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): November 9, 2005
HALLMARK FINANCIAL SERVICES, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Nevada
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(State or Other Jurisdiction of Incorporation)
0-16090 87-0447375
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(Commission File Number) (IRS Employer Identification No.)
777 Main Street, Suite 1000, Fort Worth, Texas 76102
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(Address of Principal Executive Offices) (Zip Code)
817-348-1600
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(Registrant's Telephone Number, Including Area Code)
Not Applicable
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(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
On November 9, 2005, Hallmark Financial Services, Inc. (the "Company")
executed a definitive agreement (the "Purchase Agreement") with Samuel M.
Cangelosi, Donate A. Cangelosi and Donald E. Meyer (collectively, the
"Sellers") with respect to the Company's acquisition of all of the issued
and outstanding capital stock of Texas General Agency, Inc. ("TGA") and TGA
Special Risk, Inc. ("TGASRI"). TGA is a managing general agency involved in
the marketing and servicing of property and casualty insurance products,
with a particular emphasis on commercial automobile and general liability
risks. TGA also has a wholly-owned insurance subsidiary, Gulf States
Insurance Company ("GSIC"), which reinsures a portion of the business
written by TGA. TGASRI brokers mobile home insurance. Prior to execution
of the Purchase Agreement, there was no material relationship between the
Company or its affiliates and any of the Sellers.
Pursuant to the Purchase Agreement, the Company will acquire TGA and
TGASRI for an aggregate cash purchase price of up to $44,900,000, consisting
of unconditional consideration of $36,900,000 and contingent consideration
of up to $8,000,000. The unconditional consideration will be payable
$13,150,000 at closing, $14,250,000 on or before the first anniversary of
closing and $9,500,000 on or before the second anniversary of closing. The
payment of any contingent consideration is conditioned on the Sellers
complying with certain restrictive covenants and TGA achieving certain
operational objectives related to premium production and loss ratios. The
contingent consideration, if any, will be payable on or before March 30,
2009, unless the Sellers elect to defer payment until March 30 of any
subsequent year in order to permit further development of the loss ratios.
In addition to the purchase price, the Company will pay an aggregate of
$2,000,000 to the Sellers in consideration of their compliance with certain
restrictive covenants, including a covenant not to compete for a period of
five years after closing. This additional amount will be payable $750,000
at closing, $750,000 on or before the first anniversary of closing and
$500,000 on or before the second anniversary of closing. The future
installments of both the unconditional purchase price and the restrictive
covenant consideration will be secured by a letter of credit or other
security reasonably acceptable to the Sellers.
Pursuant to the Purchase Agreement, prior to closing the Sellers are
permitted to cause TGA to distribute to the Sellers cash equal to the lesser
of the net income of TGA and TGASRI for the nine months ended September 30,
2005 (subject to certain adjustments), or 110% of the net income of TGA and
TGASRI for the comparable period of 2004. Prior to closing, the Sellers are
also permitted to cause TGA to assign to the Sellers any sliding scale
contingent commissions attributable to business produced on or before
December 31, 2005, which may subsequently become due to TGA.
Pursuant to the Purchase Agreement, the Company's acquisition of TGA
and TGASRI will be effective as of the earlier of the closing date
or January 1, 2006. The Purchase Agreement provides for closing of the
transaction on the first business day of the calendar month following the
satisfaction of all closing conditions. The closing conditions include,
among other things, (i) execution of employment agreements between TGA and
each Seller in substantially the form attached to the Purchase Agreement,
(ii) obtaining consent to the transaction from the Oklahoma Commissioner of
Insurance, and (iii) the prior or contemporaneous closing of the Company's
acquisition of an affiliated entity, Pan American Acceptance Corporation,
from Samuel M. Cangelosi, Donate A. Cangelosi and Carol A. Meyer. The
Purchase Agreement may be terminated by either the Company or the Sellers if
all closing conditions have not been satisfied or waived by March 30, 2006.
The description of the Purchase Agreement set forth above is qualified
in its entirety by reference to the definitive agreement filed as an exhibit
to this Current Report on Form 8-K and incorporated herein by this
reference.
Item 9.01. Financial Statements and Exhibits.
(c) Exhibits.
Exhibit 4.1 Purchase Agreement dated November 9, 2005, by and among
Hallmark Financial Services, Inc. and Samuel M. Cangelosi,
Donate A. Cangelosi and Donald E. Meyer.
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: November 14, 2005 By: /s/ Mark J. Morrison
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Mark J. Morrison, Chief Operating Officer