As filed with the Securities and Exchange Commission on January 27, 1997
Registration No. 33-_______
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-8
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
SURETY CAPITAL CORPORATION
--------------------------
(Exact name of issuer as specified in its charter)
Delaware 75-2065607
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1845 Precinct Line Road, Suite 100, Hurst, Texas 76054
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(Address of Principal Executive Offices)
Surety Capital Corporation Stock Option Plan for Directors
----------------------------------------------------------
(Full title of the plan)
Mr. C. Jack Bean, 1845 Precinct Line Road, Suite 100, Hurst, Texas 76054
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(Name and address of agent for service)
817-498-2749
------------
(Telephone number, including area code, of agent for service)
The Commission is requested to send copies of all communications and notices to:
Margaret E. Holland
Tracy & Holland, L.L.P.
306 West Seventh Street, Suite 500
Fort Worth, Texas 76102
817-335-1050
817-332-3140 (telecopy)
(Counsel for the Issuer)
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
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<S> <C> <C> <C> <C>
Title of Proposed Maximum Proposed Maximum Amount
of
Securities to Amount to be Offering Price Aggregate Offer-
Registration
be Registered Registered Per Share(1)(2) ing Price(1)(2) Fee
- --------------------------------------------------------------------------------
- ---
Common Stock, 100,000 $4.8125 $481,250.00 $145.83
par value $0.01 shares
- --------------------------------------------------------------------------------
- ---
</TABLE>
(1) Computed in accordance with Rule 457(c) of the Securities Act of 1933, as
amended, on the basis of the average of the high and low prices of the
Common Stock on the American Stock Exchange, Inc. for January 21, 1997.
(2) Determined solely for the purpose of computing the registration fee.
--------------------
<PAGE>
SURETY CAPITAL CORPORATION
Form S-8, General
Instruction C
Item Number and Caption Heading in Prospectus
----------------------- ---------------------
1. Forepart of Registration State- Facing Page of Registration
ment and Outside Front Cover Statement; Cross Reference
Page of Prospectus Sheet; Cover Page of Prospectus
2. Inside Front and Outside Back AVAILABLE INFORMATION; TABLE OF
Cover Pages of Prospectus CONTENTS
3. Summary Information, Risk Fac- THE COMPANY
tors and Ratio of Earnings to
Fixed Charges
4. Use of Proceeds Not Applicable
5. Determination of Offering Price Not Applicable
6. Dilution Not Applicable
7. Selling Security-Holders SELLING SHAREHOLDERS
8. Plan of Distribution PLAN OF DISTRIBUTION
9. Description of Securities to be Not Applicable
Registered
10. Interests of Named Experts and EXPERTS
Counsel
11. Material Changes Not Applicable
12. Incorporation of Certain Docu- INCORPORATION OF CERTAIN DOCU-
ments by Reference MENTS BY REFERENCE
13. Disclosure of Commission Posi- Not Applicable
tion on Indemnification for
Securities Act Liabilities
<PAGE>
PROSPECTUS
SURETY CAPITAL CORPORATION
20,000 SHARES
COMMON STOCK
This Prospectus relates to the offer and sale from time to time of up to
20,000 shares of common stock, $0.01 par value (the "Shares") of Surety Capital
Corporation (the "Company") by the Selling Shareholders (the "Offering"), and is
prepared in accordance with General Instruction C to Form S-8, to be used in
connection with the resale of control securities to be acquired by the Selling
Shareholders pursuant to the exercise of options granted under the Surety
Capital Corporation Stock Option Plan for Directors (the "Plan"). See "SELLING
SHAREHOLDERS."
Selling Shareholders, directly or through agents, dealers or underwriters,
may sell the Shares from time to time on terms to be determined at the time of
sale. To the extent required, the specific number of Shares to be sold, the
names of the Selling Shareholders, respective purchase prices and public
offering prices, the name of any agent, dealer or underwriter, and applicable
discounts or commissions with respect to a particular offer, will be set forth
in an accompanying Prospectus supplement. See "PLAN OF DISTRIBUTION."
This Prospectus does not constitute an offer to sell or a solicitation of
an offer to buy any of the securities offered hereby in any jurisdiction to any
person to whom it is unlawful to make such an offer or solicitation in such
jurisdiction. No person has been authorized to give any information or to make
any representations other than those contained in this Prospectus or the
documents incorporated by reference herein in connection with the Offering made
hereby, and, if given or made, such information or representations must not be
relied upon as having been authorized by the Company or any Selling Shareholder.
Neither the delivery of this Prospectus or any Prospectus supplement nor any
sale made hereunder or thereunder, shall under any circumstances create any
implication that the information herein or therein is correct as of any time
subsequent to the date of such information.
The Company's common stock is traded on American Stock Exchange, Inc.'s
primary list under the symbol "SRY."
These securities involve a significant degree of risk. See "RISK FACTORS."
No investor or investors acting together may acquire in the aggregate ten
percent (10%) or more of the Company's common stock without complying with the
prior notice requirements of the Bank Change of Control Act.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is January 27, 1997.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 and in accordance therewith files reports and other
information with the Securities and Exchange Commission (the "Commission"). The
Registration Statement filed with respect to this Prospectus, and all other
reports, proxy statements and other information can be inspected free of charge
at the offices of the Commission at Room 1024, 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549; and at 801 Cherry Street, Nineteenth Floor, Fort
Worth, Texas 76102. Copies of such material may be obtained upon the payment of
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549.
The Common Stock of the Company is traded on the American Stock Exchange,
Inc., and reports, proxy statements and other information concerning the Company
can be inspected at the American Stock Exchange, Inc. at 86 Trinity Place, Fifth
Floor Library, New York, New York 10006. The telephone number of the American
Stock Exchange, Inc. is 212-306-1290.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission (File No.
33-1983) are incorporated herein by reference:
(a) Annual Report on Form 10-K for the fiscal year ended December 31,
1995, as amended on Form 10-K/A (Amendment No. 1);
(b) Current Report on Form 8-K dated February 29, 1996, as amended in the
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996;
(c) Quarterly Report on Form 10-Q for the quarter ended March 31, 1996;
(d) Quarterly Report on Form 10-Q for the quarter ended June 30, 1996;
(e) Quarterly Report on Form 10-Q for the quarter ended September 30,
1996; and
(f) The description of the Common Stock contained in the Company's
registration statement filed pursuant to Section 12 of the Exchange
Act, and all amendments thereto and reports which have been filed for
the purpose of updating such description.
All documents subsequently filed by the Company with the Commission
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the
termination of this offering shall be deemed to be incorporated by reference in
this Prospectus from the respective dates of filing of such documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus has been delivered, upon written or oral request of such person, a
copy of any or all of the documents that have been incorporated by reference in
this Prospectus, other than exhibits to such documents (unless such exhibits are
specifically incorporated by reference in such documents). Any such requests
should be directed to Mr. Bobby W. Hackler, Surety Capital Corporation, 1845
Precinct Line Road, Suite 100, Hurst, Texas 76054, 817-498-2749.
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<PAGE>
THE COMPANY
Surety Capital Corporation (the "Company"), a corporation incorporated
under the laws of the state of Delaware in 1985, is a bank holding company
registered under the Bank Holding Company Act of 1956, as amended. The Company
owns all of the issued and outstanding shares of capital stock of Surety Bank,
National Association, formerly Texas Bank, National Association and formerly
Texas National Bank, Lufkin, Texas (the "Bank"), with full service offices in
Hurst, Lufkin, Chester, Wells, Kennard, Whitesboro, Waxahachie and Midlothian,
Texas.
For additional information regarding the Company and the Bank, see the 1995
Form 10-K and other documents incorporated by reference herein. The Bank is
engaged in general commercial banking and consumer banking. As of December 31,
1996 there were 440 shareholders of record of the Company.
The Company's principal executive offices are located at 1845 Precinct Line
Road, Suite 100, Hurst, Texas 76054, and its telephone number is 817-498-2749.
RISK FACTORS
In addition to the other information in this Prospectus, prospective
investors should carefully consider the following factors which individually or
cumulatively could result in the decline or loss in the value of the Shares
offered hereby:
INSURANCE PREMIUM FINANCING CONCENTRATION MAY INCREASE RISK OF LOSSES. As
of December 31, 1995 insurance premium financing loans represented approximately
33% of the total loans of the Bank. Such a high concentration of insurance
premium financing loans may expose the Bank to greater risk of loss than would a
more diversified loan portfolio, although no more than 10% of the Bank's
insurance premium financing loans are made regarding policies issued by any one
insurance company.
ALLOWANCE FOR LOAN LOSSES. The Bank attempts to establish an adequate
allowance for possible loan losses through management's analysis of current and
historical data. Loan losses different from the allowance provided by the Bank
could occur, and loan losses in excess of the allowance for loan losses are
possible. Loan losses in excess of the amount of the allowance could and
probably would have a material adverse effect on the financial condition of the
Bank and therefore the Company. At December 31, 1995 the Bank's allowance for
loan losses was 1.1% of total loans (net of unearned interest) and 996.1% of
total nonperforming loans. Management believes that all known losses in the
portfolio have been provided for.
EQUITY CAPITAL COMPLIANCE REQUIREMENTS FOR BANK AND COMPANY. Pursuant to
regulatory requirements, the Bank and the Company are required to maintain
certain levels of regulatory capital. Failure to meet these capital requirements
could expose the Company and/or
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<PAGE>
the Bank to possible regulatory administrative action or agreements, including,
for the Bank, limitations on asset growth, restrictions on operations,
restrictions on payment of dividends or mandated disposition of assets.
Generally, a national bank is required to maintain a minimum ratio of 8%
qualifying capital to risk-weighted assets. Qualifying capital includes common
stockholders' equity and, subject to certain limitations, preferred stock, the
allowance for loan losses, mandatory convertible debt and subordinated debt. For
purposes of calculating the ratio, assets are assigned different risk weights,
ranging from 0% for risk-free assets such as cash to 100% for assets such as
commercial loans. At December 31, 1995 the Bank had a qualifying capital to
risk-weighted assets ratio of 11.72%. In addition, the Bank is required to
maintain a minimum level of 3% core (generally equity) capital to assets. At
December 31, 1995 the Bank had a 10.76% ratio of core capital to assets. There
can be no assurance that the Company will be successful in maintaining or
raising capital for the Bank sufficient to meet its needs.
RELIANCE ON KEY PERSONNEL. The Company and the Bank are highly dependent
upon their executive officers and key employees. Specifically, the Company
considers the services of C. Jack Bean, G. M. Heinzelmann, III, Bobby W. Hackler
and B. J. Curley to be of vital importance to the success of the Company. The
unexpected loss of the services of any of these individuals, particularly Mr.
Bean, Chairman of the Board of the Company, could have a detrimental effect on
the Company and the Bank. The Bank is the beneficiary of a $500,000 key man
insurance policy on the life of Mr. Bean. The Company has entered into Change in
Control Agreements with Messrs. Bean, Heinzelmann, Hackler and Curley under
which each will receive certain benefits if their employment is terminated other
than for cause, or constructively terminated, following a change in control of
the Company.
"SOURCE OF STRENGTH DOCTRINE." The Board of Governors of the Federal
Reserve System (the "Federal Reserve") has announced a policy sometimes known as
the "source of strength doctrine" that requires a bank holding company to serve
as a source of financial and managerial strength to its subsidiary banks. The
Federal Reserve has interpreted this policy to require that a bank holding
company, such as the Company, stand ready to use available resources to provide
adequate capital funds to its subsidiary banks during periods of financial
stress or adversity. The Federal Reserve has stated that it would generally view
a failure to assist a troubled or failing subsidiary bank in these circumstances
as an unsound or unsafe banking practice or a violation of Regulation Y or both,
justifying a cease and desist order or other enforcement action, particularly if
appropriate resources are available to the bank holding company on a reasonable
basis. The requirement that a bank holding company, such as the Company, make
its assets and resources available to a failing subsidiary bank could have an
adverse effect on the Company and its shareholders.
RESTRICTION ON BANK DIVIDENDS. The Company does not intend to pay dividends
in the near future. However, the payment of cash
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<PAGE>
dividends by the Company in the future will depend to a large extent on the
receipt of dividends from the Bank. The ability of the Bank to pay dividends is
dependent upon the Bank's earnings and financial condition. The payment of cash
dividends by the Bank to the Company and by the Company to its shareholders is
subject to statutory and regulatory restrictions.
COMPETITION. There is significant competition among banks and bank holding
companies in the areas in which the Bank and the Company operate. The Company
believes that such competition among such banks and bank holding companies, many
of which have far greater assets and financial resources than the Company, will
continue to increase in the future. The Bank also encounters intense competition
in its commercial banking business from savings and loan associations, credit
unions, factors, insurance companies, commercial and captive finance companies,
and certain other types of financial institutions located in other major
metropolitan areas in the United States, many of which are larger in terms of
capital, resources and personnel. The casualty insurance premium financing
business of the Bank is also very competitive. Large insurance companies offer
their own financing plans, and other independent premium finance companies and
other financial institutions offer insurance premium financing.
GOVERNMENT REGULATION AND RECENT LEGISLATION. The Company and the Bank are
subject to extensive federal and state legislation, regulation and supervision
regarding banking and insurance premium financing. Recently enacted or proposed
legislation and regulations have had, will continue to have or may have
significant impact on the banking industry. Some of the legislative and
regulatory changes may benefit the Company and the Bank, while others may
increase the Company's costs of doing business and assist competitors of the
Company and the Bank. For example, under the Riegle-Neal Interstate Banking and
Branching Act of 1994, banks may acquire branches through interstate mergers
beginning June 1, 1997, unless a state "opts out." The Texas Legislature has
passed legislation to opt out until 1999. It is not possible to predict whether
this legislation will enhance or decrease the value of stock of existing
Texas-based financial institutions. In addition, persons, alone or acting in
concert with others, seeking to acquire more than 10% of any class of voting
securities must comply with the Change in Bank Control Act. Entities seeking to
acquire more than 5% of any class of voting securities must also comply with the
Bank Holding Company Act.
GENERAL ECONOMIC CONDITIONS AND MONETARY POLICY. The operating income and
net income of the Bank depend to a substantial extent on "rate differentials,"
i.e., the differences between the income the Bank receives from loans,
securities and other earning assets, and the interest expense it pays to obtain
deposits and other liabilities. These rates are highly sensitive to many factors
which are beyond the control of the Bank, including general economic conditions
and the policies of various governmental and regulatory authorities. For
example, in an expanding economy, loan demand usually increases and the interest
rates charged on loans
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<PAGE>
increase. Increases in the discount rate by the Federal Reserve System usually
lead to rising interest rates, which affect the Bank's interest income, interest
expense and investment portfolio. Also, governmental policies such as the
creation of a tax deduction for individual retirement accounts can increase
savings and affect the cost of funds.
TRADING MARKET FOR THE COMMON STOCK. Although the Common Stock is listed
for trading on the American Stock Exchange, the trading market in the Company's
Common Stock on such exchange historically has been less active than the average
trading market for companies listed on such exchange. As a result, the price of
the Company's Common Stock has ranged from $3.25 to $4.9375 during 1996. A
public trading market having the desired characteristics of depth, liquidity and
orderliness depends upon the presence in the marketplace of willing buyers and
sellers of Common Stock at any given time, which presence is dependent upon the
individual decisions of investors and general economic and market conditions
over which the Company has no control.
SELLING SHAREHOLDERS
The following table sets forth certain information as of January 2, 1997
regarding the Common Stock of the Company beneficially owned by the Selling
Shareholders, and any position, office or other material relationship which the
Selling Shareholders have had in the past three years with the Company.
<TABLE>
<CAPTION>
Number of Shares
of Common Stock Under
This Offering (3)
-----------------
Number Percentage
of Shares of of Shares of
Shares Subject
Common Stock Common Stock
Position, Beneficially Acquired Under to Options
Owned Owned
Office or Owned Plan & Held Outstanding
After Sale After Sale
Material Prior to Subject to Under the
Under this Under this
Name (1) Relationship Offering (2) This Offering Plan (4)
Offering (5) Offering (6)
-------- ------------ ------------ ------------- --------
------------ ------------
<S> <C> <C> <C> <C>
<C> <C>
William B. Byrd Director 5,800(7) 0 4,000
5,800 less than 1%
Joseph S. Hardin Director 191,583(8) 0 4,000
191,583 3.32%
Michael L. Milam Director 35,250(9) 0 4,000
35,250 less than 1%
Garrett Morris Director 250(10) 0 4,000
250 less than 1%
Cullen W. Turner Director 115,300(11) 0 4,000
115,300 2.00%
======== ====== ======
======== =====
TOTAL 348,183 0 20,000
348,183 6.04%
</TABLE>
(1) Except as otherwise noted, each of the persons named has sole voting and
dispositive power with respect to the shares reported.
(2) Includes all shares which have been or may have been acquired under the
Plan subject to options except those shares not exercisable within sixty
(60) days from the date of this Prospectus, and includes all other shares
for which beneficial ownership is deemed pursuant to Rule 13d-3 under the
Exchange Act.
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<PAGE>
(3) For each of the Selling Shareholders, the sum of these two columns is the
total number of Shares which may be offered for his account pursuant to the
Prospectus. The sum of the totals of these two columns equals the total
number of Shares registered under this Offering.
(4) Represents Shares subject to options not exercisable within sixty (60) days
that were granted pursuant to the Plan.
(5) Does not include any Shares that have been acquired or may be acquired
pursuant to the Plan.
(6) Based on 5,768,119 shares of Common Stock outstanding at December 31, 1996,
which assumes the exercise of all options underlying the Shares offered
hereby, including Shares subject to options not exercisable within sixty
(60) days that were granted pursuant to the Plan.
(7) Represents 5,800 shares of Common Stock owned of record.
(8) Represents 191,583 shares of Common Stock held by a trust for which Mr.
Hardin serves as a co-trustee.
(9) Represents 250 shares of Common Stock owned of record; and 35,000 shares of
Common Stock held by Dallas Fire Insurance Company, which is a wholly-owned
subsidiary of a corporation in which Mr. Milam has a 50% ownership
interest.
(10) Represents 250 shares of Common Stock owned of record.
(11) Includes 39,500 shares of Common Stock owned of record; 20,800 shares of
Common Stock held by a trust for which Mr. Turner serves as trustee; and
55,000 shares of Common Stock held by an estate for which Mr. Turner serves
as executor.
PLAN OF DISTRIBUTION
The Company will not receive any of the proceeds from sales of the Shares
owned by the Selling Shareholders. Generally, all costs, expenses, and fees
incurred in connection with the registration of the Shares offered hereby will
be borne by the Company. However, the Selling Shareholders will bear all
brokerage commissions and discounts and other costs and expenses attributable to
the sale of their Shares offered hereby.
Shares owned by a Selling Shareholder may be sold from time to time to
purchasers directly by such Selling Shareholder. Alternatively, the Selling
Shareholders may from time to time offer their respective Shares in one or more
transactions (which may involve block transactions) (i) through underwriters;
(ii) through dealers; (iii) "at the market" into an existing trading market, or
in other ways not involving market makers or established trading markets; (iv)
in privately negotiated transactions; or (v) in a combination of any such
transactions. Such transactions may be effected by any Selling Shareholder at
market prices prevailing at the time of
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<PAGE>
sale, at prices related to such prevailing market prices, at negotiated prices,
or at fixed prices. At the time a particular offer of Shares is made, a
Prospectus supplement, if required, will be distributed that will set forth the
aggregate amount of Shares being offered and the terms of the Offering,
including the name or names of any underwriters, dealers or agents, any
discounts, commissions and other items constituting compensation from the
Selling Shareholder and any discounts, commissions or concessions allowed or
reallowed or paid to dealers.
If an underwriter or underwriters are utilized in a firm commitment public
offering, the Selling Shareholders will execute a firm commitment underwriting
agreement with such underwriters. If a dealer is utilized in the sale of its
Shares, the Selling Shareholder will sell such Shares to the dealer, as
principal. The dealer may then resell such Shares to the public at varying
prices to be determined by such dealer at the time of resale.
Sales of Shares "at the market" and not at a fixed price into an existing
trading market for the Shares, may be made to or through one or more
underwriters, acting as principal or as agent, as shall be specified in an
accompanying Prospectus supplement. Other sales may be made, directly or through
agents, to purchasers outside existing trading markets.
The place and time of delivery for a particular offer of the Shares will be
set forth in an accompanying Prospectus supplement, if required.
Any brokers or dealers that participate with the Selling Shareholders in
offers and sales of the Shares offered hereby (and any other participating
brokers and dealers) may be deemed to be "underwriters" within the meaning of
the Securities Act of 1933, as amended (the "Securities Act"), and any
commissions or discounts received by such broker-dealers and any profit on the
sale of the Shares by such broker-dealers may be deemed underwriting discounts
and commissions under the Securities Act.
LEGAL OPINION
Tracy & Holland, L.L.P. of Fort Worth, Texas, which has represented the
Company in this offering, has delivered an opinion concerning the due issuance
of the Shares offered hereby.
EXPERTS
The consolidated balance sheets as of December 31, 1995 and 1994 and the
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1995, incorporated by
reference in this prospectus, have been incorporated herein in reliance on the
report of Coopers & Lybrand, L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
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<PAGE>
======================================= =================================
SURETY CAPITAL CORPORATION
TABLE OF CONTENTS
Page -----------------------
AVAILABLE INFORMATION............. 2
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE......... 2
THE COMPANY....................... 3 20,000 Shares
Common Stock
RISK FACTORS...................... 3 $0.01 par value
SELLING SHAREHOLDERS.............. 6
PLAN OF DISTRIBUTION.............. 7 -----------------------
Prospectus
LEGAL OPINION..................... 8 -----------------------
EXPERTS ......................... 8
January 27, 1997
======================================= =================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE.
The following documents filed by the Company with the Commission are
incorporated herein by reference:
(a) Annual Report on Form 10-K for the fiscal year ended December 31,
1995, as amended on Form 10-K/A (Amendment No. 1);
(b) Current Report on Form 8-K dated February 29, 1996, as amended in
the Quarterly Report on Form 10-Q for the quarter ended March 31,
1996;
(c) Quarterly Report on Form 10-Q for the quarter ended March 31,
1996;
(d) Quarterly Report on Form 10-Q for the quarter ended June 30,
1996;
(e) Quarterly Report on Form 10-Q for the quarter ended September 30,
1996; and
(f) The description of the Common Stock contained in the Company's
registration statement filed pursuant to Section 12 of the
Exchange Act, and all amendments thereto and reports which have
been filed for the purpose of updating such description.
All documents subsequently filed by the Company pursuant to Sections 13, 14
and 15(d) of the Exchange Act, prior to the filing of a post-effective amendment
which indicates that all securities offered have been sold or which deregisters
all securities then remaining unsold, shall be deemed to be incorporated by
reference herein and shall be deemed to be a part hereof from the date of the
filing of such documents with the Commission.
ITEM 4. DESCRIPTION OF SECURITIES.
The shares being offered hereunder are registered under Section 12 of the
Exchange Act.
ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL.
Neither any expert named in the Registration Statement as having prepared
or certified any part hereof (or as named as having prepared or certified a
report or valuation for use in connection with the Registration Statement), nor
any counsel for the Company named in the Prospectus as having given an opinion
upon the validity of the securities being registered or upon other legal matters
in connection with the registration or offering of such securities, was employed
for such purpose on a contingent basis, or at the time of such preparation,
certification or opinion or at any
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<PAGE>
time thereafter through the date of effectiveness of this Registration Statement
or that part of this Registration Statement to which such preparation,
certification or opinion relates, had, or is to receive in connection with the
Registration Statement, a substantial interest, direct or indirect, in the
Company or its subsidiary or was connected with the Company or the subsidiary as
a promoter, underwriter, voting trustee, director, officer or employee.
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "Act") empowers a
corporation to indemnify its directors and officers and to purchase insurance
with respect to liability arising out of their capacity or status as directors
and officers. The Company's articles of incorporation and bylaws provide for the
indemnification of its directors and officers to the full extent permitted by
law.
In particular, the Company shall indemnify any director, officer or
employee or former director, officer or employee of the Company, or any person
who may have served at its request, as a director, officer or employee of
another corporation in which it owns shares of stock, or of which it is a
creditor, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement to the full extent permitted by Section 145 of the
Delaware General Corporation Law, including the power to purchase and maintain
insurance, as provided in Paragraph (g) of said Section 145.
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED.
There are no restricted securities being reoffered or resold pursuant to
this Registration Statement.
ITEM 8. EXHIBITS.
5 Opinion and Consent of Tracy & Holland, L.L.P.*
23.01 Consent of Tracy & Holland, L.L.P. (contained in the
Opinion filed as Exhibit 5 to this Registration Statement)*
23.02 Consent of Coopers & Lybrand, L.L.P., independent certified
public accountants*
99.01 Surety Capital Corporation Stock Option Plan for Directors*
* Filed herewith.
ITEM 9. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
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<PAGE>
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the Registration Statement is on Form S-3 or Form S-8 and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the
Registrant pursuant to the foregoing
II-3
<PAGE>
provisions, the Registrant has been informed that in the opinion of the
Commission, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant 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, the Registrant 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 whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
POWER OF ATTORNEY
Know All Men By These Presents that each person whose signature appears
on the signature pages of this Registration Statement constitutes and appoints
C. Jack Bean and Bobby W. Hackler, and each of them, or any one of them, his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, or any of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any one of them or his substitutes, may
lawfully do or cause to be done by virtue hereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-8, and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Fort Worth, State of Texas, on January 21, 1997.
SURETY CAPITAL CORPORATION
(Registrant)
By:/s/ C. Jack Bean
----------------
C. Jack Bean, Chairman of the
Board and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this report has
been signed below by the following persons in the capacities and on the dates
indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ C. Jack Bean Chairman of the Board and January 21, 1997
- -------------------------- Director (Principal Execu-
C. Jack Bean tive Officer)
/s/ B. J. Curley Vice President, Secretary January 21, 1997
- -------------------------- and Chief Financial Offi-
B. J. Curley cer (Principal Accounting
Officer)
/s/ G. M. Heinzelmann, III President and Director January 21, 1997
- --------------------------
G. M. Heinzelmann, III
/s/ Bobby W. Hackler Senior Vice President, January 21, 1997
- -------------------------- Chief Operating Officer
Bobby W. Hackler and Director
/s/ William B. Byrd Director January 21, 1997
- --------------------------
William B. Byrd
/s/ Joseph S. Hardin Director January 21, 1997
- --------------------------
Joseph S. Hardin
II-5
<PAGE>
/s/ Michael L. Milam Director January 21, 1997
- --------------------------
Michael L. Milam
/s/ Garrett Morris Director January 21, 1997
- --------------------------
Garrett Morris
/s/ Cullen W. Turner Director January 21, 1997
- --------------------------
Cullen W. Turner
II-6
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Exhibit
- --------------------------------------------------------------------------------
5 Opinion and Consent of Tracy & Holland, L.L.P.
23.01 Consent of Tracy & Holland, L.L.P. (contained in
the Opinion filed as Exhibit 5 to this Registration
Statement)
23.02 Consent of Coopers & Lybrand, L.L.P., independent
certified public accountants
99.01 Surety Capital Corporation Stock Option Plan for
Directors
EXHIBIT 5
TRACY & HOLLAND, L.L.P.
(A REGISTERED LIMITED LIABILITY PARTNERSHIP
THAT INCLUDES PROFESSIONAL CORPORATIONS)
ATTORNEYS AT LAW
306 WEST SEVENTH STREET, SUITE 500
FORT WORTH, TEXAS 76102-4982
J. DAVID TRACY, P.C.
J. WALKER HOLLAND, P.C.
MARGARET E. HOLLAND, P.C. FAX (817) 332-3140
GEORGE T. JOHNS, P.C. TELEPHONE (817) 335-1050
LEWIS D. SCHWARTZ, P.C. METRO (817) 429-9463
January 23, 1997
Surety Capital Corporation
1845 Precinct Line Road, Suite 100
Hurst, Texas 76054
Re: Registration Statement on Form S-8, Surety Capital
Corporation Stock Option Plan for Directors
Gentlemen:
Pursuant to your request, we have examined a copy of the Stock Option Plan
for Directors (the "Plan") of Surety Capital Corporation (the "Company"), which
was approved by the Board of Directors in July 1996. We have also examined the
Certificate of Incorporation of the Company, as amended, the Restated Bylaws of
the Company, and corporate proceedings of the Company as reflected in minutes of
meetings of the stockholders and the Board of Directors of the Company.
Based upon our examination of the foregoing papers and documents, together
with the examination of such other papers and documents and the investigation of
such matters of law as we have deemed relevant or necessary in rendering this
opinion, we hereby advise you that we are of the opinion that:
Shares of the Common Stock of the Company purchasable upon the exercise of
any option granted under the Plan will, upon issuance by the Company in
accordance with the terms of the respective agreements under which such options
may be granted, be duly and validly issued, and will be fully paid and
nonassessable, whether such shares shall theretofore have been authorized but
unissued shares of the Common Stock of the Company or shares reacquired by the
Company and held by it as treasury shares, provided that the purchase price
under each such agreement shall be at least equal to the par value of the shares
issued thereunder.
We consent to the use of this opinion in connection with the Registration
Statement on Form S-8 and the Prospectus constituting a part thereof filed by
the Company with the Securities and Exchange Commission for the registration
under the Securities Act of 1933, as
<PAGE>
Surety Capital Corporation
January 23, 1997
Page 2
amended, of 100,000 shares of the Common Stock of the Company and an
undetermined number of additional shares as may become issuable thereunder as
required by the anti-dilution provisions of the Plan.
Very truly yours,
TRACY & HOLLAND, L.L.P.
By: Margaret E. Holland, P.C.,
Partner
By: /s/ Margaret E. Holland
-----------------------
Margaret E. Holland,
President
EXHIBIT 23.02
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of Surety Capital Corporation on Form S-8 (File No. 33-_____) of our report
dated January 22, 1996, except for the first paragraph of Note 18, which the
date is February 28, 1996, the second paragraph of Note 18, which the date is
February 29, 1996, and the third paragraph of Note 18, which the date is March
15, 1996, on our audits of the consolidated financial statements as of December
31, 1995 and 1994, and for the years ended December 31, 1995, 1994 and 1993,
which report is included in the Annual Report on Form 10-K. We also consent to
the reference to our firm under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
Fort Worth, Texas
January 21, 1997
EXHIBIT 99.01
SURETY CAPITAL CORPORATION
AMENDED AND RESTATED
STOCK OPTION PLAN FOR DIRECTORS
SECTION 1. PURPOSES.
The purposes of this Amended and Restated Stock Option Plan for Directors
are to promote the continued prosperity of Surety Capital Corporation (the
"Corporation") by aligning the long-term financial interests of the directors of
the Corporation who are not officers or otherwise employed by the Corporation
with those of the stockholders of the Corporation, to provide an additional
incentive for such individuals to remain as directors of the Corporation, and to
provide a means through which the Corporation may attract well-qualified
individuals to serve as directors of the Corporation.
SECTION 2. DEFINITIONS.
A. The following words and phrases, wherever capitalized, shall have the
following meanings respectively, unless the context otherwise requires:
1. "Agreement" means a written agreement which sets forth the terms
and conditions of an Annual Option grant under the Plan, including any
amendment to such written agreement. Agreements shall be subject to the
express terms and conditions set forth herein.
2. "Annual Option" shall mean a stock option granted under the Plan on
a Grant Date pursuant to SECTION 5. All Annual Options granted under the
Plan shall be "nonstatutory stock options," i.e., options which do not
qualify under Sections 422 or 423 of the Code.
3. "Board" means the Board of Directors of the Corporation.
4. "Business Day" means a Monday, Tuesday, Wednesday, Thursday or
Friday, unless such date is a legal holiday, in which event "Business Day"
shall be the next succeeding day which is not a Saturday, Sunday or legal
holiday.
5. "Change in Control of the Corporation" shall be deemed to have
occurred if (A) any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Corporation, is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Corporation representing
twenty percent (20%) or more of the combined voting power of the
Corporation's then outstanding securities; or (B) during any period of two
(2) consecutive years, individuals who at the beginning of such period
constitute the Board cease for any reason to constitute at least a majority
thereof, unless the election of each director who
<PAGE>
was not a director at the beginning of such period has been approved in
advance by directors representing at least two-thirds (2/3) of the
directors then in office who were directors at the beginning of the period;
(C) the stockholders of the Corporation approve a merger or consolidation
of the Corporation with any other corporation, other than a merger or
consolidation which would result in the voting securities of the
Corporation outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least seventy-five (75%) of the
combined voting power of the voting securities of the Corporation or such
surviving entity outstanding immediately after such merger or
consolidation, or (D) the stockholders of the Corporation approve a plan of
complete liquidation of the Corporation or an agreement for the sale or
disposition of all or substantially all of its assets.
6. "Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time.
7. "Committee" shall mean the Stock Option Committee of the Board.
8. "Common Stock" means shares of $0.01 par value common stock of the
Corporation, subject to adjustment and substitution pursuant to SECTION 7.
9. "Corporation" means Surety Capital Corporation, a Delaware
corporation.
10. "Disabled" or "Disability" means unable to engage in any
substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or
to be of long-continued and indefinite duration. An individual shall not be
considered to be disabled unless he furnishes proof of the existence of a
disability in such form as the Committee may require.
11. "Effective Date" means July 16, 1996.
12. "Eligible Person" means a director of the Corporation on a Grant
Date who is not on such Grant Date either an officer or otherwise employed
by the Corporation or any Subsidiary of the Corporation. "Eligible Persons"
means more than one Eligible Person.
13. "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
14. "Exercise Price" means, with respect to each share of Common Stock
subject to an Annual Option, the price at which such share may be purchased
from the Corporation pursuant to the exercise of such Annual Option.
-2-
<PAGE>
15. "Fair Market Value" means the closing price of the Common Stock on
the American Stock Exchange as reported on the composite tape, or if it is
not listed on the American Stock Exchange, the closing price on the
exchange or established market system on which the Common Stock is then
listed; if, however, there is no trading of the Common Stock on the date in
question, then the closing price of the Common Stock, as so reported, on
the last preceding date on which there was trading shall instead be used to
determine Fair Market Value; or if Fair Market Value for any date in
question cannot be determined as hereinabove provided, Fair Market Value
shall be determined by the Committee by whatever method or means the
members, in the good faith exercise of their discretion, at that time shall
deem appropriate.
16. "Grant Date" shall mean the date on which an Annual Option is
granted. The Grant Date for each Annual Option shall be the first Business
Day of each calendar year during the term of the Plan, commencing with
calendar year 1997, and shall be July 16, 1996 for calendar year 1996.
17. "Legal Representative" means the "guardian or legal
representative" of the grantee as those terms are construed under the
Exchange Act who, upon the Disability or incapacity of a grantee, shall
have acquired on behalf of the grantee, by legal proceeding or otherwise,
the right to exercise the grantee's rights and receive his benefits under
the Plan.
18. "Non-Employee Director" means a director of the Corporation,
provided such individual (1) is not an officer (as defined in Rule 16a-1(f)
under the Exchange Act) of, or otherwise employed by, the Corporation or
any Subsidiary of the Corporation and (2) is not directly or indirectly
receiving compensation from the Corporation or any Subsidiary of the
Corporation for services other than as a director or otherwise has an
interest or business relationship which must be disclosed pursuant to
Regulation S-K.
19. "Personal Representative" means the executor, administrator or
personal representative appointed to administer the grantee's probate
estate, or if the individual has no probate estate, then the successor
trustee(s) of any revocable living trust the individual established during
his lifetime.
20. "Plan" means the plan set forth herein which shall be known as the
"Surety Capital Corporation Stock Option Plan for Directors," as same may
from time to time be amended.
21. "Qualified Domestic Relations Order" means a "qualified domestic
relations order" as defined in the Code.
22. "Subsidiary" means any corporation of which a majority of the
outstanding voting capital stock is owned, directly or indirectly, by the
Corporation. With respect to non-corporate entities, it means any entity in
which the Corporation owns,
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<PAGE>
directly or indirectly, a majority of the equity and voting interest.
23. "Regulation S-K" means adopted by the Securities and Exchange
Commission, as amended.
B. Except when otherwise indicated by the context, any masculine or
feminine terminology when used in the Plan shall also include the opposite
gender; and the definition of any term herein in the singular shall also include
the plural, and vice versa.
SECTION 3. SHARES AVAILABLE UNDER THE PLAN.
A. The aggregate number of shares which may be issued and as to which
grants of Annual Options may be made under the Plan is 100,000 shares of Common
Stock, subject to adjustment and substitution as set forth in SECTION 7. If any
Annual Option granted under the Plan is canceled by mutual consent or terminates
or expires for any reason without having been exercised in full, the number of
shares of Common Stock subject thereto shall again be available for purposes of
the Plan. The shares of Common Stock which may be issued under the Plan may be
either authorized but unissued shares or treasury shares or partly each.
SECTION 4. ADMINISTRATION OF THE PLAN.
A. The Plan shall be administered by the Committee, which shall have full
power and authority, subject to the provisions of the Plan, to supervise the
administration of the Plan, to interpret the provisions of the Plan and any
Annual Options granted under the Plan, and to prescribe such rules, regulations
and procedures in connection with the operation of the Plan as it shall deem
necessary and advisable for the administration of the Plan consistent with the
purposes of the Plan. Any decision by the Committee shall be final and binding
on all parties. No member of the Committee shall be liable for any
determination, decision or action made in good faith with respect to the Plan or
any Annual Options granted under the Plan. The Committee may delegate the
day-to-day administration of the Plan to any individual or individuals it deems
appropriate and may retain advisors to advise it.
B. The Committee shall consist solely of two (2) or more Non-Employee
Directors.
C. A majority of the Committee shall constitute a quorum at any meeting,
and the acts of a majority of the members present at any meeting at which a
quorum is present, or acts approved in writing by all the members of the
Committee, shall constitute acts of the Committee.
D. The selection of the Eligible Persons to whom Annual Options are to be
granted, the timing of such grants, the number of shares subject to any Annual
Option, the exercise price of any Annual Option, the periods during which any
Annual Option may be exercised and the term of any Annual Option shall be as set
forth
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<PAGE>
in the Plan, and the Committee shall have no discretion as to such matters.
E. The Committee shall have overall responsibility for keeping records and
providing necessary communications to grantees under the Plan. The records of
the Committee with respect to the Plan shall be conclusive and binding on all
grantees and all persons or entities claiming through or under them.
F. The cost of settling Annual Options pursuant to the Plan and the
expenses of administering the Plan shall be borne by the Corporation.
SECTION 5. GRANT OF ANNUAL OPTIONS.
A. Only Eligible Persons are eligible to receive Annual Options under the
Plan on a Grant Date.
B. Each Eligible Person on a Grant Date shall automatically be granted,
without further action by the Board or the Committee, effective as of such Grant
Date, an Annual Option to purchase 2,000 shares of Common Stock, subject to
adjustment and substitution as set forth in SECTION 7.
C. If the number of shares then remaining available for the grant of Annual
Options under the Plan is not sufficient for each Eligible Person to be granted
an Annual Option for 2,000 shares (or the number of adjusted or substituted
shares pursuant to SECTION 7), then each Eligible Person shall be granted an
Annual Option for a number of whole shares equal to the number of shares then
remaining available divided by the number of Eligible Persons, disregarding any
fractions of a share.
SECTION 6. TERMS AND CONDITIONS APPLICABLE TO ANNUAL OPTION GRANTS.
A. Annual Options granted under the Plan shall be subject to the following
terms and conditions:
1. The Exercise Price with respect to each share of Common Stock
covered by an Annual Option shall be one hundred percent (100%) of the Fair
Market Value of such share as of the Grant Date.
2. The term of each Annual Option shall be ten (10) years, unless
terminated earlier pursuant to SECTION 6.A.5.
3. Except as otherwise provided in this SECTION 6.A.3., each Annual
Option shall be exercisable with respect to all of the shares subject
thereto from and after the first anniversary of the Grant Date. An Annual
Option, to the extent exercisable, may be exercised in whole or in part.
Notwithstanding any other provision contained in the Plan, each Annual
Option shall become fully exercisable upon the occurrence of either: (a)
the grantee's death
-5-
<PAGE>
or withdrawal from the Board by reason of Disability or (b) a Change in
Control of the Corporation.
4. No Annual Option shall be transferable by the grantee otherwise
than by will, or if the grantee dies intestate, by the laws of descent and
distribution of the state of domicile of the grantee at the time of death
or pursuant to a Qualified Domestic Relations Order. All Annual Options
shall be exercisable during the lifetime of the grantee only by the grantee
or by the grantee's Legal Representative.
5. If a grantee ceases to be a director of the Corporation, for any
reason whatsoever, including due to his retirement, Disability, death,
resignation or removal from office, any outstanding Annual Options the
grantee then holds shall be exercisable by the grantee, or by his Legal
Representative or Personal Representative, as the case may be (but only to
the extent such grantee is vested therein at the time he ceases to serve as
a director of the Corporation) if exercisable by the grantee immediately
prior to ceasing to be a director), at any time prior to the expiration
date of such Annual Option or within one (1) year immediately following the
date the grantee ceases to be a director, whichever period is shorter. An
Annual Option held by a grantee who has ceased to be a director of the
Corporation shall expire at the end of such exercise period specified in
this SECTION 6.A.5.
6. Subject to the foregoing provisions of this SECTION 6 and the other
provisions of the Plan, any Annual Option granted under the Plan shall be
subject to such restrictions and other terms and conditions, if any, as
shall be determined by the Committee in its discretion and set forth in an
Agreement; except that in no event shall the Committee or the Board have
any power or authority which would cause the Plan to fail to be a plan
described in Rule 16b-3(c)(2)(ii) under the Exchange Act, or any successor
rule. Furthermore, transactions under this Plan are intended to comply with
all applicable conditions of Rule 16b-3 or its successors under the
Exchange Act. To the extent any provision of the Plan or action by the
Committee fails to so comply, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by the Committee.
7. All grants of Annual Options shall be evidenced by an Agreement
which shall be executed on behalf of the Corporation by a representative of
the Committee.
B. Annual Options granted under the Plan may be exercised by the grantee or
by his Legal Representative or Personal Representative, as the case may be, as
follows:
1. Each Annual Option may be exercised by delivery of written notice
to the Corporation stating the number of shares of Common Stock covered by
the exercise, form of payment, and proposed closing date.
-6-
<PAGE>
2. The grantee, or his Legal Representative or Personal
Representative, as the case may be, shall furnish the Corporation before
closing such other documents or representations as the Corporation may
require to assure compliance with applicable laws and regulations.
3. The Exercise Price for each Annual Option shall be paid in full
upon exercise and shall be payable in cash (including check, bank draft or
money order); provided, however, that in lieu of cash, the individual
exercising the Annual Option may pay the Exercise Price, in whole or in
part, by delivering to the Corporation shares of Common Stock having a Fair
Market Value on the date of exercise of the Annual Option equal to the
Exercise Price of the shares being purchased; provided, however, any
portion of the Exercise Price representing a fraction of a share shall in
any event be paid in cash. Delivery of shares may also be accomplished
through the effective transfer to the Corporation of shares held by a
broker or other agent. The Corporation will also cooperate with any
individual exercising an Annual Option who participates in a cashless
exercise program of a broker or other agent under which all or part of the
shares received upon exercise of the Annual Option are sold through the
broker or other agent or under which the broker or other agent makes a loan
to such individual. Notwithstanding the foregoing, the exercise of the
Annual Option shall not be deemed to occur and no shares of Common Stock
will be issued by the Corporation upon exercise of the Annual Option until
the Corporation has received payment of the Exercise Price in full.
4. The date of exercise of an Annual Option shall be determined under
procedures established by the Committee, and as of the date of exercise the
individual exercising the Annual Option shall be considered for all
purposes to be the owner of the shares with respect to which the Annual
Option has been exercised.
5. Payment of the Exercise Price with shares shall not increase the
number of shares of Common Stock which may be issued under the Plan as
provided in SECTION 3.
C. The obligation of the Corporation to issue shares of Common Stock under
the Plan shall be subject to (i) the effectiveness of a registration statement
under the Securities Act of 1933, as amended, with respect to such shares, if
deemed necessary or appropriate by counsel for the Corporation; (ii) the
condition that any shares to be issued shall have been listed (or authorized for
listing upon official notice of issuance) upon each stock exchange, if any, on
which the Common Stock may then be listed; and (iii) all other applicable laws,
regulations, rules and orders which may then be in effect.
SECTION 7. ADJUSTMENT AND SUBSTITUTION OF SHARES.
A. In the event any change occurs in the number of shares of Common Stock
outstanding as a result of any stock split, stock dividend, recapitalization,
merger, consolidation, reorganization,
-7-
<PAGE>
combination or exchange of shares, split-up, split-off, spin-off, liquidation or
other similar change in capitalization, or any distribution to holders of Common
Stock other than cash dividends, the number or kind of shares that may be issued
under the Plan pursuant to SECTION 3, including shares covered by existing
Annual Options, shall be automatically adjusted to preserve the proportionate
interests of the grantees in the Corporation as represented by their outstanding
Annual Options, and the proportionality of the share pool under the Plan in
relation to the total number of shares outstanding.
B. If the outstanding shares of the Common Stock shall be changed into or
become exchangeable for a different number or kind of shares of stock or other
securities of the Corporation or another corporation, whether through
reorganization, reclassification, recapitalization, stock split-up, combination
of shares, merger or consolidation, then there shall be substituted for each
share of the Common Stock set forth in SECTION 3, including shares covered by
existing Annual Options, the number and kind of shares of stock or other
securities into which each outstanding share of Common Stock shall be so changed
or for which each such share shall become exchangeable.
C. In case of any adjustment or substitution as provided for in SECTION
7.A. OR 7.B., the aggregate Exercise Price for all shares subject to each then
outstanding Annual Option prior to such adjustment or substitution shall be the
aggregate Exercise Price for all shares of stock or other securities (including
any fraction) into which such shares shall have been converted or which shall
have been substituted for such shares. Any new Exercise Price per share shall be
carried to at least three decimal places with the last decimal place rounded
upwards to the nearest whole number.
D. If the outstanding shares of Common Stock shall be changed in value by
reason of any spin-off, split-off or split-up, or dividend in partial
liquidation, dividend in property other than cash or extraordinary distribution
to holders of Common Stock, the Committee shall make any adjustments to any then
outstanding Annual Option which it determines are equitably required to prevent
dilution or enlargement of the rights of grantees which would otherwise result
from any such transaction.
E. No adjustment or substitution provided for in this SECTION 7 shall
require the Corporation to issue or sell a fraction of a share or other
security. Accordingly, all fractional shares or other securities which result
from any such adjustment or substitution shall be eliminated and not carried
forward to any subsequent adjustment or substitution.
F. Except as provided in this SECTION 7, a grantee shall have no rights by
reason of issuance by the Corporation of stock of any class or securities
convertible into stock of any class, any subdivision or consolidation of shares
of stock of any class, the
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<PAGE>
payment of any stock dividend or any other increase or decrease in the number of
shares of stock of any class.
SECTION 8. AMENDMENT AND TERMINATION.
A. The right to amend the Plan at any time and from time to time and the
right to terminate the Plan at any time are hereby specifically reserved to the
Board; provided, however, that no such termination shall result in the
cancellation of any outstanding Annual Options theretofore granted under the
Plan; and provided further that no amendment of the Plan shall cause Annual
Options granted under the Plan to directors of the Corporation not to qualify
for the exemption provided by Rule 16b-3, or any successor rule. No amendment or
termination of the Plan shall, without the written consent of the holder of an
Annual Option theretofore granted under the Plan, adversely affect the rights of
such holder with respect thereto.
B. Notwithstanding anything contained in the preceding paragraph or in any
other provision of the Plan or in any Agreement, the Board shall have the power
to amend the Plan in any manner deemed necessary or advisable so that Annual
Options granted under the Plan qualify for the exemption provided by Rule 16b-3
(or any successor rule relating to exemption from Section 16(b) of the Exchange
Act), and any such amendment shall, to the extent deemed necessary or advisable
by the Board, be applicable to any outstanding Annual Options theretofore
granted under the Plan notwithstanding any contrary provisions in any Agreement.
In the event of any such amendment to the Plan, the holder of any Annual Option
outstanding under the Plan shall, upon request of the Committee and as a
condition to the exercisability of such Annual Option, execute a conforming
amendment in the form prescribed by the Committee to the Agreement referred to
in SECTION 6.A.7. within such reasonable time as the Committee shall specify in
such request.
SECTION 9. EFFECTIVE DATE AND DURATION OF PLAN.
A. The Plan shall become effective on the Effective Date and shall continue
until all Annual Options granted under the Plan have been exercised or have
lapsed or otherwise been terminated pursuant to the Plan.
B. Expiration or other termination of the Plan shall not affect outstanding
Annual Options.
SECTION 10. MISCELLANEOUS.
A. Nothing in the Plan, in any Annual Option granted under the Plan, or in
any Agreement shall confer any right to any person to continue as a director of
the Corporation, or interfere in any way with the rights of the stockholders of
the Corporation to elect and remove directors.
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<PAGE>
B. The Corporation shall have the right, in connection with the exercise of
an Annual Option, to require the grantee to pay to the Corporation an amount
sufficient to provide for any withholding tax liability imposed with respect to
such exercise.
C. To the extent that federal laws (such as the Code and the federal
securities laws) do not otherwise control, the Plan shall be governed and
construed in all respects in accordance with Texas law.
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