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): August
29, 2008
HALLMARK
FINANCIAL SERVICES, INC.
(Exact
Name of Registrant as Specified in Its Charter)
(State
or
Other Jurisdiction of
Incorporation)
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001-11252
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87-0447375
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|
(Commission
File Number)
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(IRS
Employer Identification No.)
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777
Main Street, Suite 1000, Fort Worth, Texas
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76102
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|
(Address
of Principal Executive Offices)
|
(Zip
Code)
|
(Registrant’s
Telephone Number, Including Area Code)
(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
August
29, 2008, Hallmark Financial Services, Inc. (the “Company”) executed a Purchase
Agreement with Jeffrey L. Heath (the “Seller”) pursuant to which the Company
simultaneously acquired 80% of the issued and outstanding membership interests
in Heath XS, LLC and Hardscrabble Data Solutions, LLC, each a New Jersey limited
liability company (collectively, the “Heath Group”). The Heath Group is an
underwriting organization that produces lower hazard, middle market, excess
commercial automobile and commercial umbrella insurance policies on both an
admitted and non-admitted basis through a network of independent wholesale
agencies throughout the United States. Prior to the execution and closing of
the
Purchase Agreement, there was no material relationship between the Seller and
the Company or any of its affiliates. Pursuant to the Purchase Agreement, the
Company acquired 80% of the membership interests in the Heath Group for
consideration of $15.0 million. The consideration was paid in cash at closing
out of the Company’s existing working capital. The purchase price is subject to
post-closing reduction in an amount equal to (a) all accrued unpaid operational
liabilities of the Heath Group as of August 29, 2008, plus (b) any amount by
which cash on hand as of August 29, 2008, was less than $200,000. Pursuant
to
the Purchase Agreement, the Seller has agreed not to disclose any of the Heath
Group’s confidential information and not to compete with the Heath Group or
solicit any of the Heath Group’s employees, agents, suppliers or customers on
behalf of a business competitive with the Heath Group for a period through
the
later of August 29, 2014, or two years following closing of the Put/Call Option
(as defined below).
In
connection with the acquisition of its membership interests in the Heath Group,
the Company executed an Amended and Restated Operating Agreement for each of
Heath XS, LLC and Hardscrabble Data Solutions, LLC (collectively, the “Operating
Agreements”). The Operating Agreements provide for management of the Heath Group
by three managers, two of whom are appointed by the Company and one of whom
is
appointed by an affiliate of the Seller. Although most matters may be approved
by a majority of the managers, the Operating Agreements specify certain matters
requiring unanimous approval of the managers. The Operating Agreements also
grant certain preemptive rights, provide for allocation of profits and losses
and distributions of available cash, restrict transfers of membership interests
and specify certain co-sale and “drag-along” rights. In addition, the Operating
Agreements grant to the Company the right to purchase the remaining 20%
membership interests in the Heath Group and grants to an affiliate of the Seller
the right to require the Company to purchase such remaining membership interests
(the “Put/Call Option”). The Put/Call Option becomes exercisable by either the
Company or the affiliate of the Seller upon the earlier of August 29, 2012,
the
termination of the employment of the Seller by the Heath Group or a change
of
control of the Company. If the Put/Call Option is exercised, the Company would
have the right or obligation to purchase the remaining 20% membership interests
in the Heath Group for an amount equal to nine times the average Pre-Tax Income
(as defined in the Operating Agreements) for the previous 12 fiscal
quarters.
In
connection with the acquisition of its membership interests in the Heath Group,
the Company also caused Heath XS, LLC to enter into an Employment Agreement
with
the Seller effective as of August 29, 2008. The employment agreement provides
the Seller a base salary of at least $300,000 per year and is terminable at
the
will of either party. Pursuant to his Employment Agreement, the Seller has
agreed not to disclose any of the employer’s confidential information and not to
compete with the employer or solicit any of the employer’s employees, agents,
suppliers or customers on behalf of a business competitive with the employer
for
a period of two years following termination of his employment for any
reason.
The
descriptions of the Purchase Agreement, the Operating Agreements and the
Employment Agreement set forth above are qualified in their entirety by
reference to the definitive agreements filed as exhibits to this Current Report
on Form 8-K and incorporated herein by this reference.
Item
9.01 Financial
Statements and Exhibits
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10.1
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Purchase
Agreement dated August 29, 2008, between Hallmark Financial Services,
Inc.
and Jeffrey L. Heath.
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10.2
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Heath
XS, LLC Amended and Restated Operating Agreement dated August 29,
2008,
between Hallmark Financial Services, Inc. and Heath Holdings,
LLC.
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10.3
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Hardscrabble
Data Solutions, LLC Amended and Restated Operating Agreement dated
August
29, 2008, between Hallmark Financial Services, Inc. and Heath Holdings,
LLC.
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10.4
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Employment
Agreement dated August 29, 2008, between Heath XS, LLC and Jeffrey
L.
Heath.
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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.
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HALLMARK
FINANCIAL SERVICES, INC.
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Date:
September 4, 2008
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By:
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/s/
Jeffrey R. Passmore
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Jeffrey
R. Passmore, Chief Accounting
Officer
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