribution or rights, or, if a record is not to
Statement of Designation - Page 5
<PAGE>
be taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distribution or rights
are to be determined, or (ii) the date on which such
reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders
of Common Stock of record shall be entitled to exchange their
shares of Common Stock for securities or other property
deliverable upon such reclassification, consolidation, merger,
sale, transfer, dissolution, liquidation or winding up.
(6) The Corporation shall at all times reserve and keep available,
free from pre-emptive rights, out of its authorized but unissued
Common Stock for the purpose of effecting the conversion of the
shares of this Series, the full number of shares of Common Stock
then deliverable upon the conversion of all shares of this Series
then outstanding, provided that nothing contained herein shall be
construed to preclude the Corporation from satisfying its
obligations in respect of the conversion of the shares by
delivery of purchased shares of Common Stock which are held in
the treasury of the Corporation.
(7) The Corporation shall pay any and all taxes that may be payable
in respect of the issuance or delivery of shares of Common Stock
on conversion of shares of this Series pursuant hereto. The
Corporation shall not, however, be required to pay any tax which
may be payable in respect of any transfer involved in the issue
and delivery of shares of Common Stock in a name other than that
in which the shares of this Series so converted were registered,
and no such issue or delivery shall be made unless and until the
person requesting such issue shall have paid to the Corporation
the amount of any such tax or shall have established, to the
satisfaction of the Corporation, that such tax shall have been
paid.
(8) As used in this Section (c), the term "Closing Price" on any day
shall mean the reported last sales price regular way on any
national exchange or the Composite Tape, or, in case no such
reported sale takes place on such day, the average of the
reported closing bid and asked price regular way on the principal
national securities exchange on which the Common Stock is listed
or admitted to trading, or, if not listed or admitted to trading
Statement of Designation - Page 6
<PAGE>
on any national
securities exchange, the average of the closing bid and asked
price in the over-the-counter market as furnished by any New York
Stock Exchange member firm selected from time to time by the
Corporation for that purpose, or if no such quotations are
available, the fair market price as determined by the Corporation
(whose determination shall be conclusive), and the term "Trading
Day" shall mean a date on which the principal national securities
exchange on which the Common Stock is listed is open for the
transaction of business, or, if the Common Stock is not listed or
admitted to trading on any national securities exchange, a date
on which any New York Exchange member firm is open for the
transaction of business.
(9) If either of the following shall occur, namely: (a) any
consolidation or merger to which the Corporation is a party,
other than a consolidation or a merger in which consolidation or
merger the Corporation is a continuing corporation and which does
not result in any reclassification of or change (other than a
change in par value or from par value to no par value or from no
par value to par value, or as a result of a subdivision or
combination) in outstanding shares of the Common Stock, or (b)
any sale or conveyance to another corporation of the property of
the Corporation as an entirety or substantially as an entirety;
then the holder of each share of this Series then outstanding
shall have the right to convert such share only into the kind and
amount of shares of stock and other securities and property
receivable upon such consolidation, merger, sale or conveyance
subject to adjustments which shall be as nearly equivalent as may
be practicable to the adjustments provided for in paragraph (4)
above. The provisions of this paragraph (9) shall similarly apply
to successive consolidations, mergers, sales or conveyances.
(10) Notwithstanding anything elsewhere contained in this Certificate,
any funds which at any time shall have been deposited by the
Corporation or on its behalf with any paying agent for the
purpose of paying dividends on any of the shares of this Series
and which shall not be required for such purposes because of the
conversion of such shares, as provided in this Section (c),
shall, upon delivery to the paying agent of evidence satisfactory
to it of such conversion, after such conversion be repaid to the
Statement of Designation - Page 7
<PAGE>
Corporation by the paying agent.
(11) Any shares of this Series which shall at any time have been
converted into shares of Common Stock shall, after conversion,
have the status of authorized but unissued shares of Preferred
Stock, without designation as to series until such shares are
once more designated as part of a particular series by the Board
of Directors.
(d) Redemption
----------
(1) Commencing the earlier of (A) 24 months after issuance, or (B)
the commencement of a public offering for the Common Stock
pursuant to a registration statement filed with the Securities
and Exchange Commission, the shares of this Series will be
redeemable, in whole or part, at any time at the option of the
Corporation at the cash price equal to $12.00 per share of such
Series, plus all dividends accrued and unpaid as of the
redemption date. In the event that less than all of the
outstanding shares of this Series are at one time redeemed by the
Corporation, the shares to be redeemed shall be selected in such
manner as may be prescribed by the Board of Directors of the
Corporation, in its discretion. Notice of redemption of shares of
this Series shall be mailed to each holder of record of the
shares to be redeemed, at his address of record, not less than 30
days prior to the redemption date. For at least 30 days following
the notice of redemption and until two full business days prior
to the date of redemption, the holders of shares of this Series
shall have the right to convert shares of this Series into shares
of Common Stock, as described in Section (c) above. The notice of
redemption shall specify the date and place of redemption, the
redemption price, the date when shares of this Series cease to be
convertible, and if less than all the shares owned by the holder
are then to be redeemed, the number of shares thereof which are
to be redeemed. Unless default shall be made in the payment in
full of the redemption price and any accrued and unpaid
dividends, dividends on the shares called for redemption shall
cease to accrue on the redemption date, and all rights of the
holders of those shares shall cease on the redemption date,
except the right to convert to Common Stock any shares
theretofore tendered for conversion and except the right to
receive the amount payable upon redemption of the shares on
Statement of Designation - Page 8
<PAGE>
presentation and surrender of the respective certificates
representing the shares, and the shares shall not after the
redemption date be deemed to be outstanding. In case fewer than
all the shares represented by any such certificate are redeemed,
a new certificate shall be issued representing the unredeemed
shares without cost to the holder thereof.
(2) Any shares of this Series which shall at any time have been
redeemed shall, after such redemption, have the status of
authorized but unissued shares of Preferred Stock, without
designation as to series until such shares are once more
designated as part of a particular series by the Board of
Directors.
(3) The holders of this Series shall be entitled to receive the
redemption payments specified in this Section (d) if, when and as
such payments shall be authorized by the Board of Directors, out
of the assets of the Corporation legally available therefore.
(e) Liquidation Rights.
------------------
(1) Upon the liquidation, dissolution or winding up of the
Corporation, the holders of the shares of this Series shall be
entitled to receive out of the assets of the Corporation
available for distribution to its stockholders, before any
payment or distribution shall be made on the Common Stock or
Other Preferred Stock (as hereinbefore described in Section (b)
above), an amount equal to $12.00 per share of such Series, plus
a sum equal to all dividends (whether or not earned or declared)
on such shares accrued and unpaid thereon to the date of final
distribution.
(2) If upon any liquidation, dissolution or winding up of the
Corporation the amounts payable on or with respect to the
Preferred Stock of this Series are not paid in full, the holders
of shares of such Preferred Stock shall share ratably in any
distribution of assets according to the respective number of such
held by them.
(3) Neither the sale, lease or exchange (for cash, shares of stock,
securities or other consideration) of all or substantially all
the property and assets of the Corporation nor the merger or
consolidation of the Corporation into or with any other
Statement of Designation - Page 9
<PAGE>
corporation or the merger or consolidation of any other
corporation into or with the Corporation shall be deemed to be a
liquidation, dissolution or winding up of the Corporation for the
purposes of this Section (e).
(f) Voting Rights. Except as provided by law, the holders of shares of
-------------
this Series shall not have any right to vote for any purpose on any
matter whatsoever.
(g) Series A Convertible Preferred Stock. The preferences and relative
------------------------------------
rights of the shares of this Series shall be subject in all respects
to the preferences and relative rights of the Series A Convertible
Preferred Stock to the extent provided in the Board of Directors
resolution establishing such series.
3. Such resolution was adopted on September 28, 1995.
4. Such resolution was duly adopted by all necessary action on the part of the
Corporation.
SUNPOINT SECURITIES, INC.
/s/ Marvin W. Sapaugh
By: ---------------------------------
Marvin W. Sapaugh, President
Statement of Designation - Page 10
<PAGE>
(stamp)
FILED
In the Office of the
Secretary of State of Texas
DEC 14, 1995
CORPORATIONS SECTION
STATEMENT OF DESIGNATION
SERIES C CONVERTIBLE PREFERRED STOCK
OF
SUNPOINT SECURITIES, INC.
Sunpoint Securities, Inc., pursuant to the provisions of Article 2.13 of
the Texas Business Corporation Act, hereby makes the following statement
relating to the establishment of a series of shares:
1. The name of the corporation is Sunpoint Securities, Inc.
2. A copy of the resolution establishing and designating the series and fixing
and determining the preferences, limitations, and relative rights thereof is as
follows:
RESOLVED that, pursuant to authority conferred upon the Board of
Directors by the Articles of Incorporation, as amended, of Sunpoint
Securities, Inc. (the "Corporation"), the Board of Directors hereby
establishes a series of Preferred Stock of the Corporation to consist of
360,000 shares, and fixes the designations, preferences, limitations and
relative rights of the shares of such series so established as follows:
(a) Designation. The designation of the series of Preferred Stock created
-----------
by this resolution shall be Series C Convertible Preferred Stock
(hereinafter called this "Series").
(b) Dividend Rate. Out of the surplus or net profits of the Corporation
-------------
legally available for dividends, the holder of shares of this Series
shall be entitled to receive, when and as declared by the Board of
Directors, dividends at the rate of $1.00 per share of such Series per
annum from the date of cumulation and continuing thereafter at such
rate so long as such share remains issued and outstanding. Dividends
shall be payable quarterly on the last day of March, June, September
and December in each year, commencing December 31, 1995 (each such day
being hereinafter called a dividend date and each quarterly period
ending, with a dividend date being hereinafter called a dividend
period), in each case from the date of cumulation (as hereinafter
described in this Section (b)) of this Series (provided, however,
that, if the date of cumulation of this Series shall be a date less
than 30 days prior to a dividend date, the dividend that would
otherwise be payable on such dividend date shall be payable on the
next succeeding dividend date); and such dividends upon the shares of
this Series shall be cumulative (whether or not in any dividend period
or periods there shall be surplus or net profits of the Corporation
legally available for the payment of such dividends), so that, if at
Statement of Designation - Page 1
<PAGE>
any time dividends upon the outstanding shares of this Series at the
respective per annum rates determined for this Series from the date of
cumulation thereof to the end of the then current dividend period
shall not have been paid in full or declared and a sum sufficient for
the payment in full thereof set apart for such payment, the amount of
the deficiency shall be fully paid, but without interest, before any
dividend shall be declared or paid upon or set apart for, or any other
distribution shall be ordered or made in respect of, or any payment
shall be made on account of the purchase or redemption of, the Common
Stock or any series of Preferred Stock other than the Series A
Convertible Preferred Stock, the Series B Convertible Preferred Stock,
or the shares of this Series ("Other Preferred Stock").
Any dividend on the shares of this Series which is payable in respect
of any dividend period less than a full quarterly period shall be
computed on the basis of the actual number of days elapsed from the
cumulation date to the dividend date for such period assuming for such
purposes a 360 day year consisting of 12 months of 30 days each.
The term `date of cumulation' as used herein which reference to shares
of this Series shall be deemed to mean the date on which such shares
of this Series are first issued.
(c) Conversion Rights. Each share of this Series shall be convertible into
-----------------
one share of Common Stock of the Corporation subject to the following
terms and conditions:
(1) The shares of this Series shall be convertible at the office of
the Corporation or at the office of any transfer agent for this
Series, and at such other office or offices, if any, as the Board
of Director may designate, into fully paid and nonassessable
shares of Common Stock of the Corporation.
(2) In order to convert shares of this Series into Common Stock
pursuant to this Section (c) the holder thereof shall surrender
at any office hereinabove mentioned the certificate or
certificates therefor, duly endorsed in blank or accompanied by
proper instruments of assignment and transfer thereof duly
endorsed in blank, together with any payment required by this
Section (c) and transfer tax stamps or funds therefor, if
required pursuant to paragraph (7) below, and give written notice
Statement of Designation - Page 2
<PAGE>
to the Corporation at said office that the holder elects to
convert such shares of this Series surrendered for conversion.
Any such written notice that the holder elects to convert such
shares of this Series surrendered for conversion which is given
to the Corporation at said office during the period from the
close of business on any record date for the payment of a
dividend on such share to the opening of business on the date for
payment of such dividend shall be accompanied by payment of an
amount equal to the dividend payable on such dividend payment
date on such shares of this Series being surrendered for
conversion. No payment or adjustment shall be made upon any
conversion on account of any dividends on the Common Stock issued
upon such conversion.
Shares of this Series shall be deemed to have been converted
pursuant to this Section (c) immediately prior to the close of
business on the date of the surrender of such shares for
conversion in accordance with the foregoing provisions, and the
person or persons entitled to receive the Common Stock issuable
upon such conversion shall be treated for all purposes as the
record holder or holders of such Common Stock at such time;
provided, however, that any such surrender on any date when the
stock transfer books of the Corporation shall be closed shall
constitute the person or persons in whose name or names the
certificates for such shares of Common Stock are to be issued as
the record holder or holders thereof for all purposes immediately
prior to the close of business on the next succeeding day on
which such stock transfer books are opened and such conversion
shall be at the conversion price in effect at such time on such
succeeding day. As promptly as practicable after such conversion
date, the Corporation shall issue and shall deliver at said
office a certificate or certificates for the number of shares of
Common Stock issuable upon such conversion, together with a cash
payment in lieu of any fraction of a share, as hereinafter
provided, to the person or persons entitled to receive the same.
(3) No fractional shares of Common Stock shall be issued upon
conversion of shares of this Series, but, instead of any fraction
of a share of Common Stock which would otherwise be issuable at
one time to the same holder in respect of the aggregate number of
Statement of Designation - Page 3
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shares in this Series converted, the Corporation shall pay a cash
adjustment of such fraction in an amount equal to the same fraction of
the Closing Price, as hereinafter described in paragraph (8) below, of
a share of Common Stock on the date on which such shares of this
Series were converted, or, if such date is not a Trading Day, as
hereinafter described in paragraph (8) below, on the next Trading Day.
(4) The number of shares of Common Stock to be issued upon conversion of
shares of this Series shall be adjusted from time to time as follows:
(A) In case the Corporation shall (i) subdivide its outstanding
shares of Common Stock, (ii) combine its outstanding shares of
Common Stock into a smaller number of shares, (iii) issue any
shares by reclassification of its shares of Common Stock, or (iv)
cause any event described in clauses (A), (B) or (C) of paragraph
(5) below to occur, the number of shares of Common Stock to be
issued upon conversion of shares of this Series at the time of
the record date of such subdivision, combination,
reclassification or event described in clauses (A), (B) or (C) of
paragraph (5) below shall be adjusted, effective at the opening
of business on the business day next following such record date
so that the holder of any shares of this Series surrendered for
conversion after such record date shall be entitled to receive
the number of shares of capital stock of the Corporation which he
would have owned or been entitled to receive had such shares of
this Series been converted immediately prior to such time. If, as
a result of an adjustment made pursuant to this clause (A) the
holder of any share thereafter surrendered for conversion shall
become entitled to receive shares of two or more classes of
capital stock of the Corporation, the Board of Directors (whose
determination shall be conclusive) shall determine the
allocations of the adjusted Conversion Ratio between or among
shares of such classes of capital stock.
(B) In any case in which this paragraph (4) shall require that an
adjustment as a result of any event become effective at the
opening of business on the business day next following a
Statement of Desognation - Page 4
30
<PAGE>
record date, the Corporation may elect to defer until after the
occurrence of such event: (i) issuing to the holder of any shares
of this Series converted after such record date and before the
occurrence of such event the additional shares of capital stock
issuable upon such conversion and (ii) paying to such holder any
amount in cash in lieu of fractional shares of Common Stock
pursuant to paragraph (3) above, and in lieu of the shares the
issuance of which is so deferred, the Corporation shall issue or
cause its transfer agents to issue due bills or other appropriate
evidence of the right to receive such shares should such event
occur.
(5) In case:
(A) the Corporation shall declare a dividend or any other
distribution on its Common Stock payable otherwise than in cash
out of its retained earnings; or
(B) the Corporation shall authorize the granting to the holders of
its Common Stock of rights to subscribe for or purchase any
shares of capital stock of any class or of any other rights; or
(C) of any reclassification of the capital stock of the Corporation
(other than a subdivision or combination of its outstanding
shares of Common Stock); or
(D) of any consolidation or merger to which the Corporation is a
party and for which approval of any stockholders of the
Corporation is required, or of the sale or transfer of all or
substantially all of the assets of the Corporation; or
(E) of the voluntary or involuntary dissolution, liquidation or
winding up of the Corporation;
then the Corporation shall cause to be mailed to the transfer agent or
agent for the series and to the holders of record of the outstanding
shares of this Series, at least 20 days (or 10 days in any case
specified in clause (A) or (B) above) prior to the applicable record
date hereinafter specified, a notice stating (i) the date on which a
record is to be taken for the purpose of such dividend, distribution
Statement of Designation - Page 5
31
<PAGE>
or rights, or, if a record is not to be taken, the date as of
which the holders of Common Stock of record to be entitled to
such dividend, distribution or rights are to be determined, or
(ii) the date on which such reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it is
expected that holders of Common Stock of record shall be entitled
to exchange their shares of Common Stock for securities or other
property deliverable upon such reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation or winding up.
(6) The Corporation shall at all times reserve and keep available,
free from pre-emptive rights, out of its authorized but unissued
Common Stock for the purpose of effecting the conversion of the
shares of this Series, the full number of shares of Common Stock
then deliverable upon the conversion of all shares of this Series
then outstanding, provided that nothing contained herein shall be
construed to preclude the Corporation from satisfying its
obligations in respect of the conversion of the shares by
delivery of purchased shares of Common Stock which are held in
the treasury of the Corporation.
(7) The Corporation shall pay any and all taxes that may be payable
in respect of the issuance or delivery of shares of Common Stock
on conversion of shares of this Series pursuant hereto. The
Corporation shall not, however, be required to pay any tax which
may be payable in respect of any transfer involved in the issue
and delivery of shares of Common Stock in a name other than that
in which the shares of this Series so converted were registered,
and no such issue or delivery shall be made unless and until the
person requesting such issue shall have paid to the Corporation
the amount of any such tax or shall have established, to the
satisfaction of the Corporation, that such tax shall have been
paid.
(8) As used in this Section (c), the term "Closing Price" on any day
shall mean the reported last sales price regular way on any
national exchange or the Composite Tape, or, in case no such
reported sale takes place on such day, the average of the
reported closing bid and asked price regular way on the principal
national securities exchange on which the Common Stock is listed
Statement of Designation - Page 6
32
<PAGE>
or admitted to trading, or, if not listed or admitted to trading
on any national securities exchange, the average of the closing
bid and asked price in the over-the-counter market as furnished
by any New York Stock Exchange member firm selected from time to
time by the Corporation for that purpose, or if no such
quotations are available, the fair market price as determined by
the Corporation (whose determination shall be conclusive), and
the term "Trading Day" shall mean a date on which the principal
national securities exchange on which the Common Stock is listed
is open for the transaction of business, or, if the Common Stock
is not listed or admitted to trading on any national securities
exchange, a date on which any New York Exchange member firm is
open for the transaction of business.
(9) If either of the following shall occur, namely: (a) any
consolidation or merger to which the Corporation is a party,
other than a consolidation or a merger in which consolidation or
merger the Corporation is a continuing corporation and which does
not result in any reclassification of or change (other than a
change in par value or from par value to no par value or from no
par value to par value, or as a result of a subdivision or
combination) in outstanding shares of the Common Stock, or (b)
any sale or conveyance to another corporation of the property of
the Corporation as an entirety or substantially as an entirety;
then the holder of each share of this Series then outstanding
shall have the right to convert such share only into the kind and
amount of shares of stock and other securities and property
receivable upon such consolidation, merger, sale or conveyance
subject to adjustments which shall be as nearly equivalent as may
be practicable to the adjustments provided for in paragraph (4)
above. The provisions of this paragraph (9) shall similarly apply
to successive consolidations, mergers, sales or conveyances.
(10) Notwithstanding anything elsewhere contained in this Certificate,
any funds which at any time shall have been deposited by the
Corporation or on its behalf with any paying agent for the
purpose of paying dividends on any of the shares of this Series
and which shall not be required for such purposes because of the
conversion of such shares, as provided in this Section (c),
shall, upon delivery to the paying agent of evidence satisfactory
Statement of Designation - Page 7
33
<PAGE>
to it of such conversion, after such conversion be repaid to the
Corporation by the paying agent.
(11) Any shares of this Series which shall at any time have been
converted into shares of Common Stock shall, after conversion,
have the status of authorized but unissued shares of Preferred
Stock, without designation as to series until such shares are
once more designated as part of a particular series by the Board
of Directors.
(d) Redemption
----------
(1) Commencing the earlier of (A) 24 months after issuance, or (B)
the commencement of a public offering for the Common Stock
pursuant to a registration statement filed with the Securities
and Exchange Commission, the shares of this Series will be
redeemable, in whole or part, at any time at the option of the
Corporation at the cash price equal to $10.00 per share of such
Series, plus all dividends accrued and unpaid as of the
redemption date. In the event that less than all of the
outstanding shares of this Series are at one time redeemed by the
Corporation, the shares to be redeemed shall be selected in such
manner as may be prescribed by the Board of Directors of the
Corporation, in its discretion. Notice of redemption of shares of
this Series shall be mailed to each holder of record of the
shares to be redeemed, at his address of record, not less than 30
days prior to the redemption date. For at least 30 days following
the notice of redemption and until two full business days prior
to the date of redemption, the holders of shares of this Series
shall have the right to convert shares of this Series into shares
of Common Stock, as described in Section (c) above. The notice of
redemption shall specify the date and place of redemption, the
redemption price, the date when shares of this Series cease to be
convertible, and if less than all the shares owned by the holder
are then to be redeemed, the number of shares thereof which are
to be redeemed. Unless default shall be made in the payment in
full of the redemption price and any accrued and unpaid
dividends, dividends on the shares called for redemption shall
cease to accrue on the redemption date, and all rights of the
holders of those shares shall cease on the redemption date,
except the right to convert to Common Stock any shares
theretofore tendered for conversion and except the right to
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34
<PAGE>
receive the amount payable upon redemption of the shares on
presentation and surrender of the respective certificates
representing the shares, and the shares shall not after the
redemption date be deemed to be outstanding. In case fewer than
all the shares represented by any such certificate are redeemed,
a new certificate shall be issued representing the unredeemed
shares without cost to the holder thereof.
(2) Any shares of this Series which shall at any time have been
redeemed shall, after such redemption, have the status of
authorized but unissued shares of Preferred Stock, without
designation as to series until such shares are once more
designated as part of a particular series by the Board of
Directors.
(3) The holders of this Series shall be entitled to receive the
redemption payments specified in this Section (d) if, when and as
such payments shall be authorized by the Board of Directors, out
of the assets of the Corporation legally available therefore.
(e) Liquidation Rights.
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(1) Upon the liquidation, dissolution or winding up of the
Corporation, the holders of the shares of this Series shall be
entitled to receive out of the assets of the Corporation
available for distribution to its stockholders, before any
payment or distribution shall be made on the Common Stock or
Other Preferred Stock (as hereinbefore described in Section (b)
above), an amount equal to $10.00 per share of such Series, plus
a sum equal to all dividends (whether or not earned or declared)
on such shares accrued and unpaid thereon to the date of final
distribution.
(2) If upon any liquidation, dissolution or winding up of the
Corporation the amounts payable on or with respect to the
Preferred Stock of this Series are not paid in full, the holders
of shares of such Preferred Stock shall share ratably in any
distribution of assets according to the respective number of
such shares held by them.
(3) Neither the sale, lease or exchange (for cash, shares of stock,
securities or other consideration) of all or substantially all
the property and assets of the Corporation nor the merger or
Statement of Designation - Page 9
35
<PAGE>
consolidation of the Corporation into or with any other
corporation or the merger or consolidation of any other
corporation into or with the Corporation shall be deemed to
be a liquidation, dissolution or winding up of the
Corporation for the purposes of this Section (e).
(f) Voting Rights. Except as provided by law, the holders of shares of
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this Series shall not have any right to vote for any purpose on any
matter whatsoever.
(g) Previously Established Series of Preferred Stock. The preferences and
------------------------------------------------
relative rights of the shares of this Series shall be subject in all
respects to the preferences and relative rights of the Series A
Convertible Preferred Stock and Series B Convertible Preferred Stock
to the extent provided in the Board of Directors resolution
establishing such series.
3. Such resolution was adopted on December 12, 1995.
4. Such resolution was duly adopted by all necessary action on the part of the
Corporation.
SUNPOINT SECURITIES, INC.
By: /s/ Marvin W. Sapaugh
---------------------------
Marvin W. Sapaugh, President
Statement of Designation - Page 10
36
<PAGE>
EXHIBIT 2.2
RESTATED
BY-LAWS
OF
SUNPOINT Securities, Inc.
ARTICLE I - OFFICES
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1. REGISTERED OFFICE AND AGENT
The registered office of the corporation shall be maintained at 911 N.W.
Loop 281, Suite 319, Longview, Texas 75604,
in the State of Texas. The registered office or the registered agent, or both,
may be changed by resolution of the board of directors, upon filing the
statement required by law.
2. PRINCIPAL OFFICE
The principal office of the corporation shall be at 911 N.W. Loop 281,
Suite 319, Longview, Texas 75604,
provided that the board of directors shall have power to change the location of
the principal office in its discretion.
3. OTHER OFFICES
The corporation may also maintain other offices at such places within or
without the State of Texas as the board of directors may from time to time
appoint or as the business of the corporation may require.
ARTICLE II - SHAREHOLDERS
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1. PLACE OF MEETING
All meetings of shareholders, both regular and special, shall be held
either at the registered office of the corporation in Texas or at such other
places, either within or without the state, as shall be designated in the notice
of the meeting.
2. ANNUAL MEETING
The annual meeting of shareholders for the election of directors and for
the transaction of all other business which may come before the meeting shall be
held on the 31st day of October in each year (if not a legal
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holiday and, if a legal holiday, then on the next business day following) at the
hour specified in the notice of meeting.
If the election of directors shall not be held on the day above designated
for the annual meeting, the board of directors shall cause the election to be
held as soon thereafter as conveniently may be at a special meeting of the
shareholders called for the purpose of holding such election.
The annual meeting of shareholders may be held for any other purpose in
addition to the election of directors which may be specified in a notice of such
meeting. The meeting may be called by resolution of the board of directors or
by a writing filed with the secretary signed either by a majority of the
directors or by shareholders owning a majority in amount of the entire capital
stock of the corporation issued and outstanding and entitled to vote at any such
meeting.
3. NOTICE OF SHAREHOLDERS' MEETING
A written or printed notice stating the place, day and hour of the meeting,
and in case of a special meeting, the purpose or purposes for which the meeting
is called, shall be delivered not less than ten (10) nor more than fifty (50)
days before the date of the meeting, either personally or by mail, by or at the
direction of the president, secretary or the officer or person calling the
meeting, to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail addressed to the shareholder at his address as it appears on the
share transfer books of the corporation, with postage thereon prepaid.
4. VOTING OF SHARES
Each outstanding share, regardless of class, shall be entitled to one vote
on each matter submitted to a vote at a meeting of shareholders, except to the
extent that the voting rights of the shares of any class or classes are limited
or denied by the Articles of Incorporation or by law.
Treasury shares, shares of its own stock owned by another corporation the
majority of the voting stock of which is owned or controlled by this
corporation, and shares of its own stock held by this corporation in a fiduciary
capacity shall not be voted, directly or indirectly, at any meeting, and shall
not be counted in determining the total number of outstanding shares at any
given time.
A shareholder may vote either in person or by proxy executed in writing by
the shareholder or by his duly authorized attorney in-fact. No proxy shall be
valid after eleven (11) months from the date of its execution unless otherwise
provided in the proxy. Each proxy shall be revocable unless expressly provided
therein to be irrevocable, and in no event shall it remain irrevocable for a
period of more than eleven (11) months.
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At each election for directors every shareholder entitled to vote at such
election shall have the right to vote, in person or by proxy, the number of
shares owned by him for as many persons as there are directors to be elected and
for whose election he has a right to vote, or unless prohibited by the articles
of incorporation, to cumulate his votes by giving one candidate as many votes as
the number of such directors multiplied by the number of his shares shall equal,
or by distributing such votes on the same principal among any number of such
candidates. Any shareholder who intends to cumulate his votes as herein
authorized shall give written notice of such intention to the secretary of the
corporation on or before the day preceding the election at which such
shareholder intends to cumulate his votes.
5. CLOSING TRANSFER BOOKS AND FIXING RECORD DATE
For the purpose of determining shareholders entitled to notice of or to vote
at any meeting of shareholders or any adjournment thereof, or entitled to
receive payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the board of directors may provide
that the share transfer books shall be closed for a stated period not exceeding
fifty (50) days. If the stock transfer books shall be closed for the purpose of
determining shareholders entitled to notice of or to vote at a meeting of
shareholders, such books shall be closed for at least ten (10) days immediately
preceding such meeting. In lieu of closing the stock transfer books, the by-
laws or in the absence of an applicable by-law the board of directors, may fix
in advance a date as the record date for any such determination of shareholders,
not later than fifty (50) days and, in case of a meeting of shareholders, not
earlier than ten (10) days prior to the date on which the particular action,
requiring such determination of shareholders is to be taken. If the share
transfer books are not closed and no record date is fixed for the determination
of shareholders entitled to notice of or to vote at a meeting of shareholders,
or shareholders entitled to receive payment of a dividend, the date on which
notice of the meeting is mailed or the date on which the resolution of the board
of directors declaring such dividend is adopted, as the case may be, shall be
the record date for such determination of shareholders. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this section, such determination shall apply to any adjournment
thereof, except where the determination has been made through the closing of
share transfer books and the stated period of closing has expired.
6. QUORUM OF SHAREHOLDERS
Unless otherwise provided in the articles of incorporation, the holders of a
majority of the shares entitled to vote, represented in person or by proxy,
shall constitute a quorum at a meeting of shareholders, but in no event shall a
quorum consist of the holders of less than one-third (1/3) of the shares
entitled to vote and thus represented at such meeting. The vote of the holders
of a majority of the shares entitled to vote and thus represented at a meeting
at which a quorum is present shall be the act of the shareholders meeting,
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unless the vote of a greater number is required by law, the articles of
incorporation or the by-laws.
7. VOTING LISTS
The officer or agent having charge of the share transfer books for the
shares of the corporation shall make, at least ten (10) days before each meeting
of shareholders, a complete list of the shareholders entitled to vote at such
meeting or any adjournment thereof, arranged in alphabetical order, with the
address of and the number of shares held by each, which list, for a period of
ten (10) days prior to such meeting, shall be kept on file at the-registered
office of the corporation and shall be subject to inspection by any shareholder
at any time during usual business hours. Such list shall also be produced and
kept open at the time and place of the meeting and shall be subject to the
inspection of any shareholder during the whole time of the meeting. The
original share transfer books shall be prima-facie evidence as to who are the
shareholders entitled to examine such list or transfer books or to vote at any
meeting of shareholders.
ARTICLE III - DIRECTORS
-----------------------
1. BOARD OF DIRECTORS
The business and affairs of the corporation shall be managed by a board of
directors. Directors need not be residents of the State of Texas or
shareholders in the corporation.
2. NUMBER AND ELECTION OF DIRECTORS
The number of directors shall be five provided that the number may be
increased or decreased from time to time by an amendment to these by-laws,
but no decrease shall have the effect of shortening the term of any
incumbent director. At each annual election the shareholders shall elect
directors to hold office until the next succeeding annual meeting.
3. VACANCIES
Any vacancy occurring in the board of directors may be filled by the
affirmative vote of the remaining directors, though less than a quorum of the
board. A director elected to fill a vacancy shall be elected for the unexpired
term of his predecessor in office. Any directorship to be filled by reason of
an increase in the number of directors shall be filled by election at an annual
meeting or at a special meeting of shareholders called for that purpose.
4. QUORUM OF DIRECTORS
A majority of the board of directors shall constitute a quorum for the
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transaction of business. The act of the majority of the directors present at a
meeting at which a quorum is present shall be the act of the board of directors.
5. ANNUAL MEETING OF DIRECTORS
Within thirty days after each annual meeting of shareholders the board of
directors elected at such meeting shall hold an annual meeting at which they
shall elect officers and transact such other business as shall come before the
meeting.
6. REGULAR MEETING OF DIRECTORS
A regular meeting of the board of directors may be held at such time as
shall be determined from time to time by resolution of the board of directors.
7. SPECIAL MEETINGS OF DIRECTORS
The secretary shall call a special meeting of the board of directors
whenever requested to do so by the president or by two directors. Such special
meeting shall be held at the time specified in the notice of meeting.
8. PLACE OF DIRECTORS' MEETINGS
All meetings of the board of directors (annual, regular or special) shall be
held either at the principal office of the corporation or at such other place,
either within or without the State of Texas, as shall be specified in the notice
of meeting.
9. NOTICE OF DIRECTORS' MEETINGS
All meetings of the board of directors (annual, regular or special) shall be
held upon five (5) days' written notice stating the date, place and hour of
meeting delivered to each director either personally or by mail or at the
direction of the president or the secretary or the officer or person calling the
meeting.
In any case where all of the directors execute a waiver of notice of the
time and place of meeting, no notice thereof shall be required, and any such
meeting (whether annual, regular or special) shall be held at the time and at
the place (either within or without the State of Texas) specified in the waiver
of notice. Attendance of a director at any meeting shall constitute a waiver of
notice of such meeting, except where the directors attends a meeting for the
express purpose of objecting to the transaction of any business on the ground
that the meeting is not lawfully called or convened.
Neither the business to be transacted at, nor the purpose of, any annual,
regular or special meeting of the board of directors need be specified in the
notice or waiver of notice of such meeting.
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10. COMPENSATION
Directors, as such, shall not receive any stated salary for their services,
but by resolution of the board of directors a fixed sum and expenses of
attendance, if any, may be allowed for attendance at each annual, regular or
special meeting of the board, provided, that nothing herein contained shall be
construed to preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.
ARTICLE IV - OFFICERS
---------------------
1. OFFICERS ELECTION
The officers of the corporation shall consist of a president, one or more
vice-presidents, a secretary, and a treasurer. All such officers shall be
elected at the annual meeting of the board of directors provided for in Article
III, Section 5. If any office is not filled at such annual meeting, it may be
filled at any subsequent regular or special meeting of the board. The board of
directors at such annual meeting, or at any subsequent regular or special
meeting may also elect or appoint such other officers and assistant officers and
agents as may be deemed necessary. Any two or more offices may be held by the
same person, except the offices of president and secretary.
All officers and assistant officers shall be elected to serve until the next
annual meeting of directors (following the next annual meeting of shareholders)
or until their successors are elected; provided, that any officer or assistant
officer elected or appointed by the board of directors may be removed with or
without cause at any regular or special meeting of the board whenever in the
judgment of the board of directors the best interests of the corporation will be
served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. Any agent appointed shall serve for
such term, not longer than the next annual meeting of the board of directors, as
shall be specified, subject to like right of removal by the board of directors.
2. VACANCIES
If any office becomes vacant for any reason, the vacancy may be filled by the
board of directors.
3. POWER OF OFFICERS
Each officer shall have, subject to these by-laws, in addition to the duties
and powers specifically set forth herein, such powers and duties as are commonly
incident to his office and such duties and powers as the board of directors
shall from time to time designate. All officers shall perform their duties
subject to the directions and under the supervision of the board of directors.
by - laws 6
<PAGE>
The president may secure the fidelity of any and all officers by bond or
otherwise.
4. PRESIDENT
The president shall be the chief executive officer of the corporation. He
shall preside at all meetings of the directors and shareholders. He shall see
that all orders and resolutions of the board are carried out, subject however,
to the right of the directors to delegate specific powers, except such as may be
by statute exclusively conferred on the president, to any other officers of the
corporation.
He or any vice-president shall execute bonds, mortgages and other
instruments requiring a seal, in the name of the corporation, and, when
authorized by the board, he or any vice-president may affix the seal to any
instrument requiring the same, and the seal when so affixed shall be attested by
the signature of either the secretary or an assistant secretary. He or any
vice-president shall sign certificates of stock.
The President shall be ex-officio a member of all standing committees.
He shall submit a report of the operations of the corporation for the year
to the directors at their meeting next preceding the annual meeting of the
shareholders and to the shareholders at their annual meeting.
5. VICE-PRESIDENTS
The vice-president shall, in the absence or disability of the president,
perform the duties and exercise the powers of the president, and they shall
perform such other duties as the board of directors shall prescribe.
6. THE SECRETARY AND ASSISTANT SECRETARIES
The secretary shall attend all meeting of the board and all meetings of the
shareholders and shall record all votes and the minutes of all proceedings and
shall perform like duties for the standing committees when required. He shall
give or cause to be given notice of all meetings of the shareholders and all
meetings of the board of directors and shall perform such other duties as may be
prescribed by the board. He shall keep in safe custody the seal of the
corporation, and when authorized by the board, affix the same to any instrument
requiring it, and when so affixed, it shall be attested by his signature or by
the signature of an assistant secretary.
The assistant secretary shall, in the absence or disability of the
secretary, perform the duties and exercise the powers of the secretary, and they
shall perform such other duties as the board of directors shall prescribe.
by - laws 7
<PAGE>
In the absence of the secretary or an assistant secretary, the minutes of
all meetings of the board and shareholders shall be recorded by such person as
shall be designated by the president or by the board of directors.
7. THE TREASURER AND ASSISTANT TREASURERS
The treasurer shall have the custody of the corporate funds and securities
and shall keep full and accurate accounts of receipts and disbursements in books
belonging to the corporation and shall deposit all moneys and other valuable
effects in the name and to the credit of the corporation in such depositories as
may be designated by the board of directors.
The treasurer shall disburse the funds of the corporation as may be ordered
by the board of directors, taking proper vouchers for such disbursements. He
shall keep and maintain the corporation's books of account and shall render to
the president and directors an account of all of his transactions as treasurer
and of the financial condition of the corporation and exhibit his books, records
and accounts to the president or directors at any time. He shall disburse funds
for capital expenditures as authorized by the board of directors and in
accordance with the orders of the president, and present to the president for
his attention any requests for disbursing funds if in the judgment of the
treasurer any such request is not properly authorized. He shall perform such
other duties as may be directed by the board of directors or by the president.
If required by the board of directors, he shall give the corporation a bond
in such sum and with such surety or sureties as shall be satisfactory to the
board for the faithful performance of the duties of his office and for the
restoration to the corporation, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
corporation.
The assistant treasurers in the order of their seniority shall, in the
absence or disability of the treasurer, perform the duties and exercise the
powers of the treasurer, and they shall perform such other duties as the board
of directors shall prescribe.
ARTICLE V - CERTIFICATES OF STOCK: TRANSFER, ETC.
-------------------------------------------------
1. CERTIFICATES OF STOCK
The certificates for shares of stock of the corporation shall be numbered
and shall be entered in the corporation as they are issued. They shall exhibit
the holder's name and number of shares and shall be signed by the president or a
vice-president and the secretary or an assistant secretary and shall be sealed
with the seal of the corporation or a facsimile thereof. If the corporation
by - laws 8
<PAGE>
has a transfer agent or a registrar, other than the corporation itself or an
employee of the corporation, the signatures of any such officer may be
facsimile. In case any officer or officers who shall have signed or whose
facsimile signature or signatures shall have been used on any such certificate
or certificates shall cease to be such officer or officers of the corporation,
whether because of death, resignation or otherwise, before said certificate or
certificates shall have been issued, such certificate may nevertheless be issued
by the corporation with the same effect as though the person or persons who
signed such certificates or whose facsimile signature or signatures shall have
been used thereon had been such officer or officers at the date of its issuance.
Certificates shall be in such form as shall in conformity to law be prescribed
from time to time by the board of directors.
The corporation may appoint from time to time transfer agents and
registrars, who shall perform their duties under the supervision of the
secretary.
2. TRANSFERS OF SHARES
Upon surrender to the corporation or the transfer agent of the corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate, and record the transaction upon its books.
3. REGISTERED SHAREHOLDERS
The corporation shall be entitled to treat the holder of record of any share
or shares of stock as the holder in fact thereof and, accordingly shall not be
bound to recognize any equitable or other claim to or interest in such share on
the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by law.
4. LOST CERTIFICATE
The board of directors may direct a new certificate or certificates to be
issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate to be lost. When
authorizing such issue of a new certificate or certificates, the board of
directors in its discretion and as a condition precedent to the issuance
thereof, may require the owner of such lost or destroyed certificate or
certificates or his legal representative to advertise the same in such manner as
it shall require or to give the corporation a bond with surety and in form
satisfactory to the corporation (which bond shall also name the corporation's
transfer agents and registrars, if any, as obligees) in such sum as it may
direct as indemnity against any claim that may be made against the corporation
or other obligees with respect to the certificate alleged to have been lost or
by - laws 9
<PAGE>
destroyed, or to advertise and also give such bond.
ARTICLE VI - DIVIDEND
---------------------
1. DECLARATION
The board of directors may declare at any annual, regular or special meeting
of the board and the corporation may pay, dividends on the outstanding shares in
cash, property or in the shares of the corporation to the extent permitted by,
and subject to the provisions of, the laws of the State of Texas.
2. RESERVES
Before payment of any dividend there may be set aside out of any funds of
the corporation available for dividends such sum or sums as the directors from
time to time in their absolute discretion think proper as a reserve fund to meet
contingencies or for equalizing dividends or for repairing or maintaining any
property of the corporation or for such other purpose as the directors shall
think conducive to the interest of the corporation, and the directors may
abolish any such reserve in the manner in which it was created.
ARTICLE VII - MISCELLANEOUS
---------------------------
1. INFORMAL ACTION
Any action required to be taken or which may be taken at a meeting of the
shareholders, directors, or members of the executive committee, may be taken
without a meeting if a consent in writing setting forth the action so taken
shall be signed by all of the shareholders, directors, or members of the
executive committee as the case may be, entitled to vote with respect to the
subject matter thereof, and such consent shall have the same force and effect as
a unanimous vote of the shareholders, directors, or members of the executive
committee as the case may be, at a meeting of said body.
2. SEAL
The corporate seal shall be circular in form and shall contain the name of
the corporation, the year of its incorporation and the words "TEXAS,' and
"CORPORATE SEAL" or an image of the Lone Star. The seal may be used by causing
it or a facsimile to be impressed or affixed or in any other manner reproduced.
The corporate seal may be altered by order of the board of directors at any
time.
by - laws 10
<PAGE>
3. CHECKS
All checks or demands for money and notes of the corporation shall be signed
by such officer or officers or such other person or persons as the board of
directors may from time to time designate.
4. FISCAL YEAR
The fiscal year of the corporation shall begin on the first day of November
in each and every year.
5. DIRECTORS' ANNUAL STATEMENT
The board of directors shall present at each annual meeting of shareholders
a full and clear statement of the business and condition of the corporation.
6. CLOSE CORPORATIONS: MANAGEMENT BY SHAREHOLDERS
If the articles of incorporation of the corporation and each certificate
representing its issued and outstanding shares states that the business and
affairs of the corporation shall be managed by the shareholders of the
corporation rather than by a board of directors, then, whenever the context so
requires the shareholders of the corporation shall be deemed the directors of
the corporation for purposes of applying any provision of these by-laws.
7. AMENDMENTS
These by-laws may be altered, amended or repealed in whole or in part by the
affirmative vote of the holders of a majority of the shares outstanding and
entitled to vote, but such power may be delegated by the shareholders to the
board of directors.
by - laws 11
<PAGE>
Exhibit 3.1
SEE REVERSE SIDE FOR RESTRICTIONS
NUMBER SHARES
- ------------- ------------
SUN SUN
- ------------- --------------- ------------- ------------
SUNPOINT SECURITIES, INC.
CUSIP
------------
SEE REVERSE FOR
CERTAIN DETAILS
INCORPORATED UNDER THE LAWS OF THE STATE OF TEXAS
THIS CERTIFICATE IS TRANSFERABLE IN DALLAS, TEXAS AND NEW YORK, NEW YORK
THIS IS TO CERTIFY THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF NO PAR VALUE PER SHARE
of SUNPOINT SECURITIES, INC. (herein called the "Corporation"), transferable
only on the books of the Corporation by the holder hereof in person, or by duly
authorised attorney, upon the surrender of this certificate properly endorsed or
assigned for transfer. This Certificate is not valid until countersigned and
registered by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
the duly authorised officers.
<TABLE>
<S> <C> <C>
Dated: Countersigned and Registered
----------------------------
Transfer Agent and Registrar.
SEAL By
----------------------------
/s/ /s/
---------------------- ----------------------
PRESIDENT SECRETARY Authorised Signature
</TABLE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. WITHOUT SUCH REGISTRATION, SUCH SECURITIES MAY
NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED AT ANY TIME
WHATSOEVER, EXCEPT UPON DELIVERY TO THE ISSUER OF AN OPINION OF COUNSEL THAT
REGISTRATION IS NOT REQUIRED FOR SUCH TRANSFER OR THE SUBMISSION TO THE ISSUER
OF SUCH OTHER EVIDENCE AS MAY BE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT
ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR ANY RULE OR REGULATION
PROMULGATED THEREUNDER.
SUNPOINT SECURITIES, INC.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT Custodian
TEN ENT - as tenants by the entireties ------------ ------------
JT TEN - as joint tenants with right of (Cust) (Minor)
survivorship and not as tenants
in common under Uniform Gifts to Minors
Act
------------------------------------
(State)
</TABLE>
Additional abbreviations may also be used though no in the above list.
For Value Received, hereby sell, assign and transfer unto
------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
---------------------------------------
---------------------------------------
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- ------------------------------------------------------------------------ Shares
Of the capital stock requested by the within Certificate, and do hereby
irrevocably constitute and appoint
- ---------------------------------------------------------------------- Attorney
to transfer the said stock on the books of the within name Corporation with full
power of substitution in the premises.
Dated: X
------------------------- -----------------------------------
(SIGNATURE)
-----------------------
| NOTICE |
| THE SIGNATURE TO |
| THE ASSIGNMENT MUST |
| CORRESPOND WITH THE | X
| NAME AS WRITTEN | -----------------------------------
| UPON THE FACE OF THE | (SIGNATURE)
| CERTIFICATE IN EVERY |
| PARTICULAR, WITHOUT |
| ALTERATION OR EN- |
| LARGMENT OF ANY |
| CHANGE WHATEVER |
-----------------------
The signatures should be guaranteed by a eligible guarantor institution (banks,
stockbrokers, savings and loan associations and credit unions with membership in
an approved guaranteed medallion program) pursuant to S.E.C. Rule 17Ad-15.
- --------------------------------------------------------------------------------
SIGNATURE(S) GUARANTEED BY:
- --------------------------------------------------------------------------------
<PAGE>
Exhibit 3.2
- --------- -----------
NUMBER SHARES
- --------- -----------
P7
- --------- -----------
- --------- -----------
INCORPORATED UNDER THE LAWS OF THE STATE OF TEXAS
SUNPOINT SECURITIES, INC.
125,000 6% CONVERTIBLE SERIES A PREFERRED SHARES -- PAR VALUE $8.00 EACH
This Certifies that SAMPLE is the owner of ________________________ fully paid
and non-assessable Shares of the 6% Convertible Series A Preferred Shares of
SUNPOINT SECURITIES, INC. transferable only on the books of the Corporation by
the holder hereof in person or by duly authorized Attorney upon surrender of
this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and to be sealed with the Seal of the
Corporation
this _________________ day of ____________ A.D.19_____
____________________________ _____________________________
Secretary President
- ------------------
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws of regulations. Additional abbreviations may also
be used though not in the list.
<TABLE>
<CAPTION>
<S> <C>
TEN COM - as tennis in common UNIF GIFT MIN ACT - ________ Custodian _______ (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors Act __________ (State)
JT TEN - as joint tenants with right of
survivorship and not as tenants in common
PLEASE INSERT SOCIAL SECURITY OR OTHER
For value received, the undersigned hereby sells, assigns and transfers unto IDENTIFYING NUMBER OF ASSIGNEE
--------------------------------------
- ------------------------------------------------------------------------------ --------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
- -----------------------------------------------------------------------------------------------------------------------------
Shares
- ---------------------------------------------------------------------------------------------------------------------
represented by the within Certificate, and hereby irrevocably constitutes and appoints
----------------------------------------
Attorney to transfer the said
- ------------------------------------------------------------------------------------------------
shares on the books of the within-named Corporation with full power of substitution in the premises.
Dated,
-------------------------------------
In presence of -------------------------------------------------------
- -------------------------------------------------------------
</TABLE>
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the certificate in every particular without alteration
or enlargement, or any change whatever.
<PAGE>
EXHIBIT 3.3
INCORPORATED UNDER THE LAWS OF THE STATE OF
NUMBER UNITS
- ------------- -------------
TEXAS
- ------------- -------------
SUNPOINT SECURITIES, INC.
SEE REVERSE SIDE HEREOF FOR THE RESTRICTIONS ON TRANSFER
This Certifies that SAMPLE is the owner of ____________________________ fully
paid and non-assessable Units of the above Corporation transferable only on the
books of the Corporation by the holder hereof in person or by duly authorized
Attorney upon surrender of the Certificate properly endorsed. Each Unit
consisting of 800 Shares of Series C Convertible Preferred Stock, 200 Shares of
Common Stock, and 500 Common Stock Purchase Warrants. Said Units being fully
described in the Confidential Private Placement Memorandum dated December 12,
1995.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and to be sealed with the Seal of the
Corporation.
7/15/96
Dated ________________
__________________________________ ________________________________
SECRETARY PRESIDENT
The securities represented by this instrument or document have been
acquired for investment and have not been registered under the Securities Act of
1933, as amended, or applicable state securities laws. Without such
registration, such securities may not be sold, pledged, hypothecated or
otherwise transferred at any time whatsoever, except upon delivery to the issuer
of an opinion of counsel that registration is not required for such transfer or
the submission to the issuer of such other evidence as may be satisfactory to
the issuer of such other evidence as may be satisfactory to the issuer to the
effect that any such transfer shall not be in violation of the Securities Act of
1933, as amended, or applicable state securities laws or any rule or regulation
promulgated thereunder.
No shareholder of the corporation shall have a preemptive right to
acquire additional, unissued or treasury shares of the corporation, or
securities of the corporation convertible into or carrying a right to subscribe
to or acquire shares.
A full statement of all the designations, preferences, limitations and
relative rights of the shares of each class or series to the extent they have
been fixed and determined and the authority of the board of directors to fix and
determine the designations, preferences, limitations, and relative rights of
subsequent series, is set forth in the articles of incorporation on file in the
office of the Texas Secretary of State and the corporation will furnish a copy
of such statement to the record holder of this certificate without charge on
written request to the corporation at its principal place of business or
registered office.
<TABLE>
<CAPTION>
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were
written out in full according to applicable laws of regulations. Additional abbreviations may also be used though not in the list.
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - ________ Custodian _______ (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors Act __________ (State)
JT TEN - as joint tenants with right of
survivorship and not as tenants in common
PLEASE INSERT SOCIAL SECURITY OR OTHER
For value received, the undersigned hereby sells, assigns and transfers unto IDENTIFYING NUMBER OF ASSIGNEE
--------------------------------------
- ------------------------------------------------------------------------------ --------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
- -----------------------------------------------------------------------------------------------------------------------------
Shares
- ---------------------------------------------------------------------------------------------------------------------
represented by the within Certificate, and hereby irrevocably constitutes and appoints
----------------------------------------
Attorney to transfer the said
- ------------------------------------------------------------------------------------------------
shares on the books of the within-named Corporation with full power of substitution in the premises.
Dated,
-------------------------------------
In presence of -------------------------------------------------------
- -------------------------------------------------------------
</TABLE>
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the certificate in every particular without alteration
or enlargement, or any change whatever.
<PAGE>
Exhibit 6.1
_____________________________
In the Office of the
Secretary of State of Texas
DEC 18 1996
Corporations Section
_____________________________
ARTICLES OF MERGER
Pursuant to Article 4.14 of the Texas Business Corporation Act, Radair,
Inc., a Nevada corporation ("Radair"), and Sunpoint Securities, Inc., a Texas
corporation ("Sunpoint"), file these articles of merger merging these parties.
This reorganization has been ordered by the following court in its decree dated
October 16, 1996:
Bankruptcy Court, Western District of Texas
San Antonio Division
IN RE RADAIR, INC. OF NEVADA dba RADAIR
Case No. 93-51579
The court had jurisdiction under Title 28 of the United States Code,
Sections 157 and 1334 to order a merger in a bankruptcy proceeding pursuant to
Title 11 of the United States Code, Section 1123 (a) (5) (c).
The merger of Radair and Sunpoint under the provisions of Article 4.14 of the
Texas Business Corporation is entered into as follows:
1. Radair will be merged into Sunpoint, to do business and be governed by
the laws of Texas. The name of the surviving corporation will be Sunpoint
Securities, Inc.
2. Radair has an authorized capital stock consisting of 50,000,000 shares
of common stock, par value $.001 per share, of which 21,680,000 shares have been
duly issued and are now outstanding.
3. Sunpoint has an authorized capital stock consisting of 2,000,000
shares of common stock, no par value, of which 922,918 shares have been duly
issued and are now outstanding, and 500,000 shares of preferred stock, no par
value, of which 25,875 shares of the Series A Convertible Preferred Stock series
of preferred stock, 9,750 shares of the Series B Convertible Preferred Stock
series of preferred stock, and 392,472 shares of the Series C Convertible
Preferred Stock series of preferred stock have been duly issued and are now
outstanding.
4. A copy of the resolution adopted by the Board of Directors of Sunpoint
to so merge is attached hereto. The date of the adoption thereof is October 2,
1996.
5. A copy of the plan and agreement of merger is attached hereto.
6. The plan of merger was duly approved and adopted by the holder of
774,000 of the shares of common stock of Sunpoint by written consent dated
October 2, 1996. The plan and performance of its terms were duly authorized by
all action required by the laws under which it was incorporated or organized and
by its constituent documents. No shares of Sunpoint were voted against the plan
<PAGE>
of merger.
7. Radair stockholders in accordance with Bankruptcy Code Section 1126
(c) and (d) approved and accepted on August 26, 1996, the Second Amended Plan of
Reorganization (such Second Amended Plan of Reorganization and any and all
amendments thereto being referred to herein as the "Plan of Reorganization") and
Second Amended Disclosure Statement and any and all amendments thereto being
referred to herein as the "Disclosure Statement") filed by Frederick C. Summers,
III (the "Plan Proponent"), a creditor of Radair and a party-in-interest in the
bankruptcy proceeding pursuant to Section 1121 (a) of the Bankruptcy Code. A
copy of the text of the part of the plan of reorganization that contains the
plan of merger approved by the court is attached hereto.
8. As to Radair, a Nevada corporation, the approval of the plan of merger
was duly authorized by all action, required by the laws under which it was
incorporated or organized and by its constituent documents.
9. The articles of incorporated of Sunpoint, as existing on the Effective
Date of the merger will continue in full force until amended as provided in
those articles of by law.
Date: October 2, 1996
SUNPOINT SECURITIES, INC., a
Texas Corporation
By: /s/ Marvin W. Sapaugh
----------------------------------
President
By: /s/ Mary Ellen Wilder
----------------------------------
Secretary
RADAIR, INC., a Nevada corporation
By: /s/ [Signature Illegible]
----------------------------------
President
Articles of Merger - Page 2
<PAGE>
Exhibit 12.1
[LETTERHEAD OF SUNPOINT SECURITIES INCORPORATED APPEARS HERE]
April 14, 1999
Carmela Davis-Goodman, CPA
714 North High Street
Longview, TX 75601
Dear Carmela,
Sunpoint Securities, Inc. did not receive a letter from you prior to the end of
fiscal 1997 upon replacement of the accountant to perform the firm audit. The
securities industry requires a disclosure from the firm's prior accountant that
there were no outstanding issues or disagreements causing such change of
accountant.
As you may remember, Sunpoint Securities, Inc. achieved self-clearing status on
June 2, 1997. Contingent upon regulatory approval for this change in status was
the firm's agreement to obtain an accounting firm with prior experience auditing
self-clearing broker/dealers. Of course, we had to go to Dallas to obtain this
level of industry specialization.
The firm chosen to audit Sunpoint Securities was Cheshier & Fuller, LLP,
Certified Public Accountants and Consultants, 14175 Proton Road, Dallas, Texas
75244-3692. Indeed, this firm has conducted the 1997 and 1998 audit for Sunpoint
Securities.
Sunpoint Securities, Inc. has become publicly traded and large enough to require
filing of SEC Form 10. In compiling documents for this extensive disclosure, I
realized that the required letter from you is missing. I know you are busy, but
this is crucial for our disclosures, and timing is important.
Thank you so much for your prompt response.
Yours truly,
/s/ Mary Ellen Wilder
Mary Ellen Wilder
Executive Vice President
I, Carmela Davis - Goodman CPA, served as auditor for Sunpoint Securities, Inc.
for the fiscal 1995 and 1996 annual audit. I understand that the 1997 audit was
performed by a firm which specializes in the securities industry as required by
Sunpoint's regulators and that the change in accountant was not due to any
disagreement or outstanding issues relating to audits performed by me.
5/6/99 /s/ Carmela Davis
- --------------- ------------------------------------
Date Signature
cc: Jeff Cheshier, Cheshier & Fuller LLP
<PAGE>
Exhibit 12.2
[LETTERHEAD OF CHESHIER & FULLER, L.L.P. APPEARS HERE]
CERTIFIED PUBLIC ACCOUNTANTS & CONSULTANTS
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
The Board of Directors
Sunpoint Securities, Inc.
We consent to the use of our report dated November 19, 1998, (except for note 18
for which the date is June 3, 1999) with respect to the statement of financial
condition of Sunpoint Securities, Inc., as of October 31, 1998, and the related
statements of income, changes in stockholders' equity and cash flows for the
years ended October 31, 1998 and 1997, which report is included herein.
/s/ Cheshier & Fuller, L.L.P.
CHESHIER & FULLER, L.L.P.
Dallas, Texas
June 18, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED
FINANCIAL STATEMENTS AS OF OCTOBER 31, 1998 AND 1997 AND UNAUDITED FINANCIAL
STATEMENTS AS OF APRIL 30, 1999 AND 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> OCT-31-1998 OCT-31-1999
<PERIOD-START> NOV-01-1997 NOV-01-1998
<PERIOD-END> OCT-31-1998 APR-30-1999
<CASH> 4,200,875 11,711,995
<RECEIVABLES> 11,316,903 15,219,722
<SECURITIES-RESALE> 0 0
<SECURITIES-BORROWED> 0 0
<INSTRUMENTS-OWNED> 0 0
<PP&E> 604,483 275,972
<TOTAL-ASSETS> 17,856,166 33,876,270
<SHORT-TERM> 594,042 626,963
<PAYABLES> 14,409,942 29,950,254
<REPOS-SOLD> 0 0
<SECURITIES-LOANED> 0 0
<INSTRUMENTS-SOLD> 0 0
<LONG-TERM> 542,500 542,500
0 0
3,113 3,113
<COMMON> 37,920 37,920
<OTHER-SE> 6,083,783 5,737,366
<TOTAL-LIABILITY-AND-EQUITY> 17,856,166 33,876,270
<TRADING-REVENUE> 303,220 199,957
<INTEREST-DIVIDENDS> 905,004 665,964
<COMMISSIONS> 11,190,758 9,899,736
<INVESTMENT-BANKING-REVENUES> 0 0
<FEE-REVENUE> 190,753 24,313
<INTEREST-EXPENSE> 606,799 459,919
<COMPENSATION> 7,543,224 920,377
<INCOME-PRETAX> 746,065 1,167,612
<INCOME-PRE-EXTRAORDINARY> 746,065 1,167,612
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 746,065 1,167,612
<EPS-BASIC> .17 .30
<EPS-DILUTED> .13 .27
</TABLE>
