-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HKOXvVyewvnpkWDghN/BI2c9L9d1VQeCDLiR1xMxj1JEcMy23AuWjHARKBu+4d/f WMYo8d+nAnPw9O4s/kZLow== 0000926236-06-000002.txt : 20060105 0000926236-06-000002.hdr.sgml : 20060105 20060105104457 ACCESSION NUMBER: 0000926236-06-000002 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20051231 ITEM INFORMATION: Entry into a Material Definitive Agreement ITEM INFORMATION: Completion of Acquisition or Disposition of Assets ITEM INFORMATION: Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant ITEM INFORMATION: Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20060105 DATE AS OF CHANGE: 20060105 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HALLMARK FINANCIAL SERVICES INC CENTRAL INDEX KEY: 0000819913 STANDARD INDUSTRIAL CLASSIFICATION: INSURANCE CARRIERS, NEC [6399] IRS NUMBER: 870447375 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11252 FILM NUMBER: 06510956 BUSINESS ADDRESS: STREET 1: 777 MAIN STREET, SUITE 1000 CITY: FORT WORTH STATE: TX ZIP: 76102 BUSINESS PHONE: 8173481600 MAIL ADDRESS: STREET 1: 777 MAIN STREET STREET 2: STE 1000 CITY: FORT WORTH STATE: TX ZIP: 76102 FORMER COMPANY: FORMER CONFORMED NAME: ACOI INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN CREDIT OPTICAL INC /DE/ DATE OF NAME CHANGE: 19910611 FORMER COMPANY: FORMER CONFORMED NAME: PYRAMID GROWTH INC DATE OF NAME CHANGE: 19890124 8-K 1 hfs8k123105.txt CURRENT REPORT DATED DECEMBER 31, 2005 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (Date of earliest event reported): December 31, 2005 HALLMARK FINANCIAL SERVICES, INC. --------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) Nevada --------------------------------------------------------------------------- (State or Other Jurisdiction of Incorporation) 0-16090 87-0447375 --------------------------------------------------------------------------- (Commission File Number) (IRS Employer Identification No.) 777 Main Street, Suite 1000, Fort Worth, Texas 76102 --------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) 817-348-1600 --------------------------------------------------------------------------- (Registrant's Telephone Number, Including Area Code) Not Applicable --------------------------------------------------------------------------- (Former Name or Former Address, if Changed Since Last Report) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below): [ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) Item 1.01 Entry into a Material Definitive Agreement The information provided in Item 2.03 is incorporated herein by this reference. Item 2.01 Completion of Acquisition or Disposition of Assets On January 3, 2006, Hallmark Financial Services, Inc. (the "Company") completed the acquisition of all of the issued and outstanding membership interests in Aerospace Holdings, LLC ("Aerospace Holdings"), a Texas limited liability company, from Donnell Children Revocable Trust and Curtis R. Donnell (collectively, the "Seller"). Aerospace Holdings, through various wholly-owned subsidiaries, markets and services general aviation property and casualty insurance products, with a particular emphasis on private and small commercial aircraft. Other than the current transaction, there is no material relationship between the Seller and the Company or any of its affiliates. The effective date of the transaction was January 1, 2006. The Company acquired Aerospace Holdings for initial consideration of $12,500,000 paid in cash at closing. Such initial consideration was allocated $11,875,000 to the purchase price and $625,000 to the Seller's compliance with certain restrictive covenants, including a covenant not to compete for a period of five years after closing. The Company may also be required to pay additional contingent consideration of up to $2,500,000 conditioned on the Seller complying with its restrictive covenants and Aerospace Holdings achieving certain operational objectives related to premium production and loss ratios. The contingent consideration, if any, will be payable in cash on or before March 30, 2009, unless the Seller elects to defer a portion of the payment in order to permit further development of the loss ratios. The Company funded the acquisition of Aerospace Holdings through a $12,500,000 interim financing facility from Newcastle Partners, L.P. ("Newcastle"), an affiliate of the Company's Chairman and Chief Executive Officer, Mark E. Schwarz. The Company presently intends to retire the bridge loan with the proceeds from a rights offering to its shareholders during 2006. However, there can be no assurance that the contemplated rights offering will be completed in a timely manner or will provide sufficient net proceeds to fully repay the loan from Newcastle. Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant On January 3, 2006, the Company executed a promissory note payable to Newcastle in the amount of $12,500,000 in order to obtain funding to complete the acquisition of Aerospace Holdings. The promissory note bears interest at the rate of ten percent per annum prior to maturity and at the maximum rate allowed under applicable law upon default. Accrued and unpaid interest on the promissory note is due and payable on the first business day of each month. The unpaid principal balance of the promissory note, together with all accrued and unpaid interest, is due and payable on demand at any time after June 30, 2006. The description of the Company's direct financial obligation to Newcastle set forth above is qualified in its entirety by reference to the Promissory Note filed as an exhibit to this Current Report on Form 8-K and incorporated herein by this reference. Item 5.02 Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers Mr. James C. Epstein resigned from the Board of Directors of the Company effective as of December 31, 2005. Mr. Epstein has orally advised the Board that his resignation was not the result of any disagreement with the Company on any matter relating to its operations, policies or practices. Item 9.01. Financial Statements and Exhibits. (d) Exhibits. Exhibit 4.1 Promissory Note dated January 3, 2006, in the amount of $12,500,000 payable to Newcastle Partners, L.P. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned duly authorized. HALLMARK FINANCIAL SERVICES, INC. Date: January 5, 2006 By: /s/ Mark J. Morrison ----------------------------------------- Mark J. Morrison, Chief Operating Officer EX-4.1 2 exh4-1.txt PROMISSORY NOTE EXHIBIT 4.1 PROMISSORY NOTE $12,500,000.00 January 3, 2006 FOR VALUE RECEIVED, Hallmark Financial Services, Inc., a Nevada corporation ("Maker"), promises to pay to the order of Newcastle Partners, L.P., a Texas limited partnership ("Payee"), the sum of TWELVE MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($12,500,000.00), together with per annum interest on the unpaid balance hereof from time to time remaining unpaid, at a rate equal to the lesser of (i) ten percent (10%) per annum, compounded monthly, and (ii) the maximum rate allowed under applicable law (the "Maximum Rate"), both principal and interest being payable at 300 Crescent Court, Suite 1110, Dallas, Texas 75201, or at such other place as Payee may, from time to time, designate in writing. Accrued and unpaid interest under this Promissory Note (this "Note") shall be due and payable on the first business day of each month. The unpaid principal balance on this Note together with all accrued and unpaid interest is due and payable on demand at any time after June 30, 2006. All past due principal and accrued interest on this Note shall bear interest from the date such amount is due until paid at the Maximum Rate. Maker agrees to use the proceeds of this Note to fund the acquisition of Aerospace Holdings, LLL pursuant to that certain Purchase Agreement dated December 12, 2005, by and among Hallmark Financial Services, Inc. and Donnell Children Revocable Trust and Curtis R. Donnell. 1. Prepayments. Maker shall have the right to prepay the unpaid principal balance hereof in part or in its entirety. In the event of a prepayment, there shall be no penalty or premium due. Any prepayment, whether in whole or in part, shall be applied first to accrued and unpaid interest and then to principal, and interest shall immediately cease to run on any amount of the principal so prepaid. 2. Default; Acceleration. At Payee's sole option, the entire unpaid principal balance of, and all accrued and unpaid interest on, this Note shall immediately be due and payable upon the occurrence of any of the following: (a) failure by Maker to pay any principal amount when due; (b) the occurrence of a default under any of Maker's other material loan obligations, (c) commencement of a voluntary case against Maker under Title 11 of the United States Code; or (d) the filing of an answer or other pleading admitting or failing to deny the material allegations of a petition filed against Maker commencing an involuntary case under said Title 11 or failure to timely controvert the material allegations of such petition; provided that, the failure by Maker to make an interest payment (other than an interest payment due to acceleration of amounts due under this Note) shall not constitute a default under this Note. 3. Cumulative Rights. No delay on the part of Payee or any other holder of this Note in the exercise of any power or right under this Note or under any other instrument executed pursuant hereto shall operate as a waiver thereof, nor shall a single or partial exercise of any power or right preclude other or further exercise thereof or the exercise of any other power or right. 4. Waiver. Except as expressly otherwise provided for herein, Maker and all endorsers of this Note waive demand, presentment, protest, notice of dishonor, notice of nonpayment, notice of intention to accelerate, notice of acceleration, notice of protest and any and all lack of diligence or delay in collection or the filing of suit hereon which may occur, and agree to all extensions and partial payments, before or after maturity, without prejudice to the holder hereof. 5. Attorneys' Fees and Costs. In the event that hereafter this Note is placed in the hands of an attorney for collection, or in the event that this Note is collected in whole or in part through legal proceedings of any nature, then and in any such case, there shall be added to the unpaid principal balance hereof all reasonable costs of collection, including but not limited to reasonable attorneys' fees, on account of such collection, whether or not suit is filed. 6. Governing Law. This Note shall be construed in accordance with the laws of the State of Texas. 7. Headings. The headings of the sections of this Note are inserted for convenience only and shall not be deemed to constitute a part hereof. 8. Usury. All agreements between Maker and Payee or any other holder of this Note, whether now existing or hereafter arising and whether written or oral, are expressly limited so that in no contingency or event whatsoever, whether by acceleration of this Note or otherwise, shall the amount paid, or agreed to be paid, to Payee or any other holder hereof, for the use, forbearance or detention of the money to be loaned hereunder or otherwise, exceed the Maximum Rate. If from any circumstances whatsoever fulfillment of any provision of this Note or of any other document evidencing, securing or pertaining to the indebtedness evidenced hereby, at the time performance of such provision shall be due, shall involve transcending the Maximum Rate, then, ipso facto, the obligation to be fulfilled shall be reduced to the limit of such validity, and if from any such circumstances Payee or any other holder of this Note shall ever receive as interest under this Note or any other document evidencing, securing or pertaining to the indebtedness evidenced hereby or otherwise an amount that would exceed the Maximum Rate, such amount that would be excessive interest shall be applied to the reduction of the principal amount owing under this Note or on account of any other indebtedness of Maker to Payee or such holder hereof relating to this Note, and not to the payment of interest, or if such excessive interest exceeds the unpaid balance of principal of this Note and such other indebtedness, such excess shall be refunded to Maker. In determining whether or not the interest paid or payable with respect to any indebtedness of Maker to Payee or any other holder hereof, under any specific contingency, exceeds the Maximum Rate, Maker and Payee or any other holder hereof shall, to the maximum extent permitted by applicable law: (a) characterize any nonprincipal payment as an expense, fee or premium rather than as interest; (b) exclude voluntary prepayments and the effects thereof; (c) amortize, prorate, allocate and spread the total amount of interest throughout the full term of such indebtedness so that the actual rate of interest on account of such indebtedness is uniform throughout the term thereof; and/or (d) allocate interest between portions of such indebtedness, to the end that no such portion shall bear interest at a rate greater than that the Maximum Rate. The terms and provisions of this paragraph shall control and supersede every other conflicting provision of all agreements between Maker and Payee or any other holder hereof. 9. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given when personally delivered, transferred via facsimile or mailed, via certified or registered mail, as follows: if to Maker: Hallmark Financial Services, Inc. 777 Main Street Suite 1000 Fort Worth, Texas 76102 Fax No.: (817) 348-1815 Attention: Mark J. Morrison if to Payee: Newcastle Partners, L.P. 300 Crescent Court Suite 1110 Dallas, Texas 75201 Fax No.: (214) 661-7475 Attention: Mark E. Schwarz 10. Successors and Assigns. All of the stipulations, promises and agreements in this Note contained by or on behalf of Maker and Payee shall bind the successors and assigns of Maker and Payee, whether so expressed or not, and inure to the benefit of the successors and assigns of Maker and Payee. 11. Severability. In the event any one or more of the provisions contained in this Note shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision hereof, and this Note shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. IN WITNESS WHEREOF, the undersigned has executed this Note as of the day and year first above written. HALLMARK FINANCIAL SERVICES, INC. By: -------------------------- Name: -------------------------- Title: -------------------------- -----END PRIVACY-ENHANCED MESSAGE-----