<PAGE>
The information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell
or the solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such state.
PAGE
<PAGE>
As filed with the Securities and Exchange Commission on June 24, 1998
Registration No.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
----------------------------------
SURETY CAPITAL CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 75-2065607
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1845 Precinct Line Road
Suite 100
Hurst, Texas 76054
817-498-2749
(Address, including zip code, and telephone
number, including area code, of
Registrant's principal executive offices)
C. Jack Bean
1845 Precinct Line Road
Suite 100
Hurst, Texas 76054
817-498-2749
(Name, address, including zip code, and
telephone number, including area code, of
agent for service)
----------------------------------
Copy to:
Margaret E. Holland
Tracy & Holland, L.L.P.
306 West Seventh Street, Suite 500
Fort Worth, Texas 76102-4982
817-335-1050
Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following: [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Title of Each Class of Amount to be Proposed Maximum Aggregate Proposed Maximum Aggregate Amount of
Securities to be Registered Registered Offering Price Per Security(1) Offering Price(1) Registration Fee
- --------------------------- ------------ ------------------------------ -------------------------- ----------------
<S> <C> <C> <C> <C>
9% Convertible Subordinated
Notes due 2008 $4,350,000 100% $4,350,000 $1,284
Common Stock, $0.01 per
share par value(2) 725,000 Shares(2) - - -
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(i) under the Securities Act of 1933, as amended.
(2) Such number represents the number of shares of Common Stock as are
initially issuable upon conversion of the 9% Convertible Subordinated
Notes due 2008 registered hereby and, pursuant to Rule 416 under the
Securities Act of 1933, as amended, such indeterminate number of
shares of Common Stock as may be issued from time to time upon
conversion of the Notes as a result of the antidilution provisions
thereof. Pursuant to Rule 457(i), no registration fee is required
for these shares of Common Stock.
PAGE
<PAGE>
PROSPECTUS
SUBJECT TO COMPLETION
DATED JUNE 24, 1998
$4,350,000
SURETY CAPITAL CORPORATION
9% CONVERTIBLE SUBORDINATED NOTES DUE 2008
This Prospectus relates to the 9% Convertible Subordinated Notes
due 2008 (the "Notes") of Surety Capital Corporation (the "Company")
sold by the Company under the Securities Act of 1933, as amended (the
"Securities Act"), and the shares of the Company's common stock, $0.01
par value (the "Common Stock"), issuable upon conversion of the Notes.
The Notes registered hereby were issued and sold on March 31, 1998
(the "Original Offering") in transactions exempt from the registration
requirements of the Securities Act, to persons reasonably believed by
the Company to be "accredited investors" (as defined in Rule 501(a)
under Regulation D of the Securities Act) (the "Selling
Securityholders"). The proceeds from the Original Offering were used
in part to finance the acquisition of TexStar National Bank, Universal
City, Texas ("TexStar"), by the Company through the merger of TexStar
with Surety Bank, National Association, Hurst, Texas, the wholly-owned
bank subsidiary of the Company (the "Bank"). The Notes and the Common
Stock issuable upon conversion thereof may be offered and sold from
time to time by the Selling Securityholders named herein pursuant to
this Prospectus. The Registration Statement of which this Prospectus
is a part has been filed with the Securities and Exchange Commission
(the "Commission") pursuant to the note purchase agreements dated as
of March 31, 1998 (the "Note Purchase Agreements") between the Company
and each of the Selling Securityholders entered into in connection
with the Original Offering.
The Notes are convertible into shares of Common Stock at any time
after issuance and prior to the close of business on the maturity
date, unless previously redeemed or repurchased, at a conversion price
of $6.00 per share (equivalent to a conversion rate of 166.6667 shares
per $1,000 principal amount of Notes), subject to adjustment in
certain events. On June 23, 1998, the closing price of the Common
Stock, which is quoted on the American Stock Exchange under the symbol
"SRY," was $4.125 per share.
The Notes and the Common Stock issuable upon conversion of the
Notes may be sold by the Selling Securityholders from time to time
directly to purchasers or through agents, underwriters or dealers on
terms to be determined at the time of sale. See "Selling
Securityholders" and "Plan of Distribution." If required, the names
of any such agents or underwriters involved in the sale of the Notes
and the Common Stock issuable upon conversion of the Notes and the
agent's commission, dealer's purchase price or underwriter's discount,
if any, will be set forth in an accompanying supplement to this
Prospectus (a "Prospectus Supplement").
The Selling Securityholders will receive all of the net proceeds
from the sale of the Notes and the Common Stock issuable upon
conversion of the Notes and will pay all underwriting discounts and
selling commissions, if any, applicable to the sale of the Notes and
the Common Stock issuable upon conversion of the Notes. The Company
is responsible for payment of all expenses incident to the
registration under applicable Federal and state securities laws, and
the offer and sale, of the Notes and the Common Stock issuable upon
conversion of the Notes.
The Selling Securityholders and any broker-dealers, agents or
underwriters which participate in the distribution of the Notes and
the Common Stock issuable upon conversion of the Notes may be deemed
to be "underwriters" within the meaning of the Securities Act, and any
commission received by them and any profit on the resale of the Notes
and the Common Stock issuable upon conversion of the Notes purchased
by them may be deemed to be underwriting commissions or discounts
under the Securities Act.
NO PERSON, OR PERSONS ACTING TOGETHER, MAY ACQUIRE IN THE
AGGREGATE 10% OR MORE OF THE COMPANY'S COMMON STOCK, OR NOTES
CONVERTIBLE INTO 10% OR MORE OF THE COMPANY'S COMMON STOCK, OR A
COMBINATION THEREOF, WITHOUT FIRST COMPLYING WITH THE PRIOR NOTICE
REQUIREMENTS OF THE BANK CHANGE OF CONTROL ACT.
PROSPECTIVE INVESTORS SHOULD CONSIDER AND REVIEW THE INFORMATION
UNDER THE CAPTION "RISK FACTORS" BEGINNING ON PAGE 8 PRIOR TO AN
INVESTMENT IN THE NOTES AND THE COMMON STOCK ISSUABLE UPON CONVERSION
OF THE NOTES OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
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 _____________, 1998
PAGE
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and in accordance therewith files reports and other
information with the Commission. The Company's periodic reports,
proxy and information statements and other information can be
inspected and copied at the public reference facilities of the
Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549; and at the Commission's regional offices
located at Seven World Trade Center, 13th Floor, New York, New
York 10048 and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. Copies of such material also
may be obtained upon the payment of prescribed rates by writing
to the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549. The
Commission maintains a site on the World Wide Web that contains
reports, proxy statements and other information filed
electronically by issuers with the Commission, which site can be
accessed at http://www.sec.gov.
The Company's common stock is traded on the American Stock
Exchange ("AMEX") and copies of the Company's periodic reports,
proxy and information statements and other information is also
available for inspection at the AMEX at 86 Trinity Place, Fifth
Floor Library, New York, NY 10006. The telephone number at the
AMEX is 212-306-1290.
The Company has filed with the Commission a Registration
Statement on Form S-3 (the "Registration Statement") under the
Securities Act with respect to the Notes and the Common Stock
issuable upon conversion of the Notes. This Prospectus, which
constitutes a part of the Registration Statement, does not
contain all the information set forth in the Registration
Statement and the exhibits thereto. For further information with
respect to the Company, the Notes and the Common Stock issuable
upon conversion of the Notes, reference is hereby made to such
Registration Statement and exhibits. Statements contained herein
concerning the provisions of any documents are necessarily
summaries of those documents, and each statement is qualified in
its entirety by reference to the copy of the applicable document
filed with the Commission. The Registration Statement and any
amendments thereto, including exhibits filed as a part thereof,
are available for inspection and copying as set forth above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed with the
Commission are incorporated herein by reference:
(a) Annual Report on Form 10-K for the fiscal year ended
December 31, 1997;
(b) Proxy Statement for the Annual Meeting of Stockholders
held on May 21, 1998;
(c) Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998;
(d) Current Report on Form 8-K dated February 4, 1998;
(e) Current Report on Form 8-K dated April 1, 1998, as
amended by Current Report on Form 8-K/A (Amendment No.
1) dated April 1, 1998, and as further amended by
Current Report on Form 8-K/A (Amendment No. 2) dated
April 1, 1998;
(f) Current Report on Form 8-K dated May 21, 1998; and
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<PAGE>
(g) The description of the Common Stock contained in the
Company's Registration Statements on Form 8-A12B/A
(Amendment No. 1) and Form 8-A12G/A (Amendment No. 1)
filed June 17, 1998.
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 subsequent to the date of this Prospectus and prior
to the termination of the offering made hereby shall be deemed to
be incorporated by reference in this Prospectus and to be a part
hereof from the date of the filing of such documents. Any
statement contained in this Prospectus, in a supplement to this
Prospectus, or 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 subsequently filed
supplement to this Prospectus, or in any document that also is or
is deemed to be incorporated by reference herein, modifies or
supersedes such statement. Any 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 furnish without charge to each person to
whom this Prospectus has been delivered, upon written or oral
request, a copy of any or all documents incorporated by reference
in this Prospectus, other than exhibits to such documents (unless
such exhibits are specifically incorporated by reference in such
documents). Written or oral requests for such copies should be
directed to Mr. B. J. Curley, Surety Capital Corporation, 1845
Precinct Line Road, Suite 100, Hurst, Texas 76054 (telephone:
817-498-2749).
NOTE REGARDING
FORWARD-LOOKING STATEMENTS
In this Prospectus, all statements other than statements of
historical fact regarding the Company's financial condition,
results of operation, business strategy and future acquisitions
or operations are "forward-looking statements." When used in
this Prospectus, words such as "believes," "anticipates,"
"intends," "expects," "should," and words of similar import
identify a forward-looking statement. Such forward-looking
statements may involve numerous assumptions about known and
unknown trends, uncertainties, risks, economic conditions and
other factors which may ultimately prove to be inaccurate.
Certain of these factors are discussed in more detail elsewhere
in this Prospectus and in the Company's reports and filings with
the Commission incorporated by reference herein, including
without limitation under "Risk Factors" in this Prospectus and
"Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Item 1. Business" in
the Company's Annual Report on Form 10-K for the year ended
December 31, 1997. These factors include the Company's ability
to successfully redeploy excess liquidity following the
acquisition of TexStar as well as the Company's ability to
continue to make future acquisitions. Actual results may differ
materially from any future results expressed or implied by such
forward-looking statements. Prospective investors are cautioned
not to place undue reliance on such forward-looking statements.
The Company disclaims any obligation to update or to publicly
revise any of the forward-looking statements contained herein to
reflect future events or developments.
-3-
PAGE
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the
more detailed information and financial statements (including the
notes thereto) included herein and incorporated by reference in
this Prospectus. As used in this Prospectus, unless the context
otherwise requires, the term "Company" means Surety Capital
Corporation and its subsidiary Bank, and a description of
activities conducted by the Company includes activities conducted
by the Bank.
THE COMPANY
GENERAL. Surety Capital Corporation (the "Company") is a
bank holding company with its principal executive offices located
at 1845 Precinct Line Road, Suite 100, Hurst, Texas 76054 and its
telephone number is 817-498-2749. The Company, which is a
Delaware corporation, owns all of the outstanding shares of
Surety Bank, National Association (the "Bank"). The Company
conducts substantially all of its activities through the Bank.
The Company operates full-service banking offices in the Texas
communities of Chester, Converse, Hurst, Kennard, Lufkin,
Midlothian, New Braunfels, San Antonio, Schertz, Universal City,
Waxahachie, Wells and Whitesboro. At March 31, 1998, the Company
had $177.9 million in total assets, $156.1 million in total
deposits and $16.2 million in stockholders' equity, and its
subsidiary Bank was "well-capitalized" under Federal regulatory
capital adequacy guidelines. With the completion of the
acquisition of TexStar National Bank ("TexStar") on April 1,
1998, the Company's total assets, deposits and stockholders'
equity was increased to $243.3 million, $220.9 million and $16.2
million, respectively. See "TexStar Acquisition."
BUSINESS STRATEGY. The Company's business strategy has two
key aspects: growth through acquisitions of community banks and
an emphasis on specialized lending, which it funds using
relatively low cost core retail deposits from its network of
community banking offices. The Company acquired its first
community bank in December 1989. Since 1992, the Company has
established twelve new full-service branches by acquiring eleven
community banks and purchasing the deposits and certain assets of
a branch of another bank. The Company's most recent acquisition,
completed on April 1, 1998, was TexStar, a community bank
headquartered in Universal City, Texas, with four branch
locations in the greater San Antonio metropolitan area. At April
1, 1998, TexStar had $70.3 million in total assets, $64.8 million
in deposits and $5.0 million in shareholders' equity.
While the Company is actively pursuing its growth strategy,
the Company believes that growth is not prudent unless the
acquired assets and liabilities can be profitably deployed. It
is in this regard that the Company distinguishes itself from
other community banking organizations by balancing its
traditional community bank lending with the active development of
lending niches such as insurance premium financing. The ability
to fund these lending activities with relatively low cost
deposits from the Company's community bank network gives the
Company a pricing advantage over non-bank competitors for its
loan products. The following is a description of the Company's
primary niche and traditional lending activities:
* INSURANCE PREMIUM FINANCING. The Company's primary
niche product is insurance premium finance ("IPF")
lending, which involves the lending of funds to
companies and individuals for the purpose of financing
their purchase of property and casualty insurance. The
Company markets this product through over 5,000
independent insurance agents and maintains a loan
portfolio consisting of receivables from nearly 600
insurance companies. At March 31, 1998, the Company
reported total gross IPF loans of $42.4 million
(approximately 42% of gross loans), a 5% increase over
the December 31, 1997 total balance of $40.4 million in
IPF loans (40% of gross loans). The loans are
relatively short term, generally with maturities of
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<PAGE>
eight to nine months. The down payment and monthly
installments on each loan are calculated such that at
all times the equity or value of the unearned premium
in the policy exceeds the net balance due on the loan.
If the borrower does not make the loan payments on
time, the Company has the right, after notice to the
borrower, to cancel the insurance policy and to receive
the entire amount of the unearned premium from the
insurance company writing the insurance. The unearned
premium is then applied to the net loan balance. The
primary risk in IPF lending is not that a borrower will
default on the loan but that an insurance company will
default on payment of the unearned premium following a
default by a borrower. No lending is without risk, but
specialized products may present different types of
risks than traditional loans.
* MEDICAL CLAIMS FACTORING. The Company has historically
been engaged in medical claims factoring, purchasing
primarily insurance company claims from a variety of
health care providers. During 1997 the Company
experienced a dramatic increase in the amount of
medical claims receivables outstanding over 120 days.
At December 31, 1997, the Company reported $3.1 million
in net medical claims receivables, representing 2.0% of
interest-bearing assets of the Company, after charge-
offs of $2.0 million against the allowance for medical
claims receivable losses and an additional provision of
$3.7 million to the allowance. The interest income
from medical claims receivables accounted for 9.6% of
the total gross interest income of the Company for
1997. With new management and additional staffing in
place as of January 1998, primarily focused on the
collection of the outstanding receivables over 120
days, the Company is currently monitoring the factoring
program under its new underwriting guidelines to assess
its profitability and its future as a niche product of
the Company. As of March 31, 1998 the Company had
collected approximately $886,000 of medical claims
receivables charged off or provided for at December 31,
1997.
* TRADITIONAL LENDING ACTIVITIES. The Company
diversifies its lending risks by balancing its
specialty lending with traditional loans. At March 31,
1998, the Company had approximately $49.4 million in
gross IPF loans, with the other half of its loan
portfolio in traditional community bank loans,
including real estate, commercial and installment
loans. The Company believes that its specialized
lending products help it achieve a higher loan
portfolio yield than it could achieve on traditional
community bank loans alone.
TEXSTAR ACQUISITION. The recent acquisition of TexStar
complements the Company's business strategy by providing the
Company with a solid base of core deposits to use to fund its
specialty and traditional lending activities. TexStar has
traditionally maintained a low loan-to-deposit ratio, and the
Company believes it can increase the amount of loans originated
from TexStar's banking locations by enhanced marketing and access
to the Company's normal sources for IPF loans. The TexStar
acquisition increased the Company's total assets from $177.9
million to $243.3 million, deposits from $156.1 million to $220.9
million, and shareholders' equity remained unchanged at $16.2
million as of April 1, 1998, and the addition of TexStar's main
office in Universal City and four full-service branches in the
greater San Antonio metropolitan area increased the Company's
number of full-service banking locations from eight to thirteen.
-5-
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<PAGE>
THE OFFERING
Issuer..................... Surety Capital Corporation, a Delaware
corporation and the parent company of
Surety Bank, National Association, a national
banking association.
Securities Offered......... $4,350,000 aggregate principal amount of 9%
Convertible Subordinated Notes due 2008
issued under an indenture (the "Indenture")
dated as of March 31, 1998 between the
Company and Harris Trust and Savings Bank,
Chicago, Illinois, as trustee (the "Trustee"),
and the shares of Common Stock issuable upon
conversion thereof.
Maturity Date.............. March 31, 2008.
Interest Payment Dates..... March 31 and September 30 of each year,
commencing September 30, 1998.
Redemption................. The Notes may be redeemed, in whole or in
part at the option of the Company, at any
time after issuance and on or before March
31, 2002 at the redemption prices set forth
herein, plus accrued interest to the date of
redemption, if the closing sale price of the
Common Stock shall be at least 130% of the
conversion price then in effect for a period
of 20 consecutive trading days in the
principal market in which such securities
are then traded. The Notes may be redeemed
at any time after March 31, 2002 at the
option of the Company, in whole or in part,
at the redemption prices set forth herein
plus accrued interest to the date of
redemption. See "Description of the Notes -
Optional Redemption by the Company."
Ranking and Holding
Company Structure........ The Notes are unsecured obligations of the
Company and subordinate in right of payment
to Senior Indebtedness and, in the event of
bankruptcy, Other Financial Obligations of
the Company, in the manner and to the extent
described in the Indenture. The Notes are
effectively subordinated to all existing and
future liabilities of the Company's
subsidiaries, including the Bank's obligations
to its depositors and its obligations to its
trade and other general secured creditors.
The terms of the Notes do not limit incurrence
by the Company or its subsidiaries of
additional liabilities or indebtedness,
including Senior Indebtedness and Other
Financial Obligations. At March 31, 1998,
the Company and its consolidated subsidiaries,
including the Bank, had outstanding
approximately $4.35 million in total
indebtedness, all of which was Senior
Indebtedness. See "Description of the Notes
- Subordination."
Events of Default/
Limited Right of
Acceleration............. Upon the occurrence of certain events
involving the bankruptcy, insolvency,
reorganization, receivership or similar
proceedings of the Company, either the
Trustee or the holders of not less than 25%
in aggregate principal amount of the
outstanding Notes may declare the principal
of the Notes, together with any accrued
and unpaid interest, to be immediately due
and payable. The Notes do not otherwise
provide for any right of acceleration of
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<PAGE>
the payment of principal thereof. See
"Description of the Notes - Events of Default
and Waiver Thereof" and " - Limited Right of
Acceleration."
Certain Covenants.......... The Indenture contains certain covenants
with respect to, among other things, (i)
maintenance of status of bank subsidiaries
as insured depository institutions; (ii)
maintenance of corporate existence; (iii)
restrictions on dividends in excess of
applicable regulatory minimum; (iv) filing
reports with the Commission; and (v)
consolidation, merger or sale of assets.
However, there is no right of acceleration
in the case of a breach in the performance
of any covenant of the Company. See
"Description of the Notes - Limited Right of
Acceleration."
Conversion of Notes........ The Notes are convertible at any time after
issuance into shares of Common Stock at a
conversion price of $6.00 per share, subject
to antidilutive adjustment. See "Description
of the Notes - Conversion Rights."
Risk Factors............... Holding Company Structure; Restrictions on
Ability of Subsidiaries to Pay Dividends;
Limited Right of Acceleration; Contingent
Approval by the Office of the Comptroller of
the Currency; Subordination; Absence of a
Public Market for the Notes; Possible Market
Volatility of Common Stock; Insurance Premium
Financing Concentration; Medical Claims
Factoring; Potential Negative Impact from the
Acquisition of TexStar; Future Growth;
Reliance on Key Personnel; Interest Rate
Risk; Regulation and Supervision; No
Dividends; Competition.
-7-
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<PAGE>
RISK FACTORS
In addition to the other information contained in this
Prospectus or incorporated into this Prospectus by reference, the
following factors should be considered carefully in evaluating
the Company, its business and prospects before purchasing any of
the Notes or the Common Stock issuable upon conversion thereof
offered hereby. An investment in the securities of the Company
may pose risks unique to the Company, or unique to the financial
services industry, which are not posed by other investments.
HOLDING COMPANY STRUCTURE; RESTRICTIONS ON ABILITY OF
SUBSIDIARIES TO PAY DIVIDENDS. The Company owns all the
outstanding common stock of the Bank. As a holding company
without significant assets other than its ownership of all of the
common stock of the Bank, the Company's ability to meet its cash
obligations, including debt service on the Notes, is dependent
upon the payment of dividends by the Bank on its common stock.
The declaration of dividends by the Bank is subject to the
discretion of the Board of Directors of the Bank and applicable
regulatory requirements. The payment of dividends by the Bank is
subject to the provisions of 12 U.S.C. section 60, which provides that
no dividend may be declared or paid without the prior approval of
the Office of the Comptroller of the Currency (the "OCC") if the
total of all dividends, including the proposed dividend, in any
calendar year exceeds the total of the Bank's net profits for
that year combined with its retained net profits of the preceding
two years. The Bank incurred an accumulated loss for fiscal
years 1997 and 1996 in the amount of $1,544,756. Under 12 U.S.C.
section 60, the Bank currently is precluded from declaring a dividend,
without the prior approval of the OCC, until it has profits in
excess of $1,544,756. As of March 31, 1998, the Company had
profits of $332,346. No assurance can be given if and when the
Bank will attain the requisite level of profitability which will
permit it to declare and pay dividends. As of March 31, 1998,
the Company had $6,959,708 available in cash, which represents
approximately 18 years of interest payments on the Notes. The
Company may use such cash for debt service on the Notes and other
expenses.
LIMITED RIGHT OF ACCELERATION. The Notes may only be
accelerated in the event of the bankruptcy, insolvency or
reorganization of the Company. The Indenture does not provide
for any right of acceleration of the payment of the Notes as a
result of any failure of the Company timely to pay principal of
and interest on the Notes, or to comply with the covenants
contained in the Indenture. In the event of a default in the
payment of interest, principal or premium (if any) by the
Company, or the failure of the Company to perform any covenants
or agreements contained in the Indenture, the holder of the Note
(or the Trustee on behalf of the holders of all of the Notes
affected) may, in lieu of accelerating the maturity of the Notes,
seek to enforce payment of such interest, principal or premium
(if any) and the performance of such covenants or agreements.
CONTINGENT APPROVAL BY THE OFFICE OF THE COMPTROLLER OF THE
CURRENCY. In connection with the acquisition of TexStar by the
Company through the merger of TexStar with the Bank (the
"Merger"), the OCC conditionally approved the Merger, contingent
upon (1) the Company contributing at least $4,000,000 in
additional capital to the Bank, (2) the Bank maintaining certain
OCC-mandated capital ratios in excess of the minimum "well-
capitalized" capital ratios through December 31, 2000, and (3) in
the event of the failure of the Bank to maintain such minimum
capital ratios, the Company initiating efforts to bring the Bank
back into compliance with such minimum capital ratios. At March
31, 1998, the Bank was "well-capitalized" under Federal
regulatory capital adequacy guidelines and in compliance with the
OCC-mandated capital ratio levels. No assurance can be given,
however, that the Bank will remain "well-capitalized" under such
guidelines and in compliance with the OCC-mandated capital ratio
levels. If the Bank fails to maintain such OCC-mandated capital
levels through December 31, 2000, the Company is required (1) to
contribute additional capital to the Bank, which, if necessary,
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<PAGE>
may be obtained by the Company through a traditional loan from a
financial institution or through an offering of the Company's
securities, or (2) to liquidate some of the assets of the Bank.
Any loan obtained by the Company will rank senior to the Notes,
and the issuance of additional securities by the Company may have
a dilutive effect on the Common Stock issuable upon conversion of
the Notes. No assurance can be given that the Company will be
successful in such efforts. In the event the Bank fails to
maintain such OCC-mandated capital ratios, the OCC may impose a
number of corrective measures on the Bank, including (1) the
imposition of restrictions on certain activities involving asset
growth, acquisitions, branch establishment, expansion into new
lines of business, declaration and payment of dividends, and
transactions with affiliates, (2) the imposition of certain
additional mandated capital raising activities, and (3) as a last
resort, the appointment of a receiver or conservator of the Bank.
SUBORDINATION. The Notes are unsecured, subordinated
obligations of the Company and rank junior to all Senior
Indebtedness (as defined herein) of the Company. The Notes also
rank junior to all Other Financial Obligations (as defined
herein) in the circumstances described in the Indenture and are
effectively subordinated to all indebtedness and other
liabilities and commitments (including deposits, trade payables,
lease obligations and obligations to holders of preferred stock)
of the Company's subsidiaries, including the Bank. Any right of
the Company to receive assets of any of its subsidiaries upon
their liquidation or reorganization (and the consequent right of
the holders of the Notes to participate in those assets) is
effectively subordinated to the claims of that subsidiary's
creditors. The Indenture does not restrict the Company from
incurring additional Senior Indebtedness or Other Financial
Obligations or restrict the Bank or other subsidiaries of the
Company from incurring additional indebtedness to which holders
of the Notes are effectively subordinated.
ABSENCE OF A PUBLIC MARKET FOR THE NOTES. The Notes were
issued on March 31, 1998 to a small group of accredited
investors. Pursuant to the Note Purchase Agreements, the Company
has filed with the Commission the Registration Statement, of
which this Prospectus forms a part, registering the Notes and the
shares of Common Stock issuable on conversion thereof for resale
on a continuous basis and has agreed to use reasonable efforts to
cause such Registration Statement to remain effective until March
31, 1999. There can be no assurance, however, that such
registration will remain effective in accordance with the
Company's agreement. The Company does not intend to apply for
listing of the Notes on any securities exchange or to seek
approval for quotation through any automated quotation system.
There can be no assurance, therefore, as to the development of
any market for the Notes, the liquidity of any market for the
Notes that may develop, the ability of holders of the Notes to
sell their Notes or the prices at which holders of the Notes
would be able to sell their Notes. If a market for the Notes
were to develop, the Notes could trade at prices higher or lower
than their initial offering price, depending on a variety of
factors, including prevailing interest rates, the Company's
operating results and the market for similar securities.
POSSIBLE MARKET VOLATILITY OF COMMON STOCK. The Notes are
convertible at any time after the date of issue into shares of
Common Stock. 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. The
stock market has from time to time experienced extreme price and
volume volatility. These market fluctuations may be unrelated to
the operating performance of particular companies whose shares
are traded and may adversely affect the market price of the
Common Stock. In addition, during periods of extreme market
volatility, investors may be unable to obtain prompt execution of
buy or sell orders in the Common Stock.
INSURANCE PREMIUM FINANCING CONCENTRATION. As of March 31,
1998, insurance premium financing ("IPF") loans totaled $42.4
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million representing approximately 42% of the total gross loans
of the Company. Such a high concentration of IPF loans may
expose the Company to different types of risks and a greater risk
of loss than would a more traditional commercial and consumer
loan portfolio. In traditional loan products, the primary risk
is that a borrower will fail to repay the loan. However, when a
borrower fails to repay an IPF loan, typically the insurance
policy is canceled and the unearned premium is paid to the
lender. Significant risks posed by IPF loans normally not
present in traditional loans include the risk that an insurance
company will become insolvent or otherwise unable to meet its
obligations, or that someone will obtain IPF loans for fictitious
policies where the Company does not have recourse to an insurance
company for insurance premiums. Losses or other difficulties
encountered by any one insurance company, or fraudulent activity
by an insurance company or agent, could have a material adverse
effect on the Company. In addition, financial difficulties or
regulatory or structural changes affecting the insurance industry
generally may have a material adverse effect on the Company. The
Company extends IPF loans with an average maturity of nine
months. Most of these loans are repaid in monthly installments.
Most of the IPF loans are generated through independent
insurance agents, who are not obligated to refer business to the
Company. If the Company is unable to generate new IPF loans to
replace those being repaid, it will have to originate other types
of loans or make other investments, some or all of which may not
be as profitable for the Company. As the Company expands through
acquisitions such as TexStar, the Company must increase the
aggregate amount of IPF loans originated on a continuous basis in
order to maintain its current net interest margin.
MEDICAL CLAIMS FACTORING. As of December 31, 1997, the
Company had approximately $6.2 million of medical claims
receivables outstanding 120 days or more from the date of funding
by the Company, or 61% of its total medical claims receivables.
At December 31, 1996, the Company had approximately $1.4 million
of medical claims receivables, or 22% of total medical claims
receivables, outstanding 120 days or more. It has been the
Company's experience that, historically, approximately 80% of its
medical claims receivables would be collected within 60 to 120
days and approximately 20% of such receivables would remain
outstanding over 120 days. The Company determined that
charge-offs of $2.0 million against the allowance for medical
claims receivable losses as well as a provision for an additional
$3.7 million were warranted in the fourth quarter of 1997, which
resulted in the Company recording a $3.4 million loss for 1997.
Upon recognition of the charge-offs and additional reserves, the
Company believes it was adequately reserved at December 31, 1997
for all receivables greater than 120 days outstanding since
funding date. New management of the medical claims factoring
division, in place by the end of January 1998, has made a
commitment to vigorously pursue collecting the portfolio of
outstanding receivables over 120 days. At this time, however,
the Company cannot predict the likely amount of any such
recoveries. As of March 31, 1998, the Company had collected
approximately $886,000 of medical claims receivables charged off
or provided for at December 31, 1997 and had approximately
$4,234,000 of medical claims receivables over 120 days. The
Company is currently monitoring the factoring program under its
new underwriting guidelines to assess its profitability and its
future as a niche product of the Company. As with IPF loans,
losses or difficulties encountered by one medical claims payor,
or fraudulent activity by any one medical claims payor or medical
services provider, could have a material adverse effect on the
Company. In addition, financial difficulties or regulatory or
structural changes affecting medical services providers or
medical claims payors generally may have a material adverse
effect on the Company.
POTENTIAL NEGATIVE IMPACT FROM THE ACQUISITION OF TEXSTAR.
As a result of the acquisition of TexStar on April 1, 1998, the
Company's asset size increased from $177.9 million to $243.3
million. The Company's loan-to-deposit ratio decreased from
63.2% to 60.0%. The Company anticipates that the acquisition of
TexStar will negatively impact the Company's net interest margin,
return on assets and return on shareholders' equity in the near
term. The acquisition may also negatively impact earnings per
share in the near term. The future prospects of the Company will
depend, in significant part, on a number of factors, including,
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without limitation, the Company's ability to integrate TexStar;
its ability to compete effectively in the greater San Antonio
metropolitan market area; its success in retaining earning
assets, including loans, acquired with TexStar; and its ability
to generate new earning assets with attractive yields. No
assurance can be given that the Company will be able to
accomplish any of the foregoing. No assurance can be given that
the Company will be able to achieve results in the future similar
to those achieved in the past or that the Company will be able to
manage effectively the growth resulting from the acquisition of
TexStar. The former officers and directors of TexStar are not
subject to non-competition agreements and may compete against the
Company.
FUTURE GROWTH. Fueled by acquisitions, the total assets of
the Company have increased from $49.0 million at December 31,
1993 to $243.3 million at April 1, 1998. There can be no
assurance that the Company will grow as rapidly in the future as
it has in the past. The Company may decide that it will not
pursue further acquisitions, or the Company may not be able to
locate and complete favorable acquisition opportunities in the
future. In recent years, the aggregate number of community banks
in Texas has decreased, primarily through mergers and
acquisitions, and the competition for acquisitions has increased.
If the Company does not make acquisitions in the future, it may
not be able to sustain its historical growth rate.
RELIANCE ON KEY PERSONNEL. The Company is dependent upon
its 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
important to the success of the Company. The unexpected loss of
the services of any of these individuals could have a detrimental
effect on the Company. Mr. Bean will retire as Chairman of the
Board and Chief Executive Officer of the Company and as Chairman
of the Board of the Bank effective August 31, 1998. Mr. Bean,
however, will retain his positions as a director of both the
Company and the Bank and will continue to serve in a consulting
capacity following his retirement. The Boards of Directors of
the Company and the Bank have named Mr. Hackler to succeed Mr.
Bean as Chairman of the Board and Chief Executive Officer of the
Company and as Chairman of the Board of the Bank effective upon
Mr. Bean's retirement. Although the Company has entered into
agreements with these individuals designed to provide incentives
to remain in the Company's employ, the Company has not requested
non-competition agreements from these individuals. 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.
INTEREST RATE RISK. The Company's earnings depend to a
substantial extent on "rate differentials," i.e., the differences
between the income the Company 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
Company, including general economic conditions and the policies
of various governmental and regulatory authorities. The Company
has attempted to structure its asset and liability management
strategies to mitigate the impact on net interest income of
changes in market interest rates. However, there can be no
assurance that the Company will be able to manage interest rate
risk so as to avoid significant adverse effects in net interest
income. From time to time, maturities of assets and liabilities
are not balanced, and a rapid increase or decrease in interest
rates could have an adverse effect on the net interest margin and
results of operations of the Company. The nature, timing and
effect of any future changes in Federal monetary and fiscal
policies on the Company and its results of operations are not
predictable.
REGULATION AND SUPERVISION. The Company and the Bank are
subject to extensive Federal and state regulation and
supervision, which is intended primarily for the protection of
insured depositors and consumers. In addition, the Company and
the Bank are subject to changes in Federal and state law, as well
as changes in regulations, governmental policies and accounting
principles. The effects of any such potential changes cannot be
predicted, but could adversely affect the business and operations
of the Company and the Bank.
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NO DIVIDENDS. The Company has not previously paid any cash
dividends on its Common Stock. The Company currently intends to
retain earnings to support future growth, rather than using
earnings to pay dividends. The payment of any cash 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 stockholders are both subject
to certain statutory and regulatory restrictions.
COMPETITION. There is significant competition among banks
and bank holding companies, many of which have far greater assets
and resources than the Company, in the areas in which the Company
operates. The Company 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 other types of financial
institutions, many of which are larger in terms of capital,
resources and personnel than the Company. The casualty IPF
business of the Company is also very competitive. Large
insurance companies offer their own financing plans, and other
independent premium finance companies and other financial
institutions offer IPF loans. The Company believes that such
competition will increase in the future. In addition, the manner
in which and the means by which financial services are delivered
to customers have changed significantly in the past and can be
expected to continue to change in the future. It is not possible
to predict the manner in which existing technology, and changes
in existing technology, will affect the Company. Changes in
technology are likely to require additional capital investments
to remain competitive. Although the Company has invested in new
technology in the past, there can be no assurance that the
Company will have sufficient financial resources or access to the
proprietary technology which might be necessary to remain
competitive in the future.
TEXSTAR ACQUISITION
On April 1, 1998 the Company acquired TexStar National Bank
("TexStar"), a community bank headquartered in Universal City,
Texas, which is located in the growth corridor northeast of San
Antonio, Texas. TexStar has four branch locations in Converse,
New Braunfels, San Antonio and Schertz, all located in the
greater San Antonio metropolitan area. At April 1, 1998, TexStar
had $70.3 million in total assets, $64.8 million in deposits and
$5.0 million in shareholders' equity. TexStar offers interest-
bearing and non-interest-bearing depository accounts and makes
real estate, commercial and consumer loans.
The Company acquired TexStar through the merger of TexStar
into the Bank, pursuant to which the Bank acquired all of the
assets, and assumed all of the liabilities, of TexStar (the
"Merger"). The purchase price for TexStar was approximately
$19.36 per share of TexStar common stock outstanding (total cash
consideration: $9,772,000), which was paid to the shareholders
of TexStar in connection with the Merger. The acquisition of
TexStar was financed, in part, through a private placement by the
Company of the $4,350,000 aggregate principal amount of Notes and
Common Stock issuable upon conversion thereof offered hereby (the
"Original Offering"). The Notes were offered by the Company
through Hoefer & Arnett, Incorporated, a San Francisco-based
investment banking firm, on a best efforts basis.
The OCC conditionally approved the Merger, contingent upon
(1) the Company contributing at least $4,000,000 in additional
capital to the Bank, (2) the Bank maintaining certain OCC-
mandated capital ratios in excess of the minimum "well-
capitalized" capital ratios through December 31, 2000, and (3) in
the event of the failure of the Bank to maintain such minimum
capital ratios, the Company initiating efforts to bring the Bank
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back into compliance with such minimum capital ratios. A portion
of the proceeds from the Original Offering ($4,000,000) was
contributed by the Company to the Bank to satisfy the OCC's
capital contribution requirement. At March 31, 1998, the Bank
was "well-capitalized" under Federal regulatory capital adequacy
guidelines and in compliance with the OCC-mandated capital ratio
levels.
At March 31, 1998, TexStar's loan portfolio consisted of
$18.4 million of real estate loans (53.2% of the gross loan
portfolio), $12.3 million of commercial loans (35.5% of the gross
loan portfolio), and $3.9 million of installment loans (11.3% of
the gross loan portfolio). At March 31, 1998, TexStar's total
nonaccrual loans were approximately $220,000 (0.5% of the gross
loan portfolio). The allowance for possible loan losses was
$820,625, or 372.4% of total nonperforming loans, and 2.4% of the
gross loan portfolio. Other real estate owned by TexStar was
$454,300 at March 31, 1998. TexStar reported a net loss after
taxes of $831,858 for the three months ended March 31, 1998. At
March 31, 1998, TexStar's loan-to-deposit ratio was 53.5%. The
Company intends to use the excess liquidity acquired with TexStar
to fund additional IPF loans.
TexStar is a Statewide Preferred Lender under the government
guaranteed United States Small Business Administration ("SBA")
lending program. Under this program, TexStar originates and
funds loans qualifying for guarantees from the SBA. These
guarantees range from 70% to 90% of principal and up to 120 days
of accrued interest. In addition, in the event of a default and
liquidation of one of these loans the SBA pays its pro rata share
of the liquidation costs. The SBA-guaranteed portion of these
loans is generally sold into the secondary market with servicing
retained. The guaranteed portion is sold for a premium
(approximately 7% to 10% of the SBA-guaranteed portion) with a
servicing fee of at least 1% of the guaranteed portion retained.
At March 31, 1998, TexStar had originated $2.1 million in SBA
loans with the $1.5 million SBA-guaranteed portion sold in the
secondary market. The remaining $0.6 million in unguaranteed
portion of these loans remains in TexStar's loan portfolio,
together with a $0.1 million in SBA loans originated in the first
quarter of 1998, the guaranteed portion of which had not as of
March 31, 1998 been sold in the secondary market. During the
first quarter of 1998 an additional $655,469 in guaranteed
portion of loans originated in 1997 or earlier were sold in the
secondary market. TexStar has been making SBA loans for
approximately four years and has not experienced a default and
liquidation regarding any of these loans. The Company is
considering expanding the generation of SBA loans because of
TexStar's Statewide Preferred Lender status.
USE OF PROCEEDS
The Company will not receive any part of the proceeds from
the sale of the Notes or the Common Stock issuable upon
conversion thereof by the Selling Securityholders.
DESCRIPTION OF THE NOTES
The $4,350,000 aggregate principal amount of 9% Convertible
Subordinated Notes due 2008 (the "Notes") were issued under an
indenture dated as of March 31, 1998 (the "Indenture"), between
the Company and Harris Trust and Savings Bank, Chicago, Illinois,
as trustee (the "Trustee"), a copy of which is filed as an
exhibit to the Registration Statement of which this Prospectus is
a part. The following summary of certain provisions of the
Indenture does not purport to be complete and is subject to the
provisions of the Indenture and the Notes, including the
definitions therein of certain terms used below. Capitalized
terms used in this section and not otherwise defined in this
section have the respective meanings assigned to them in the
Indenture. For purposes of this description, the term "Company"
refers to Surety Capital Corporation and does not include its
subsidiaries.
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GENERAL. The Notes are general unsecured obligations of the
Company. The Notes were issued only in fully registered form in
denominations of $10,000 and integral multiples thereof. The
Notes may be surrendered for registration by the Registrar in the
manner provided in the Indenture. The Notes will be transferable
only upon the books of the Registrar, as provided in the
Indenture.
The Indenture is qualified under the Trust Indenture Act of
1939 (the "Trust Indenture Act"). The terms of the Notes include
those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act as in effect on
the date of the Indenture. The Notes are subject to all such
terms, and Holders of the Notes are referred to the Indenture and
the Trust Indenture Act for a statement of those terms.
The terms of the Notes are such that the Company expects
that the Notes qualify as Tier 2 capital under the regulatory
capital guidelines applicable to bank holding companies of the
Board of Governors of the Federal Reserve System (as such
guidelines are currently in force). There can be no assurance
that such bank holding company capital guidelines may not change
in the future.
PAYMENT TERMS. The Notes bear interest at a rate of 9% per
annum until maturity. Interest on the Notes is payable
semi-annually on March 31 and September 30 of each year,
commencing September 30, 1998, to the persons who are the
registered Holders thereof at the close of business on the
March 15 or September 15 immediately preceding such interest
payment date.
The Notes mature on March 31, 2008 and are not subject to
any mandatory sinking fund. The Indenture provides that interest
on the Notes will be computed on the basis of a 360-day year of
twelve 30-day months. The Trustee is serving as Paying Agent and
Registrar. However, the Company may change the Paying Agent or
Registrar without prior notice to the Holders. Principal and
interest is payable initially at the offices of the Trustee, but,
at the option of the Company, interest may be paid by check
mailed to the persons who are registered Holders at their
registered addresses. The Notes may be presented for
registration of transfer and exchange at the office of the
Registrar.
SUBORDINATION. The Indenture provides that the payment of
the principal of, premium, if any, and interest on the Notes is,
to the extent set forth in the Indenture, subordinated in right
of payment to the prior payment in full of all Senior
Indebtedness (as defined below). In certain events involving
insolvency of the Company, the payment of the principal of,
premium, if any, and interest on the Notes is, to the extent set
forth in the Indenture, also subordinated in right of payment to
the prior payment in full of all Other Financial Obligations (as
defined below). Upon any payment or distribution of assets to
creditors upon any liquidation, dissolution, winding up,
reorganization, assignment for the benefit of creditors,
marshaling of assets or any bankruptcy, insolvency, receivership
or similar proceedings of the Company, the holders of all Senior
Indebtedness will first be entitled to receive payment in full of
all amounts due or to become due thereon before the Holders of
the Notes will be entitled to receive any payment in respect of
the principal of, premium, if any, or interest on the Notes. If
upon any such payment or distribution of assets to creditors,
there remains, after giving effect to such subordination
provisions in favor of the holders of Senior Indebtedness, any
amounts of cash, property or securities available for payment or
distribution in respect of the Notes (as defined in the
Indenture, "Excess Proceeds"), and if at such time any Entitled
Persons (as defined below) in respect of Other Financial
Obligations have not received payment in full of all amounts due
or to become due on or in respect of such Other Financial
Obligations, then such Excess Proceeds will first be applied to
pay or provide for the payment in full of such Other Financial
Obligations before any payment or distribution may be made in
respect of the Notes. In the event of the acceleration of the
maturity of any of the Notes, the holders of all Senior
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Indebtedness will first be entitled to receive payment in full of
all amounts due thereon before the Holders of the Notes will be
entitled to receive any payment upon the principal of, premium,
if any, or interest on the Notes. No payments on account of
principal of, premium, if any, or interest on the Notes may be
made if there has occurred and is continuing a default in any
payment with respect to Senior Indebtedness beyond any applicable
grace period with respect thereto or an event of default
permitting the acceleration of such Senior Indebtedness or if any
judicial proceeding is pending with respect to any such default
or event of default. See "Risk Factors - Subordination."
By reason of such subordination in favor of the holders of
Senior Indebtedness, in certain events involving bankruptcy,
insolvency or reorganization of the Company, creditors of the
Company who hold obligations other than Senior Indebtedness or
subordinated indebtedness (other than the Notes) may recover less
in respect of such obligations, ratably, than holders of Senior
Indebtedness, and may recover more in respect of such
obligations, ratably, than the Holders of the Notes.
The term "Senior Indebtedness" means, with respect to the
Company, the principal of, premium, if any, and interest
(including interest accruing subsequent to the commencement of
any proceeding for the bankruptcy or reorganization of the
Company) on (a) all indebtedness of the Company for money
borrowed, whether outstanding on the date of execution of the
Indenture or thereafter created, assumed or incurred, except such
indebtedness as is by its terms expressly stated to be not
superior in right of payment to the Notes or to rank pari passu
with or subordinate to the Notes, and (b) any deferrals, renewals
or extensions of any such indebtedness for money borrowed. The
term "indebtedness for money borrowed," as used in the definition
of "Senior Indebtedness" and "Other Financial Obligations," is
defined to mean any obligation of, or any obligation guaranteed
by, the Company for the repayment of borrowed money, whether or
not evidenced by bonds, debentures, notes or other written
instruments, and any deferred obligation for the payment of the
purchase price of property or assets.
The term "Other Financial Obligations" means all obligations
of the Company to make payment pursuant to the terms of financial
instruments, such as (i) securities contracts and foreign
currency exchange contracts, (ii) derivative instruments, such as
swap agreements (including interest rate and foreign exchange
rate swap agreements), cap agreements, floor agreements, collar
agreements, interest rate agreements, foreign exchange rate
agreements, options, commodity futures contracts, commodity
option contracts, and (iii) in the case of both (i) and (ii)
above, similar financial instruments, other than (A) obligations
on account of Senior Indebtedness and (B) obligations on account
of indebtedness for money borrowed ranking pari passu with or
subordinate to the Notes.
The term "Entitled Persons" means any persons entitled to
payment pursuant to the terms of Other Financial Obligations.
The Indenture does not limit the incurrence of additional
Senior Indebtedness and Other Financial Obligations, which may
include indebtedness that is senior to the Notes but subordinate
to other obligations of the Company. As of March 31, 1998, the
Company had approximately $4.35 million in Senior Indebtedness
outstanding.
The Company is a legal entity separate and distinct from the
Bank. The Company's principal asset is the common stock of the
Bank. The principal sources of the Company's income are
dividends, interest and fees from the Bank. The Company relies
primarily on dividends from the Bank to meet its obligations for
payment of principal and interest on its outstanding debt
obligations and corporate expenses. Accordingly, the Notes are
effectively subordinated to all existing and future liabilities
of the Bank. The Bank is subject to claims of creditors for debt
obligations, including deposit liabilities, obligations for
borrowings from the Federal Home Loan Bank, if any, and
securities sold under reverse repurchase agreements. Moreover,
the Bank is subject to certain restrictions imposed by Federal
law on any extensions of credit to, and certain other
transactions with, the Company and certain other affiliates, and
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on investments in stock or other securities thereof. In
addition, payment of dividends to the Company by the Bank is
subject to ongoing review by banking regulators and is subject to
various statutory limitations and in certain circumstances
requires approval by banking regulatory authorities. As of
December 31, 1997, the Bank may not pay dividends to the Company
without OCC approval until it has profits in excess of
$1,544,756. See "Risk Factors - Holding Company Structure;
Restrictions on Ability of Subsidiaries to Pay Dividends."
As of March 31, 1998, the Bank had no outstanding
indebtedness.
EVENTS OF DEFAULT AND WAIVER THEREOF. An Event of Default
with respect to the Notes is defined in the Indenture as being
certain events involving a bankruptcy, insolvency or
reorganization of the Company. If an Event of Default with
respect to the Notes shall have occurred and be continuing,
either the Trustee or the Holders of not less than 25% in
aggregate principal amount of the Notes then outstanding may
declare the principal of all the Notes, plus accrued and unpaid
interest thereon, to be due and payable immediately. The
foregoing provision would be subject as to enforcement to the
broad equity powers of a Federal bankruptcy court and to the
determination by that court of the nature of the rights of the
Holders of the Notes. The Company is required to furnish
annually to the Trustee a statement as to the performance by the
Company of its obligations under the Indenture and as to any
default in such performance. Under certain circumstances, any
declaration of acceleration with respect to Notes may be
rescinded and past defaults (except, unless theretofore cured, a
default in the payment of principal of, premium, if any, or
interest on such Notes) may be waived by the Holders of a
majority in aggregate principal amount of the Notes then
outstanding.
LIMITED RIGHT OF ACCELERATION. The Notes may be accelerated
only in the case of an Event of Default as described above. The
Indenture does not provide for any right of acceleration of the
payment of the principal of the Notes upon a default in the
payment of principal, premium, if any, or interest on or a
default in the performance of any covenant or agreement in the
Notes or in the Indenture. In the event of a default in the
payment of interest, principal or premium, if any, the Holder of
a Note (or the Trustee on behalf of the Holders of all of the
Notes affected) may, subject to certain limitations and
conditions, seek to enforce payment of such interest, principal
or premium, if any. See "Risk Factors - Limited Right of
Acceleration."
MAINTENANCE OF STATUS OF SUBSIDIARIES AS INSURED DEPOSITORY
INSTITUTIONS. The Company has agreed that it will do or cause to
be done all things necessary to preserve and keep in full force
and effect the status of the Bank as an insured depository
institution and do or cause to be done all things necessary to
ensure that depository accounts of the Bank are insured by the
FDIC or any successor organization up to the maximum amount
permitted by 12 U.S.C. section 1811 et seq. and the regulations
thereunder or any succeeding Federal law, except as to individual
accounts or interests in employee benefit plans that are not
entitled to pass-through insurance under 12 U.S.C. section
1821(a)(1)(D).
CAPITAL AND DIVIDENDS. The Company will not (or permit any
subsidiary to) declare or pay any dividend or make any other
distribution on any shares of its Common Stock (other than
dividends payable solely in shares of its Common Stock), or make
any payment to purchase, redeem or otherwise retire or acquire
any such shares, if at the time of such action the Company or any
such subsidiary is not in compliance, or would fail as result of
such action to remain in compliance, with any minimum capital
maintenance requirements established by the Federal Reserve Board
or another banking regulator that are then applicable to the
Company or any such subsidiary.
CONSOLIDATION, MERGER, SALE OR CONVEYANCE. The Company has
covenanted in the Indenture that it will not merge or consolidate
with any other corporation or sell or convey all or substantially
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all of its assets to any person, firm or corporation unless the
Company is the continuing corporation, or the successor
corporation is a corporation organized under the laws of the
United States of America or a state thereof and such corporation
expressly assumes the obligations under the Notes and the
Indenture, and the Company or such successor corporation is not,
immediately after such merger, consolidation, sale or conveyance,
in default in the performance of any of the covenants or
conditions of the Indenture.
MODIFICATION AND WAIVER. The Indenture provides that, with
the consent of the Holders of at least a majority in principal
amount of the Outstanding Notes, modifications and alterations of
the Indenture may be made which affect the rights of the Holders
of the Notes, but no such modification or alteration may be made
without the consent of the Holder of each Note which would (i)
change the fixed maturity of the principal of, or any installment
of principal of or interest on, any Note, or reduce the principal
amount thereof or change the rate of interest thereon, or change
any place where, or the coin or currency in which, the principal
amount of any Note or any premium or interest thereon is payable,
or impair any right to institute suit for the enforcement of any
right to receive payment of the principal of (and premium, if
any) and interest, if any, on such Note on the stated maturity
dates expressed in such Note, or modify the provisions of the
Indenture with respect to the subordination of the Notes in a
manner adverse to the Holders, or (ii) reduce the above-stated
percentage in principal amount of Outstanding Notes required to
modify or alter the Indenture.
REPORTS TO HOLDERS OF THE NOTES. The Company has agreed to
file with the Trustee and provide Holders of the Notes, within 15
days after it files them with the Commission, copies of its
annual reports and the information, documents and other reports
which the Company is required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act.
Notwithstanding that the Company may not be required to remain
subject to the reporting requirements of Section 13 or 15(d) of
the Exchange Act, the Company has agreed to continue to file with
the Commission and provide the Trustee and Holders of the Notes
with the annual reports and the information, documents and other
reports which are specified in Sections 13 and 15(d) of the
Exchange Act. The Company has also agreed to comply with the
provisions of Section 314(a) of the Trust Indenture Act.
TRANSFER AND EXCHANGE. A Holder may transfer or exchange
Notes in accordance with the Indenture. The Registrar may
require a Holder, among other things, to furnish appropriate
endorsements and transfer documents, and the Company may require
a Holder to pay any taxes and fees required by law or permitted
by the Indenture. The Registrar is not required to transfer or
exchange any Note for a period of 15 days before an interest
payment date. The registered Holder of a Note may be treated as
the owner of the Note for all purposes.
CONVERSION RIGHTS. Each Holder of Notes has the right at
any time prior to maturity of the Notes, unless previously
redeemed, at the Holder's option, to convert such Notes, or any
portion thereof which is an integral multiple of $10,000, into
shares of Common Stock of the Company, at the conversion price of
$6.00 per share (which is equivalent to a conversion rate of
166.6667 shares per $1,000 principal amount of Notes), subject to
adjustment as described below (the "Conversion Price"). The
right to convert Notes called for redemption terminates at the
close of business on the business day immediately preceding the
Redemption Date for such Notes, unless the Company subsequently
fails to pay the applicable Redemption Price.
In the case of any Note that has been converted into Common
Stock after any Record Date, but on or before the next Interest
Payment Date, interest, the stated due date of which is on such
Interest Payment Date, shall be payable on such Interest Payment
Date notwithstanding such conversion, and such interest shall be
paid to the Holder of such Note who is a Holder on such Record
Date. No fractional shares of Common Stock will be issued upon
conversion but, in lieu thereof, an appropriate amount will be
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paid in cash by the Company based on the market price of Common
Stock (determined in accordance with the Indenture) at the close
of business on the day of conversion.
The Conversion Price is subject to adjustment upon the
occurrence of certain events, including: (i) the issuance of
shares of Common Stock as a dividend or distribution on the
Common Stock; (ii) the subdivision, combination or
reclassification of the outstanding Common Stock; (iii) the
issuance to all holders of Common Stock of rights, warrants or
options to subscribe for or purchase Common Stock (or securities
convertible into Common Stock) at a price per share less than the
then current market price per share, as defined in the Indenture;
and (iv) the issuance of Common Stock for a price per share less
than the current market price per share (determined as set forth
in the Indenture) on the date the Company fixes the offering
price of such additional shares (other than issuances of Common
Stock under certain employee benefit plans of the Company and
certain other issuances described in the Indenture and other than
issuances of shares in connection with any acquisition by the
Company). In the event of a distribution to all or substantially
all holders of Common Stock of rights to subscribe for additional
shares of the Company's Common Stock (other than those referred
to in clause (iii) above), the Company may, instead of making an
adjustment in the Conversion Price, make proper provisions so
that each Holder of a Note who converts such Note after the
record date for such distribution and prior to the expiration or
redemption of such rights shall be entitled to receive upon such
conversion, in addition to shares of Common Stock, an appropriate
number of such rights. No adjustment of the Conversion Price
will be made until cumulative adjustments amount to one percent
or more of the Conversion Price as last adjusted.
The Company, from time to time and to the extent permitted
by law, may reduce the Conversion Price by any amount for any
period of at least 20 business days, in which case the Company
shall give at least 15 days notice of such reduction, if the
Board of Directors has made a determination that such reduction
would be in the best interests of the Company, which
determination shall be conclusive. The Company may, at its
option, make such reductions in the Conversion Price, in addition
to those set forth above, as the Board of Directors deems
advisable to avoid or diminish any income tax to holders of
Common Stock resulting from any dividend or distribution of stock
(or rights to acquire stock) or from any event treated as such
for United States Federal income tax purposes. See "Certain
United States Federal Income Tax Considerations."
In case of any consolidation or merger of the Company with
or into any other corporation, or in the case of any
consolidation or merger of another corporation into the Company
in which the Company is the surviving corporation, involving in
either case a reclassification, conversion, exchange or
cancellation of shares of Common Stock, or any sale or transfer
of all or substantially all of the assets of the Company, the
Holder of each Note shall, after such consolidation, merger, sale
or transfer, have the right to convert such Note into the kind
and amount of securities or other property, which may include
cash, which such Holder would have been entitled to receive upon
such consolidation, merger, sale or transfer if such Holder had
held the Common Stock issuable upon the conversion of such Note
immediately prior to the effective date of such consolidation,
merger, sale or transfer.
OPTIONAL REDEMPTION BY THE COMPANY. The Notes are not
subject to any mandatory redemption or sinking fund provision.
The Notes are redeemable for cash at the option of the Company
on at least 30 but not more than 60 days notice, in whole or in
part, at any time after the date of issuance and on or before
March 31, 2002 at the respective percentages of the principal
amount thereof, as set forth in the following table, together, in
each case, with interest accrued to the date fixed for
redemption, if the closing sale price of the Common Stock shall
be at least 130% of the Conversion Price then in effect for a
period of 20 consecutive trading days in the principal market in
which the Common Stock is then traded. Currently, the Common
Stock is listed for trading on the American Stock Exchange.
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At any time after March 31, 2002 and prior to maturity, the
Notes are redeemable for cash at the option of the Company, on at
least 30 but not more than 60 days notice, in whole or in part,
at the following respective percentages of the principal amount
thereof together, in each case, with interest accrued to the date
fixed for redemption:
If Redeemed During Percentage of If Redeemed During Percentage of
12 Months Ended Principal 12 Months Ended Principal
March 31, Amount March 31, Amount
------------------ ------------- ------------------ -------------
1999 109% 2004 104%
2000 108% 2005 103%
2001 107% 2006 102%
2002 106% 2007 101%
2003 105% 2008 100%
If less than all of the Notes are to be redeemed at any
time, selection of Notes for redemption will be made by the
Trustee on a pro rata basis, by lot or by such other method as
the Trustee shall deem fair and appropriate; provided that no
Notes of $10,000 principal amount or less shall be redeemed in
part. Notice of any redemption will be sent, by first-class
mail, at least 30 days and not more than 60 days prior to the
date fixed for redemption, to the Holder of each Note to be
redeemed at such Holder's last address as then shown upon the
registry books of the Registrar. The notice of redemption must
state the Redemption Date, the Redemption Price and the amount of
accrued interest to be paid. Any notice that relates to a Note
to be redeemed in part only must state the portion of the
principal amount equal to the unredeemed portion thereof and must
state that on and after the Redemption Date, upon surrender of
such Note, a new Note or Notes in principal amount equal to the
unredeemed portion thereof will be issued. On and after the
Redemption Date, interest will cease to accrue on the Notes or
portion thereof called for redemption, unless the Company
defaults in its obligations with respect thereto.
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The Company is authorized to issue twenty million
(20,000,000) shares of Common Stock, par value $0.01 per share,
5,761,348 of which shares were issued and outstanding as of June
9, 1998 (not including 809,956 shares issuable upon the exercise
of outstanding stock options and 725,000 shares issuable upon
conversion of the Notes). At May 7, 1998, the Company had 414
stockholders of record.
Holders of shares of Common Stock are entitled to one vote
per share, without cumulative voting, on all matters to be voted
on by stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, stockholders are
entitled to receive ratably such dividends as may be declared by
the Board of Directors out of funds legally available. In the
event of a liquidation, dissolution or winding up of the Company,
stockholders are entitled to share ratably in all assets
remaining after payment of liabilities and the liquidation
preference of any outstanding preferred stock. Shares of Common
Stock have no preemptive or other subscription rights, and there
are no conversion rights or redemption or sinking fund provisions
with respect to such shares.
The transfer agent and registrar of the Common Stock is
Securities Transfer Corporation, 16910 Dallas Parkway, Suite 100,
Dallas, Texas 75248.
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ANTI-TAKEOVER PROTECTIONS
The Company has adopted a stockholder rights agreement which
is intended to discourage takeover efforts or tender offers under
which not all outstanding shares of Common Stock would be
purchased for the same price and on substantially the same terms.
Pursuant to the Surety Capital Corporation Rights Agreement
dated as of June 17, 1997 between the Company and Securities
Transfer Corporation, as Rights Agent, as amended by instrument
dated March 10, 1998, the Company declared a dividend of one
right (a "Right") for each outstanding share of Common Stock to
stockholders of record at the close of business on June 6, 1997.
Each Right initially entitles stockholders to purchase one
share of Common Stock at an exercise price of $10.00 (the
"Purchase Price"). The rights will be exercisable only if a
person or group acquires 15% or more of the Common Stock or
announces a tender offer the consummation of which would result
in ownership by such person or group of 15% or more of the Common
Stock. The Company will be entitled to redeem the Rights at
$0.0001 per Right at any time prior to the tenth day after a
person or group acquires 15% or more of the Common Stock, other
than pursuant to a transaction approved by the Board of
Directors. The Rights are redeemable even after a 15% or more
acquisition, if the Board of Directors so determines, in
connection with a merger of the Company with a "white knight" and
under other circumstances.
In the event of the acquisition by a person or group of 15%
or more of the Common Stock, each Right will entitle its holder
to purchase that number of shares of Common Stock equal to the
result obtained by dividing the Purchase Price by 50% of the then
current market price of the Common Stock. If the Company, or any
subsidiary of the Company, is acquired in a merger or other
business combination transaction in which the Common Stock is
exchanged or changed, or 50% or more of the Company's assets or
earning power are sold, each Right will entitle its holder to
purchase that number of shares of common stock of the surviving
or acquiring entity equal to the result obtained by dividing the
purchase price paid in such transaction by 50% of the then
current market price of the common stock of the surviving or
acquiring entity.
PREFERRED STOCK
The Company is authorized to issue one million (1,000,000)
shares of preferred stock, par value $0.01 per share, no shares
of which are issued and outstanding as of the date of this
Prospectus. The Board of Directors may establish series of
preferred stock with such rights and preferences as may be fixed
and determined by the Board of Directors.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion sets forth certain anticipated
United States Federal income tax considerations applicable to the
purchase, ownership and disposition of the Notes and the Common
Stock into which the Notes may be converted. The Federal income
tax discussion set forth below is intended only as a summary and
does not purport to be a complete analysis or listing of all
potential tax considerations that may be relevant to Holders of
Notes. This summary applies only to those persons who are the
initial Holders of Notes and who hold the Notes and the Common
Stock into which the Notes may be converted as capital assets.
The summary does not address special rules that may apply to
certain Holders (including insurance companies, tax-exempt
organizations, financial institutions or broker-dealers, foreign
corporations and persons who are not citizens or residents of the
United States), and it does not address the tax consequences of
the laws of any state, locality or foreign jurisdiction. The
discussion is based upon currently existing provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), existing
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and proposed Treasury regulations promulgated thereunder,
judicial authorities, and current rulings and administrative
practice of the Internal Revenue Service (the "Service"), in each
case as in effect as of the date hereof and all of which are
subject to change at any time, possibly with retroactive effect.
INTEREST ON THE NOTES. A Holder of Notes will be required
for Federal income tax purposes to report stated interest on the
Notes as ordinary income in accordance with the Holder's method
of accounting for tax purposes.
DISPOSITION OF NOTES. A Holder of Notes will generally
recognize capital gain or loss upon a sale, redemption,
retirement or other disposition of such Notes; such gain or loss
will generally be equal to the difference between (i) the amount
of cash and the fair market value of property received and (ii)
the Holder's adjusted tax basis in the Notes. In general, in the
case of an individual Holder of Notes, capital gains recognized
on Notes (i) held one year or less will be taxed at ordinary
income tax rates, (ii) held more than one year but not more than
eighteen months will be taxed at a rate of 28%, and (iii) held
more than eighteen months will be taxed at a maximum rate of 20%.
For corporations, capital gains and ordinary income are taxed at
the same maximum rate of 35%. Capital losses are currently
deductible only to the extent of capital gains plus, in the case
of taxpayers other than corporations, $3,000 of ordinary income.
In the case of individuals and non-corporate taxpayers, capital
losses that are not currently deductible may be carried forward
to other years, subject to certain limitations. In the case of
corporations, capital losses that are not currently deductible
may generally be carried back to each of the three years
preceding the loss year and forward to each of the five years
succeeding the loss year, subject to certain limitations.
CONVERSION OF NOTES INTO COMMON STOCK. A Holder of Notes
generally will not recognize any income, gain or loss upon
conversion of a Note into Common Stock, except with respect to
cash received in lieu of a fractional share. Such Holder's basis
in the Common Stock received on conversion of a Note will equal
the adjusted basis of the Note converted (reduced by the portion
of such adjusted basis allocable to cash received in lieu of a
fractional share). The holding period for the Common Stock
received on conversion will generally include the holding period
of the Note converted. A Holder of Notes generally will
recognize capital gain or loss in connection with any cash
received in lieu of a fractional share in an amount equal to the
difference between the amount of cash received and the adjusted
basis of such fractional share.
ADJUSTMENTS TO CONVERSION PRICE. The Conversion Price of
the Notes is subject to adjustment under certain circumstances.
Under Code Section 305(c), adjustments that have the effect of
increasing the proportionate interest of the Holders of Notes in
the assets or earnings of the Company may in some circumstances
give rise to a deemed dividend to the Holders of Notes, taxable
as ordinary income to the extent of the Company's current or
accumulated earnings and profits. However, under Treasury
Regulations Section 1.305-7(b), a change in the Conversion Price
of the Notes made pursuant to a reasonable, bona fide adjustment
formula which has the effect of preventing dilution of the
interest of the Holders of Notes in the assets or earnings of the
Company will not be considered to result in a deemed dividend to
the Holders of Notes. Thus, under certain circumstances, Holders
of Notes may recognize income as a result of an event pursuant to
which such Holders receive no cash or property that could be used
to pay the related Federal income tax.
DISTRIBUTIONS WITH RESPECT TO COMMON STOCK. In general, any
distributions with respect to the Common Stock will constitute
dividends for Federal income tax purposes and will be taxable to
a Holder as ordinary income (subject to a possible dividends
received deduction in the case of corporate Holders) to the
extent of the Company's current or accumulated earnings and
profits. Distributions in excess of the Company's current or
accumulated earnings and profits will be treated first as a
nontaxable return of capital and will be applied against and
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reduce the Holder's adjusted tax basis in the Common Stock. Any
distributions in excess of the Holder's adjusted tax basis in the
Common Stock will be treated as capital gain to the Holder
(provided the Common Stock is held as a capital asset).
DISPOSITION OF COMMON STOCK. Upon the sale or other
disposition of shares of Common Stock, a Holder will recognize
capital gain or loss equal to the difference between the amount
realized on the sale or disposition and such Holder's adjusted
tax basis in the Common Stock. As discussed above, in the case
of an individual Holder of Common Stock, capital gains recognized
on Common Stock (i) held one year or less will be taxed at
ordinary income tax rates, (ii) held more than one year but not
more than eighteen months will be taxed at a rate of 28%, and
(iii) held more than eighteen months will be taxed at a maximum
rate of 20%. For corporations, capital gains and ordinary income
are taxed at the same maximum rate of 35%. Capital losses are
currently deductible only to the extent of capital gains plus, in
the case of taxpayers other than corporations, $3,000 of ordinary
income. In the case of individuals and non-corporate taxpayers,
capital losses that are not currently deductible may be carried
forward to other years, subject to certain limitations. In the
case of corporations, capital losses that are not currently
deductible may generally be carried back to each of the three
years preceding the loss year and forward to each of the five
years succeeding the loss year, subject to certain limitations.
BACKUP WITHHOLDING. Under certain circumstances, the
failure of a Holder of Notes to provide sufficient information to
establish that such Holder is exempt from the backup withholding
provisions of the Code will subject such Holder to backup
withholding at a rate of 31% with respect to certain "reportable
payments," including interest payments, dividend payments, and,
under certain circumstances, principal payments on the Notes. In
general, backup withholding applies if a Holder fails to furnish
a correct taxpayer identification number, fails to report
dividend and interest income in full, or fails to certify that
such Holder has provided a correct taxpayer identification number
and that the Holder is not subject to withholding. An
individual's taxpayer identification number is such person's
social security number. A Holder who does not provide the
Company with its correct taxpayer identification number may also
be subject to penalties imposed by the Service. Any amount
withheld from a payment to a Holder under the backup withholding
rules is creditable against the Holder's Federal income tax
liability, provided that the required information is furnished to
the Service. Backup withholding does not apply, however, with
respect to payments made to certain Holders, including
corporations or tax-exempt organizations, provided that their
exemptions from backup withholding are properly established.
THE FOREGOING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF
FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO A PARTICULAR
HOLDER OF NOTES IN LIGHT OF THE PARTICULAR CIRCUMSTANCES AND
INCOME TAX SITUATION OF SUCH HOLDER. EACH HOLDER OF NOTES SHOULD
CONSULT SUCH HOLDER'S TAX ADVISOR AS TO THE SPECIFIC TAX
CONSEQUENCES TO SUCH HOLDER OF THE OWNERSHIP AND DISPOSITION OF
THE NOTES, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS, OR SUBSEQUENT VERSIONS THEREOF.
SELLING SECURITYHOLDERS
The Notes offered hereby were originally issued and sold on
March 31, 1998 (the "Original Offering") by the Company in
transactions exempt from the registration requirements of the
Securities Act, to persons reasonably believed by the Company to
be "accredited investors" (as defined in Rule 501(a) under
Regulation D of the Securities Act) (the "Selling
Securityholders"). The Notes and the Common Stock issuable upon
conversion thereof may be offered and sold from time to time by
the Selling Securityholders named herein pursuant to this
Prospectus.
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The following table sets forth certain information as of May
1, 1998 with respect to the Selling Securityholders and the
respective principal amounts of Notes beneficially owned by each
Selling Securityholder that may be offered pursuant to this
Prospectus. Such information has been obtained from the Selling
Securityholders. None of the Selling Securityholders has, or
within the past three years has had, any position, office or
other material relationship with the Company or any of its
predecessors or affiliates, except as noted below. Because the
Selling Securityholders may offer all or some portion of the
Notes or the Common Stock issuable upon conversion thereof
pursuant to this Prospectus, no estimate can be given as to the
amount of the Notes or the Common Stock issuable upon conversion
thereof that will be held by the Selling Securityholders upon
termination of any such sales. In addition, the Selling
Securityholders identified below may have sold, transferred, or
otherwise disposed of all or a portion of their Notes since the
date on which they provided the information regarding their Notes
in transactions exempt from the registration requirements of the
Securities Act.
<TABLE>
<CAPTION>
Principal Number of Shares of Common Stock
Amount of Notes --------------------------------
Beneficially Owned Beneficially Offered
Name (1) and Offered Hereby Owned (1)(2) Hereby (2)
- ----------------------------------- ------------------ ------------ ----------
<S> <C> <C> <C>
Boiler & Co. $1,350,000 225,000 225,000
Cascade Capital Partners $1,000,000 166,666 166,666
Inverness Management $ 100,000 16,666 16,666
Capitol Transamerica Corporation $ 400,000 141,666 66,666
Lawrence Partners, L.P. $ 200,000 33,333 33,333
The Canyon Value Realization Fund $ 120,000 20,000 20,000
Value Realization Fund L.P. $ 80,000 13,333 13,333
The Sheila Martin-Stone Family Trust $ 100,000 21,666 16,666
Preger Family Trust $ 100,000 26,666 16,666
The Larson Family Revocable Trust, Trust A $ 100,000 35,166 16,666
The Larson Family Revocable Trust, Trust B $ 200,000 51,833 33,333
The Henderson Family Trust $ 50,000 8,333 8,333
Margaret T. Richards $ 100,000 16,666 16,666
The Humber Family Trust $ 50,000 10,333 8,333
The Humber Personal Residence Trust $ 50,000 10,333 8,333
Allen Ruby and Cynthia Ruby, Community
Property $ 50,000 8,333 8,333
Richard M. Kaplan and Susan L. Kaplan,
Community Property $ 50,000 8,333 8,333
Jose G. Bautista $ 100,000 16,666 16,666
Douglas T. Federighi $ 100,000 16,666 16,666
Warren Potash $ 50,000 8,858 8,333
---------- ------- -------
TOTAL $4,350,000 856,516 724,991
========== ======= =======
</TABLE>
(1) Includes shares of Common Stock issuable upon conversion of
the Notes.
(2) Assumes a conversion price of $6.00 per share and a cash
payment in lieu of any fractional share interest.
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Information concerning the Selling Securityholders may
change from time to time and any such changed information will be
set forth in supplements to this Prospectus if and when
necessary. In addition, the per share conversion price, and
therefore the number of shares of Common Stock issuable upon
conversion of the Notes, is subject to adjustment under certain
circumstances. Accordingly, the aggregate principal amount of
Notes and the number of shares of Common Stock issuable upon
conversion thereof offered hereby may increase or decrease.
PLAN OF DISTRIBUTION
All or part of the Notes and the Common Stock issuable on
conversion thereof (collectively, the "Securities") may be
offered by the Selling Securityholders from time to time in
transactions on any national securities exchange or interdealer
quotation system on which the Securities may be listed or
authorized for quotation at the time of sale, in the over-the-
counter market, in transactions otherwise than on a national
securities exchange, interdealer quotation system or over-the-
counter market, in privately negotiated transactions, or a
combination thereof, at fixed prices that may be changed, at
market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices. The
methods by which the Securities may be sold or distributed may
include, but are not limited to, the following: (1) ordinary
brokerage transactions in which the broker solicits purchasers;
(2) purchases by a broker or dealer as principal and resale by
such broker or dealer for its account; (3) privately negotiated
transactions; (4) a cross or block trade in which the broker or
dealer so engaged will attempt to sell the Securities as agent
but may position and resell a portion of the block as principal
to facilitate the transaction; (5) an exchange distribution in
accordance with the rules of such exchange; (6) short sales or
borrowings, returns and reborrowings of the Securities pursuant
to stock loan agreements to settle short sales; (7) writing
options or entering into derivative transactions through the use
of puts and calls (e.g., a collar) with respect to the
Securities; (8) delivery in connection with the issuance of
securities by issuers, other than the Company, that are
exchangeable for (whether optional or mandatory), or payable in,
such Securities (whether such securities are listed or authorized
for trading on a national securities exchange, interdealer
quotation system or otherwise) or pursuant to which such
Securities may be distributed; and (9) a combination of any such
methods of sale or distribution. In effecting sales, brokers or
dealers engaged by the Seller Securityholders may arrange for
other brokers or dealers to participate. Brokers or dealers may
receive commissions or discounts from the Selling Securityholders
or from the purchasers in amounts to be negotiated. The Selling
Securityholders may also sell the Securities in accordance with
Rule 144 under the Securities Act.
If Securities are sold in an underwritten offering, the
Securities may be acquired by the underwriters for their own
account and may be further resold from time to time in one or
more transactions, including negotiated transactions, at a fixed
public offering price or at varying prices determined at the time
of sale. The names of the underwriters with respect to any such
offering and the terms of the transactions, including any
underwriting discounts, concessions or commissions and other
items constituting compensation of the underwriters and broker-
dealers, if any, will be set forth in a Prospectus Supplement
relating to such offering. Any public offering price and any
discounts, concessions or commissions allowed or reallowed or
paid to broker-dealers may be changed from time to time. Unless
otherwise set forth in a Prospectus Supplement, the obligations
of the underwriters to purchase the Securities will be subject to
certain conditions precedent and the underwriters will be
obligated to purchase all of the Securities specified in such
Prospectus Supplement if any such Securities are purchased.
From time to time the Selling Securityholders may engage in
short sales, short sales against the box, puts and calls and
other transactions in securities of the Company or derivatives
thereof, and may sell and deliver the Securities in connection
therewith. From time to time Selling Securityholders may pledge
Securities pursuant to the margin provisions of their respective
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customer agreements with their respective brokers or otherwise.
Upon a default by a Selling Securityholder, the broker or
pledgees may offer and sell Securities from time to time. This
Prospectus also may be used by transferees, pledges or donees of
the Selling Securityholders or by other persons acquiring the
Securities, including brokers who borrow the Securities to settle
short sales thereto, and who wish to offer and sell such
Securities under circumstances requiring or making desirable its
use.
None of the proceeds from the sales of the Securities by the
Selling Securityholders will be received by the Company. No
underwriting commissions or discounts will be paid by the Company
in connection with the offering of the Securities. However,
pursuant to the Note Purchase Agreements the Company has agreed
to bear all expenses in connection with the registration of the
Securities being offered by the Selling Securityholders,
including without limitation, Securities and Exchange Commission
filing fees, expenses of compliance with state securities or
"blue sky" laws, fees of counsel and independent public
accountants for the Company, and reasonable out-of-pocket
expenses (including legal fees, not to exceed $15,000, of one
counsel for all Selling Securityholders). Additionally, in the
Note Purchase Agreements the Company has agreed to use its best
efforts to maintain the effectiveness of the registration of the
Securities being offered hereunder until March 31, 1999, and has
agreed to indemnify the Selling Securityholders (and any person
who controls any Selling Securityholder) against certain
liabilities, including certain liabilities under the Securities
Act.
The Selling Securityholders and any broker-dealers who act
in connection with the sale of Securities hereunder may be deemed
to be "underwriters" as that term is defined in the Securities
Act, and any commissions received by them and profit on any
resale of the Securities as principal might be deemed to be
underwriting discounts and commissions under the Securities Act.
No person is authorized in connection with any offering made
hereby to give any information or to make any representation not
contained or incorporated by reference in this Prospectus, and
any information or representation not contained or incorporated
herein must not be relied upon as having been authorized by the
Company. This Prospectus does not constitute an offer to sell,
or a solicitation of an offer to buy, by any person in any
jurisdiction in which it is unlawful for such person to make such
offer or solicitation. Neither the delivery of this Prospectus
at any time nor any sale made hereunder shall, under any
circumstances, imply that the information herein is correct as of
any date subsequent to the date hereof.
LEGAL MATTERS
Tracy & Holland, L.L.P., 306 West Seventh Street, Suite 500,
Fort Worth, Texas 76102, has rendered an opinion as to the
legality of the Notes and Common Stock being registered hereby.
Margaret E. Holland, whose professional corporation is a partner
of Tracy & Holland, L.L.P., is also a director of the Company.
Attorneys whose professional corporations are partners of Tracy &
Holland, L.L.P. and employees of Tracy & Holland, L.L.P. in the
aggregate own, or have been granted options covering, 28,300
shares of Common Stock.
EXPERTS
The consolidated balance sheets as of December 31, 1997 and
1996 and the consolidated statements of operations, shareholders'
equity, and cash flows for each of the three years in the period
ended December 31, 1997, 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.
-25-
PAGE
<PAGE>
The financial statements of TexStar National Bank as of
December 31, 1997 and 1996 and the related statements of income,
changes in stockholders' equity and cash flows for the years then
ended incorporated in this Prospectus by reference to the
Company's Current Report on Form 8-K/A (Amendment No. 1) dated
April 1, 1998 have been so incorporated in reliance on the report
of Burnside & Rishebarger, PLLC, independent accountants, given
on the authority of said firm as experts in auditing and
accounting.
-26-
PAGE
<PAGE>
================================ ==============================
================================ ==============================
No dealer, salesman or any
person has been authorized to
give any information or to
make any representations other
than those contained in this
Prospectus in connection with
the offer contained herein
and, if given or made, such
information or representations
must not be relied upon as
having been authorized by the
Company or the Selling
Securityholders. This
Prospectus does not constitute
an offer to sell, solicitation SURETY CAPITAL CORPORATION
of an offer to sell,
solicitation of an offer to
buy those shares to which it
related in any jurisdiction to
any person to whom it is not
lawful to make any such offer
or solicitation in such juris-
diction. The delivery of this
Prospectus at any time does
not imply that the information
herein is correct as of any -----------------------------
time subsequent to the date
hereof.
9% Convertible Subordinated
Notes Due 2008
TABLE OF CONTENTS
Page
----
AVAILABLE INFORMATION 2
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE 2
NOTE REGARDING FORWARD- Common Stock
LOOKING STATEMENTS 3
$0.01 par value
SUMMARY 4
RISK FACTORS 8
TEXSTAR ACQUISITION 12
-----------------------------
USE OF PROCEEDS 13 PROSPECTUS
-----------------------------
DESCRIPTION OF THE NOTES 13
DESCRIPTION OF CAPITAL
STOCK 19
CERTAIN UNITED STATES __________, 1998
FEDERAL INCOME TAX
CONSIDERATIONS 20
SELLING SECURITYHOLDERS 22
PLAN OF DISTRIBUTION 24
LEGAL MATTERS 25
EXPERTS 25
================================ ==============================
================================ ==============================
PAGE
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. Other Expenses of Issuance and Distribution
The various expenses to be paid by the Company in connection
with the offering described in the Registration Statement are
estimated as follows:
Commission Registration Fee $ 1,284
Printing and Electronic Filing Expenses $ 10,000
Legal and Accounting Fees and Expenses $ 75,000
Blue Sky Fees and Expenses $ 5,000
Miscellaneous $ 10,000
Total $ 101,284
ITEM 15. Indemnification of Directors and Officers.
Section 145 of the General Corporation Law of the State of
Delaware (the "Act") empowers a corporation to indemnify its
directors and officers and to purchase insurance with respect to
liability arising out of their capacity as directors and
officers. The Act further provides that the indemnification
permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under
the corporation's bylaws, any agreement, vote of the
stockholders, or otherwise.
The Certificate of Incorporation of the Company limits the
liability of directors to the full extent permitted by Delaware
law. The Certificate of Incorporation also provides that the
Company will indemnify directors and officers to the full extent
provided by Delaware law. Section 6.04 of the Company's Bylaws
provides that the Company shall indemnify all persons to the full
extent allowable by law who, by reason of the fact that they are
or were a director of the Company, become a party or are
threatened to be made a party to any indemnifiable action, suit
or proceeding. The Company shall pay, in advance of the final
disposition of any indemnifiable action, suit or proceeding under
this bylaw, all reasonable expenses incurred by the director,
upon receipt of an undertaking by or on behalf of the director to
repay such amount if it is ultimately determined that he is not
entitled to be indemnified by the Company under law. The Company
may indemnify persons other than directors, such as officers and
employees, as permitted by law. The Company may purchase and
maintain insurance on behalf of directors, officers and other
persons against any liability asserted against him, whether or
not the Company would have the power to indemnify such person
against such liability, as permitted by law.
Reference is made to the Note Purchase Agreements, the form
of which is included herein as an exhibit to this Registration
Statement, for provisions regarding indemnification of the
Company's officers, directors, controlling persons against
liabilities, including liabilities under the Securities Act.
ITEM 16. Exhibits
3.1 Certificate of Incorporation. (1)
3.2 Certificate of Amendment of Certificate of Incorporation, as
filed with the Delaware Secretary of State on April 8, 1987.
(2)
3.3 Certificate of Amendment to the Certificate of
Incorporation, as filed with the Delaware Secretary of State
on April 4, 1988. (3)
II-1
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<PAGE>
3.4 Certificate of Designations Establishing Series of Shares of
Preferred Stock, as filed with the Delaware Secretary of
State on April 4, 1988. (3)
3.5 Certification of Elimination of Series of Shares of
Preferred Stock, as filed with the Delaware Secretary of
State on January 31, 1992. (4)
3.6 Certificate of Amendment to the Certificate of
Incorporation, as filed with Delaware Secretary of State on
June 14, 1993. (5)
3.7 Form of Common Stock certificate (specimen). (5)
3.8 Restated Bylaws of the Company. (6)
4.1 Rights Agreement between Surety Capital Corporation and
Securities Transfer Corporation as Rights Agent, dated as of
June 17, 1997 (7); as amended by Amendment No. 1 to Rights
Agreement of Surety Capital Corporation, dated as of
March 10, 1998 (8).
4.2 Indenture dated as of March 31, 1998 between the Company and
Harris Trust and Savings Bank, Chicago, Illinois, as
trustee. (9)
4.3 Form of Notes (included in Exhibit 4.2). (9)
4.4 Form of Note Purchase Agreements dated March 31, 1998.*
5.1 Opinion of Tracy & Holland, L.L.P.*
23.1 Consent of Tracy & Holland, L.L.P. (contained in the Opinion
filed as Exhibit 5.1 to this Registration Statement).*
23.2 Consent of Coopers & Lybrand L.L.P.*
23.3 Consent of Burnside & Rishebarger, PLLC.*
24.1 Power of Attorney (contained within Signature Page).*
25.1 Form T-1 Statement of Eligibility and Qualification of
Trustee.*
* Filed herewith
(1) Filed with Registration Statement No. 33-1983 on Form
S-1 and incorporated by reference herein.
(2) Filed with the Company's Form 10-K dated October 31,
1987 and incorporated by reference herein.
(3) Filed with the Company's Form 10-Q for the quarter
ended April 30, 1988 and incorporated by reference
herein.
(4) Filed with the Company's Form 10-K dated December 31,
1991 and incorporated by reference herein.
II-2
PAGE
<PAGE>
(5) Filed with the Company's Form 10-K dated December 31,
1993 and incorporated by reference herein.
(6) Filed with the Company's Form 10-K dated December 31,
1994 and incorporated by reference herein.
(7) Filed with the Company's Form 8-K dated June 17, 1997
and incorporated by reference herein.
(8) Filed with the Company's Form 10-K dated December 31,
1997 and incorporated by reference herein.
(9) Filed with the Company's Form 10-Q for the quarter
ended March 31, 1998 and incorporated by reference
herein.
ITEM 17. Undertakings
(a) The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act,
each filing of the Registrant's Annual Report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section
15(d) of the Exchange Act) 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.
(b) The undersigned Registrant hereby undertakes:
(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;
(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 thereto)
which, individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no
more than a 20% change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the
effective 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 to the Registration Statement;
II-3
PAGE
<PAGE>
provided, however, that paragraphs (i) and (ii) above 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 with or furnished to the Commission by the Registrant
pursuant to Section 13 or Section 15(d) of the Exchange Act that
are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability
under the Securities Act, 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.
(c) Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to directors, officers,
and controlling persons of the Registrant pursuant to the
provisions described under Item 15 above, or otherwise, the
Registrant has been advised 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 Securities Act and will be governed by the final adjudication
of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Hurst, Texas on June 23, 1998.
SURETY CAPITAL CORPORATION
By: /s/ C. Jack Bean
-----------------------------
C. Jack Bean, Chairman of
the Board and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints each of C. Jack
Bean, Bobby W. Hackler and B. J. Curley his or her true and
lawful attorney-in-fact and agent, with full power of each to act
alone, with full powers of substitution and resubstitution, for
him or her and in his or her name, place and stead, in any and
all capacities, to sign any and all amendments (including post-
effective 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, with
full power of each to act alone, full power and authority to do
and perform each and every act and thing requisite and necessary
to be done in connection therewith, as fully for all intents and
purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and
agents, or his or her substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
II-4
PAGE
<PAGE>
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------- -------------------------------- -------------
<S> <C> <C>
/s/ C. Jack Bean Chairman of the Board, Chief June 23, 1998
- ---------------- Executive Officer and Director
C. Jack Bean (Principal Executive Officer)
/s/ B. J. Curley Vice President, Secretary and June 23, 1998
- ---------------- Chief Financial Officer (Principal
B. J. Curley Accounting Officer)
/s/ Bobby W. Hackler Vice Chairman of the Board, June 23, 1998
- -------------------- Chief Operating Officer and
Bobby W. Hackler Director
/s/ G. M. Heinzelmann, III President and Director June 23, 1998
- --------------------------
G. M. Heinzelmann, III
/s/ William B. Byrd Director June 23, 1998
- -------------------
William B. Byrd
/s/ Joseph S. Hardin Director June 23, 1998
- --------------------
Joseph S. Hardin
/s/ Margaret E. Holland Director June 23, 1998
- -----------------------
Margaret E. Holland
/s/ Michael L. Milam Director June 23, 1998
- --------------------
Michael L. Milam
/s/ Garrett Morris
- ------------------ Director June 23, 1998
Garrett Morris
/s/ Cullen W. Turner Director June 23, 1998
- --------------------
Cullen W. Turner
II-5
PAGE
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Exhibit
- ------- ------------------------------------------------------------
4.4 Form of Note Purchase Agreements dated March 31, 1998.
5.1 Opinion of Tracy & Holland, L.L.P.
23.1 Consent of Tracy & Holland, L.L.P. (contained in the
Opinion filed as Exhibit 5.1 to this Registration Statement).
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Burnside & Rishebarger, PLLC.
24.1 Power of Attorney (contained within Signature Page).
25.1 Form T-1 Statement of Eligibility and Qualification of
Trustee.
</TABLE>
<PAGE>
EXHIBIT 4.4
============================================================================
============================================================================
SURETY CAPITAL CORPORATION
9% Convertible Subordinated Notes due 2008
$4,000,000 Minimum/$4,500,000 Maximum
______________
Note Purchase Agreement
______________
Dated as of March 31, 1998
============================================================================
============================================================================
PAGE
<PAGE>
SURETY CAPITAL CORPORATION
9% Convertible Subordinated Notes due 2008
NOTE PURCHASE AGREEMENT
Dated as of March 31, 1998
To the Undersigned Purchaser:
Ladies and Gentlemen:
Surety Capital Corporation, a Delaware corporation (the
"Company"), proposes to issue and sell privately $4,000,000
minimum/$4,500,000 maximum aggregate principal amount of the
Company's 9% Convertible Subordinated Notes due 2008 (the
"Notes"). The net proceeds received by the Company from the
issue and sale of the Notes will be used primarily to finance
the Company's acquisition (the "Acquisition") of TexStar
National Bank, Universal City, Texas, a national banking
association ("TexStar"), pursuant to that certain Agreement
and Plan of Reorganization dated as of October 10, 1997 by and
among the Company, Surety Bank, National Association, a
national banking association and a wholly-owned subsidiary of
the Company (the "Bank"), TexStar and certain shareholders of
TexStar (the "Reorganization Agreement"). The sale of the
Notes pursuant hereto is not, however, conditioned on
consummation of the Acquisition, and any net proceeds not used
for the acquisition of TexStar will be used for the general
corporate purposes of the Company.
The Notes are to be issued pursuant to the terms of an
Indenture dated as of March 31, 1998 (the "Indenture") by and
between the Company and Harris Trust and Savings Bank, as
Trustee (the "Trustee"), a copy of the proposed form of which
has been provided to potential purchasers of the Notes. The
Notes are being offered and sold by the Company in a private
placement arranged by Hoefer & Arnett Incorporated, as
placement agent (the "Agent"), in reliance on the exemption
from the registration provisions of the Securities Act of
1933, as amended ("1933 Act") provided by Section 4(2) thereof
and Regulation D promulgated thereunder ("Regulation D").
-1-
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<PAGE>
The Company has prepared a Confidential Offering
Memorandum dated March 26, 1998 (the "Memorandum") with
respect to the offer and sale of the Notes, which includes as
an integral part thereof the Company's Annual Report on Form
10-K for the year ended December 31, 1997 (the "Annual
Report") as filed by the Company with the Securities and
Exchange Commission (the "Commission") pursuant to the
Securities Exchange Act of 1934, as amended (the "1934 Act").
The Company has authorized the Agent to use the Memorandum in
connection with offers and sales of the Notes. The
undersigned, by its signature below, acknowledges receipt of
the Memorandum and the exhibits thereto, including the Annual
Report.
In connection with the sale and purchase of the Notes,
the Company and you (the "Purchaser") hereby agree as follows:
SECTION I. Authorization, Issue and Sale of Notes.
(a) The Company has duly authorized the issuance of $4,000,000
minimum/$4,500,000 maximum aggregate principal amount of Notes
pursuant to the Indenture and the sale thereof on the Closing
Date (as hereinafter defined).
(b) Subject to the terms and conditions of this
Agreement, the Company shall issue and sell to the Purchaser,
and the Purchaser shall purchase from the Company, on the
Closing Date, the principal amount of Notes specified opposite
the Purchasers name on the signature page of this Agreement
for cash consideration equal to 100% of such principal amount.
Such payment shall be made, concurrently with the submission
of this Agreement by Purchaser, by wire transfer of
immediately available funds by the Purchaser to the escrow
account established for this purpose (the "Escrow Account")
pursuant to that certain Escrow Agreement dated as of
March 25, 1998 by and among the Company, the Agent and Chase
Bank of Texas, National Association, as escrow agent (the
"Escrow Agent").
(c) In connection with the purchase of the
Notes, the Purchaser shall complete, execute and deliver to
the Agent for transmittal to the Company the following
documents: a Receipt for Offering Memorandum (the "Receipt");
two copies of a Note Purchase Agreement in the form attached
as Exhibit B to the Memorandum (the "Note Purchase
Agreement"); and a Purchaser Questionnaire in the form
attached as Exhibit C to the Memorandum (the "Purchaser
Questionnaire"). This Note Purchase Agreement between the
Company and Purchaser is sometimes referred to herein as the
"Agreement," and the Receipt, the Note Purchase Agreement, the
Purchaser Questionnaire and related instructions to purchasers
are referred to as the "Purchase Documents."
(d) Prior to the Closing, the Company will enter
into separate Note Purchase Agreements substantially similar
to this Agreement with other purchasers (collectively, with
the Purchaser, the "Purchasers"), providing for the sale by
the Company to the Purchasers on the Closing Date of Notes,
including the Notes being purchased by the Purchaser under
this Agreement, of at least $4,000,000 but no more than of
$4,500,000 in aggregate principal amount.
-2-
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<PAGE>
SECTION 2. Closing. Delivery of certificates for the
Notes and payment therefor shall be made at the offices of
counsel to the Company (or such other place as may be agreed
upon by the Company and the Agent) on March 31, 1998, or such
later date as may be agreed upon by the Company and the Agent
(the "Closing Date"). Delivery of certificates for the Notes
shall be made by or on behalf of the Company to the Agent,
against receipt of the funds from the Escrow Agent of the
purchase price therefor to the order of the Company. The
certificates for the Notes shall be in the form contained in
the Indenture and shall be registered in such names and
denominations as Purchaser shall have specified on Schedule I
to this Agreement. Time shall be of the essence of this
Agreement.
SECTION 3. Representations and Warranties of the
Purchaser. The undersigned Purchaser represents and warrants
to, and covenants and agrees with, the Company and the Agent,
and each officer, director, controlling person,
representative, agent and/or employee of each of the
foregoing, that:
(a) The Purchaser has full power and authority
to enter into this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated
hereby. This Agreement and the transactions contemplated
hereby have been duly authorized by all necessary action on
the part of the Purchaser. This Agreement has been duly
executed and delivered by Purchaser and constitutes a valid
and binding obligation of the Purchaser enforceable in
accordance with its terms, except as enforcement hereof may be
limited by bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors_ rights generally. If
the Purchaser is an individual, he is at least 21 years of age
and a bona fide resident and domiciliary (not a temporary or
transient resident) of the state or jurisdiction set forth
below his signature hereto, and has no present intention of
becoming a resident of any other state or jurisdiction.
(b) The Purchaser is acquiring the Notes for its
own account as principal, or on behalf of accounts managed by
it in its sole discretion, each of which is an "accredited
investor" within the meaning of paragraphs (a)(1)-(a)(8) of
Rule 501 of Regulation D, for investment and not with a view
to the distribution or fractionalization thereof, or with any
intention of distributing or reselling the Notes or any part
thereof, within the meaning of the 1933 Act (it being
understood, however, that the distribution of the Purchaser's
property shall at all times be within the control of
Purchaser). The Purchaser understands that (i) neither the
Notes nor the shares of the Company's common stock, $0.01 par
value per share (the "Common Stock"), issuable upon conversion
of the Notes (the "Conversion Shares") have been registered
under the 1933 Act and, therefore, cannot be sold unless and
-3-
PAGE
<PAGE>
until they are registered under the 1933 Act or unless an
exemption from registration is available for such sale, (ii) a
legend as to the restrictions on transfer in such form as the
Company may require shall be placed on the certificate or
certificates representing the Notes and the Conversion Shares
and evidence of such restrictions on transfer shall be made in
the appropriate records of the Company, including by
instruction to any registrar for the Notes established under
the Indenture and any transfer agent for the Common Stock, and
(iii) it may be necessary to hold the Notes and the Conversion
Shares indefinitely and the Purchaser must continue to bear
the economic risk of the investment in the Notes and the
Conversion Shares unless the Notes or the Conversion Shares
are subsequently registered under the 1933 Act or an exemption
from registration under the 1933 Act is available for the
transfer thereof.
(c) At least one of the following statements is
an accurate representation as to the source of funds to be
used by the Purchaser to pay the purchase price of the Notes
in accordance with this Agreement (as used in this section,
the terms "employee benefit plan," "government plan," "party
in interest" and "separate account" have the respective
meanings assigned to such terms in Section 3 of the Employee
Retirement Security Act of 1976 ("ERISA")):
(i) if the Purchaser is an insurance
company, (A) no part of such funds constitutes assets
allocated to any separate account maintained by the
Purchaser in which any employee benefit plan (or its
related trust) has any interest, or (B) to the extent
that any part of such funds constitutes assets
allocated to any separate account maintained by the
Purchaser, the Purchaser has heretofore disclosed to
the Company the names of each employee benefit plan
whose assets in such account exceed 5% of the total
assets or are expected to exceed 5% of the total
assets of such account as of the Closing Date (with
all employee benefit plans maintained by the same
employer or employee organization deemed for the
purposes of this clause (B) to be a single plan);
(ii) if the Purchaser is a "bank" (as
defined in Section 3(a)(2) of the 1933 Act), to the
extent that any part of such funds constitutes assets
allocated to any bank collective investment vehicle
maintained by the Purchaser, the Purchaser has
heretofore disclosed to the Company the names of each
employee benefit plan whose assets in such vehicle
exceed 5% of the total assets of such vehicle as of
the Closing Date (for the purpose of this clause (ii),
all employee benefit plans maintained by the same
employer or employee organization shall be deemed to
be a single plan);
(iii) if the Purchaser is other than an
insurance company or a bank within the meaning of
clauses (i) or (ii) of this Section 3(c), respective-
ly, all or a portion of such funds consist of funds
which do not constitute assets of any employee benefit
plan (other than a governmental plan exempt from the
-4-
PAGE
<PAGE>
coverage of ERISA), and the remaining portion, if any,
of such funds consists of funds which may be deemed to
constitute assets of one or more specific employee
benefit plans, complete and correct information as to
the identity of each of which the Purchaser has
heretofore delivered to the Company;
(iv) if such funds constitute assets of a
specific employee benefit plan, the Purchaser has
heretofore delivered to the Company complete and
correct information as to the identity of such
employee benefit plan; or
(v) the Purchaser is a registered
investment company subject to regulation under the
Investment Company Act of 1940, as amended (the
"Investment Company Act").
(d) The Purchaser and each person for whose
account any Notes are being acquired is an "accredited
investor" within the meaning of paragraphs (a)(1)-(a)(8) of
Rule 501 of Regulation D. The Purchaser and each person for
whose account any Notes are being acquired has the financial
ability to bear the economic risk of its investment in the
Notes and has adequate means to provide for its current needs
and other contingencies and to withstand the loss of its
entire investment in the Notes. The Purchaser has such
knowledge and experience in financial and business matters
that it is capable of evaluating the merits and risks of a
purchase of the Notes, including the risks set forth under the
caption "Risk Factors" in the Memorandum, for itself and each
person for whose account it is acquiring any Notes and has
determined that the Notes are a suitable investment for itself
and each person for whose account it is acquiring any Notes,
as to both the nature and principal amount of the Notes being
acquired.
(e) The Purchaser has received such information
concerning the Company, TexStar, the Acquisition and the
Notes, including without limitation the Memorandum, and has
been given the opportunity to ask such questions of, and
receive answers from, representatives of the Company, as it
deems sufficient in order to make an informed investment
decision with respect to the Notes. The Purchaser
acknowledges that no person has been authorized to make any
representation, other than as contained in this Agreement or
the Memorandum, and, if given or made, any such representation
must not be relied upon as having been authorized by the
Company or any person acting on its behalf.
(f) All information which the Purchaser has
provided to either the Agent or the Company concerning its
financial position, or its status as an "accredited investor,"
including all information set forth in the Purchaser
Questionnaire, is correct and complete in all respects.
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(g) Each Purchaser who is not a citizen or a
resident of the United States, or a corporation or partnership
organized in or under the laws of the United states or a
political subdivision thereof, or an estate the income of
which is includible in gross income for United States Federal
tax purposes regardless of its source, hereby acknowledges
that (i) if such Purchaser does not provide the Company with a
statement that (A) is signed by the beneficial owner of the
Notes under penalties of perjury, (B) certifies that such
owner is not a U. S. holder, or in the case of an individual,
that he is neither a citizen nor a resident of the United
States, and (C) provides the name and address of the
beneficial owner, or (ii) if the Company has actual knowledge
that such purchaser is a United States person, the Company may
deduct and withhold United States Federal withholding tax on
payments of principal and interest on the Notes.
(h) The Purchaser agrees to indemnify and hold
harmless the Company, the Agent and each person, if any, who
controls any such person or entity within the meaning of
Section 15 of the 1933 Act against any and all loss,
liability, claim, damage and expense whatsoever (including,
but not limited to, any and all expenses of investigating,
preparing or defending against any litigation commenced or
threatened or any claim whatsoever) arising out of or based
upon any false representation or warranty or breach or failure
by the Purchaser to comply with any covenant or agreement made
by the Purchaser in this Agreement or in any other document
furnished by the Purchaser to any of the foregoing in
connection with the offer, sale and purchase of the Notes.
(i) The purchase of and payment for the Notes on
the Closing Date is not prohibited by any law or government
regulation applicable to Purchaser.
(j) The Agent has, during the course of the
offering and before the sale of the Notes, afforded the
Purchaser the opportunity to ask questions of and receive
answers from the Company concerning the terms and conditions
of the offering and to obtain any additional information from
the Company, to the extent the Company possesses such
information or could have acquired it without unreasonable
effort or expense, necessary to verify the accuracy of the
information contained in the Memorandum.
(k) If the Purchaser has employed a purchaser
representative in connection with evaluating the merits and
risks of an investment in the Notes, Purchaser has
acknowledged who such person is and that such person is his
"purchaser representative" as such term is used in Rule 501(h)
of Regulation D.
(l) The Purchaser has received no written or
oral representations or information from the Agent, the
Company, or their shareholders, directors, officers,
employees, representatives, or agents which were in any way
inconsistent with the information stated in the Memorandum,
and in deciding to purchase the Notes subscribed for hereby,
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Purchaser has relied solely upon its review of the Memorandum
and independent investigations made by it, its purchaser
representative(s), if any, and its attorney, accountant,
and/or other advisors, if any, without assistance of the
Agent, the Company, or their shareholders, directors,
officers, employees, representatives, or agents, and upon no
oral statements of such parties.
SECTION 4. Representations and Warranties of the
Company. The Company represents and warrants to the Purchaser
that:
(a) The Memorandum did not as of its date and
will not as of the Closing Date contain any untrue statement
of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(b) The Company and each of its subsidiaries
have been duly incorporated and are validly existing as
corporations or banks in good standing under the laws of their
respective jurisdictions of incorporation, with full power and
authority to own or lease their properties and conduct their
businesses as described in the Memorandum; the Company's only
subsidiaries are those listed on Exhibit 21 of the Annual
Report; the Company and each of its subsidiaries, are duly
qualified to do business as foreign corporations under the
corporation law of, and are in good standing as such in, each
jurisdiction in which they own or lease substantial
properties, have an office, or in which substantial business
is conducted and such qualification is required except in any
such case where the failure to so qualify or be in good
standing would not have a material adverse effect upon the
condition (financial or otherwise), earnings, affairs,
business or prospects of the Company and its subsidiaries, as
the case may be, taken as a whole ("Material Adverse Effect");
and no proceeding of which the Company has knowledge has been
instituted in any such jurisdiction, revoking, limiting or
curtailing, or seeking to revoke, limit or curtail, such power
and authority or qualification.
(c) The Company has an authorized and
outstanding capitalization as set forth in the Memorandum
under the caption "Capitalization" and the Notes and the
Common Stock conform in all material respects to the
description thereof contained in the Memorandum. All of the
issued and outstanding shares of Common Stock have been duly
authorized, validly issued and are fully paid and
non-assessable and free of preemptive or other similar rights
and there are no options, agreements, contracts or other
rights in existence to acquire from the Company any shares of
Common Stock, except as set forth in the Memorandum. Except
as set forth in the Memorandum, there are no holders of
securities of the Company having rights to the registration
thereof. The Company has no banking subsidiaries other than
the Bank. All of the capital stock of each subsidiary of the
Company, other than the Bank, has been duly authorized,
validly issued and is fully paid and non-assessable. All of
the outstanding capital stock of the Bank has been duly
authorized, validly issued and is fully paid and, subject to
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12 U.S.C. section 55 (1982), nonassessable. The Company owns of
record and beneficially, directly or indirectly, free and
clear of any liens, claims, encumbrances or rights of others,
all of the issued and outstanding shares of each of its
respective subsidiaries, except as referred to in the
Memorandum. There are no options, agreements, contracts or
other rights in existence to purchase or acquire from the
Company or its subsidiaries any issued and outstanding shares
of the capital stock of such subsidiaries.
(d) The Notes to be sold by the Company pursuant
to this Agreement have been duly authorized and, when executed
by the Company and authenticated by the Trustee in accordance
with the Indenture and delivered to the purchasers thereof
will have been validly issued and delivered, and will
constitute valid and binding obligations of the Company
entitled to the benefits of the Indenture and enforceable in
accordance with their terms, except as enforcement thereof may
be limited by bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors_ rights generally; and
the Notes will be convertible into shares of Common Stock in
accordance with the terms of the Indenture and will conform in
all material respects to the description thereof in the
Memorandum. All corporate actions required to be taken for
the authorization, issue and sale of the Conversion Shares
have been validly and sufficiently taken and the Conversion
Shares have been duly authorized and validly reserved for
issuance upon such conversion and, when so issued, will be
validly issued, fully paid and non-assessable. The Common
Stock is not subject to the preemptive rights of any
shareholder of the Company, and holders of shares of Common
Stock will not be subject to personal liability by reason of
being such holders.
(e) The execution, delivery and performance by
the Company of this Agreement has been duly authorized by all
necessary corporate action on the part of the Company and does
not and will not violate any provision of the Company's
articles of incorporation (as amended) or bylaws (as amended)
and does not and will not constitute or result in the breach
of, or be in violation of, any of the terms or provisions of
or constitute a default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any
property or assets of the Company or its subsidiaries under
any material agreement, franchise, license, indenture, lease,
mortgage, deed of trust, or other instrument to which the
Company or any subsidiary is a party or by which the Company,
any subsidiary or the property of any of them may be bound or
affected, or any law, order, judgment, decree, rule or
regulation applicable to the Company or any subsidiary of any
government, governmental instrumentality, court or regulatory
body, administrative agency, or other governmental body having
jurisdiction over the Company or any subsidiary or any of
their respective properties, or any order of any court or
governmental agency or other regulatory authority entered in
any proceeding to which the Company or any subsidiary was or
is now a party or by which it is bound. No consent, approval,
authorization or other order of or filing with, any court,
regulatory body, administrative agency or other governmental
body is legally required for the execution and delivery of
this Agreement by the Company or the consummation by the
Company of the transactions contemplated hereby, except as may
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be required under or by Regulation D, the American Stock
Exchange, Inc. (the "Amex") or the blue sky laws of the
various jurisdictions. This Agreement has been duly
authorized, executed and delivered by the Company and
constitutes a valid and binding obligation of the Company
enforceable against the Company in accordance with its terms
except insofar as (i) such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or other
laws now or hereafter in effect relating to creditors' rights
generally; (ii) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject
to equitable defenses and to the discretion of the court
before which any proceeding thereafter may be brought; and
(iii) such enforcement may be subject to any limitations under
applicable law which relate to the indemnification and
contribution provisions of Section 6 of this Agreement.
(f) Each of Coopers & Lybrand LLP and Burnside &
Rishebarger, who have expressed their opinion with respect to
certain of the financial statements included in the
Memorandum, are independent accountants within the meaning of
the 1933 Act.
(g) The consolidated financial statements,
together with the notes thereto, of the Company included in
the Memorandum comply in all material respects with the 1933
Act and present fairly the consolidated financial position of
the Company as of the date of such financial statements
(including, without limitation, the allowance for possible
loan losses), and the consolidated results of operations and
cash flows of the Company for the period covered thereby, are
in conformity with generally accepted accounting principles
consistently applied throughout the periods involved, except
as disclosed in the Memorandum. No other financial statements
are required to be included in the Memorandum. The
consolidated financial, statistical and numerical information
with respect to the Company and its subsidiaries, and the
financial and statistical information with respect to Surety
Bank, set forth in the Memorandum are fairly presented, were
derived from the consolidated financial statements or the
books and records of the Company and its subsidiaries and are
prepared on a basis consistent with the audited financial
statements of the Company.
(h) The pro forma financial information of the
Company and its subsidiaries included in the Memorandum
presents fairly the information shown therein; has been
compiled on a basis consistent with that of the audited
consolidated financial statements of the Company and its
subsidiaries included in the Memorandum; has been prepared in
accordance with the Commission's rules and guidelines with
respect to pro forma financial statements; and the assumptions
used in the preparation thereof are reasonable.
(i) Neither the Company nor any subsidiary
thereof is in violation of its articles of incorporation,
articles of association, or bylaws, in each case as amended,
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or in default under any consent decree, formal agreement,
memorandum of understanding or similar agreement, or in
default with respect to any provision of any material lease,
loan agreement, franchise, license, permit or other
contractual obligation to which it is a party or by which it
or any of its properties may be bound; there does not exist
any state of facts which constitutes an event of default by
the Company as defined in such documents or which, with notice
or lapse of time or both, would constitute such an event of
default, except for any such violation or default of the
articles of incorporation, articles of association, bylaws,
consent decrees, formal agreements, memoranda of understanding
or similar agreements, or any lease, loan agreement,
franchise, license, permit or other contractual obligations
referred to in this subparagraph (i) which, either
individually or in the aggregate, would not have a Material
Adverse Effect.
(j) Except as disclosed in the Memorandum, (A)
there is no action, suit or proceeding before or by any court
or governmental or regulatory agency or body, domestic or
foreign, or any arbitrator or arbitration panel, now pending
or, to the knowledge of the Company, threatened against or
affecting the Company or any of its subsidiaries, which could
result in a Material Adverse Effect, and (B) there is no
decree, judgment, order, formal agreement or memorandum of
understanding of any kind in existence applicable to the
Company or any of its subsidiaries, or any of their respective
officers, employees or directors, requiring or restraining the
taking of any actions of any kind in connection with the
business of the Company and its subsidiaries, respectively.
(k) The Company is a bank holding company duly
registered with the Board of Governors of the Federal Reserve
System ("Federal Reserve Board") under the Bank Holding
Company Act of 1956, as amended ("BHCA"). The Bank is a
national bank duly chartered and organized by authority of the
Office of the Comptroller of the Currency ("OCC"). The
deposit accounts of the Bank are insured by the Federal
Deposit Insurance Corporation through the Bank Insurance Fund
to the fullest extent permitted by law, and all premiums and
assessments required in connection therewith have been paid by
the Bank. Since January 1, 1993, the Company and the Bank has
filed all material reports and amendments thereto that they
were required to file with the Federal Reserve Board, the OCC
and any other federal or state regulatory authorities. Except
as set forth in the Memorandum, there is no unresolved
material violation, criticism or exception by any governmental
or regulatory agency with respect to any report or statement
relating to any examinations of the Company or any of its
subsidiaries. The conduct of the business of the Company and
each of its subsidiaries is in compliance in all respects with
applicable federal, state, local and foreign laws and
regulations, and all formal agreements, memoranda of
understanding and similar agreements with regulatory
authorities, except where the failure to be in compliance
would not have a Material Adverse Effect. Each of the Company
and its subsidiaries own or possess or have obtained all
governmental licenses, permits, consents, orders, approvals
and other authorizations necessary to lease or own, as the
case may be, and to operate their properties and to carry on
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their businesses as presently conducted except where the
failure to have any such governmental licenses, permits,
consents, orders, approvals and other authorizations would not
have a Material Adverse Effect. Neither the Company nor any
of its subsidiaries, has received any written notice of
proceedings related to revocation or modification of any such
licenses, permits, consents, orders, approvals or
authorizations which singly or in the aggregate, if the
subject of an unfavorable ruling or finding, would result in a
Material Adverse Effect. Except as disclosed in the
Memorandum, neither the Company or the Bank is currently a
party or subject to any agreement or memorandum with, or
directive or order issued by, the Federal Reserve Board, the
OCC or any other federal or state regulatory authorities,
which imposes any material restrictions or requirements not
generally applicable to bank holding companies or commercial
banks.
(l) Each of the Company and its subsidiaries
have valid and indefeasible title to all of the properties and
assets reflected as owned by them in the financial statements
contained in the Memorandum, subject to no lien, mortgage,
pledge, charge, encumbrance or title defect of any kind except
those, if any, reflected in such financial statements (or
described elsewhere in the Memorandum) or which are not
material to the Company and its subsidiaries, as the case may
be, taken as a whole. Each of the Company and its
subsidiaries hold their respective leased properties that are
material to the Company and its subsidiaries taken as a whole
under valid and binding leases.
(m) Since the respective dates as of which
information is given in the Memorandum, except as otherwise
stated or contemplated therein, there has not been (i) any
material adverse change in the condition (financial or
otherwise), earnings, affairs, business or prospects of the
Company or its subsidiaries, whether or not arising in the
ordinary course of business, (ii) any material transaction
entered into, or any material liability or obligation
incurred, by the Company or its subsidiaries other than in the
ordinary course of business, (iii) any change in the capital
stock, or increase in the short-term debt or long-term debt of
the Company or its subsidiaries, or (iv) any dividend or
distribution of any kind declared, paid or made by the Company
in respect of its capital stock.
(n) There are no contracts or other documents
required to be described in or filed with the Annual Report
which have not been described or filed as required. The
contracts described in the Annual Report are in full force and
effect on the date hereof; and neither the Company nor any of
the subsidiaries, nor to the knowledge of the Company, any
other party, is in breach of or default under any of such
contracts which individually or in the aggregate would not
have a Material Adverse Effect.
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(o) The Company together with its subsidiaries
own and possess sufficient right, title and interest in and
to, or has duly licensed from third parties the right to use,
all trademarks, trade names, copyrights and other proprietary
rights ("Trade Rights") material to the business of the
Company and each of its subsidiaries, in each case taken as a
whole. None of the Company or any of its subsidiaries has
received any written notice of infringement, misappropriation
or conflict from any third party as to such material Trade
Rights which has not been resolved or disposed of, and none of
the Company or any of its subsidiaries has infringed,
misappropriated or otherwise conflicted with material Trade
Rights of any third parties, which infringement,
misappropriation or conflict would have a Material Adverse
Effect.
(p) Each of the Company and its subsidiaries has
timely filed all necessary federal and state income and
franchise tax returns required to be filed through the date
hereof and have paid all taxes shown as due thereon, and there
is no tax deficiency that has been, or to the knowledge of the
Company might reasonably be expected to be, asserted against
the Company or any of its subsidiaries or any of their
properties or assets, that could reasonably be expected to
have a Material Adverse Effect.
(q) The Company's Common Stock is registered
pursuant to Section 12(b) of the 1934 Act, and listed for
trading on the Amex. The Company has filed an additional
listing application with the Amex with respect to the
Conversion Shares.
(r) Neither the Company nor any of its
subsidiaries, or TexStar, is, an "investment company" within
the meaning of the Investment Company Act.
(s) No labor dispute with the employees of the
Company or any of its subsidiaries is pending or, to the
knowledge of the Company, threatened that could reasonably be
expected to have a Material Adverse Effect. Each employee
benefit plan within the meaning of ERISA, for which the
Company or any subsidiary acts as sponsor within the meaning
of ERISA is and has been in all material respects operated and
administered in accordance with the provisions of ERISA and
applicable law. The present value of all benefits vested
under each employee benefit plan which is subject to Title IV
of ERISA did not exceed, as of the end of the most recent plan
year, the value of the assets of the plan allocable to such
vested or accrued benefits, and no such plan or any trust
created thereunder has incurred any "accumulated funding
deficiency" within the meaning of the Internal Revenue Code
("Code") since the effective date of ERISA. No employee
benefit plan or any trust created thereunder or any trustee
fiduciary or administrator thereof has engaged in a
"prohibited transaction" within the meaning of the Code or
ERISA or violated any of the fiduciary standards of ERISA, and
there has been no "reportable event" within the meaning of
ERISA with respect to any such plan.
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(t) Each of the Company and its subsidiaries
(A) makes and keeps books, records and accounts which, in
reasonable detail and in all material respects, accurately and
fairly reflect its transactions and dispositions of its assets
and (B) maintains a system of internal accounting controls
sufficient to provide reasonable assurance that
(1) transactions are executed in accordance with management's
general or specific authorizations, (2) transactions are
recorded as necessary (i) to permit the preparation of
financial statements in conformity with generally accepted
accounting principles consistently applied or any other
criteria applicable to such statements and (ii) to maintain
accountability for assets, (3) access to assets is permitted
only in accordance with management's general or specific
authorizations and (4) the recorded accountability for assets
is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(u) The Reorganization Agreement covering the
transactions between the Company and TexStar described in the
Memorandum under the caption "The Acquisition - The
Reorganization Agreement" and the transactions contemplated
thereby have been authorized by all necessary corporate action
on the part of the Company; the Reorganization Agreement has
been executed and delivered by the Company and the other
parties thereto and constitutes a valid and binding obligation
of the Company (assuming the due authorization, execution and
delivery thereof by the other parties thereto) enforceable
against the Company in accordance with its terms, except
insofar as (i) such agreement may be subject to bankruptcy,
insolvency, reorganization, moratorium or other laws relating
to creditors' rights generally, and (ii) the remedy of
specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding
thereafter may be brought.
(v) Since January 1, 1993 the Company has, and
at the Closing Date the Company will have, made all filings
required to be made by it under the 1934 Act; and all such
filings conformed and will conform in all material respects to
the requirements of the 1934 Act, and as of their respective
dates none of such filings contained an untrue statement of
material fact or omitted to state a material fact required to
be stated therein or necessary to make the statements therein,
in lieu of the circumstances under which they were made, not
misleading.
SECTION 5. Covenants of the Company. The Company
covenants and agrees with the Purchaser that:
(a) The Company will use the net proceeds
received by it from the sale of the Notes in the manner
specified in the Memorandum under the caption "Use of
Proceeds."
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(b) Notwithstanding that the Company may not be
required to remain subject to the reporting requirements of
Section 13 or 15(d) of the 1934 Act, for so long as any of the
Notes remain outstanding, the Company shall file with the
Commission and provide within 15 days to the Trustee and the
holders of Notes with such annual reports and such
information, documents and other reports as are specified in
Sections 13 and 15(d) of the 1934 Act and applicable to a U.
S. corporation subject to such sections, such information,
documents and other reports to be so filed and provided at the
times specified for the filing of such information, documents
and reports under such sections.
SECTION 6. Registration of the Notes and Conversion
Shares. This Section 6 sets forth the Company's agreements
with the Purchaser with respect to the registration under the
1933 Act of the Notes and the Conversion Shares (together, the
"Registrable Securities"). The Company will take each action
required by this Section 6 as expeditiously as practicable.
(a) As soon as practicable, but in any event
within 90 days of the Closing Date, the Company at its sole
expense will file a "shelf" registration statement pursuant to
Rule 415 under the 1933 Act on a form available for use by the
Company registering the resale of the Registrable Securities
by the holders thereof (the "Shelf Registration Statement").
The Company will use reasonable efforts to cause the Shelf
Registration Statement to become effective within 135 days of
the Closing Date, and will use reasonable efforts to maintain
continuously the effectiveness of the Shelf Registration
Statement until the expiration of one year from the Closing
Date (or, if for any reason the effectiveness of the Shelf
Registration Statement is suspended, such period shall be
extended by the aggregate number of days of such suspension).
(b) Not later than the effectiveness of the
Shelf Registration Statement, the Company will use reasonable
efforts to qualify the Indenture under the Trust Indenture Act
of 1939 (the "1939 Act").
(c) The Company will furnish without charge to
the Purchaser and to each other holder of Registrable
Securities (collectively, the "Holders"), and to the Agent, at
least three business days prior to filing the Shelf
Registration Statement, copies of the Shelf Registration
Statement as proposed to be filed by the Company, including,
if specifically requested, copies of any exhibits to be filed
therewith (including copies of any document to be incorporated
by reference therein and, to the extent specifically
requested, copies of all exhibits thereto), and thereafter
will furnish to the Holders and to the Agent such number of
conformed copies of the Shelf Registration Statement and each
amendment thereto, the prospectus included in the Shelf
Registration Statement (including each preliminary prospectus)
and any supplement thereto and, promptly after the
effectiveness of the Shelf Registration Statement, the
definitive final prospectus filed with the Commission. The
Shelf Registration Statement and each amendment thereto, the
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prospectus and each amended or revised prospectus and each
supplement thereto shall be subject to review by the Holders
and the Agent prior to filing same with or transmitting same
to the Commission and the Company agrees that, except as
required by applicable law, it will not file the Shelf
Registration Statement, any amendment thereto, any amended or
revised prospectus or prospectus supplement if the Agent or
the Holders holding a majority of the aggregate principal
amount of Notes, or a majority of the number of Conversion
Shares, as the case may be, shall reasonably object thereto.
(d) The plan of distribution described in the
Shelf Registration Statement shall be broad enough to permit
the Holders to offer the Registrable Securities from time to
time in privately negotiated transactions, in ordinary
brokerage transactions and transactions in which the broker
solicits customers and any other methods of disposition
requested by any Holder. The Shelf Registration Statement
shall permit transactions to be made in the over-the-counter
market, in an interdealer quotation system of a registered
national securities association, through the facilities of a
national securities exchange, through the writing of options
or a combination of such methods of sale, at fixed prices that
may be changed from time to time, at market prices prevailing
at the time of sale, at prices related to such prevailing
market prices or at negotiated prices. In effecting sales
under the Shelf Registration Statement, brokers or dealers
engaged by the Holders may arrange for other brokers or
dealers to participate, and brokers or dealers may receive
commissions or discounts from the Holders or from the
purchasers in such transactions in amounts to be negotiated
immediately prior to the sale.
(e) The Company will, on or prior to the date on
which the Shelf Registration Statement is declared effective,
use reasonable efforts to register or qualify the Registrable
Securities under such other securities or blue sky laws of
such jurisdictions as any Holder requests. The Company will
use reasonable efforts to keep each such registration or
qualification effective, including through new filings, or
amendments or renewals, during the period the Shelf
Registration Statement is required to be kept effective; and
the Company will do any and all other acts and things which
may be necessary to enable the Holders to consummate the
disposition of the Registrable Securities; provided, that the
Company will not be required to qualify generally to do
business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 6(e) or consent to
general service of process in any such jurisdiction.
(f) The Company will advise the holders and the
Agent promptly of the filing of the Shelf Registration
Statement and of the effectiveness thereof, and will advise
the holders and the Agent promptly of the issuance by the
Commission of any stop order suspending the effectiveness of
the Shelf Registration Statement (and make every reasonable
effort to obtain the withdrawal of such order as early as
possible) or of the institution of any proceedings for that
purpose, or of any notification of the suspension of
qualification of Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any
proceedings for that purpose, and will also advise the Agent
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and each Holder promptly of any request of the Commission for
amendment or supplement of the Shelf Registration Statement,
of any preliminary prospectus or of the prospectus contained
therein, or for additional information.
(g) The Company will (i) immediately notify the
Agent and each Holder at any time when a prospectus relating
to the Registrable Securities is required to be delivered
under the 1933 Act, of the happening of any event as a result
of which the prospectus contained in the Shelf Registration
Statement, as then in effect, includes an untrue statement of
a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then
existing, and (ii) as promptly as practicable amend the Shelf
Registration Statement or supplement the prospectus or take
other appropriate action so that the prospectus does not
include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the
light of the circumstances then existing.
(h) The Company will furnish, on the date that
the Shelf Registration Statement is declared effective by the
Commission, and on the date any post-effective amendment to
the Shelf Registration Statement is declared effective, (i)
an opinion of counsel for the Company dated as of such date
and addressed to the Agent and to the Holders, stating that
the Shelf Registration Statement (or such post-effective
amendment, as applicable) has become effective under the 1933
Act and that (A) to the best knowledge of such counsel, no
stop order suspending the effectiveness thereof has been
issued and no proceedings for that purpose have been
instituted or are pending or contemplated under the 1933 Act,
(B) the Registration Statement (or the post effective
amendment, as applicable), the related prospectus, and each
amendment or supplement thereof, comply as to form in all
material respects with the requirements of the 1933 Act and
the applicable rules and regulations thereunder of the
Commission (except that such counsel need express no opinion
as to the financial statements or any financial or statistical
data contained or incorporated therein) and (C) to such other
effects as may reasonably be requested by counsel for the
Holders, and (ii) a letter dated such date from the
independent accountants retained by the Company, addressed to
the Agent and to the Selling Holders, stating that they are
independent public accountants within the meaning of the 1933
Act and that, in the opinion of such accountants, the
financial statements of the Company and the schedules thereto
that are included or incorporated by reference in the
Registration Statement or the prospectus, or any amendment
(including any post- effective amendment) or supplement
thereof, comply as to form in all material respects with the
applicable requirements of the 1933 Act and the published
rules and regulations thereunder, and such letter shall
additionally address such other financial matters (including
information as to the period ending no more than five business
days prior to the date of such letter) included in the
Registration Statement in respect of which such letter is
being given as the Holders may reasonably request.
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(i) The Company will make available for
inspection by one representative of the Holders designated by
a majority thereof, and any attorney, accountant or other
agent retained by such representative of the Holders (the
"Inspectors"), all financial and other records, pertinent
corporate documents and properties of the Company reasonably
requested by the Holders in order for the Holders to verify
information about the Company contained in or omitted from the
Shelf Registration Statement, and will cause the Company's
officers, directors and employees to supply all information
reasonably requested by any such Inspector in connection with
the Shelf Registration Statement; provided, that any
examination shall be made without unduly disrupting the
Company's operations and shall not exceed the scope of a
customary due diligence examination.
(j) The Company will enter into customary
agreements and take such other actions as are reasonably
requested by the Holders, if any, in order to expedite or
facilitate the disposition of the Registrable Securities.
(k) In connection with the Shelf Registration
Statement, each Holder will furnish promptly to the Company in
writing such information with respect to itself and the
proposed distribution by it as shall be reasonably necessary
in order to ensure compliance with federal and applicable
state securities laws.
(l) The Company will pay all expenses incident
to the Company's performance under or compliance with the
Shelf Registration Statement, including without limitation,
all registration and filing fees, blue sky fees and expenses,
printing expenses, listing fees, fees and disbursements of
counsel and independent public accountants for the Company,
fees of the National Association of Securities Dealers, Inc.,
transfer taxes, fees of transfer agents and registrars and
costs of insurance and reasonable out-of-pocket expenses
(including, without limitation, legal fees (not to exceed
$15,000) of one counsel for all Holders (the "Sellers
Attorney")(such expenses being collectively referred to herein
as "Registration Expenses"), but excluding any underwriting
fees, discounts and selling commissions allocable to the sale
of the Registrable Securities and all expenses incurred
directly by the Holders for legal counsel other than the
Seller's Attorney (collectively, the "Selling Expenses"). The
Company will pay all Registration Expenses incurred in
connection with the Shelf Registration Statement, whether or
not the Shelf Registration Statement becomes effective, and
the Selling Holders shall pay Selling Expenses in connection
with any Registrable Securities registered pursuant to this
Agreement.
(m) The Company will indemnify and hold harmless
each Holder of Registrable Securities and each person, if any,
who controls such Holder within the meaning of the 1933 Act
and the 1934 Act, against any losses, claims, damages or
liabilities (including reasonable attorneys' fees) ("Losses"),
joint or several, to which a Holder or controlling person may
become subject under the 1933 Act, the 1934 Act or otherwise,
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insofar as such Losses, (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Shelf
Registration Statement under which Registrable Securities were
registered under the 1933 Act pursuant to this Agreement, any
preliminary prospectus or final prospectus contained therein,
or any amendment (including any post-effective amendment)
thereto or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statements therein not misleading, and will reimburse
each Holder, and each such controlling person for any legal or
other expenses reasonably incurred by them in connection with
investigating or defending any such Loss or actions; provided,
however, that the Company will not be liable in any such case
if and to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission so
made in conformity with information furnished by such Holder
or such controlling person in writing specifically for use in
the Shelf Registration Statement or prospectus.
(n) Each Holder agrees to indemnify and hold
harmless the Company, its directors, officers, employees and
agents and each person, if any, who controls the Company
within the meaning of the 1933 Act or of the 1934 Act to the
same extent as the foregoing indemnity from the Company to
such Holder, but only with respect to information regarding
such Holder furnished in writing by or on behalf of such
Holder expressly for inclusion in the Shelf Registration
Statement or prospectus relating to the Registrable
Securities, or any amendment (including any post-effective
amendment) or supplement thereto; provided, however, that the
liability of such Selling Holder shall not be greater in
amount than the dollar amount of the proceeds received by such
Holder from the sale of the Registrable Securities giving rise
to such indemnification.
(o) Promptly after receipt by an indemnified
party hereunder of notice of the commencement of any action,
such indemnified party shall, if a claim in respect thereof is
to be made against the indemnifying party hereunder, notify
the indemnifying party in writing thereof. No indemnification
shall be available to any party who shall fail to give notice
as provided in this Section 6(o) if the party to whom notice
was not given was unaware of the proceeding to which such
notice would have related and was prejudiced by the failure to
give such notice, but otherwise the omission so to notify the
indemnifying party shall not relieve it from any liability
which it may have to any indemnified party. In case any such
action shall be brought against any indemnified party and it
shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to
participate in and, to the extent it shall wish, to assume and
undertake the defense thereof with counsel reasonably
satisfactory to such indemnified party and, after notice from
the indemnifying party to such indemnified party of its
election so to assume and undertake the defense thereof, the
indemnifying party shall not be liable to such indemnified
party under this Section 6(o) for any legal expenses
subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of
investigation and of liaison with counsel so selected;
provided, however, that, (i) if the indemnifying party has
failed to assume the defense and employ counsel or (ii) if the
defendants in any such action include both the indemnified
party and the indemnifying party and counsel to the
indemnified party shall have concluded that there may be
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reasonable defenses available to the indemnified party that
are different from or additional to those available to the
indemnifying party, or if the interests of the indemnified
party reasonably may be deemed to conflict with the interests
of the indemnifying party, then the indemnified party shall
have the right to select a separate counsel and to assume such
legal defense and otherwise to participate in the defense of
such action, with the expenses and fees of such separate
counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred.
(p) If the indemnification provided for in this
Section 6 is unavailable to the Company or the Holders or is
insufficient to hold them harmless in respect of any losses,
claims, damages, liabilities or expenses referred to herein,
then each such indemnifying party, in lieu of indemnifying
such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses,
claims, damages, liabilities and expenses as between the
Company on the one hand and each Holder on the other, in such
proportion as is appropriate to reflect the relative fault of
the Company on the one hand and of each Holder on the other in
connection with the statements or omissions which resulted in
such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. The relative fault
of the Company on the one hand and each Holder on the other
shall be determined by reference to, among other things,
whether the untrue or alleged untrue statements of a material
fact or the omission or alleged omission to state a material
fact has been made by, or relates to, information supplied by
such party, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent
such statement or omission.
(q) No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
1933 Act) with respect to the Shelf Registration Statement
shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation.
(r) Holder will from time to time upon request
by the Company while the Shelf Registration Statement is
effective, provide to Company information regarding Holder's
transactions in the Registrable Securities, the number or
amount of Registrable Securities held by Holder and such other
information as the Company shall reasonably request in order
to maintain the effectiveness of the Shelf Registration
Statement or file any post-effective amendment thereto or
prospectus supplement.
SECTION 7. Conditions of the Obligations of
Purchaser. The obligations of the Purchaser to purchase and
pay for the Notes as provided herein, and the consummation of
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the sale of the Notes at Closing to the Purchaser, shall be
subject to the fulfillment, or the waiver by Purchaser, prior
to or at the Closing, of the following conditions:
(a) Each representation and warranty of the
Company in this Agreement shall be, at and as of the Closing
Date, true and correct with the same effect as though such
representation had been made at and as of the Closing Date.
(b) The Company shall have performed and
complied with all of its obligations under this Agreement to
be performed or complied with at or prior to the Closing Date.
(c) The Company shall have entered into the
Indenture with the Trustee, and the Indenture shall be in full
force and effect.
(d) The Company shall have delivered or caused
to be delivered to the Purchaser at the Closing certificates
of officers, dated the Closing Date, of the Company as to the
satisfaction of the conditions set forth in Sections 6(a),
6(b) and 6(c) of this Agreement.
(e) There shall have been furnished to you on
the Closing Date an opinion of Tracy & Holland, L.L.P., Fort
Worth, Texas, counsel for the Company, addressed to you and
dated the Closing Date, to the effect set forth in Schedule II
to this Agreement.
SECTION 8. Notices. All communications hereunder
will be in writing and will be mailed, delivered or
telegraphed and confirmed (i) if to the Purchaser, addressed
to the Purchaser at its address set forth on the signature
page of this Agreement, (ii) if to the Company, addressed to
the Company at 1845 Precinct Line Road, Suite 100, Hurst,
Texas, with a copy to Tracy & Holland, 306 W. Seventh Street,
Suite 500, Fort Worth, Texas 67102-4982, Attention: Margaret
Holland, and (iii) if to the Agent, addressed to Hoefer &
Arnett Incorporated, 353 Sacramento Street, 10th Floor,
San Francisco, California 94111, with a copy to Bracewell &
Patterson, L.L.P., 711 Louisiana St., Suite 2900, Houston,
Texas 77002, Attention: John R. Brantley.
SECTION 9. Headings and Schedules. The headings
contained in this Agreement are for convenience of reference
only, and do not constitute a part of and shall not be deemed
to limit or affect any of the provisions of this Agreement.
The Schedules attached hereto, and the certificates and other
documents delivered as specified in this Agreement, are
expressly made a part hereof.
SECTION 10. Effect of Agreement. This Agreement,
including the schedules hereto and the certificates and other
documents delivered pursuant to this Agreement, contains the
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<PAGE>
entire agreement between the Purchaser and the Company with
respect to the subject matter contained in this Agreement and
supersedes all prior agreements and understandings, oral and
written, with respect thereto. No representations and
warranties other than those contained in this Agreement or in
any such schedule, certificate or opinion shall be deemed to
have been made by the Purchaser or the Company with respect to
this Agreement or the Notes issued pursuant hereto.
SECTION 11. Survival. All of the representations and
warranties contained in this Agreement or in any schedule
hereto, or in any certificate or other document delivered
pursuant hereto shall survive the Closing, regardless of any
investigation that may have been or may be made (or any
statements made in respect thereof) at any time by or on
behalf of the party to whom such representations or warranties
are made.
SECTION 12. Successors. This Agreement will inure to
the benefit of and be binding upon the parties hereto and
their respective successors, personal representative and
assigns, and to the benefit of the officers and directors and
controlling persons thereof, and no other person will have any
right or obligation hereunder.
SECTION 13. Partial Unenforceability. If any section,
paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, such determination
shall not affect the validity or enforceability of any other
section, paragraph or provision hereof.
SECTION 14. Counterparts. This Agreement may be
executed in two or more counterparts, each of which shall be
deemed to be an original, but all of which together shall
constitute one and the same instrument.
SECTION 15. Expenses and Fees. Except as otherwise
provided herein, the Purchaser and the Company each hereby
agree to pay such reasonable and accountable costs and
expenses incident to their performance under this Agreement as
each may incur. Without limiting the generality of the
foregoing, the Company will pay, whether or not the
transactions contemplated hereby are consummated or this
Agreement is terminated, all reasonable and accountable costs
and expenses incident to the performance by the Company of its
obligations under this Agreement, including (i) the fees,
disbursements and expenses of the Company's counsel and
accountants in connection with the placement of the Notes and
all other expenses in connection with the preparation and
reproduction or printing of the Memorandum and amendments and
supplements thereto and the mailing and delivering of copies
thereof to the Agent and to all prospective purchasers;
(ii) the cost of printing or producing any of the Purchase
Documents, the blue sky memoranda (if any) and any other
documents in connection with the offering, purchase, sale and
delivery of the Notes; (iii) all fees and expenses incurred by
the Agent in connection with the offer and sale of the Notes,
including the fees and disbursements of counsel to the Agent
incurred in connection therewith; (iv) the cost of preparing
the Notes and the certificates for the Conversion Shares;
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(v) the fees, disbursements and expenses of the Company's
counsel and accountants in connection with the listing for
trading on the Amex of the Conversion Shares; (vi) the fees
and expenses of the Trustee and any agent of the Trustee or
the Company and the fees and disbursements of counsel for the
Trustee or any such agent in connection with the Indenture and
the Notes; (vii) the fees and expenses of the Escrow Agent and
counsel for the Escrow Agent in connection with the Escrow
Agreement; (viii) the fees and expenses of any transfer agent
or registrar and the fees and disbursements of counsel for any
such transfer agent or registrar in connection with the Notes
or the Conversion Shares; (ix) the costs associated with the
matters required by the Company in Section 6 above, to the
extent provided in such section; and (xi) all other reasonable
and accountable costs and expenses incident to the performance
of the obligations of the Company hereunder which are not
otherwise specifically provided for herein.
SECTION 16. Applicable Law. This Agreement shall be
governed by and construed in accordance with the laws of the
State of Texas.
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If the foregoing is in accordance with your
understanding of our agreement, kindly sign and return to us
the enclosed duplicates hereof, whereupon it will become a
binding agreement between you and the Company in accordance
with its terms.
Very truly yours,
SURETY CAPITAL CORPORATION
By: _________________________
B.J. Curley
Vice President and Chief
Financial Officer
Agreed and accepted as of
the date first above written.
Name of Purchaser
_______________________________
(print or type full legal name)
By: ___________________________
Name: _________________________
Title: ________________________
Please State:
Address of Purchaser to be
used for future correspondence: Principal Amount
of Notes Purchased:
_______________________________ $ _________________
_______________________________
_______________________________
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SCHEDULE I TO NOTE PURCHASE AGREEMENT
Names and Denominations for Notes Purchased
Denominations of Names in which the Taxpayer
Notes Purchased: Notes are to be Registered: Identification No.
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I-1
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<PAGE>
SCHEDULE II TO NOTE PURCHASE AGREEMENT
[Form of Legal Opinion of Tracy & Holland]
March 31, 1998
To Purchasers under the
Note Purchase Agreement
Referred to Below
Ladies and Gentlemen:
We have acted as counsel for Surety Capital Corporation, a
Delaware corporation (the "Company"), in connection with the
issue and sale by the Company of $4,000,000 minimum/$4,500,000
maximum aggregate principal amount of its 9% Convertible
Subordinated Notes due 2008 (the "Notes") pursuant to the
several Note Purchase Agreements dated as of March 31, 1998,
(each a "Note Purchase Agreement") between the Company and the
purchasers identified therein (the "Purchasers"). We have been
requested by the Company to deliver this opinion pursuant to
Section 7(e) of the Note Purchase Agreement. Capitalized terms
used but not defined herein shall have the meanings assigned to
such terms in the Note Purchase Agreements.
We have examined executed counterparts of the Note Purchase
Agreement and the Indenture dated as of March 31, 1998
("Indenture") between the Company and Harris Trust and Savings
Bank, as Trustee ("Trustee"), and originals or copies of
(i) the Certificate of Incorporation of the Company, together
with all amendments thereto, (ii) the By-laws of the Company,
as amended, (iii) the Escrow Agreement, (iv) certain
resolutions of the Board of Directors of the Company, and
(v) such other documents and records as we have deemed
necessary and relevant for purposes hereof. In addition, we
have relied on certificates and telegrams of public officials
as to certain matters of fact relating to this opinion and have
made such investigations of law as we have deemed necessary and
relevant as a basis hereof. We have assumed the genuineness of
all signatures, the authenticity of all documents and records
submitted to us as originals, the conformity to original
documents and records of all documents and records submitted to
us as copies, and the truthfulness of all statements of fact
contained therein. We have also assumed the due authorization,
execution and delivery of the Note Purchase Agreements by the
Purchasers and the Indenture by the Trustee, and we have
assumed the accuracy of the representations by the Purchasers
contained in the Note Purchase Agreements.
Based on the foregoing and subject to the limitations and
assumptions set forth herein, and having due regard for such
legal considerations as we deem relevant, we are of the opinion
that:
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March 31, 1998
Page 2
1. The Company is a corporation duly incorporated and
validly existing in good standing under the laws of the State
of Delaware with full corporate power and authority to own,
lease and operate its properties and to conduct its business as
described in the Memorandum, and is duly registered and
qualified to conduct its business and is in good standing in
each jurisdiction or place where the nature of its properties
or the conduct of its business requires such registration or
qualification, except where the failure so to register or
qualify does not have a Material Adverse Effect. The Company
is a bank holding company duly registered with the Federal
Reserve Board under the BHCA
2. The Bank is a national bank duly chartered and organized
by authority of the OCC and is validly existing and in good
standing under the laws of the United States of America.
3. Each subsidiary of the company other than the Bank is a
corporation duly incorporated and validly existing in good
standing under the laws of the jurisdiction of its
organization, with full corporate power and authority to own,
lease, and operate its properties and to conduct its business
as described in the Memorandum, and is duly registered and
qualified to conduct its business and is in good standing in
each jurisdiction or place where the nature of its properties
or the conduct of its business requires such qualification,
except where the failure so to register or qualify does not
have a Material Adverse Effect. All the outstanding shares of
capital stock of each subsidiary of the Company other than the
Bank have been duly authorized and validly issued, are fully
paid and nonassessable. The Company owns the shares of its
Subsidiaries directly, or indirectly through one of the other
Subsidiaries, free and clear of any perfected security
interest, or, to the best of our knowledge after reasonable
inquiry, any other security interest, lien, adverse claim,
charge or other encumbrance.
4. The activities described in the Memorandum of the Bank
and its subsidiaries are permitted activities of a national
bank.
5. The Notes and the Conversion Shares conform, in all
material respects to the description hereof contained in the
Memorandum.
6. The authorized and outstanding capital stock of the
Company is as set forth under the caption "Capitalization" in
the Memorandum. The Notes, when issued pursuant to the
Indenture, will qualify as Tier II capital under law and
regulations applicable to the Company and the Bank.
7. The Company has corporate power and authority to enter
into the Indenture and the Note Purchase Agreements and to
issue, sell and deliver the Notes to the Purchasers as provided
therein. The Note Purchase Agreements have been duly
authorized, executed and delivered by the Company and are
valid, legal and binding agreements of the Company, enforceable
against the Company in accordance with their terms, except as
II-2
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March 31, 1998
Page 3
enforcement of rights to indemnification and contribution
thereunder may be limited by Federal or state securities laws
or principles of public policy and subject to the qualifica-
tions that the enforceability of (i) the Company's obligations
thereunder may be limited by bankruptcy, fraudulent conveyance,
insolvency, reorganization, moratorium, and other similar laws
relating to or affecting creditors' rights generally and by
general equitable principles and (ii) the indemnification and
contribution provisions thereof may be subject to limitations
under applicable federal securities laws.
8. The Indenture has been duly and validly authorized,
executed and delivered by the Company and, assuming due
execution and delivery by the Trustee, is a valid and binding
agreement of the Company, enforceable in accordance with its
terms, except as enforcement thereof may be limited by
bankruptcy, insolvency or other similar laws affecting
creditors' rights generally, and complies in all material
respect with the requirements of the 1939 Act.
9. The Notes have been duly and validly authorized and
executed by the Company and, assuming due authentication of the
Notes by the Trustee, upon delivery to the Purchasers against
payment therefor in accordance with the terms of the Note
Purchase Agreements, will have been validly issued and
delivered, and will constitute valid and binding obligations of
the Company entitled to the benefits of the Indenture.
10. All of the issued and outstanding shares of the
Company's capital stock have been duly authorized, validly
issued and are fully paid and non-assessable and free of
preemptive or other similar rights under the General
Corporation Law of the State of Delaware, and to such counsel's
knowledge there are no options, agreements, contracts or other
rights in existence to acquire from the company any shares of
Common Stock , except as set forth in the Memorandum. Except
as set forth in the Memorandum, to such counsel's knowledge
there are no holders of the securities of the company having
rights to the registration thereof. The Company has no
subsidiary which conducts business as a bank under the laws of
the State of Texas or Federal law, other than the Bank. All of
the outstanding capital stock of the Bank has been duly
authorized and validly issued and is fully paid and, subject to
12 U.S.C. section 55 (1982), nonassessable. To our knowledge after
reasonable inquiry, there are no options, agreements, contracts
or other rights in existence to purchase or acquire from the
Company or its subsidiaries any issued and outstanding shares
of such subsidiaries.
11. Neither the Company nor any of its subsidiaries is in
violation of its respective certificate or articles
incorporation or bylaws, or other organizational documents, or
to our knowledge after reasonable inquiry, is in default in the
performance of any obligation, agreement or condition contained
in any bond, debenture, note or other evidence of indebtedness,
which violation or default could reasonably be expected to have
a Material Adverse Effect, except as may be disclosed in the
Memorandum.
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March 31, 1998
Page 4
12. Neither the offer, sale or delivery of the Notes, the
execution, delivery or performance of the Note Purchase
Agreements and the Indenture, compliance by the Company with
the provisions of the Note Purchase Agreements and the
Indenture, nor consummation by the Company of the transactions
contemplated by the Note Purchase Agreements and the Indenture,
conflicts or will conflict with or constitutes or will
constitute a breach of, or a default under, the certificate or
articles of incorporation or bylaws, or other organizational
documents, of the Company or any of its subsidiaries or, to our
knowledge after reasonable inquiry, any agreement, indenture,
lease or other instrument to which the Company or any of its
subsidiaries is a party or by which any of them or any of their
respective properties is bound, or will result in the creation
or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any of its subsidiaries,
nor will any such action result in any violation of any
existing law, regulation, ruling (assuming compliance with all
applicable state securities and Blue Sky laws), judgment,
injunction, order or decree known to us after reasonable
inquiry, applicable to the Company or its subsidiaries or any
of their respective properties.
13. No consent, approval, authorization or other order of,
or registration or filing with, any court, regulatory body,
administrative agency or other governmental body, agency or
official is required on the part of the Company (except as may
be required under state securities or Blue Sky laws, and except
for post-sale filings under Regulation D) for the valid
issuance and sale of the Notes to the Purchasers as
contemplated by the Note Purchase Agreements, except such as
have been given or made.
14. The Company is not, and upon the issuance and sale of
the Notes as contemplated in the Note Purchase Agreements and
the application of the net proceeds therefrom as described in
the Memorandum will not be, an "investment company" or an
entity "controlled" by an "investment company," as such terms
are defined in the Investment Company Act.
15. The Conversion Shares have been duly authorized and,
when issued and paid for in accordance with the Note Purchase
Agreements and the Indenture, will be validly issued, fully
paid and nonassessable and the holders thereof will not not be
subject to personal liability under the General Corporation Law
of the State of Delaware by reason of being such holders; the
Conversion Shares are not subject under the General Corporation
Law of the State of Delaware to the preemptive rights of any
stockholder of the company; and the Company has filed an
additional listing application with the American Stock Exchange
with respect to the Conversion Shares.
16. The statements incorporated by reference into the
Memorandum from the Annual Report under the captions "Business
and Properties" and "Legal Proceedings," insofar as they are
statements of law or legal conclusions, are accurate in all
material respects and present fairly the information required
to be shown therein.
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March 31, 1998
Page 5
17. To our knowledge after reasonable inquiry, there are no
statutes or regulations that are required to be described in
the Memorandum that are not described as required.
18. To our knowledge after reasonable inquiry, (A) other
than as described or contemplated in the Memorandum, there are
no legal or governmental proceedings pending or threatened
against the Company or any of its subsidiaries, or to which the
Company or any of its subsidiaries, or any of their property,
is subject, which are required to be described in the
Memorandum and (B) there are no agreements, contracts,
indentures, leases or other instruments that are required to be
described in the Annual Report incorporated by reference into
the Memorandum or to be filed as an exhibit thereto that have
not been described or filed as required.
19. The Reorganization Agreement and the transactions
contemplated thereby has been authorized by all necessary
corporate action on the part of the Company, has been executed
and delivered by the Company and constitutes a valid and
binding obligation of the Company (assuming the due
authorization, execution and delivery thereof by the other
parties thereto) enforceable against the Company in accordance
with its terms, except insofar as (i) such agreement may be
subject to bankruptcy, insolvency, reorganization, moratorium
or other laws relating to creditors_ rights generally, and
(ii) the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any
proceeding thereafter may be brought.
20. Assuming compliance by the Company and the Agent with
the provisions of Rule 502(c) of Regulation D, no registration
under the Securities Act is required for the offer, sale,
issuance or delivery of the Notes, and no qualification of the
Indenture under the 1939 Act is required.
The foregoing opinion is, with your concurrence, predicated
upon and qualified in its entirety by the following:
(a) The foregoing opinion is based on and is limited to
the law of the State of Texas, the General Corporation Law of
the State of Delaware and the relevant law of the United
States of America. In addition, we express no opinion herein
with respect to the antifraud provisions of federal or state
securities laws.
(b) Whenever our opinion is based on circumstances "to
our knowledge," "to our knowledge after reasonable inquiry,"
"known to us after due inquiry," or similar expressions, we
have relied exclusively on certificates of officers (after
discussing the contents thereof with such officers) of the
Company or the Bank, as applicable, or certificates of others
as to the existence or nonexistence of the circumstances upon
which our opinion is predicated. We have no reason to
believe, however, that any such certificate is untrue or
inaccurate in any material respect.
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March 31, 1998
Page 6
Because the primary purpose of our engagement was not to
establish or confirm factual matters or financial or accounting
matters and because of the wholly or partially non-legal
character of many of the statements contained in the
Memorandum, we are not passing upon and do not assume any
responsibility for the accuracy, completeness or fairness of
the statements contained in the Memorandum, and we have not
independently verified the accuracy, completeness or fairness
of such statements. Without limiting the foregoing, we assume
no responsibility for, have not independently verified and have
not been asked to comment on the accuracy, completeness or
fairness of the financial statements, schedules and related
data and other financial, accounting or statistical data set
forth or incorporated by reference in the Memorandum, and we
have not examined the accounting, financial or other records
from which such financial statements, schedules and other
financial and statistical data and information were derived.
However, we have participated in conferences with officers and
other representatives of the Company and representatives of the
Agent and its counsel at which the contents of the Memorandum
and related matters were discussed. Based upon such
participation, and relying as to materiality to a large extent
upon the factual statements of officers and other
representatives of the Company, we advise you that no facts
have come to our attention that have caused us to believe that
the Memorandum (other than the financial statements, schedules
and related data and other financial, accounting or statistical
data, as to which we have not been asked to comment), as of its
date and as of the Closing Date, contained an untrue statement
of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not
misleading.
This opinion is delivered solely to you pursuant to
Section 7(e) of the Note Purchase Agreements and may not be
quoted, circulated or published, in whole or in part, or
otherwise referred to or furnished to any other person other
than your counsel, without our express prior written
authorization.
Very truly yours,
Tracy & Holland, L.L.P.
II-6
<PAGE>
EXHIBIT 5.1
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. FAX (817) 332-3140
MARGARET E. HOLLAND, P.C. TELEPHONE (817) 335-1050
GEORGE T. JOHNS, P.C. METRO (817) 429-9463
LEWIS D. SCHWARTZ, P.C. EMAIL [email protected]
June 23, 1998
Surety Capital Corporation
1845 Precinct Line Road, Suite 100
Hurst, Texas 76054
Re: Registration Statement on Form S-3 - Surety Capital
Corporation
Gentlemen:
We have acted as counsel to you (the "Company") in connection
with the registration statement on Form S-3 (the "Registration
Statment") pertaining to the registration of 725,000 shares of the
Company's common stock, $0.01 par value (the "Shares"), issuable
upon conversion of the 9% Convertible Subordinated Notes due 2008
(the "Notes"), being offered by the Selling Securityholders as
described in the Registration Statement.
In this connection, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of such
documents, corporate records and other instruments as we have
deemed necessary for the purposes of this opinion.
For purposes of this opinion, we have assumed the authenticity
of all documents submitted to us as originals, the conformity to
the originals of all documents submitted to us as copies, and the
authenticity of the originals of all documents submitted to us as
copies. We have also assumed the genuineness of the signatures of
persons signing all documents in connection with which this opinion
is rendered, the authority of such persons signing on behalf of the
parties thereto other than the Company, the due authorization,
execution and delivery of all documents by the parties thereto, and
the veracity of the information contained in all documents we have
reviewed.
Based on the foregoing, we are of the opinion that the Shares
have been duly authorized and when issued upon conversion of the
Notes as described in the Registration Statement, subject to
effectiveness of the Registration Statement and compliance with
applicable state securities laws, will be validly issued, fully
paid and non-assessable.
PAGE
<PAGE>
Surety Capital Corporation
June 23, 1998
Page 2
We hereby consent to the filing of this opinion as Exhibit 5
to the Registration Statement and to the reference to this firm
under the section entitled "Legal Matters" in the Registration
Statement.
Very truly yours,
TRACY & HOLLAND, L.L.P.
By: Margaret E. Holland, P.C.,
Partner
By: /s/ Margaret E. Holland
------------------------
Margaret E. Holland,
President
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration
statement of Surety Capital Corporation on Form S-3 (File No.
333-_____) of our report dated February 4, 1998, except as to the
information presented in the last paragraph of Note 17, for which
the date is March 17, 1998, on our audits of the financial state-
ments of Surety Capital Corporation. We also consent to the
reference to our firm under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
Fort Worth, Texas
June 23, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF BURNSIDE & RISHEBARGER, PLLC
We consent to the inclusion in the Form S-3 Registration of Surety
Capital Corporation of our report, dated January 23, 1998, on our
audits of the financial statements of TexStar National Bank, San
Antonio, Texas as of December 31, 1997 and 1996, and for the two
years ended December 31, 1997. We also consent to the reference to
our firm under the caption "Experts."
BURNSIDE & RISHEBARGER, PLLC
San Antonio, Texas
June 19, 1998
<PAGE>
EXHIBIT 25.1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
Statement of Eligibility
Under the Trust Indenture Act of 1939
of a Corporation Designated to Act as Trustee
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2) ______
HARRIS TRUST AND SAVINGS BANK
(Name of Trustee)
Illinois 36-1194448
(State of Incorporation) (I.R.S. Employer Identification No.)
111 West Monroe Street, Chicago, Illinois 60603
(Address of principal executive offices)
Judith Bartolini, Harris Trust and Savings Bank,
311 West Monroe Street, Chicago, Illinois, 60606
312-461-2527 phone 312-461-3525 facsimile
(Name, address and telephone number for agent for service)
SURETY CAPITAL CORPORATION
(Name of obligor)
Delaware 75-2065607
(State of Incorporation) (I.R.S. Employer Identification No.)
1845 Precinct Line Road
Hurst, Texas 76054
(Address of principal executive offices)
9% Convertible Subordinated Notes due March 31, 2008
(Title of indenture securities)
PAGE
<PAGE>
1. GENERAL INFORMATION. Furnish the following information as
to the Trustee:
(a) Name and address of each examining or supervising
authority to which it is subject.
Commissioner of Banks and Trust Companies, State of
Illinois, Springfield, Illinois; Chicago Clearing House
Association, 164 West Jackson Boulevard, Chicago,
Illinois; Federal Deposit Insurance Corporation,
Washington, D.C.; The Board of Governors of the Federal
Reserve System, Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Harris Trust and Savings Bank is authorized to exercise
corporate trust powers.
2. AFFILIATIONS WITH OBLIGOR. If the Obligor is an affiliate
of the Trustee, describe each such affiliation.
The Obligor is not an affiliate of the Trustee.
3. thru 15.
NO RESPONSE NECESSARY
16. LIST OF EXHIBITS.
1. A copy of the articles of association of the Trustee as
now in effect which includes the authority of the trustee
to commence business and to exercise corporate trust powers.
A copy of the Certificate of Merger dated April 1, 1972
between Harris Trust and Savings Bank, HTS Bank and
Harris Bankcorp, Inc. which constitutes the articles of
association of the Trustee as now in effect and includes
the authority of the Trustee to commence business and to
exercise corporate trust powers was filed in connection
with the Registration Statement of Louisville Gas and
Electric Company, File No. 2-44295, and is incorporated
herein by reference.
2. A copy of the existing by-laws of the Trustee.
A copy of the existing by-laws of the Trustee was filed
in connection with the Registration Statement of
Commercial Federal Corporation, File No. 333-20711, and
is incorporated herein by reference.
3. The consents of the Trustee required by Section 321(b) of
the Act.
(included as Exhibit A on page 2 of this statement)
4. A copy of the latest report of condition of the Trustee
published pursuant to law or the requirements of its
supervising or examining authority.
(included as Exhibit B on page 3 of this statement)
1
PAGE
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939,
the Trustee, HARRIS TRUST AND SAVINGS BANK, a corporation
organized and existing under the laws of the State of Illinois,
has duly caused this statement of eligibility to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the
City of Chicago, and State of Illinois, on the 6th day of May,
1998.
HARRIS TRUST AND SAVINGS BANK
By: /s/ J. Bartolini
----------------
J. Bartolini
Vice President
EXHIBIT A
The consents of the trustee required by Section 321(b) of the Act.
Harris Trust and Savings Bank, as the Trustee herein named,
hereby consents that reports of examinations of said trustee by
Federal and State authorities may be furnished by such
authorities to the Securities and Exchange Commission upon
request therefor.
HARRIS TRUST AND SAVINGS BANK
By: /s/ J. Bartolini
----------------
J. Bartolini
Vice President
2
PAGE
<PAGE>
EXHIBIT B
Attached is a true and correct copy of the statement of condition
of Harris Trust and Savings Bank as of December 31, 1997, as
published in accordance with a call made by the State Banking
Authority and by the Federal Reserve Bank of the Seventh Reserve
District.
[HARRIS BANK LOGO]
Harris Trust and Savings Bank
111 West Monroe Street
Chicago, Illinois 60603
of Chicago, Illinois, And Foreign and Domestic Subsidiaries, at
the close of business on December 31, 1997, a state banking
institution organized and operating under the banking laws of
this State and a member of the Federal Reserve System. Published
in accordance with a call made by the Commissioner of Banks and
Trust Companies of the State of Illinois and by the Federal
Reserve Bank of this District.
Bank's Transit Number 71000288
ASSETS THOUSANDS
OF DOLLARS
Cash and balances due from depository institutions:
Non- interest bearing balances and currency and
coin............................................... $1,252,381
Interest bearing balances.......................... $ 598,062
Securities:................................................
a. Held-to-maturity securities $ 0
b. Available-for-sale securities $3,879,399
Federal funds sold and securities purchased under
agreements to resell $ 71,725
Loans and lease financing receivables:
Loans and leases, net of unearned income.. $8,813,821
LESS: Allowance for loan and lease losses. $ 99,678
----------
Loans and leases, net of unearned income,
allowance, and reserve (item 4.a minus
4.b).............................................. $8,714,143
Assets held in trading accounts........................... $ 136,538
Premises and fixed assets (including capitalized leases).. $ 221,312
Other real estate owned................................... $ 642
Investments in unconsolidated subsidiaries and associated
companies................................................. $ 103
Customer's liability to this bank on acceptances
outstanding............................................... $ 46,480
Intangible assets......................................... $ 279,897
Other assets.............................................. $ 653,101
-----------
TOTAL ASSETS $15,853,783
===========
3
PAGE
<PAGE>
LIABILITIES
Deposits:
In domestic offices............................... $8,926,635
Non-interest bearing........................$3,692,891
Interest bearing............................$5,233,744
In foreign offices, Edge and Agreement
subsidiaries, and IBF's........................... $1,763,669
Non-interest bearing........................$ 22,211
Interest bearing............................$1,741,458
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of the
bank and of its Edge and Agreement subsidiaries,
and in IBF's:
Federal funds purchased & securities sold
under agreements to repurchase.................... $2,693,600
Trading Liabilities 82,861
Other borrowed money:.....................................
a. With remaining maturity of one year or less $ 601,799
b. With remaining maturity of more than one year $ 0
Bank's liability on acceptances executed and outstanding $ 46,480
Subordinated notes and debentures......................... $ 325,000
Other liabilities......................................... $ 134,309
-----------
TOTAL LIABILITIES $14,574,353
===========
EQUITY CAPITAL
Common stock.............................................. $ 100,000
Surplus................................................... $ 601,026
a. Undivided profits and capital reserves................ $ 573,416
b. Net unrealized holding gains (losses) on
available-for-sale securities $ 4,988
----------
TOTAL EQUITY CAPITAL $1,279,430
==========
Total liabilities, limited-life preferred stock, and
equity capital............................................ $15,853,783
===========
I, Pamela Piarowski, Vice President of the above-named bank,
do hereby declare that this Report of Condition has been prepared
in conformance with the instructions issued by the Board of
Governors of the Federal Reserve System and is true to the best
of my knowledge and belief.
PAMELA PIAROWSKI
1/30/98
We, the undersigned directors, attest to the correctness of
this Report of Condition and declare that it has been examined by
us and, to the best of our knowledge and belief, has been
prepared in conformance with the instructions issued by the Board
of Governors of the Federal Reserve System and the Commissioner
of Banks and Trust Companies of the State of Illinois and is true
and correct.
EDWARD W. LYMAN,
ALAN G. McNALLY,
RICHARD E. TERRY Directors.
4
