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As filed with the Securities and Exchange Commission on December 3, 1998
Registration No. 333-57601
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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SURETY CAPITAL CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 75-2065607
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Bobby W. Hackler
1845 Precinct Line Road 1845 Precinct Line Road
Suite 100 Suite 100
Hurst, Texas 76054 Hurst, Texas 76054
817-498-2749 817-498-2749
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(Address, including zip code, (Name, address, including
and telephone number, including zip code, and telephone number,
area code, of Registrant's including area code, of
principal executive offices) 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
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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.
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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.
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PROSPECTUS
SUBJECT TO COMPLETION
DATED DECEMBER 3, 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 November 25, 1998, the closing price of the Common Stock,
which is quoted on the American Stock Exchange under the symbol "SRY,"
was $2.375 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 9 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
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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) Quarterly Report on Form 10-Q for the quarter ended June 30,
1998;
(e) Quarterly Report on Form 10-Q for the quarter ended September
30, 1998;
(f) Current Report on Form 8-K dated February 4, 1998;
(g) Current Report on Form 8-K dated April 1, 1998, as amended by
Current Report on Form 8-K/A (Amendment No. 1) filed May 19,
1998, as further amended by Current Report on Form 8-K/A
(Amendment No. 2) filed May 20, 1998, and as further amended
by Current Report on Form 8-K/A (Amendment No. 3) filed
October 6, 1998;
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(h) Current Report on Form 8-K dated May 21, 1998;
(i) Current Report on Form 8-K dated July 13, 1998;
(j) Current Report on Form 8-K dated October 16, 1998, as amended
by Current Report on Form 8-K/A (Amendment No. 1) filed
November 18, 1998;
(k) Current Report on Form 8-K dated November 19, 1998; and
(l) 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"within the meaning of the Private
Securities Litigation Reform Act of 1995. 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, risks and
uncertainties, including economic conditions, actions taken by the
Federal Reserve Board and the Office of the Comptroller of the
Currency; other legislative and regulatory actions and reforms; as
well as other factors, all of which may change over time and 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 other factors include the Company's ability
to successfully use excess liquidity following the acquisition of
TexStar, to continue to make future acquisitions, to collect charged-
off and provisioned for insurance premium financing loans and medical
claims factoring receivables, and to comply with the requirements of
the Formal Agreement (as discussed in more detail elsewhere in this
Prospectus). 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.
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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
currently operates nine full-service banking offices in the Texas
communities of Converse, Hurst, Midlothian, New Braunfels, San
Antonio, Schertz, Universal City, Waxahachie and Whitesboro. At
October 30, 1998, the Company had $179 million in total assets,
$157 million in total deposits and $16 million in stockholders'
equity, and the Bank was "well-capitalized" under Federal
regulatory capital adequacy guidelines.
Insurance Premium Financing. The Company distinguishes
itself from other community banking organizations by balancing its
traditional community bank lending with its specialized lending
niche of insurance premium financing. The Company funds this
specialized lending activity by using relatively low cost core
retail deposits from its network of community banking offices
which gives the Company a pricing advantage over non-bank
competitors for its loan products.
Insurance premium finance ("IPF") lending 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
insurance policies underwritten by nearly 600 insurance companies.
At September 30, 1998, the Company reported total gross IPF loans
of $33.5 million (approximately 27% of gross loans), as compared
to 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 eight to nine months. The down
payment and monthly installments on each loan are calculated such
that in most cases 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 Company recorded a $1.612 million provision for credit
losses during the nine months ended September 30, 1998 and charged
off IPF loans net of recoveries in the amount of $1.959 million
for the nine months ended September 30, 1998. The substantial
increase in the provision for credit losses on IPF loans and IPF
loan charge-offs for the nine months ended September 30, 1998,
taken by the Company upon the recommendation of the Office of the
Comptroller of the Currency (the "OCC") in connection with its
examination of the Bank in June 1998, were primarily related to
IPF loans generated by the Bank's southeastern United States
insurance premium financing operation, headquartered in Atlanta,
Georgia. The Atlanta office has been closed and, with the
exception of a few good relationships, loan production from that
market has been terminated. Management will continue to actively
and aggressively attempt to collect the charged-off IPF loans.
The Company's traditional Texas-based IPF portfolio continues to
perform well. Management believes that all known losses in the
IPF portfolio have been recognized.
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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. The
Company recorded a net $26,244 provision for medical claims
factoring losses during the nine months ended September 30, 1998,
compared to a $255,000 provision for medical claims factoring
losses during the nine months ended September 30, 1997. The
medical claims factoring charge-offs net of recoveries for the
nine months ended September 30, 1998 were approximately $4.27
million. In connection with its examination of the Bank in June
1998, the OCC recommended that due to the slower than expected
collection pace of the medical claims factoring receivables,
receivables over 180 days should be charged-off in their entirety
and collections should be reflected as recoveries. The balance of
medical claims factoring receivables net of unearned interest and
allowance at September 30, 1998 was approximately $0.681 million
and is not expected to increase. Management believes that all
known significant losses in the medical claims receivable
portfolio have been recognized. Management has determined to
discontinue the operations of the medical claims factoring
division and is in the process of phasing out such operations.
Traditional Lending Activities. The Company diversifies its
lending risks by balancing its specialty lending with traditional
loans. At September 30, 1998, the Company had approximately $33.5
million in gross IPF loans, with the remaining 73% of its loan
portfolio ($88.8 million) 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. On April 1, 1998, the Company acquired
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. See the unaudited interim financial
statements of TexStar included in this Prospectus and in the
Current Report on Form 8-K/A (Amendment No. 3) filed October 6,
1998 incorporated into this Prospectus by reference. 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.
This acquisition 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.
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Sale of Branches. On July 13, 1998 the Bank entered into a
Branch Purchase and Assumption Agreement (the "Agreement") with
Commercial Bank of Texas, National Association ("Commercial
Bank"), Nacogdoches, Texas, to sell to Commercial Bank the Bank's
four Lufkin-area branches located in Lufkin, Kennard, Wells and
Chester, Texas (the "Branches"). The sale of the Branches was
consummated on October 16, 1998. In connection with the sale, the
Bank sold loans totaling approximately $10,978,000, real property,
furniture and equipment totaling approximately $604,000, and cash
and other assets totaling approximately $1,028,000, and Commercial
Bank assumed deposits and other liabilities totaling approximately
$56,935,000. After giving effect to a deposit premium of 3% on
the deposits assumed totaling approximately $1,703,000, the Bank
paid approximately $42,617,000 in cash to Commercial Bank as
consideration for the net deposit liabilities assumed by
Commercial Bank. Pursuant to the Agreement, the Bank agreed, for
a period of two (2) years following the consummation of the
purchase and assumption contemplated by the Agreement, that it
will not (i) solicit the banking business of any current customers
of the Branches, (ii) offer employment to any person employed by
Commercial Bank or the Bank in any of the Branches, or (iii) open
any office within thirty (30) miles of any of the Branches or any
existing branches of Commercial Bank located in Nacogdoches,
Lufkin or Diboll, Texas.
Formal Agreement with the OCC. As a result of the recent
examination of the Bank by the OCC, the Board of Directors of the
Bank on November 19, 1998 entered into a formal written agreement
with the OCC (the "Formal Agreement") pursuant to which the Bank
is required to achieve certain capital levels and adopt and
implement certain plans, policies and strategies. Under the
Formal Agreement, the Bank is required to achieve by March 31,
1999 total risk-based capital at least equal to 12% of risk-
weighted assets and Tier I leverage capital at least equal to 7.5%
of adjusted total assets and by December 31, 1999 total risk-based
capital at least equal to 14% of risk-weighted assets. At October
16, 1998, following the consummation of the sale of the four
Branches, the Bank had total risk-based capital of 10.6% of risk-
weighted assets and Tier I leverage capital of 6.7% of adjusted
total assets. Management believes that it will be able to achieve
the total risk-based capital levels and the leverage ratio
required by the Formal Agreement to be met by March 31, 1999 and
December 31, 1999, respectively. However, no assurance can be
given that management will be successful in such efforts. The
Formal Agreement also prohibits the Board of Directors from
declaring or paying any dividends unless the Bank is in compliance
with (1) 12 U.S.C. ss. 56 and 60, its approved capital program
provided for in the Formal Agreement, and the capital levels set
forth in the Formal Agreement, and (2) has obtained the prior
written approval of the OCC. See "Risk Factors - Formal Agreement
with the OCC " and - "Holding Company Structure; Restrictions on
Ability of Subsidiaries to Pay Dividends."
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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 September 30, 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
the payment of principal thereof. See "Description
of the Notes - Events of Default and Waiver Thereof"
and " - Limited Right of Acceleration."
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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 Formal Agreement with the OCC; Holding Company
Structure; Restrictions on Ability of Subsidiaries
to Pay Dividends; No Dividends; Potential Inability
to Pay Interest on the Notes; Limited Right of
Acceleration; 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; and
Competition.
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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.
Formal Agreement with the OCC. As a result of the recent
examination of the Bank by the OCC, the Board of Directors of the
Bank on November 19, 1998 entered into a formal written agreement
with the OCC (the "Formal Agreement") pursuant to which the Bank
is required to achieve certain capital levels and adopt and
implement certain plans, policies and strategies. The Formal
Agreement superseded the Conditional Approval Letter issued March
25, 1998 in connection with the application by the Bank to acquire
TexStar and the capital requirements set out in that letter were
terminated. Under the Formal Agreement, the Bank is required to
achieve by March 31, 1999 total risk-based capital at least equal
to 12% of risk-weighted assets and Tier I leverage capital at
least equal to 7.5% of adjusted total assets and by December 31,
1999 total risk-based capital at least equal to 14% of risk-
weighted assets. At October 16, 1998, following the consummation
of the sale of the four Branches, the Bank had total risk-based
capital of 10.6% of risk-weighted assets and Tier I leverage
capital of 6.7% of adjusted total assets.
Management believes that it will be able to achieve the total
risk-based capital levels and the leverage ratio required by the
Formal Agreement by March 31, 1999 and December 31, 1999,
respectively. However, no assurance can be given that management
will be successful in such efforts. The OCC has extensive
enforcement authority over the operations of all national banks,
including the Bank. If the Bank fails to comply with all of the
requirements set forth in the Formal Agreement by the dates set
forth in such Formal Agreement, the OCC may under certain
circumstances assess civil monetary damages against the Bank and
the Directors of the Bank, issue cease-and-desist or removal
orders and initiate injunctive actions. Additionally, 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.
Additionally, pursuant to the Formal Agreement the Board of
Directors is required to develop a three year capital program, a
plan to enhance its management information systems, a three year
strategic plan establishing objectives for the Bank's earnings
performance, growth, balance sheet mix, off-balance sheet
activities, liability structure, capital adequacy, reduction in
the volume of nonperforming assets, product line development and
market segments which the Bank intends to promote or develop,
together with strategies to achieve those objectives, a revised
loan policy, and a loan classification policy, each for submission
to, and approval by, the OCC.
Also, the Formal Agreement prohibits the Board of Directors
from declaring or paying any dividends unless the Bank is in
compliance with (1) 12 U.S.C. ss. 56 and 60, its approved capital
program provided for in the Formal Agreement, and the capital
levels set forth in the Formal Agreement, and (2) has obtained the
prior written approval of the OCC. See "Risk Factors - Holding
Company Structure; Restrictions on Ability of Subsidiaries to Pay
Dividends."
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 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 and payment of dividends by the Bank is subject to
the discretion of the Board of Directors of the Bank and is
restricted by the national banking laws and the regulations of the
OCC, as well as by the Formal Agreement.
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Pursuant to 12 U.S.C. section 56 a national bank may not pay
dividends from its capital. All dividends must be paid out of
undivided profits, subject to other applicable provisions of law.
As of September 30, 1998 the Bank had undivided profits of
$28,298. Payment of dividends out of undivided profits is further
limited by 12 U.S.C. section 60(a), which prohibits a national bank from
declaring a dividend on its shares of common stock until its
surplus equals its common capital, unless there has been
transferred to surplus not less than 1/10th of the national bank's
net income of the preceding half year in the case of quarterly or
semi-annual dividends or not less than 1/10th of the national
bank's net income of the preceding two consecutive half year
periods in the case of annual dividends. The payment of dividends
by the Bank is also subject to the provisions of 12 U.S.C. section
60(b), which provides that no dividend may be declared or paid
without the prior approval of the OCC if the total of all
dividends, including the proposed dividend, in any calendar year
exceeds the total of the Bank's net income for that year combined
with its retained net income (or loss) of the preceding two years.
The Bank incurred an aggregated loss for the periods including fiscal
years 1996 and 1997 and for the nine months ended September 30, 1998
in the amount of ($1,808,544).
The Formal Agreement prohibits the Board of Directors of the
Bank from declaring or paying any dividends unless the Bank is (1)
in compliance with 12 U.S.C. ss. 56 and 60, its approved capital
program provided for in the Formal Agreement, and the Tier I
capital levels set forth in the Formal Agreement, and (2) has
obtained the prior written approval of the OCC. See
"Risk Factors - Formal Agreement with the OCC."
The Bank currently is precluded from declaring a dividend
during this year until it has profits for the current year in
excess of $1,712,220, and has satisfied the other requirements of
the Formal Agreement, including receipt of approval for the
declaration and payment of the dividend from the OCC.
No assurance can be given if and when the Bank will attain the
requisite level of profitability required by 12 U.S.C. ss. 56 and
60 to declare and pay a dividend and, even if such level of
profitability is attained while the Formal Agreement remains in
effect, whether or not the OCC will approve the declaration and
payment thereof.
No Dividends. The Company has not previously paid any cash
dividends on its Common Stock. The Company currently intends to
retain earnings to make the interest payments on the Notes and to
pay its other operating expenses, 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
Bank's compliance with 12 U.S.C. ss. 56 and 60, and the Bank's
fulfillment of certain requirements set forth in the Formal
Agreement. See "Risk Factors - Formal Agreement with the OCC" and
- - "Holding Company Structure; Restrictions on Ability of
Subsidiaries to Pay Dividends."
Potential Inability to Pay Interest on the Notes. As of
September 30, 1998 the Company had $465,309 in cash. Although
management believes that, absent unforeseen circumstances, the Company
will have sufficient cash through 1999, on a forecasted cash flow
basis, to pay the interest payments on the Notes and its other
normal operating expenses, no assurance can be given that the
Company's present capital and financing will be sufficient to
finance future operations. In such event, the Company, if it is
unable to obtain additional financing from external sources, could
be required to restrict its operations.
Limited Right of Acceleration. 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. The Notes may only be accelerated in
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the event of the bankruptcy, insolvency or reorganization of the
Company. 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. The initiation of such a course
of action by the holders of the Notes in the event of the failure
of the Company to meet its debt servicing obligations under the
Notes could have a significant adverse impact on the future
operations of the Company.
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. At September 30,
1998 the Company reported total gross insurance premium financing
("IPF") loans of $33.5 million representing approximately 27% 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
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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 or agency 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 or agency for insurance
premiums. Losses or other difficulties encountered by any one
insurance company or agency, or fraudulent activity by an
insurance company or agency, could have a material adverse effect
on the Company.
The Company recorded a $1.612 million provision for credit
losses on loans during the nine months ended September 30, 1998,
compared to a $40,000 provision for credit losses during the nine
months ended September 30, 1997. The Company charged off loans
net of recoveries in the amount of $1.959 million for the nine
months ended September 30, 1998, of which $1.874 million
represented charged off IPF loans net of recoveries. The
substantial increase in the provision for credit losses on IPF
loans and IPF loan charge-offs for the nine months ended September
30, 1998, taken by the Company upon the recommendation of the OCC
in connection with its examination of the Bank in June 1998, were
primarily related to IPF loans generated by the Bank's
southeastern United States insurance premium financing operation,
headquartered in Atlanta, Georgia. Due to significantly higher
rates of cancellations and several problem insurance agency and
insurance company relationships, the Company's past due and
problem loans originated from that market had increased
significantly in recent months. The Atlanta office has been
closed and, with the exception of a few good relationships, loan
production from that market has been terminated. The Company's
traditional Texas-based IPF portfolio continues to perform well.
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
heavily contributed to the Company recording a $3.5 million loss
for 1997. The Company recorded a net $26,244 provision for
medical claims factoring losses during the nine months ended
September 30, 1998, compared to a $255,000 provision for medical
claims factoring losses during the nine months ended September 30,
1997. The medical claims factoring charge-offs net of recoveries
for the nine months ended September 30, 1998 were approximately
$4.27 million. The substantial increase in the provision for
medical claims factoring losses and charge-offs taken by the
Company were the result of a recommendation of the OCC in
connection with its examination of the Bank in June 1998. The
medical claims factoring receivables charged-off during the nine
month period ended September 30, 1998 were originated prior to
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December 31, 1997. The OCC recommended that due to the slower
than expected collection pace of these medical claims factoring
receivables, receivables over 180 days should be charged-off in
their entirety and collections should be reflected as recoveries.
The balance of medical claims factoring receivables net of
unearned interest and allowance at September 30, 1998 was
approximately $0.681 million and is not expected to increase.
Management has determined to discontinue the operations of the
medical claims factoring division. Due to the existence of
contractual commitments to nine customers of the Company and in
order to enhance the collectibility of previously charged-off
medical claims, the Company is continuing to factor new medical
claims receivables on behalf of these nine customers. However, as
such contractual commitments expire, they will not be renewed.
Management expects that the Company will have totally discontinued
factoring medical claims receivables by June 30, 1999. Management
will continue to actively pursue the collection of these charged-
off receivables. At this time, however, the Company cannot
predict the likely amount of any such recoveries. Management
believes that all known significant losses in the portfolio have
been recognized.
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 $177.8 million to $248.1
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, 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.
See the unaudited interim financial statements of TexStar included
in this Prospectus and in the Current Report on Form 8-K/A
(Amendment No. 3) filed October 6, 1998 incorporated into this
Prospectus by reference.
Future Growth. Fueled by acquisitions, the total assets of
the Company have increased from $49.0 million at December 31, 1993
to $234 million at September 30, 1998, which decreased to $179
million at October 30, 1998 following the sale of the Branches.
The Formal Agreement with the OCC will restrict the Company's
ability to make additional acquisitions until the Formal Agreement
is lifted and may require the Company to sell additional existing
branches. While it is under the Formal Agreement, the Company
will not be able to sustain its historical growth rate. After the
Formal Agreement is lifted, 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.
Additionally, the Company may decide to sell additional existing
branches if such assets, in the opinion of management, may be
deployed in a more efficient and profitable manner. 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 after the Formal Agreement is lifted, 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 Bobby W. Hackler, G. M. Heinzelmann, III
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. Although the
Company has entered into agreements with these individuals
designed to provide incentives to remain in the Company's employ,
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the Company has not requested non-competition agreements from
these individuals. The Company has entered into Change in Control
Agreements with Messrs. Hackler, Heinzelmann 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. Mr. C. Jack Bean
retired 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. C. Jack Bean, however, retained his
positions as a director of both the Company and the Bank and will
continue to serve in a consulting capacity following his
retirement.
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.
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.
Year 2000 Considerations. Like other companies, the Company
is taking steps to address the so-called "Year 2000 problem." The
problem exists because many computer programs use only the last
two digits to refer to a year and may not properly recognize a
year that begins with a "20" instead of a "19." The Company
believes that its computer systems are Year 2000 compliant. In
addition, the Company has sought assurances from its third party
service providers regarding the steps they are taking to address
the Year 2000 problem so as to enable them to continue to provide
uninterrupted services to the Company. Nevertheless, as a
practical matter, the Company cannot predict with certainty what
effect the Year 2000 problem may have on its operations.
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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.
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
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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
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.
-16-
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<PAGE>
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 September 30, 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 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,
including approval by banking regulatory authorities. As of
September 30, 1998, the Bank may not pay dividends to the Company
until it has profits in excess of $1,712,220 and has complied with
certain other requirements set forth in the Formal Agreement. See
"Risk Factors - Holding Company Structure; Restrictions on Ability
of Subsidiaries to Pay Dividends."
As of September 30, 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
-17-
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<PAGE>
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
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.
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<PAGE>
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
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.
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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.
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,
5,760,235 of which shares were issued and outstanding as of
October 1, 1998 (not including 749,956 shares issuable upon the
exercise of outstanding stock options and 725,000 shares issuable
upon conversion of the Notes). At October 1, 1998, the Company
had 413 stockholders of record.
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<PAGE>
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.
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.
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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
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 corpora-
tions, 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
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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 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.
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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.
The following table sets forth certain information as of July
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>
Number of Shares
Principal 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 $ 400,000 216,666 66,666
Lawrence Partners, L.P. $ 200,000 33,333 33,333
Lawrence Offshore Partners, LLC $ 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 29,666 16,666
The Larson Family Revocable Trust, Trust B $ 200,000 38,833 33,333
The Henderson Family Trust $ 50,000 8,333 8,333
Margaret T. Richards $ 100,000 36,666 16,666
The Humber Family Trust $ 50,000 10,333 8,333
</TABLE>
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<TABLE>
<CAPTION>
Number of Shares
Principal of Common Stock
Amount of Notes ------------------------
Beneficially Owned Beneficially Offered
Name (1) and Offered Hereby Owned (1)(2) Hereby (2)
- ----------------------------------- ------------------ ------------ ----------
<S> <C> <C> <C>
The Humber Personal Residence Trust $ 50,000 8,333 8,333
Allen Ruby and Cynthia Ruby, Community Property $ 50,000 13,333 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 $4,350,000 936,016 724,991
========== ======= =======
</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.
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.
-25-
PAGE
<PAGE>
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 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.
-26-
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<PAGE>
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 PricewaterhouseCoopers LLP, independent accountants,
given on the authority of that firm as experts in accounting and
auditing.
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) filed May
19, 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.
-27-
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 SURETY CAPITAL CORPORATION
having been authorized by the
Company or the Selling
Securityholders. This
Prospectus does not constitute
an offer to sell, solicitation
of an offer to sell, or
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.
TABLE OF CONTENTS 9% Convertible Subordinated
Notes due 2008
Page
AVAILABLE INFORMATION 2
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE 2 Common Stock
$0.01 par value
NOTE REGARDING FORWARD-
LOOKING STATEMENTS 3
SUMMARY 4 ---------------------------
RISK FACTORS 9 Prospectus
USE OF PROCEEDS 15 ---------------------------
DESCRIPTION OF THE NOTES 15
DESCRIPTION OF CAPITAL
STOCK 20
CERTAIN UNITED STATES
FEDERAL INCOME TAX
CONSIDERATIONS 22 __________, 1998
SELLING SECURITYHOLDERS 24
PLAN OF DISTRIBUTION 25
LEGAL MATTERS 27
EXPERTS 27
=================================== =================================
=================================== =================================
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
PAGE
<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.*
10.1 Branch Purchase and Assumption Agreement by and between
Surety Bank, National Association and Commercial Bank of
Texas, National Association, dated July 13, 1998. (10)
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 PricewaterhouseCoopers LLP.**
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.*
* Previously filed with initial Registration Statement.
** 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.
II-2
PAGE
<PAGE>
(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.
(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.
(10) Filed with the Company's Form 8-K dated July 13, 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;
II-3
PAGE
<PAGE>
(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;
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 certifies that it has reasonable grounds to believe
that it meets all requirements for filing on Form S-3 and 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 November 30, 1998.
SURETY CAPITAL CORPORATION
By: /s/ Bobby W. Hackler
--------------------
Bobby W. Hackler,
Chairman of the Board,
Chief Executive Officer
and Chief Operating Officer
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.
SIGNATURE TITLE DATE
/s/ Bobby W. Hackler Chairman of the Board, Chief November 30, 1998
- -------------------- Executive Officer, Chief
Bobby W. Hackler Operating Officer and Director
(Principal Executive Officer)
/s/ B. J. Curley Vice President, Secretary, November 30, 1998
- ---------------- Chief Financial Officer
B. J. Curley and Director
(Principal Accounting Officer)
/s/ G. M. Heinzelmann, III President and Director November 30, 1998
- --------------------------
G. M. Heinzelmann, III
* Director November 30, 1998
- -------------------
C. Jack Bean
* Director November 30, 1998
- -------------------
William B. Byrd
* Director November 30, 1998
- -------------------
Joseph S. Hardin
* Director November 30, 1998
- -------------------
Margaret E. Holland
* Director November 30, 1998
- -------------------
Michael L. Milam
* Director November 30, 1998
- -------------------
Garrett Morris
* Director November 30, 1998
- -------------------
Cullen W. Turner
* By: /s/ Bobby W. Hackler
--------------------
Bobby W. Hackler, as Attorney-in-Fact for
each of the persons indicated
II-5
PAGE
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Exhibit
- ------- -------
23.2 Consent of PricewaterhouseCoopers LLP.
23.3 Consent of Burnside & Rishebarger, PLLC.
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement
of Surety Capial Corporation on Form S-3 (File No. 333-57601) of out 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 statements of Surety Capital Corporation. We also consent
to the reference to our firm under the caption "Experts".
/s/ PricewaterhouseCoopers LLP
Fort Worth, Texas
November 30, 1998
Exhibit 23.3
CONSENT OF BURNSIDE & RISHEBARGER, PLLC
We consent to the inclusion in the Form S-3 Registration Statement of
Surety Capital Corporation (File No. 333-57601) 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."
/s/ Burnside & Rishebarger, PLLC
BURNSIDE & RISHEBARGER, PLLC
San Antonio, Texas
December 2, 1998
