EXHIBIT 2
[SURETY CAPITAL CORPORATION LETTERHEAD]
June 18, 1997
Dear Stockholder:
To ensure our ability to protect the interests of our stock-
holders in the event of a hostile takeover attempt, the Board of
Directors has adopted a Rights Agreement (the "Agreement") which
provides for granting to the current stockholders the right to
purchase one share of common stock, $0.01 par value, of the
Company (the "Common Stock") for each outstanding share of common
stock held by such stockholder, as described in the enclosed
"Summary of Rights to Purchase Common Stock of Surety Capital
Corporation" (the "Summary"). This letter, together with the
enclosed Summary, describes the Agreement, the rights to purchase
shares of Common Stock of the Company (the "Rights"), and the
Board's reasons for adopting the Agreement.
The Rights contain provisions to protect you and the other
stockholders in the event of an unsolicited attempt to acquire
the Company, including a gradual accumulation of shares in the
open market, a partial or two-tier tender offer that does not
treat all stockholders equally and other abusive takeover tactics
which are prevalent these days and which the Board believes are
not in the best interests of the stockholders. These tactics can
be used to unfairly pressure stockholders, squeeze them out of
their investment in the Company without giving them any real
choice, and deprive them of the full value of their shares. Many
companies, including many of the companies in the Fortune 500,
have issued rights of the kind the Board has approved. Over the
past ten years several cases involving agreements similar to the
Agreement have been litigated applying both Delaware corporate
law and the corporate laws of other jurisdictions. Although not
all decisions have supported these agreements, we believe the
Agreement is valid under Delaware law. The Board considers the
Rights to be the best available means of protecting both your
right to retain your equity investment in the Company and the
full value of that investment, while not precluding a fair
acquisition bid for the Company.
The Rights are not being distributed in response to any
specific effort to acquire control of the Company, and the Board
is not aware of any such effort. The Agreement is being adopted
in order to assure the ability of the Board to protect your
interests. The Rights are not intended to prevent a takeover of
the Company, and will not do so. However, they should deter an
attempt to acquire the Company in a manner or on terms which the
Board determines are not in the best interests of the stock-
holders. The Rights are designed to deal with the very serious
problem of another company using abusive tactics to deprive the
Company's Board and its stockholders of any real opportunity to
determine the destiny of the Company. The Rights may be redeemed
by the Company at $0.0001 per Right at any time prior to the
tenth day after the public announcement of the accumulation of
15% or more of the Company's share by a single person or group
(an "Acquiring Person"). Also, the Rights are redeemable even
after a 15% acquisition, if the Board so determines, in
connection with a merger with a "white knight" and under other
circumstances.
Issuance of the Rights does not in any way weaken the xxxxx-
cial strength of the Company or interfere with its business
plans. The issuance of the Rights has no dilutive effect, will
not affect reported earnings per share, is not taxable to the
Company or to you, and will not change the way in which you can
presently trade the Company's shares.
PAGE
June 18, 1997
Page 2
The Board was aware when it adopted the Agreement that some
people have advanced arguments that securities of the sort being
issued deter legitimate acquisition proposals. The Board
carefully considered these views and concluded that the arguments
are speculative and do not justify leaving stockholders without
adequate protection against unfair treatment by an acquiror --
who, after all, is seeking his own company's advantage, not
yours. The Board believes these Rights represent a sound and
reasonable means of addressing the complex issues of corporate
policy created by the current takeover environment.
The Rights will be issued to stockholders of record as of
the close of business on June 6, 1997, and will expire in three
years, on June 16, 2000. Initially, the Rights will not be
exercisable, certificates will not be sent to you, and the Rights
will automatically trade with the Common Stock. However, ten
days after an Acquiring Person either acquires 15% or more of the
Company's Common Stock or announces an offer, the consummation of
which would result in such person or group owning 15% or more of
the Company's Common Stock, the Rights will become exercisable
and separate certificates representing the Rights will be
distributed. The Board expects that the Rights will begin to
trade independently from the Company's Common Stock at that time.
At no time will the Rights have any voting power.
Depending on the circumstances in which the Rights become
exercisable, a holder will be entitled (a) to purchase from the
Company one share of Common Stock at a price of $50.00 per share
(the "Purchase Price"), subject to adjustment; (b) to purchase
additional shares of Common Stock ("Adjustment Shares") at a rate
set forth below and in the enclosed Summary; or (c) under certain
circumstances to purchase shares of stock of a corporation that
merges with or into the Company (the "Merger Right"), as also set
forth below and in the enclosed Summary.
The right to purchase Adjustment Shares arises at the time
any person becomes an Acquiring Person (unless pursuant to a
transaction approved by the Board). At such time, each holder of
a Right (except for the Acquiring Person) will for a 60-day
period thereafter have the right to receive upon exercise of each
Right at the Purchase Price, 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. For
example, if the then current market price is $10.00, the holder
of each Right would be entitled to purchase ten shares of the
Company's Common Stock for $50.00, i.e. at 50% of the market
value. However, in the event that the Merger Right arises (as
described below), the right to purchase Adjustment Shares becomes
void.
The Merger Right arises in the event that, after the first
date of a public announcement by the Company or an Acquiring
Person that an Acquiring Person has become such, 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. At such time, each holder of a Right
(except for the Acquiring Person) shall thereafter have the right
to receive, upon the exercise of the Right at the Purchase Price,
that number of shares of common stock of the surviving or
acquiring company equal to the result obtained by dividing the
Purchase Price by 50% of the then current market price of the
common stock of the surviving or acquiring company. For example,
if at the time of the business combination the surviving or
acquiring company's stock has a then current market price of
$10.00, the holder of each Right would be entitled to purchase
ten shares of the acquiring company's common stock for $50.00,
i.e., at a 50% discount.
PAGE
June 18, 1997
Page 3
A copy of the Agreement is available free of charge from the
Company upon request. This letter does not purport to be a
complete description of the Rights and is qualified in its
entirety by reference to the Agreement, which is incorporated
herein by reference. A copy of the Agreement is also being filed
with the Securities and Exchange Commission as an Exhibit to a
Current Report on Form 8-K.
The Board has labored long and hard in reaching this
decision, and each member sincerely believes the Board's decision
is appropriate for the Company. In adopting the Agreement, we
have expressed our confidence, which we know you share, in the
Company's future and our determination that you, our stockholders,
be given every opportunity to participate fully in that future.
Sincerely,
THE BOARD OF DIRECTORS OF SURETY
CAPITAL CORPORATION
/s/ X. Xxxx Xxxx
X. Xxxx Xxxx, Chairman
