UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 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 3, 2002
HALLMARK FINANCIAL SERVICES, INC.
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(Exact name of registrant as specified in its charter)
Nevada 0-16090 87-0447375
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(State or other (Commission (IRS Employer
jurisdiction File Number) Identification No.)
of incorporation)
14651 Dallas Parkway, Suite 900, Dallas, Texas 75254
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 404-1637
Not Applicable
(Former name or former address, if changed since last report.)
Item 2. Acquisition or Disposition of Assets.
On December 3, 2002, the Registrant acquired from Millers American
Group, Inc. ("Millers") all of the outstanding stock of two inactive
subsidiaries, Financial and Actuarial Resources, Inc. ("FAR") and Effective
Litigation Management, Inc. ("ELM"). The Registrant simultaneously acquired
from The Millers Insurance Company ("MIC"), an indirect subsidiary of
Millers, all of the outstanding stock of Millers General Agency, Inc.
("MGA"), an active Texas managing general agency, as well as certain
contracts and fixed assets. Immediately following these transactions, the
newly acquired subsidiaries of the Registrant employed all MIC personnel and
began providing fee-based claims and financial administrative services to
MIC.
The aggregate purchase price for the acquired subsidiaries and assets
was $2,480,000, consisting of $2,000,000 in cash and MGA's assumption of
$480,000 in debt owed by MIC to Phoenix Indemnity Insurance Company
("Phoenix"), another indirect subsidiary of Millers. The purchase price was
determined through negotiations between the Registrant and Millers. The
Registrant funded the cash portion of the purchase price from an interim
financing facility previously provided by Newcastle Partners, L.P., an
affiliate of Mark E. Schwarz, Chairman of the Registrant.
As reported in the Registrant's Form 8-K filed on November 8, 2002, the
Registrant previously purchased from a bank a promissory note in default
payable by Millers (the "Millers Note") which is guaranteed by Trilogy
Holdings, Inc. ("Trilogy"), a wholly-owned subsidiary of Millers, and
is secured by all of the issued and outstanding capital stock of MIC, a
Texas-based property and casualty insurance carrier, and Phoenix, an
Arizona-based non-standard automobile insurance carrier. There is no other
material relationship between Millers and the Registrant or any of its
affiliates, any director or officer of the Registrant, or any associate of
any such director or officer.
Item 5. Other Events and Regulation FD Disclosure
In lieu of immediate foreclosure of the collateral securing the Millers
Note, the Registrant has negotiated with Millers to accept all of the
outstanding capital stock of Phoenix in satisfaction of $7.0 million of
the outstanding balance of the Millers Note. The proposed exchange is
contingent on execution of a mutually acceptable definitive agreement and
regulatory approval of the Registrant's Form A application for change of
control previously filed with the Arizona Department of Insurance. If
consummated, the proposed transaction would result in Phoenix becoming a
wholly-owned subsidiary of the Registrant. However, there can be no
assurance that the proposed transaction will be completed.
The Registrant intends to continue to hold the capital stock of MIC as
collateral for the remaining balance of the Millers Note while the parties
evaluate the recapitalization or reorganization of MIC. There can be no
assurance that MIC will ever be recapitalized or reorganized, that the
Registrant will otherwise foreclose on such collateral or successfully
enforce its guaranty against Trilogy, or that the remaining balance of the
Millers Note will ever be paid.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) The Registrant intends to provide required financial statements of the
business acquired in an amendment to this Form 8-K filed within 60 days
after the date this initial report on Form 8-K was due.
(b) The Registrant intends to provide required pro forma financial
information in an amendment to this Form 8-K filed within 60 days after
the date this initial report on Form 8-K was due.
(c) Exhibits.
2(a) Purchase Agreement dated November 26, 2002, among Hallmark
Financial Services, Inc., Millers American Group, Inc. and The
Millers Insurance Company.
2(b) Assumption Agreement dated December 1, 2002, among The Millers
Insurance Company, Millers General Agency, Inc. and Phoenix
Indemnity Insurance Company.
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 hereunto duly authorized.
HALLMARK FINANCIAL SERVICES, INC.
Date: December 4, 2002 By: /s/ Linda H. Sleeper
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Linda H. Sleeper, Its President